Attached files
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| EX-99.1 - EXHIBIT 99.1 - Simpson Manufacturing Co., Inc. | q32017ex991pressrelease.htm |
| 8-K - 8-K - Simpson Manufacturing Co., Inc. | ssdq320178kpressrelease.htm |
October 30, 2017
Q3 2017 Earnings Conference Call
Supplemental 2020 Plan Details
Karen Colonias
CEO
Brian Magstadt
CFO
Safe Harbor
This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, based on numerous assumptions and subject to risks and uncertainties
(some of which are beyond our control), such as statements above regarding the Company’s 2020 Plan, the Company’s efforts and costs to implement
the 2020 Plan, and the effects of the 2020 Plan; the Company's products, market share, enterprise resource planning ("ERP") implementation and its
effects, software implementation (including its costs), profitability and profit margin outlook, working capital, balance sheet, inventory, net sales, net
sales growth rate, operating (including R&D) expenses, cost reduction measures, capital return, capital expenditures, dividends and share
repurchases. Forward-looking statements are necessarily speculative in nature, and it can be expected that some or all of the assumptions of the
forward-looking statements we furnish will not materialize or will vary significantly from actual results. Although the Company believes that these
forward-looking statements are reasonable, it does not and cannot give any assurance that its beliefs and expectations will prove to be correct, and
our actual results might differ materially from results suggested by any forward-looking statement in this document. Many factors could significantly
affect the Company's operations and cause the Company's actual results to differ substantially from the Company's expectations. Those factors
include, but are not limited to: (i) general business cycles and construction business conditions; (ii) customer acceptance of the Company's products;
(iii) product liability claims, contractual liability, engineering and design liability and similar liabilities or claims, (iv) relationships with key
customers; (v) materials and manufacturing costs; (vi) the financial condition of customers, competitors and suppliers; (vii) technological
developments including software development; (viii) increased competition; (ix) changes in industry practices or regulations; (x) litigation risks and
actions by activist shareholders, (xi) changes in capital and credit market conditions; (xii) governmental and business conditions in countries where
the Company's products are manufactured and sold; (xiii) changes in trade regulations; (xiv) the effect of acquisition activity; (xv) changes in the
Company's plans, strategies, objectives, expectations or intentions; (xvi) natural disasters and other factors that are beyond the Company’s reasonable
control; and (xvii) other risks and uncertainties indicated from time to time in the Company's filings with the U.S. Securities and Exchange
Commission including in the Company's most recent Annual Report on Form 10-K under the heading "Item 1A - Risk Factors." Actual results might
differ materially from results suggested by any forward-looking statements in this document. Except as required by law, the Company undertakes no
obligation to publicly release any update or revision to these forward-looking statements, whether as a result of the receipt of new information, the
occurrence of future events or otherwise. The information in this document speaks as of the date hereof and is subject to change. Any distribution of
this document after the date hereof is not intended and should not be construed as updating or confirming such information. In light of the foregoing,
investors are urged not to rely on our forward-looking statements in making an investment decision about our securities. We further do not accept any
responsibility for any projections or reports published by analysts, investors or other third parties.
2
2020 Plan
3
KEY OBJECTIVES FY 2016A 2020 TARGETS
FOCUS ON ORGANIC
GROWTH
• $861 M Net Sales
(1) Based on FY 2016 reported net sales of $861 million.
(2) Operating income margin refers to consolidated income from operations as a percentage of net sales.
(3) See appendix for Return on Invested Capital (ROIC) definition.
• ~8% Organic Net Sales CAGR(1)
RATIONALIZE COST
STRUCTURE TO
INCREASE
PROFITABILITY
• 31.8% Operating Expenses as
a % of Net Sales
• 16.2% Operating Income
Margin(2)
• ~26% - 27% Operating Expenses as a % of
Net Sales
• ~21% - 22% Operating Income Margin(2)
• Initiating work with leading management
consultant to identify additional opportunities
IMPROVE WORKING
CAPITAL MANAGEMENT
& BALANCE SHEET
DISCIPLINE
• 2x Inventory Turn Rate
• 4x Inventory Turn Rate
• Engaged external consultant to identify
further improvements to inventory
management
IMPROVE RETURN ON INVESTED CAPITAL(3)
• Execution on the 2020 Plan is expected to substantially enhance ROIC
• Expect to achieve 17% to 18% ROIC target by FY 2020, up from 10.5% in FY 2016
INCREASE CAPITAL RETURN TO SHAREHOLDERS
• Committed to returning 50% of cash flow from operations to shareholders
• Utilize capital from inventory reductions and balance sheet efficiency improvements to repurchase shares
• Review properties for potential sale / sale-leaseback options; capital release to be used for repurchases
• Deploy additional capital from a potential tax holiday or corporate tax rate reduction to repurchase shares
1
2
3
Net Sales Correlation to U.S. Housing Starts
4
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
H
o
u
s
in
g
S
tar
ts
(M
)
($
M
)
North America Net Sales Total Net Sales Gross Profit Income from Operations Housing Starts
Gross
Margin:
42.1% 39.8% 40.3% 35.1% 44.0% 44.9% 43.0% 44.5% 45.5% 45.2% 47.9%
Our investments in adjacent products and markets have helped mitigate our exposure
to a cyclical U.S. housing market over time...
Strategic Growth Initiatives Rationale
5
SOFTWARE
• Preserves market share of
core connector business
through availability of end-
to-end product and software
solution
• Development of best-in-
class truss software
solution, specifically,
enhances technological
capabilities to remain
competitive
• Over 40%+ of our core
connector business is tied
to customers with software
needs
EUROPE
• Attractive opportunity to
grow wood connectors,
fasteners and concrete
products with tailwinds from
improved economic
conditions
• Helps diversify from
significant exposure to U.S.
housing starts
• Expands trusted brand
reputation through
extensive testing and
education capabilities
CONCRETE
• Sharpening focus on
higher-margin product lines
to drive profitability and
increase market share from
10% to 14% by fiscal 2020
• Complementary to wood
offering
• Able to perform throughout
all industry cycles given
less reliance on U.S.
housing starts for growth
…while also allowing us to provide a complete product solution to our customers and
to improve sales and margins in our core wood connector business.
Focus on Organic Growth
6
• Steady growth in North America and
Europe
• Estimate YOY growth in U.S.
housing starts in mid single-digit
range
• Improved economic conditions
in Europe
• Concrete market share improvement
from approximately 10% to 14% of
~$1.3 B addressable market
• Deemphasize acquisition activity
• Strategic capital investments
• ~⅓ maintenance CapEx
• ~⅔ CapEx to support organic
growth, primarily in core
connector business, and
efficiency improvements in our
initiatives
ORGANIC GROWTH DRIVERS
FY 2016A FY 2020E
$861 M
ORGANIC GROWTH TARGET
~$1.2 B
Addressable Market Opportunity(1)
7(1) Note: Market sizes and market shares based on internal estimates. Includes North America, Europe and Pacific Rim.
Addressable Market
$1.3 B (9%)
Addressable Market
$730 M (13%)
Addressable Market:
$1.5 B (100%)
$15.0 B
$5.8 B
$1.5 B
Fasteners (Addressable) Concrete (Addressable) Wood Connectors & Truss (Addressable)
Simpson’s Market Share(1)
8(1) Note: Market sizes based on internal estimates. Includes North America, Europe and Pacific Rim.
SSD’s Share
$106 M (15%)
$1.3 B
Fasteners (SSD Share) Concrete (SSD Share) Wood Connectors & Truss (SSD Share)
$730 M
$1.5 B
SSD’s Share
$128 M (10%)
SSD’s Share
$626 M (43%)
2020 Plan Improvements by Initiative
9
In an effort to both reduce costs and drive profitability, we will be focused on
operational improvements in our key focus areas.
• Holding R&D expenses
steady to enhance
sophistication of our
software solutions
• Refocus efforts on
medium-sized truss
component manufacturers
to grow share
• Continue to support
smaller-sized
customers
• Improve operating
efficiencies through
rationalization of
manufacturing footprint
• Expect ~$2 million
reduction in 2018 SG&A
through reduced head
count and other expenses
• Divested Gbo Poland and
Gbo Romania; enables
management to focus on
end user markets core to
its strategy
• Expect ~$3 million
reduction in 2018 SG&A
through reduced head
count and other expenses
• Cease development of
low-margin concrete repair
product lines in 2018;
addressable market size
shifts to $1.3 B
• Focus on higher-margin
product lines and cease
acquisitions in concrete
repair space
We will continuously review our progress against these initiatives – if we
are not on track, we will evaluate more aggressive steps.
SOFTWAREEUROPE CONCRETE
31.8%
~1%
<1%
~1%
~3%
~26% - 27%
2016A Truss R&D Europe Concrete Zero-based
Budgeting &
Operational
Efficiencies
2020E
Path to Improved Operating Leverage
10
FY 2018 consolidated SG&A
dollars will be less than FY
2017, on an absolute dollar
basis (inclusive of ~$8 M of
SAP expenses)
~$3 M reduction in operating
expenses from headcount and
other professional service fees
~$2 M planned FY 2018
reduction in operating
expenses from headcount and
other expenses
$8 M per year annual
R&D expense will be
held flat; will achieve
improved operating
leverage due to
growing share in truss
Initiating work with a
leading management
consultant to help
identify additional
savings beyond plan
We plan to reduce our consolidated operating expenses as a percent of net
sales by approximately 530 basis points from 31.8% in 2016 to be in the range of
26% to 27% by the end of 2020.
TOTAL OPERATING EXPENSES AS A PERCENT OF SALES
Path to Improved Profitability in Europe
11
In Europe, we are reducing total operating expense dollars by $2 million in 2018,
contributing to ~700 basis points of operating margin improvement in 2018 through
reductions in both headcount and other expenses.
0.8%
~2-3%
~2%
~7% ~12%+
2016A Gross Profit Margin
Improvements
Operating Expense
Reductions
Operating Expense
Leverage
2020E
TOTAL OPERATING EXPENSES AS A PERCENT OF SALES
Focus on Higher-Margin Markets in Concrete
35%
~38% - 39%
~42%+
2016A 2018E 2020E
12
CONCRETE GROSS MARGIN TARGETCONCRETE STRATEGY
• Reprioritizing efforts in the concrete space
to drive improved profitability
• Effective immediately, ceasing
development of lower-margin concrete
repair lines (excluding bridge & marine)
• Reduces our addressable market to $1.3
billion from $3.5 billion previously
SIX KEY FOCUS AREAS
Software Critical to Preserve & Grow Core Business
Over 40% of our core wood connector business is tied to customers with software needs.
~$500 M
13
• Without software solutions, we believe a meaningful portion of our market share in our core wood
connector products would be at risk
• Enhances technological capabilities to remain competitive in wood construction space
Proprietary Truss Software
• Ongoing development to support truss
component manufacturers
• Small and medium-sized component
manufacturers represent >40% of truss market
• Focused on converting medium-sized
customers
• Enabled by increased software
capabilities and sophistication of our
solutions
Acquired CG Visions (January 2017)
• Provides expertise and resources to offer
software solutions and services to builders
and lumber building material dealers
• Supports efforts to further develop integrated
software component solutions for the building
industry
STRATEGIC RATIONALE
INVESTMENTS IN SOFTWARE
FY 2016A FY 2020E
Improve Working Capital & Balance Sheet Discipline
14
• Established internal team to better
manage inventory without impacting
product availability standards
• Delivering products typically
within 24 hours is a key
competitive factor
• Eliminating ~25% - 30% of SKU’s
• Expect enhanced operating efficiencies
upon completion of ERP system
implementation in 2019
• Engaged external consultant with a
specialization in Lean principles to
opine on additional methods to
enhance efficiency
• Identified ~30% of additional raw
materials and finished goods to
eliminate over the next three
years
DRIVERS OF CAPITAL RELEASEINVENTORY TURN IMPROVEMENT
2x
4x
Return on Invested Capital(1) Improvement
15
Through execution on the 2020 Plan, we expect to substantially increase our return on
invested capital above our weighted average cost of capital which will drive enhanced
shareholder value.
10.5%
~3%
~3%
~1%
~17% - 18%
2016A Operating Expense
Reductions
Share Repurchases Inventory Turns 2020E
(1) See appendix for Return on Invested Capital (ROIC) definition.
Cash Flow from
Operations
Share Repurchases
Organic Growth
Investments
Dividends
Disciplined Capital Allocation Strategy
16
• Improve cash flow through better
management of working capital and
overall balance sheet discipline
• Committed to return 50% of cash flow
from operations to shareholders
• Focus primarily on organic
growth opportunities through
strategic capital investments in
the business
• Longer-term, we intend to use the
proceeds from the following
toward future share repurchases:
• A review of owned real
estate for potential sale or
sale lease-back
opportunities
• A potential tax holiday or
corporate rate reduction
• Maintain regular quarterly
dividends
Given our confidence the 2020 Plan will drive improved operational performance
in our business, we plan to be more aggressive in repurchasing shares of our
stock in the near-term.
Summary
17
Now → 2020:
Focusing on organic growth
Rationalizing our cost structure to improve Company-wide profitability
Improving working capital management and balance sheet discipline
Increasing capital return to shareholders
Working with external management and Lean consultants to perform independent, in-
depth analyses of our operations to identify incremental opportunities for improvement
beyond the 2020 Plan
We expect these objectives will result in an improved ROIC(1) target
to approximately 17% to 18% by FY 2020.
We believe our execution on the 2020 Plan will create substantial value for all
shareholders of Simpson Manufacturing Company.
(1) See appendix for Return on Invested Capital (ROIC) definition.
APPENDIX
Return on Invested Capital (“ROIC”) Definition
When referred to in this presentation, the Company’s return on invested capital (“ROIC”)
for a fiscal year is calculated based on (i) the net income of that year as presented in the
Company’s consolidated statements of operations prepared pursuant to generally
accepted accounting principles in the U.S. (“GAAP”), as divided by (ii) the average of the
sum of the total stockholders’ equity and the total long-term liabilities at the beginning of
and at the end of such year, as presented in the Company’s consolidated balance sheets
prepared pursuant to GAAP for that applicable year. As such, the Company’s ROIC, a
ratio or statistical measure, is calculated using exclusively financial measures presented
in accordance with GAAP.
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