Slide 1: 2007 Annual Results
2007 Annual Results For the year ended December 31, 2007 17th April 2008 2006 annual results announcement
Slide 2: Introduction – Horst Pudwill, Chairman
Introduction Horst Pudwill Chairman 2
Slide 3: Joe Galli, CEO
Joe Galli CEO 2007 Annual Result 3
Slide 4: Outperforming the Market
is Outperforming the Market 4
Slide 5: 2007 Financial Results Not Reflective of the Future Profit
2007 Financial Results Not Reflective of the Future Profit Cash Flow 5
Slide 6: Restructuring + Transition Impact: Short Term
Short Term Restructuring + Transition Impact: ¾ Hoover Restructuring ¾ Milwaukee Restructuring ¾ New PRC Facility ¾ Strategic SG&A Investment • New Products • New Businesses • Geographic Expansion 6
Slide 7: 2007 Financial Results
2007 Financial Results 2007 2006 Changes HK$m HK$m Sales 24,775 21,823 +13.5% Gross Profit Margin% 31.5% 31.6% EBIT 892 1,513 (41.0%) (Before one time benefit, restructuring and transition costs) One Time Benefit 377 43 (769.0%) EBIT 1,269 1,556 (18.4%) (After one time benefit before restructuring a
Slide 8: 2007 One-Time Impact Items
2007 One-Time Impact Items 2007 2007 US$m HK$m Hoover Operating Loss (60.0) (467) One-Time Benefits +48.5 +377 Restructuring and Transition Costs Cash (53.5) (416) Non Cash (32.4) (252) Transition Costs (9.6) (75) Total (95.5) (743) 8
Slide 9: Restructuring Overview
Restructuring Overview (US$m) 2007 2008 2009 2010 Total Cash 53.5 41.8 - - 95.3 Non cash 32.4 22.5 - - 54.9 Subtotal 85.9 64.3 - - 150.2 Transition Cost 9.6 8.1 4.3 - 22.0 Total 95.5 72.4 4.3 - 172.2 Savings - 25.0 45.0 70.0 9
Slide 10: 2007 Annual Result
2007 Annual Result 10
Slide 11: Financial Review
Financial Review Frank Chan Chief Financial Officer 11
Slide 12: 2007 Financial Performance – Consolidated (incl. Hoover)
2007 Financial Performance – Consolidated (incl. Hoover) For the 12 months period ended December 31, 2007 2007 % of 2006 % of % HK$m sales HK$m sales Change Sales 24,775 21,823 13.5 Gross Profit 7,809 31.5% 6,893 31.6% 13.3 Operating Expenses (Before restructuring and transition costs) 6,912 27.9% 5
Slide 13: 2007 Financial Performance – Core (excl. Hoover)
2007 Financial Performance – Core (excl. Hoover) For the 12 months period ended December 31, 2007 2007 % of 2006 % of % HK$m sales HK$m sales Change Sales 21,796 21,823 (0.1) Gross Profit 6,963 31.9% 6,893 31.6% 1.0 Operating Expenses (Before restructuring and transition costs) 5,774 26.5% 5,372 24.
Slide 14: Financial Position
Financial Position As of December 31 (HK$m) 2007 2006 Changes Factors HK$m HK$m % Non-current Assets 10,015 8,464 18.3 Hoover Acquisition Current Assets 14,954 12,856 16.3 Current Liabilities 11,983 7,214 66.1 Net Current Assets 2,971 5,642 (47.3) Long-term Liabilities 5,975 7,028 (15.0) CB Bonds re
Slide 15: Debt Profile
Debt Profile As of December 31 (HK$m) Turnover days 2006 2007 Cash 3,719 3,293 Short Term Debt (691) Long Term Debt - Fixed (2,985) (2,639) Long Term Debt - Floating (1,825) (2,653) (1,106) Long Term Debt - CB (1,588) (98) Long Term Debt / Total Debt 62.5% 41.3% Gearing (Net Debt / Shareholders’ Fun
Slide 16: 2007 Annual Result
2007 Annual Result 16
Slide 17: Financial Targets
Financial Targets 2007 2011 GM % 31.5% 34%+ SG&A % 27.9% EBIT% 3.6% 10%+ 17
Slide 18: Tax Rate Interest
2007 Annual Result 18
Slide 19: Strategic Roadmap
Strategic Roadmap 1. Gross Margin 2. Sales Growth 3. Free Cash Flow 4. Organization Development 5. Operating Cycle 19
Slide 20: Strategic Roadmap
Strategic Roadmap 1. Gross Margin 2. Sales Growth 3. Free Cash Flow 4. Organization Development 5. Operating Cycle 20
Slide 21: Gross Margin Challenges
Gross Margin Challenges ¾ PRC Inflation • Labor • Labor Law • RMB • VAT ¾ Commodity Inflation Impacting All Competitors 21
Slide 22: Plan: Offset Inflation + Improve Gross Margin
Plan Offset Inflation + Improve Gross Margin 22
Slide 23: Challenges offset by Plan
Challenges offset by Plan 1. High Margin New Products 2. Hoover Restructuring 3. Milwaukee Restructuring 4. New PRC Facility 5. Comprehensive TTI Productivity Initiative 6. “Global” Operations Plan 23
Slide 24: Key New Product
Gross Margin Improvement Key New Product 24
Slide 25: Hoover Restructuring
Hoover Restructuring ¾ North Canton, Ohio closed • Production transferred to Mexico and PRC ¾ DC Restructuring completed • 3 1 sites ¾ Global R&D Center - Ohio Restructuring Program on Track 25
Slide 26: Milwaukee Restructuring
Milwaukee Restructuring ¾ Transfer Team in Place ¾ 2 US Facilities closed by year end ¾ New PRC Facility and test labs in place ¾ Equipment Transfer underway ¾ Inventory build to cover transition period Savings will flow in 2009 and beyond 26
Slide 27: Restructuring Summary
Restructuring Summary (US$m) 2007 2008 2009 2010 Total Cash 53.5 41.8 - - 95.3 Non cash 32.4 22.5 - - 54.9 Subtotal 85.9 64.3 - - 150.2 Transition Cost 9.6 8.1 4.3 - 22.0 Total 95.5 72.4 4.3 - 172.2 Savings - 25.0 45.0 70.0 27
Slide 28: PRC TTI Core Business Facilities
PRC TTI Core Business Facilities 2008 2009 - 2011 Target Transition starts 2nd Half 2008 28
Slide 29: Tri Campus
| Tri Campus 2007 Annual Result 29
Slide 30: Operational Excellence
Operational Excellence Broad Based Productivity Drive ¾ Reduce cost ¾ Improve quality – PPM’s ¾ Reduce scrap/waste/rework ¾ Reduce Inventory ¾ Reduce floor space How ¾ Implement Lean Manufacturing • Cellular • Kaizen ¾ Improve Supplier Management ¾ Introduce SOP Process Significant Cost Reduction Po
Slide 31: Global Manufacturing Platform
Global Manufacturing Platform 31
Slide 32: Strategic Roadmap
Strategic Roadmap 1. Gross Margin 2. Sales Growth 3. Free Cash Flow 4. Organization Development 5. Operating Cycle 32
Slide 33: Driving Sales Growth
Challenging economic environment but… is Driving Sales Growth 33
Slide 34: 2007 Sales by Business and Region
2007 Sales -0.1% US Outdoor -25.0% (As planned) Down OEM -11.8% US Ryobi US RIDGID Flat Outperformed the Market Flat US Milwaukee Canada +22.0% Europe +23.8% Up Capturing Market Share Australia +28.3% Floor Care +4.5% 34
Slide 35: 2008 Target: Double Digit Sales Growth
2008 Target Double Digit Sales Growth 35
Slide 36: A New Product Machine
Tri A New Product Machine
Slide 37: R&D Investment
R&D Investment 25% increase in R&D spending 2006 2007 R&D as a % 2.0% 2.2% of sales Innovation Center 37
Slide 38: New Product Focus
New Product Focus Cordless Miwore
Slide 39: China – on the way
Geographic Expansion ¾ Canada ¾ Europe • Middle East • Russia • Eastern Europe ¾ Australia ¾ Latin America China – on the way 39
Slide 40: Strategic Roadmap
Strategic Roadmap 1. Gross Margin 2. Sales Growth 3. Free Cash Flow 4. Organization Development 5. Operating Cycle 40
Slide 41: Free Cash Flow: 2007 Impacted by
Free Cash Flow 2007 Impacted by: 1. Restructuring 2. Inventory Build up for Restructuring 3. New PRC Facility 4. Hoover Losses 41
Slide 42: Free Cash Flow Long Term Target
Free Cash Flow Long Term Target: TTI will convert ~ 100% of Net Profit into Free Cash Flow and… Net Profit will grow 42
Slide 43: Free Cash Flow Plan
Free Cash Flow Plan Improve through: 1. Completing Restructuring 2. Increase EBIT 3. Reducing Working Capital as a % of Sales 4. Completing PRC New Facility 5. Reduce Fixed Capital as a % of Sales 43
Slide 44: Inventory
Inventory 2006 2007 Target $514m $641m 64 days 67 73 days days 44
Slide 45: Working Capital
Working Capital Target 2007 2009-2011 Inventory Days 73 64 Receivables DSO 57 57 Payables DPO 59 59 Working Capital 19.5% 17.0% As a % of Sales 45
Slide 46: Fixed Capital
Fixed Capital Target (US$) 2006 2007 2009-2011 CAPEX $61m $111m _< 2.5% % of sales 2.2% 3.5% Depreciation 58m $72m % of sales 2.1% 2.3% _ Depreciation Capex < 46
Slide 47: Free Cash Flow a Focus
Free Cash Flow a Try Focus 2007 Annual Result 47
Slide 48: Strategic Roadmap
Strategic Roadmap 1. Gross Margin 2. Sales Growth 3. Free Cash Flow 4. Organization Development 5. Operating Cycle 48
Slide 49: Strengthen / Upgrade Organization
Strengthen / Upgrade Organization 49
Slide 50: Management Team
Management Team Strong TTI Veterans + + Outstanding New Hires TTI = Exceptional People 50
Slide 51: Key New Hires
Key New Hires Position Date President - Milwaukee 1/07 President - Floor Care 1/07 President - Power Tools 10/07 President - Canada 10/07 President - Europe 11/07 President - Latin America 3/08 President - Australia 3/08 SVP - Global Operations 6/07 Plus 56 Additional Senior Executives 51
Slide 52: Strategic Roadmap
Strategic Roadmap 1. Gross Margin 2. Sales Growth 3. Free Cash Flow 4. Organization Development 5. Operating Cycle 52
Slide 53: Operating Cycle
Operating Cycle Strategic Planning Organization Review Annually Budget Global Product Summits Semi-Annually Operations Reviews Quarterly 53
Slide 54: 2007 Annual Result
2007 Annual Result 54
Slide 55: Disclaimer
Disclaimer This presentation includes forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Changes in the following important factors, among others, could cause Techtronic Industries Co. Ltd.’s actual results to diff