Slide 1: Investment Presentation
Connecting Markets East & West Investment Presentation Market Cap ~$1,100M Enterprise Value ~$880M 2015 Revenue $2,541M 2015 EBITDA $157M STRICTLY PRIVATE AND CONFIDENTIAL April 19, 2016 © Nomura
Slide 2: BHE Company Overview
BHE Company Overview Provides outsourced manufacturing, design and engineering services - Electronic Manufacturing Services (EMS). Global manufacturing footprint. HQ in Angleton, TX • Traditional markets (computing / telecom) - typically higher-velocity, lower margin, and more volatile • Non-tradi
Slide 3: Why We Invested In BHE
Why We Invested In BHE Strong position in evolving EMS industry Attractive margins and customer mix relative to peers Trades at a discount to EMS peers We believe there is a clear path to value creation via: − Adopting a disciplined approach to capital allocation − Improving working capital
Slide 4: We Believe BHE Has Failed to Create Value for Shareholders
We Believe BHE Has Failed to Create Value for Shareholders 10 Year – Indexed1 120 100 101% 80 60 40 28% 20 0 (20) (7%) (40) (60) (80) (100) Apr-06 Dec-07 Aug-09 Apr-11 Dec-12 Aug-14 Apr-16 BHE S&P 1500 S&P 1500 Electronic Manufacturing Services Source: FactSet data as of 4/13/2016. 1. Indexed to 0.
Slide 5: Lack of Value Creation is Due To Worst In Class ROIC Despite Best-in-Class Margins
We Believe Lack of Value Creation is Due To Worst In Class ROIC Despite Best-in-Class Margins CY 2015 Comparison 25.0% ROIC Gross Margin Operating Margin 20.5% 20.0% 16.8% 15.0% 14.3% 12.8% 12.9% 10.0% 10.0% 8.6% 8.8% 8.6% 7.8% 6.9% 6.4% 5.0% 4.5% 4.2% 3.5% 3.6% 2.8% 2.8% 0.0% BHE PLXS SANM CLS JBL
Slide 6: Inferior Returns Cause a Valuation Discount to Peers
We Believe Inferior Returns Cause a Valuation Discount to Peers EV / Fwd. EBITDA P/E ex-Net Cash 8.0x 7.3x 13.0x 12.2x 7.0x 6.3x 12.0x 11.2x 6.0x 5.3x 5.6x 11.0x 10.3x 5.1x 5.0x 10.0x 9.7x 9.3x 9.3x 4.0x 3.7x 9.0x 3.0x 8.0x 2.0x 7.0x JBL BHE SANM CLS FLEX PLXS CLS BHE SANM JBL FLEX PLXS Price / Tang
Slide 7: Low ROIC/Valuation Driven By Poor Working Capital Management
We Believe Low ROIC/Valuation Driven By Poor Working Capital Management Cash Conversion Cycle (CCC) Days Sales Outstanding (DSO) 100 94 80 69 80 70 55 54 60 53 60 47 43 43 43 40 40 36 20 20 20 0 0 BHE PLXS SANM CLS FLEX JBL BHE SANM FLEX PLXS CLS JBL Days Payables Outstanding (DPO) DPOs Less DSOs 40
Slide 8: Correcting Working Capital Presents a Significant Cash Generation Opportunity
We Believe Correcting Working Capital Presents a Significant Cash Generation Opportunity Comparison to PLXS Cash Generation Opportunity Achieving PLXS DSOs = $110M DPOs = $190M DSOs and DPOs 80 80 $350 69 70 $304M 70 70 $300 60 60 $250 DSOs 53 $114 50 50 $200 40 40 40 $150 30 30 $100 DPOs $191 20 20
Slide 9: The Result is ~$770M in Cash (~68% of the Market Capitalization)
The Result is ~$770M in Cash (~68% of the Market Capitalization) BHE Cash Generation Opportunity from Improved Working Capital Efficiency $800 $770 $700 $114 $600 $304 $191 $500 $ (millions) $400 $770M of Cash = $300 ~68% of Market Cap $466 $466 $200 Pro-Forma EV / EBITDA = $100 3.4x $0 Current Cash
Slide 10: BHE's Incentive Compensation Must Be Fixed So It Does Not Incentivize Value Dilutive Acquisitions
We Believe BHE’s Incentive Compensation Must Be Fixed So It Does Not Incentivize Value Dilutive Acquisitions Impact of an Acquisition of a 3% Return Business – BHE Compensation Committee ROIC Definition Pre-Cash Dilutive Pro Deployment Acquisition Forma Avg. Equity 1,299 1,299 Avg. Debt 54 54 Invest
Slide 11: BHE Allocated ~38% of Enterprise Value To An Acquisition That Destroyed Value in 2015
1 BHE Allocated ~38% of the Company’s Enterprise Value To An Acquisition that We Believe Destroyed Value in 2015 TTM Revenue ($M) EBITDA Margin2 EV / EBITDA Multiple2 Value Destruction $3,000 16% 12.0x $250 >15% $230 $2,625 ~$50-100M 14% >10x Value $2,500 10.0x $200 Destroyed 12% $58 $2,000 8.0x Pos
Slide 12: Investor Communications Needs Improvement
We Believe Investor Communications Needs Improvement FLEX JBL CLS SANM PLXS BHE # of analysts covering the company 13 12 12 9 11 6 Quarterly discussion of free cash flow? Yes Yes Yes Yes Yes No Quarterly discussion of ROIC? Yes Yes Yes Yes Yes No Compared to its EMS peers, BHE has the fewest analyst
Slide 13: Management Fails to Effectively Communicate BHE's Attractive Investment Case
We Believe Management Fails to Effectively Communicate BHE’s Attractive Investment Case Implied 2016 Free Cash Flow Guidance ($M) $300 $250 ($45) $123 $200 $150 2016E FCF = $233M $233 $100 $155 Current EV = ~$880M $50 Unlevered FCF Yield = ~26% $0 Operating Cash Flow Cash Release from Capital Expend
Slide 14: Our Plan Will Fix The Impediments To Value Creation
Our Plan Will Fix The Impediments To Value Creation and Create Material Wealth for BHE Shareholders Key Drivers of Underperformance Engaged Capital's Response Value Creation Opportunity Poor Corporate Governance/ Add new, highly qualified Board Entrenched Board members aligned with shareholders Inst
Slide 15: Cash Generation and Disciplined Capital Allocation Can Drive Significant Upside
Cash Generation and a Disciplined Approach to Capital Allocation Can Drive Significant Upside BHE Pro-forma Valuation $40 $35 $35 ($2) $2 $33 $33 $4 $30 $25 $6 $23 $20 47-54% Upside $15 ~30% IRR $10 Current Price Cash from Cash from Multiple Potential Engaged's Working Operating Free Rerating Margin
Slide 16: Disclaimer
Disclaimer This presentation is for discussion and general informational purposes only. It does not have regard to the specific investment objective, financial situation, suitability, or the particular need of any specific person who may receive this presentation, and should not be taken as advice o