Kemet Corporation (KEM)

Company Conference Call

November 17, 2011 11:00 am ET


William Lowe – Executive Vice President, Chief Financial Officer




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Good morning everyone. Welcome to the UBS Tech conference. I think we should get started – the clock is running already. It’s my pleasure this morning to introduce William Lowe, Kemet Corporation to discuss his company a little bit, and then—sorry, and then we’ll have some time for Q&A afterwards.

William Lowe

Thank you and good morning. Thanks for attending the Kemet portion of the presentation today at the UBS conference. I’m going to just jump right in and skip over the cautionary statement, but advise you that we do want you to read that as you look through the presentation today.

For those of you who don’t know about the Company, the Company has been around quite a long time as part of Union Carbide. It was founded back in 1919 and we are a global manufacturer of multiple types of capacitors – tantalum, ceramic, film, paper and electrolytic. We have manufacturing sites around the globe and we have almost 11,000 employees as of our last September 30, and we have a global sales force that’s split up into regions between the Americas, Europe and Asia.

A little bit on the industry background – most of you are familiar with this, but if you’re not, primarily capacitors are a passive electronic component that stores, filters and regulates electrical energy. Some of the devices that our products go into sometimes contain several hundred or sometimes several thousand capacitors into one particular unit like a flat-screen TV or a smart phone.

Looking at our segment overview, there is an overlap between our segments - tantalum and ceramics, within the end markets, with the exception of at some of the downhole drilling will be primarily one area versus the other. In the film electrolytics, which we’ll talk about separately and the green technologies when we acquired these businesses back in ’07 and ’08, there is very little overlap between our tantalum and ceramics business with film and electrolytics compared to the other two.

We do have a global reach. As I said, we have major sales locations around the globe as well as manufacturing, so just to give you a quick look at where we’re located at. As you saw on earlier slides, the majority of our employees sit in North America and Mexico, and also a large contingent in Asia as well, China in particular. Looking at the market overview and if we look at our last quarter and use this, we’d like to think we’re fairly well balanced both geographically and within the channels, and actually within the business groups themselves. And so we’ll start with the channels. Our OEM channel last quarter represented about 45% of our business and distribution around 43%. So you can see between those two channels, we’re fairly balanced. Geographically, we’ve been more balanced over the last couple years with the acquisitions that we’ve made, and if you look at the last quarter again, Asia came in at 29%, the Americas at 31, and Europe primarily around 40%. Europe and Asia tend to go back and forth a little bit, and if you look back at the prior quarter, Asia would have been about 36% and that change would have occurred within the European location. So well balanced there, so generally when one region is up, another region is down. We feel that that helps smooth out our cycles within a calendar year or within a fiscal year. We used to be a little more volatile that way, and the geographics have changed that and helped us.

From a segment standpoint, we are light in the consumer segment and that’s on purpose. We don’t have a lot in that area. Most of what’s in our consumer segment we capture there is gaming—gaming consoles, and in transportation – that’s primarily light vehicle automotive. And in telecoms, it’s primarily base stations is where we capture. Our base station business is within telecom.

We do have strong customer relationships, and this is kind of a who’s who. But you know these companies very well. I’m not going to spend the time going through the names, but you can see that we do from an OEM standpoint have a variety of large OEMs in both automotive, the computer side, as well as base stations. And then from a distributor standpoint, all the large distributors that we use across the globe.

We’ve been focused over the last several years on moving away from base commodity products to specialty and growing our specialty business in the tantalum group, the ceramics group and the film electrolytic group as well; but primarily changing our focus in ceramics over the last several years, and we’ll talk about their margins in a minute as you see that change has occurred since the ’08-’09 time frame to today. There’s been a dramatic change in what that business looks like. And the bottom half of this slide really is the targeted specialty areas we’re looking at with alternative energy, it’s lighting, it’s medical, it’s military, it’s downhole drilling. Those types of things is where we’re really focused to get those parts out in the market that drive higher margins for us and are specialty related.

So let’s look for a minute—as we look forward what we’ve been involved with in alternative energy, the green energy, we do have products that go into electric drive vehicles, and we’ll talk about a new facility which we’ve just opened up in Simpsonville, South Carolina in the last few weeks. But we have products that go into wind, solar, thermal, storage, the smart grid, and of course from an efficiency standpoint as well.

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