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KEMET Corporation (KEM)

F1Q13 Earnings Call

July 26, 2012 9:00 am ET


Dean W. Dimke – Senior Director-Investor Relations

Per-Olof Lööf – Chief Executive Officer

William M. Lowe – Executive Vice President and Chief Financial Officer


Wamsi Mohan – Bank of America/Merrill Lynch

Matthew Sheerin – Stifel Nicolaus & Company, Inc.

Hamed Khorsand – BWS Financial

Amitabh Passi – UBS

Anthony Kure – KeyBanc Capital Markets

Marco Rodriguez – Stonegate Securities Inc.

James Gentile – Newland Capital Management



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Good morning. My name is Celia, and I’ll be your conference operator today. At this time, I’d like to welcome everyone to the KEMET Announces Earnings for June 2012 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. Mr. Dean Dimke, you may begin your conference.

Dean W. Dimke

Thank you, Celia. This is Dean Dimke, Senior Director of Marketing Communications and Investor Relations. Good morning and welcome to KEMET’s conference call to discuss our financial results for first quarter for fiscal year 2013. On the call with me today is Per-Olof, our Chief Executive Office; and Bill Lowe, our Executive Vice President and Chief Financial Officer.

As a reminder to you, our presentation is available on our website that should help you follow along with the financial portion of our presentation this morning. Please go to and click on the Investor Relations tab in the top right portion of our home page. Once there, please click on the first quarter conference call link. That will bring up a few slides that we will call to your attention as we cover those topics.

Before we begin, we would like to advise you that all statements that address expectations or projections about the future are forward-looking statements. Some of these statements include words such as expects, anticipates, plans, intends, projects and indicates. Although, they reflect our current expectations, these statements are not guarantees of future performance, but involve a number of risks, uncertainties and assumptions. Please refer to our 10-Ks, 10-Qs, and recent registration statement filings for additional information on risks and uncertainties.

And now, I’ll turn the call over to Per.

Per-Olof Lööf

Thank you, Dean, and good morning everyone. Our first quarter of fiscal 2013 saw our net sales grow to $223.6 million, which was an increase of approximately $13 million over the last quarter.

Our adjusted EBITDA for the quarter was $14.1 million. The market this quarter has still been on the soft side, but we do see demand picking up with closing book-to-bill at 1.16. The joint venture with NEC TOKIN and ourselves has received regulatory clearance from the European Commission under the European Union Merger regulation for our proposed acquisition of a 34% interest in NEC TOKIN by ourselves.

As previously announced on March 12, 2012, KEMET entered into a definitive agreement to acquire this interest for $50 million. The transaction remains subject to satisfaction of customary closing conditions, including receipt of required regulatory approval in China. While a definitive closing date cannot be determined, we continue to expect that the transaction will close during our second fiscal quarter, ending September 30, 2012.

As a reminder, the transaction comprises three major steps. First, we’ll form a JV with NEC by acquiring a 34% equity stake in NEC TOKIN for the payment of $50 million. The next step will be to increase that equity ownership stake to 49% for an additional $50 million.

The third and final stake will be to acquire the remaining 51% giving us 100% economic ownership, which will be based on a multiple or NTs performance at that time. This structure is designed to allow us to align all stakeholders KEMET, NEC & T towards the successful integration we are building restructuring and continued optimization of NEC TOKIN in preparation and anticipation of the final step in this transaction.

This past quarter, we continued to see progress in our action to secure and stabilize our supply chain through a status strategy of vertical integration. As you may recall, we bought a Tantalum powder manufacturing facility in Carson City, Nevada.

This facility now called KEMET Blue Powder along with our agreement to secure Tantalum ore from the Democratic Republic of Congo and our exclusive arrangement with Tantalum resources in Johannesburg, South Africa completed our closed pipe conflict-free vertically integrated Tantalum supply chain. I’m delighted to say that we now are seeing parts coming out of our manufacturing plant made from ore that has gone through this closed pipeline.

Additionally, we are seeing real progress being made in our Making Africa Work initiative. That with regard to the social responsibility we are taking with schools and hospitals now being built adding to the infrastructure in the community. Before going to detail regarding the performance of over individual business groups and regions, I'll turn it over to Bill to review our financials for the quarter. Bill?

William M. Lowe, Jr.

Thanks, Per, and good morning, everyone. I'll begin my review on slide 3 if you are following along in the slide deck that was provided on our website.

Net sales of $223.6 million were up 6% over the prior quarter of March 2012 of $210.7 million, which exceeded our forecast range of 3% to 5%, and our non-GAAP gross margin as a percentage of sales increased to 15.2% compared to 14.1% in the prior quarter, driven primarily by our Tantalum business unit.

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