5. BUSINESS ENVIRONMENT
5
%
5
• Low End and Traditional buyers value proven
products at reasonable prices.
• High-end buyers value cutting edge technology
and new designs.
• Exited from Performance and Size segments.
INDUSTRY - ELECTRONIC SENSORS
Industry demand has been lacking growth, increasing the competitiveness of industry
making consistent sales difficult to achieve.
• Significant market contraction in 2020
• Market demand has fluctuated widely
• Strong growth expected in upcoming year
0
750
1500
2250
$15,000
$30,000
$45,000
Traditional Low-End High-End
Segment Sales
Revenue
Units Sold
90
95
100
105
110
115
120
Year 4 Year 5 Year 6 Year 7 Year 8
Growth Index
Traditional
Low End
High End
Expected Growth
100
6. BUSINESS ENVIRONMENT
6
10%
%
5
Andrews
Maintained position as second leading firm in
marketplace.
Baldwin
Mediocre sales combined with significant cash
issues has plagued stock price.
Chester
Rebounding slowly from earlier poor results.
Digby
Continues to dominate; however position is
being challenged in the Low, High, and
Traditional segments
COMPETITIVE LANDSCAPE
Firms have adapted to a unpredictable marketplace with different strategies and a
significant variety of results.
$37,000,000
$21,000,000
$36,000,000
$0
$15,000,000
$30,000,000
$45,000,000
Andrews Baldwin Chester Digby
Market Capitalization
$213,000,00
$98,830 $98,605
$91,723
$0
$50,000
$100,000
Andrews Baldwin Chester Digby
Sales $342,000
7. BUSINESS ENVIRONMENT
7
%
5
PRODUCTS & PERCEPTION
Consumer preferences are beginning to become increasing differentiated adding
pressure to product margins.
• Product categories that differ in size and
performance metrics.
• Product Categories
• Low End: aging and cheap
• Traditional: proven products at a
moderate price
• High End: cutting edge on both
metrics
• Performance and Size: exited these
segments
• Successes and Challenges
• In line with target markets’
expectations
• Challenge achieving specifications
while keeping material costs down
9. RESEARCH & DEVELOPMENT
9
5
LOW END: CURRENT PRODUCT OFFERING
• Phasing out Acre
• Achieved significant market share while
competing with Able
• Kept as insurance policy
• Transitioning Able
• Specifications reduced to match
expectations and control costs
• Fully transitioned and well positioned
Slowed preference drift rates and material costs considerations made transition period
longer than expected.
Able
Able
Acre
12.0
14.0
16.0
18.0
20.0
2.0 4.0 6.0 8.0 10.0
Size
Performance
Able
Acre
0%
5%
10%
15%
20%
25%
2020 2021 2022
MarketShare
Year
Low End
Acre
Able
• Market Perceptions and Material Costs
• Market perceptions moved slower than
anticipated
• More intensive analysis of relationship
between material costs and specifications
10. RESEARCH & DEVELOPMENT
10
5
TRADITIONAL: CURRENT PRODUCT OFFERING
• New Product AhHa
• Low initial market penetration consistent
with industry practices
• Introduced with expectation of consumer
preferences changing more quickly
• Able transitioned to Low End; AhHa sole
product in segment
New product took longer to match consumer preferences because of slowed drift
rates.
• Position in Segment
• AhHa achieved 20% market share in year
2022
• Consumer awareness and accessibility
continue to increase
• Well positioned in marketplace for future
sales
0%
5%
10%
15%
20%
25%
2020 2021 2022
MarketShare
Year
Traditional
Able
AhHa
Able
Able
AhHa
8.0
10.0
12.0
14.0
16.0
6.0 8.0 10.0 12.0 14.0
Size
Performance
Able
AhHa
11. MARKETING
11
%
• Achieved consistent and
competitive accessibility
ratings
• Attained 26% market share
in the High End segment
• Digby’s aggressive strategy
and our inability to
compete/predict was main
contributor to shortfall
LEARNING OUTCOMES FROM HIGH END SEGMENT
More accurate sales forecasting and predicting competitors’ actions is next step
0%
10%
20%
30%
40%
50%
60%
70%
2019 2020 2021 2022
MarketShare
Year
High End Market Share
Andrews Baldwin Chester Digby
12. MARKETING
12
%
We spent heavily on marketing to create customer awareness / accessibility in first
year of entering market – didn’t realize that market share lagged spending by a year
LOW END SEGMENT TRADITIONAL SEGMENT
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Year 4 Year 5 Year 6 Year 7
%Awareness/Accessibility
MarketShare
Able Market Share Awareness Accessibility
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0%
5%
10%
15%
20%
25%
Year 4 Year 5 Year 6 Year 7
%Awareness/Accessibility
MarketShare
AhHa Market Share Awareness Accessibility
13. PRODUCTION
13
AUTOMATION is a useful tool for increasing margins with slow segment drift rates
2. Low automation in High End
Drive Down Labour Costs Increased Margins
1. High automation in Traditional /
Low End
3. Sell down capacity for Performance
/ Size
4. Ensure first shift capacity used fully
/ second tapped into, before
expanding
14. PRODUCTION
14
10%
%
5
• Production constraints haven’t capped
availability or decrease units sold
• Increased in capacity with no decrease
in plant utilization; able to fill new
capacity with demand immediately
• One year of no production for Able to
expand capacity and sell excess
inventory (markets moving slower than
expected)
• Plant utilization back to 131% after Able
adjustment; production for Low End
took off
PLANT UTILIZATION IS STABLIZING AT SUSTAINABLE LEVELS
Producing at only slightly over first shift capacity means potential to increase
production without buying more capacity
131%
113% 111%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
Able Acre Adam AhHa
Plant Utilization Rates over Time
2019 2020 2021 2022
15. HUMAN RESOURCES
15
10%
%
5
• Dramatic decrease in HR
Admin Cost due to investment
in TQM
• Overall reduction in HR
spending
• Still reaping benefits from
spending in previous years
EFFICIENT ALLOCATION OF DOLLARS
Dramatic decrease in HR costs over our competition due to TQM, which will increase
margins going forward
$-
$500.00
$1,000.00
$1,500.00
$2,000.00
$2,500.00
$3,000.00
$3,500.00
$4,000.00
$4,500.00
2019 2020 2021 2022
Total HR Admin Cost
Andrews Baldwin Chester Digby
16. HUMAN RESOURCES
16
10%
%
5
• Stable increase in productivity,
despite reducing training hours
from 80 to 40
• Able to ‘coast’ off our initial
investment in difficult financial
times
• Able to shift HR spending to
other departments
EFFICIENT ALLOCATION OF DOLLARS
In this difficult market, it is important to get the greatest value out of each dollar
100.00%
105.00%
110.00%
115.00%
120.00%
125.00%
130.00%
2019 2020 2021 2022
Productivity Index
Andrews Baldwin Chester Digby
17. FINANCE
17
10%
%
5
WORKING CAPITAL
In order to forecast cash buffer in the future, we created a bear case scenario to stress
test our liquidity needs
(20,000)
(15,000)
(10,000)
(5,000)
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2015 2016 2017 2018 2019 2020 2021 2022
$'000s
Net Working Capital Needs
Accounts payable Inventory Accounts receivable
Net working capital
needs did not improve
in 2020E leading to a
draw of the
• New way of forecasting demand did
not go as planned as competitors
used similar strategies in 2020
• Led to a larger than expected NWC
draw of ~$10mm due to inventory
build
• Net investment in PP&E of $6mm
and debt due of $18mm led to a
shortage of cash
• Normalized in 2021 as inventories
were sold
18. FINANCE
18
10%
%
5
BEAR/BASE/BULL CASE SCENARIOS
Gives us clear indication of worse-case scenario and ensures we avoid emergency loans
in the future
Market Share
Bear Base Bull
Low End/Able 15% 19% 22%
Traditional/Ah Ha 16% 20% 24%
High End/ Adam 22% 26% 30%
Demand Forecast
Bear Base Bull
Low End/Able 1,561 1,978 2,290
Traditional/Ah Ha 1,211 1,514 1,817
High End/ Adam 824 974 1,123
Forecasted Cash Balance
Bear Base Bull
(In'000s) $20,562 $40,854 $54,873
19. FINANCE
19
10%
%
5
• Used $11m generated for sale of Acre
capacity and invested $10mm in capex for
TQM in 2023E
• Holding everything else constant expect
this to improve margins by 7%
• Calculated IRRs of 40%
• If similar capital returned to shareholders,
it would result in an additional upside of
27%
Investment in TQM to bring down labor costs is the best use of capital
TQM DRIVING DOWN COSTS
No TQM TQM Savings
Labour Cost 29,582 25,411 14%
Material
Cost
38,548 35,638 8%
Admin Cost 1,157 1,107 4%
EBITDA
Margin
14% 21% 7%
20. FINANCE
20
10%
%
5
Work towards a healthy balance sheet with 2.0x -2.5x leverage
DELEVERAGING A FOCUS
4.0x
2.2x
5.1x
1.6x
0.0x
1.0x
2.0x
3.0x
4.0x
5.0x
6.0x
Andrews Baldwin Chester Digby
Current Debt/EBITDA Across the
Industry
• On a LTM basis, Andrews is currently
levered at 4.0x Debt/EBITDA
• As the cost savings from TQM results in a
FCF ramp, will use excess FCF to de-lever
and refinance to get cost of capital down
• Debt/EBITDA spiked in 2020 due to taking
emergency loan
• Have unwound debt ~2 turns in past year,
and look to return to stated target as early
as next year
22. PERFORMANCE
22
10%
%
5
• 2nd highest stock price of
$19.43
• Loss last year of ($594,000)
directly attributable to
($5,334,000) loss on Acre
• Only team to post positive
cumulative profit (besides
Digby)
• Proforma normalized net profit
of $7,199,000 in Year 8
Stock price rebounded last year on higher margins and strong sales growth; positive
profits, higher margins still and strong market growth rates are all tailwinds in Year 8
KEY PERFORMANCE INDICATOR: Stock Price & EPS
$41.08
$27.15
$16.32 $19.43
$32.59
$39.63
$1.76
$9.53
$1.48 $1.00
$1.97
$14.81
$47.21
$44.21
$50.83
$75.14
$0.00
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
Year 4 Year 5 Year 6 Year 7
Stock Prices
Andrews Baldwin Chester Digby
Year 7 Andrews Baldwin Chester Digby
Stock price $19.43 $9.53 $14.81 $75.14
Market Cap ($MM) $37 $21 $36 $213
EPS ($0.32) ($1.83) $1.08 $7.08
Cumulative Profit $6,554,769 ($5,299,808) ($14,980,798) $61,902,965
23. PERFORMANCE
23
10%
%
5 • Proforma return metrics look very
bullish, due mostly to one-time item
of $17.3MM
During a contractionary period for our industry, we have outperformed our closest
competitors, and are poised to post positive ROE in Year 8
KEY PERFORMANCE INDICATOR: Return on Equity
86.2%
84.6%
71.4%
124.2%
60.0%
70.0%
80.0%
90.0%
100.0%
110.0%
120.0%
130.0%
Year 4 Year 5 Year 6 Year 7
ROE Index Since First Board Meeting
Andrews Baldwin Chester Digby
-1.2%
23.1%
-0.5%
11.8%
-0.6%
11.6%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Year 7 Year 8
Year 7 Results & Year 8 Projections
ROE ROA ROS
• ROE Index of 86.2% has us 2nd, only
to Digby, since last board meeting
24. PERFORMANCE
24
%
5
• Contribution margins in Year 8
are 150 bps above where they
sat last board meeting at 31.6%
• Have recovered nicely in last
two years
• Proforma contribution margins
for Year 9 are 42.0% based on
increasing automation 1.5
points on a 10-scale across all
products
Contribution margins lagged expectations – however, we believe we have finally
turned them around
KEY PERFORMANCE INDICATOR: Contribution Margin
26. Current Year Proforma - No Performance & Size
FYE 2019 FYE 2019
Sales $174,476 $135,248
Contribution Margin $55,213 $49,834
Margin % 31.6% 36.8%
EBIT Margin $21,091 $28,593
Margin % 12.1% 21.1%
LOOKING FORWARD
26
10%
5
By focusing on our highest margin products we can drastically increase profitability &
drive shareholder returns moving forward
LAST BOARD MEETING
• Contribution margins should increase 520 bps from 31.6% to 36.8%
• EBIT margins should nearly double, increasing 900 bps from 12.1% to 21.1%
• Reducing heavy marketing and R&D spend on Performance and Size products gives
us more money to return to shareholders
27. LOOKING FORWARD
27
10%
Year 8 will see contribution margins increase from 28.5% to 33.1%
YEAR 8: MTBF YEAR 8: TQM
• TQM spending is a value tool to
drive margins with no lead time and
increasing returns to scale
• Moving from high end of MTBF
rating to midpoint can add 3.5% to
contribution margins
2.7%
3.5%
25.0%
26.0%
27.0%
28.0%
29.0%
30.0%
31.0%
32.0%
33.0%
34.0%
35.0%
Low MTBF
Rating
Mid Point
MTBF
High MTBF
Rating
MaterialCostas%ofSellingPrice
MTBF vs. Material Cost
28. LOOKING FORWARD
28
10%
5
Automation spending in Year 8 decision will drive large increases in contribution
margins in Year 9
YEAR 9 CONTRIBUTION MARGINS
Estimated Contribution Margins Able Adam AhHa
Production 2000 800 1815
1st shift capacity 1400 900 1000
% capacity 143% 89% 182%
Selling Price $18.00 $37.00 $26.50
Old Automation Rating 7.0 3.0 5.0
Old Labour Cost/unit $5.62 $9.82 $8.95
Old Contribution Margin 37.2% 31.8% 30.4%
New Automation Rating 8.5 4.5 6.5
New Labour Cost/unit $3.45 $7.80 $6.61
New Contribution Margin 49.3% 37.3% 39.3%
Contribution Margin Increase 12.1% 5.5% 8.8%
37.2%
31.8% 30.4%
49.3%
37.3%
39.3%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
Able Adam AhHa
Estimated Contribution Margins
Old Automation Rating New Automation Rating
29. SUMMARY
29
Will return to being industry leaders in contribution margins and capital structure will
once again be strong foundation for Andrews
1. Will naturally de-lever as cash flows
are finally realized
HIGH MARGINS CAPITAL STRUCTURE
1. Year 8: ↑4.6% - $10MM in TQM
spending and MTBF reductions
2. Year 9: ↑ 8.9% - Increase
automation for all segments by 1.5
2. Large cash balance provides
flexibility moving forward
34. APPENDIX
34
10%
%
5
• Deploy excess FCF to invest in
TQM. Expected to decrease cost
of direct labour and materials to
fall
• Retirement of acre and sale of
capacity generates income
(Other costs for 2023E)
• Looking forward, exploring
increasing margins through
further reinvestment in the
business
COST STRUCTURE
Increased investments in plant capacity to decrease labour costs
30% 32%
39% 34%
3%
1%
15%
11%
9%
6%
5%
4%
0%
6%
-1%
12%
-20%
0%
20%
40%
60%
80%
100%
120%
2022 2023E(Base)
Cost Structure Breakdown
Net Income
Other
Taxes
Interest
Depreciation
SG&A
Inventory Carry
Direct Material
Direct Labor
