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Celestica... A run into solars

Business Template
by

Basil Abdo

on 25 March 2014

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Transcript of Celestica... A run into solars

Revenue from diversified end market, which includes the aerospace and defense, industrial, healthcare, semiconductor equipment and smart energy areas, grew 11% to $1.47 billion.
Revenue Contribution
Consolidated Balance Sheet Data
Strategic Goals
Analysis
Review Celestica's 2011-2013 results
Benchmark to STMicroelectronics (IFRS), and industry target ratios
Accounting
• Celestica financials are prepared in accordance with IFRS

• Internal audit system responsible for regulating and
ensuring adherence
Timeline
Recommendation
Recommend RBC to grant
Celestica the $50 million loan based on the projected profitability of the long-term Borealis contract evidenced by the higher profit margin and the increased market share for the solar components within CLS' "Diversified" division.

Conditions & Covenants for loan:

Variable interest rate at "Prime plus 7% default risk premium"
Collateral from Celestica's PP&E for 120% of loan amount (to be located in North America, and to carry "First Lien" to RBC. No further liens allowed on same asset)
Collateral to be appraised at "Fair Value less cost to sell", and to be tested for impairment on a yearly basis or upon indication of impairment.
Competition
Renewable energy; Solar Panel
- Canadian Manufacturer of the Year
- Toronto Solar Panel Manufacturing Facility starts operation
- Switch in Accounting Policy from GAAP to IFRS
Continuous Growth
Incorporated
Executive Summary
Celestica at a Glance
Strategic Goals
Purpose of the Loan
Triple Bottom Line
Financial Reports and Analysis
Recommendations

Celestica at a Glance
• Multinational electronics manufacturing services (EMS) with approximately 20 manufacturing and design facilities in 13 countries worldwide.


Loan Department
Loan Officers Group 2


Naseema Ali
Roy Yue Li
Hugh Yoo
Eli Mundy
Botros Assaf
Basil Abdo


Celestica
LOGO
Jabil Circuit
Flextronics
Sanmina
Celestica... A Run Into Solar
Foxconn
STMicroelectronics
1994
2014
2005
2011
• Amendment to IAS 19 (Employee Benefits): Retroactive Restatement of Prior Periods
$6.7M unrecognized past service credits been amortizeing to operation on a staight-line basis
-> Recognize on balance sheet and decreased post-employment benefit obligations and deficit

• Amendment to IAS 36 (Impairement of Assets): Clarifies recoverable amount disclosures for non-financial assets when a loss is recognized or reversed.

• Selling Accounts Receivables
The AR sold are removed from the balance sheet and reflected as cash provided by operating activities in the statement of cash flow ($50.0 in 2012 and 2013)

• Restructuring due to disengagement with Blackberry
Intended to reduce overall cost structure and improve margin performance ($44.0 in 2012 and $28.0 in 2013)
Accounting Policies Changes and Other Major Events
Purpose of the loan
Celestica has teamed up with Sharp Corp. for Project Borealis to produce solar panels - Project Borealis will sell power to the Ontario Power Authority under a 20 year contract.
10 project sites scheduled for completion this year alone with all panels being manufactured at Celestica’s Toronto facility.
Celestica is also under contract to produce LSX Frameless modules for Lumos Solar.
Celestica started operations at the Toronto manufacturing plant in 2011.
Seeking $50 Million loan to expand current facilities to help meet production requirements for current and future contracts.

• Global services include design, engineering and supply chain management services with
US $ 5.8 billion revenue (2013)

• Markets include Communications, Enterprise Computing, GreenTech, Industrial, Aerospace and Defence

Triple Bottom Line
Celestica is involved in various sustainable initiatives that contribute to the Triple Bottom Line:

Social (People)
• Employee Feedback
• Employee Recognition
• Celestica Giving

Environmental (Planet)
• Greenhouse Gas Emissions & Carbon reporting
• End-of-Life Materials Management
• Water conservation
• Hazardous Waste Management
• Waste Reduction and Recycling
• Product-level environmental compliance

Economic (Profit)
• Celestica financials have indicated profitability in recent years
Strategic Direction of Celestica
Securing profitable revenue from existing and new customers by delivering supply chain solutions

Expanding revenue base in higher-value-add areas, including design, engineering, supply chain, and after-market services

Accelerating performance improvement in its semiconductor business to improve overall profitability

Continuing to diversify revenue including the aerospace, defense, industrial, healthcare, semiconductor equipment and smart energy areas. Diversified market grew 11% year-over-year to $1.47 billion and over the past three years, compounded annual growth rate of 25%


'11 '12 '13
Current Ratio


CLS 1.83 1.76 1.91

CLS(r) 1.49 1.63

STM 2.07 2.10

Quick Ratio

CLS 1.17 1.14

1.17

CLS(r) 0.87 0.90
STM 1.49 1.57

Liquidity

'11 '12 '13
CFO to current liabilities

CLS 0.135 0.245 0.129
STM 0.416 0.561

Red flag: Well under 1, CFO insufficient to cover avg. current liabilities. CLS using CFO to buy reduce debt/deficit
Cash Flow

'11 '12 '13

Debt to equity

CLS 1.02 1.01 0.88
STM 0.45 0.56

- CLS has no LT debt.
- CLS is financed by balancing WC

Solvency
Credit Risk

'11 '12 '13
Cash coverage ratio

CLS 40 36 50


CLS(r) 21 15 18

S&P Credit Rating for CLS: BB

Paying off short term debt ($55.0 in 2013)
Working capital, property, plant and equipment are stable
Red flags: (a) 60% of cash indefinitely invested abroad; will not be repatriated in case of cash crunch. (b) Inventories on hand: 31% of total assets vs. 12% for STM
Full transcript