Annual Shareholders` Meeting - Investor Relations Solutions

BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
Annual Shareholders’ Meeting
November 14, 2012
BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
Forward-looking Statements
In this presentation, statements that are not reported financial results or other historic information are “forward-looking
statements.” These forward-looking statements relate to, among other things, the Company’s future financial position,
business strategy, targets, projected sales, costs, earnings, capital expenditures, debt levels and cash flows, and plans
and objectives of management for future operations. The use of words such as “may,” “will,” “expect,” “intend,” “estimate,”
“anticipate,” “believe,” “should,” “project” or “plan” or similar terminology are generally intended to identify forward-looking
statements. These forward-looking statements by their nature address matters that are, to different degrees, uncertain
and are subject to risks, assumptions, and other factors, some of which are beyond Brady’s control, that could cause
actual results to differ materially from those expressed or implied by such forward-looking statements. For Brady,
uncertainties arise from: the length or severity of the current worldwide economic downturn or timing or strength of a
subsequent recovery; increased usage of e-commerce allowing for ease of price transparency; future financial
performance of major markets Brady serves, which include, without limitation, telecommunications, hard disk drive,
manufacturing, electrical, construction, laboratory, education, governmental, public utility, computer, and transportation;
future competition; changes in the supply of, or price for, parts and components; increased price pressure from suppliers
and customers; Brady’s ability to retain significant contracts and customers; fluctuations in currency rates versus the U.S.
dollar; risks associated with international operations; difficulties associated with exports; risks associated with obtaining
governmental approvals and maintaining regulatory compliance; Brady’s ability to develop and successfully market new
products; difficulties in making and integrating acquisitions; risks associated with newly acquired businesses; risks
associated with restructuring plans; environmental, health and safety compliance costs and liabilities; technology changes
and potential security violations to the Company’s information technology systems; Brady’s ability to maintain compliance
with its debt covenants; increase in our level of debt; potential write-offs of Brady’s substantial intangible assets;
unforeseen tax consequences; and numerous other matters of national, regional and global scale, including those of a
political, economic, business, competitive, and regulatory nature contained from time to time in Brady’s U.S. Securities
and Exchange Commission filings, including, but not limited to, those factors listed in the “Risk Factors” section within Item
1A of Part I of Brady’s Form 10-K for the year ended July 31, 2012.
These uncertainties may cause Brady’s actual future results to be materially different than those expressed in its forwardlooking statements. Brady does not undertake to update its forward-looking statements except as required by law.
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BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
Agenda
• Election of Board of Directors
• President’s Report
• Financial Report
• Summary
• Questions & Answers
3
BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
Election of Board of Directors
• Patrick W. Allender
Executive Vice
President and Chief
Financial Officer (ret.),
Danaher Corp.
4
• Dr. Frank W. Harris
President and CEO,
Akron Polymer Systems
• Gary Balkema
President (ret.),
Worldwide Consumer
Care Division, Bayer AG
• Dr. Elizabeth Pungello
Developmental
Psychologist, Frank Porter
Graham Child Development
Institute, Univ. of North
Carolina at Chapel Hill
• Chan W. Galbato
Chief Executive
Officer, Cerberus
Operations and Advisory
Company, LLC
• Bradley C. Richardson,
Executive Vice President and
CFO, Diebold Inc.
• Conrad G. Goodkind
Attorney (ret.),
Quarles & Brady, LLC
• Frank Jaehnert
President and CEO,
Brady Corporation
BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
Election of Board of Directors
Shareholders of 100% of the
Class B Common Voting Stock
vote in favor of the election
of the director nominees
and they are therefore elected
to a one-year term.
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BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
Brady’s Mission and Vision
Our mission is to
Identify and Protect Premises Products and People
Our vision is to be the market leader
in all our businesses
in order to achieve
sustainable long-term shareholder value.
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BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
F’12 Year in Review
F’12 was a challenging year:
• Difficult macro-economy
• Asian Die-Cut business
But despite a difficult macro-economic picture. . .
• Actively realigning our Asian business
• Another strong year for new product launches
• Successfully pruned our portfolio of companies by selling
Brady Medical Die-Cut (Texas), Etimark (Germany) and Varitronics
(Minnesota)
• Acquired companies in Sweden, Norway and South Africa
• Generated $121M of free cash flow and returned $89M to our
shareholders in the form of dividends and share buybacks
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BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
F’12 Highlights – Brady Employees
• The RESILIENCE and COMMITMENT of our
employees in the face of difficult times
• The COMMITMENT of our employees to ultimate
customer service around the globe
• The DEDICATION of our employees to continuous
improvement
• The PASSION and COMMITMENT of our employees
to give back to the communities where we live and
work
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BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
Floods in Thailand
The resilience and commitment of our
employees in the face of difficult times.
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BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
Floods in Thailand
The resilience and commitment of our
employees in the face of difficult times.
10
BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
Floods in Thailand
The resilience and commitment of our
employees in the face of difficult times.
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BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
The commitment of our employees
to ultimate customer service around the globe
Brady receives W.W. Grainger Partners in Performance
Supplier Award for Outstanding Service
Seton and Emedco receive Call Center Award of Excellence
from Service Quality Measurement Group
BIG receives Best Technology Conference Award for its
Selfit Global Badging Software
Stickolor (Brazil) receives Outstanding Performance Awards
from Honda Automobiles Brazil
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BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
The dedication of our employees
to continuous improvement
Women’s Leadership Alliance
• Founded by employees to address diversity and leadership
development
• 124 members in the first year
• Charter mentoring program
• 14 events designed to provide female leaders with
tools, knowledge and networking to fulfill their career potential
• Expanding to Brady businesses outside Milwaukee
Sustainability
• Launched first Sustainability Report – “Protecting Our Future”
• Sustainable Company – Lean processes for a positive
environmental impact
• Sustainable Customers – Designing environmentally responsible
products to help our customers meet their sustainability goals
• Sustainable Communities – The Brady Corporation Foundation
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BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
The passion and commitment of our employees
to giving back to our communities.
Employee Volunteer Program and Brady Walk for Community
• 3,900 Volunteer Hours
• 17,000 lbs of food and other items donated
• 900 lbs of food grown and given to Family House
• 2,076 miles walked raising $135K for community charities
• EVP program expanded to all Brady North America locations
Global Employees Making an Impact
• 50 "Brady Angels" helping in the Philippines
• Brady India’s “HOPE” program building stronger communities
• Brady opens fourth China Hope School
Brady Foundation Continues to Grow
• $1.2 million donated
• Good 360 new international partner for Gifts-in-Kind
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BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
Brady Values
Focus on the Customer
Invest in Our People
Commitment to the
Highest Levels of Ethics
Embrace Teamwork
Strong Internal Audit
Function
Excel at Everything We Do
Global Environmental
Health & Safety
Standards
Be Bold and Decisive
Protect Our Future
Win the Right Way
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BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
Targeted Growth Strategy
CORE BUSINESS 5%+
ACQUISITIONS 5%+
10%+
• Core Markets
• Near-in Adjacencies
• Geographic Expansion
.
• Focused Vertical Markets
• Emerging Geographies
• New Products
• Unrivaled Customer
Experience
• E-business / Digital
SALES GROWTH
SG&A IMPROVEMENTS
GPM IMPROVEMENTS
EPS GROWTH
of 15%+
.
• Differentiated Solutions
• BBPS
• Operational Excellence
• Strategic Sourcing
• Facility Rationalization
• BBPS
• Standardization
• Centralization
• Consolidation
CASH FLOW
Superior Cash Flow
& Disciplined Cash
Deployment
.
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INCREASED SHAREHOLDER VALUE
BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
Focused Vertical Market Expansion
FOCUSING OUR ENERGIES IN THE RIGHT SPOTS:
Focusing on market segments with the highest potential:
• Food & Beverage Processing Industries:
Leverage our expertise in product identification and
regulatory compliance.
• Chemical, Oil & Gas Industries:
High-performance identification solutions for harsh
environments.
• Continue expansion in mining, brand protection
and aerospace and mass transit industries
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BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
Expansion in Developing Geographies
INCREASE INVESTMENT IN DEVELOPING GEOGRAPHIES:
• China expansion for ID Solutions products
• Further expansion in Brazil
• Central & Eastern Europe, Middle East & Africa
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BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
New Product Development
COMMITMENT TO R&D:
•
•
•
Driver of core growth and
enables us to maintain our
innovation advantage.
Focus on proprietary
materials & systems.
INVESTMENT IN R&D AS % OF SALES
3.4%
3.2%
2.9%
F'11
F'12
2.8%
3.0%
2.6%
2.7%
F'07
F'08
2.0%
Builds customer intimacy.
1.0%
19
•
Global R&D Centers in
Asia and Milwaukee
•
12 Patents granted in 2012
0.0%
F'09
F'10
BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
New Product Launches
Fiscal 2012
Q1
Brady Network Card
and App – Wireless
printer connectivity
through Android
devices.
BMPTM
51 and
Brady
53 – Midrange printing
systems
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Q2
BMP-91TM Printing
System – Continuous
Tubing Printer
ToughJetTM
Inkjet Media
Durable
Q3
Q4
BBP-16TM Printing
System – High
resolution printing
system for Asian
market
TransthermTM TSoft3HP
- Thermal conductive
gap filler, used in
electronics to dissipate
heat.
B-472 Fire Resistant
Labels for the
Aerospace & Mass
Transit Markets.
BRADY LINK360 Software platform for the
management of visual
information on and
around equipment.
BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
E-Business / Digital
Reach more
customers,
faster
Improve our
customer
experience
• Accelerate entry into new markets and
geographies
• Extend products to more channels
• Integrated multi-channel experience
anywhere anytime access
• Self-service tools designed to make it
easier to do business with us
• On-line knowledge systems that speak
our customers’ language
Demonstrate
expertise online
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• Provide relevant information to meet our
customers’ goals and challenges
BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
Unrivaled Customer Experience
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BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
Financial Overview
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BRADY – 2012 ANNUAL SHAREHOLDERS’ MEETING
F’12 Financial Recap
 Net loss of $17.9M vs. a $108.7M of net income in F’11.
•
Net Income, excluding impairment, restructuring charges, and non-routine tax charge** of
$113.0M vs. $115.2M in F’11.
 Diluted EPS of $(0.35) in F’12 compared to $2.04 in F’11.
•
Diluted EPS, excluding impairment, restructuring charges, and non-routine tax charge** of
$2.14 vs. $2.16 in F’11.
 Sales of $1.32 billion vs. $1.34 billion in F’11 (Organic sales down 0.4%).
 Gross Profit Margin of 48.0% in F’12 vs. 49.0% in F’11.
 SG&A expense down 50 bps to 32.5% of sales vs. 33.0% in F’11.
 Cash Flow:



F’12 free cash flow* of $121M.
Repurchased 1.9M shares for $49.9M and authorized an add’l 2M buyback program in Sept.
Returned $38.9 million to shareholders in the form of dividends and announced 27th
consecutive year of annual dividend increases.
* Free Cash Flow = Cash Flow from Operating Activities – Capital Expenditures.
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** Net Income, excluding impairment, restructuring charges, and non-routine tax charge
and Diluted EPS, excluding impairment, restructuring charges, and non-routine tax
charge are non-GAAP measures. See slides #35 and #36.
BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
Driving Shareholder Value
SALES
10% CAGR (F’03 – F’12)
$2,000
$1,750
$125
1,363
1,209
$1,250
1,259
1,340 1,324
1,018
$1,000
$115* $107*
$90*
$100
$75
816
555
671
$50
82
$0
$0
2004
2005
2006
2007
23% CAGR (F’03 – F’08)
2008
2009
2010
2011
2012
3% CAGR (F’10 – F’12)
104
109
109
70
51
$25
$250
$93*
132
$500
2003
(Millions of USD)
20% CAGR (F’03 – F’12)
$150
1,523
$1,500
$750
NET INCOME
(Millions of USD)
82
98
21
2003
2004
2005
2006
2007
44% CAGR (F’03 – F’08)
2008
2009
2010
2011
2012
6% CAGR (F’10 – F’12)
• Net Income Excluding Restructuring Charges (Gray represents posttax restructuring impact.) and $115.7M Non-Cash Goodwill
Impairment in Fiscal 2012.
History of Strong Sales and Net Income Growth
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BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
Balanced Capital Allocation
Acquisition
Growth
Core
Growth
Dividends
Share
Buybacks
Innovation & Expansion
Disciplined Acquirer
Growing Dividends
Opportunistic Buybacks
• New Product Development
• E-business
• Faster Growing Markets
• Developing Geographies
• Disciplined financial metrics
• Core space acquisitions
• Expansion to near-in
adjacencies.
• 27 consecutive years of
dividend increases.
• Central piece of capital
allocation plan.
• 2.0 million share
authorization in Sept. 2012.
• Repurchase from time-totime in disciplined manner.
Invested $199M in
R&D in last 5 yrs*
Invested $105M to
acquire 7 cos. in
last 5 yrs*
Fund Growth
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Returned $182M in
dividends over the
last 5 years*
Repurchased
$135M of stock in
last 5 years*
Reward Shareholders
* Summation of the fiscal years ended July 31, 2008, 2009, 2010, 2011, and 2012.
BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
Looking Ahead
DRIVING SHAREHOLDER VALUE
Maximize long-term, sustainable shareholder value:
• Grow Revenues organically and through acquisition
• Improve profitability and cash flow by driving efficiency and
processes through BBPS.
• Balanced long-term capital allocation strategy:
use our strong cash generation to drive organic growth
opportunities, acquisitions, profitability improvement
initiatives, and consistently returning funds to you. . .our
shareholders through dividends and share repurchases.
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BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
THANK YOU!
To all our employees
for your hard work,
discipline, and focus.
To Brady’s Board of Directors
for your support and direction.
AND TO YOU, OUR
SHAREHOLDERS, FOR YOUR
CONTINUED SUPPORT.
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BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
QUESTIONS
&
ANSWERS
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BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
For More Information…
Contact:
Aaron Pearce
Investor Relations
(414) 438-6895
[email protected]
And see our Web site at
www.investor.bradycorp.com
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BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
Shareholder Return
DIVIDENDS PER SHARE
CUMULATIVE TOTAL RETURN
$0.80
$0.70
Current yield =
approx. 2.5%
$0.60
$0.50
$0.40
$0.30
$0.20
$0.10
$0.00
'85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 10 11 12
F’13 marks the 27th consecutive year of dividend
increases.
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BRC has outperformed market since going
public in 1984.
BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
Global Presence – F’06 – F’12
AMERICAS
$600
EUROPE
(Millions of USD)
610
667
551
534
499
577
590
$400
$200
$600
$400
123
146
158
114
125
146
156
$0
(Millions of USD)
$200
497
417
367
319
108
84
135
2007
2008
2009
ASIA-PACIFIC
2010
2011
2012
2006
2007
2008
389
112
106
359
336
2010
2011
2012
Americas
26%
$400
2009
(Millions of USD)
$600
357
328
307
345
Europe
45%
200
29%
49
57
58
43
52
50
32
2006
2007
2008
2009
2010
2011
2012
$0
32
103
405
$0
2006
$200
100
380
Revenue
Segment Profit
Asia/Pacific
Represents F’12 Revenues
BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
History of Strong Cash Generation
CASH FLOW FROM OPERATING ACTIVITIES
$250
Cash Flow from Operating Activities
(Millions of USD)
% of Net Income (excl. $116M impairment in F'12)
226
200%
$200
165
$150
150%
167
145
136
127
115
100%
$100
50%
$50
0%
2006
2007
2008
2009
2010
2011
2012
FOCUSED ON CASH GENERATION:
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•
F’12 Free Cash Flow of $121 million, or 123% of net income (excl. $115.7 million impairment in F’12).
•
Cap. Ex. generally runs at less than 2% of sales (1.8% of sales in F’12).
•
Expect slightly higher Cap. Ex. in F’13 due to the build out of two new facilities.
BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
EBITDA RECONCILIATION
EBITDA
(Millions of USD)
F'12
Q1
EBITDA
Q2
Q3
Q4
Full Year
(1):
Net Income (Loss)
Interest Expense
Income Taxes
Depreciation and Amortization
Non-Cash Goodwill Impairment
EBITDA
$
32.7
5.1
11.1
11.2
-
$
(90.0)
4.9
8.6
11.0
115.7
$
27.7
4.7
9.7
10.7
-
$
11.7
4.4
11.2
11.1
-
$
(17.9)
19.1
40.6
44.0
115.7
$
60.1
$
50.2
$
52.8
$
38.4
$
201.5
F'11
EBITDA
Net Income
Interest Expense
Income Taxes
Depreciation and Amortization
EBITDA
Q1
(1):
Q2
Q3
Q4
Full Year
$
26.3
5.7
9.9
12.6
$
24.2
5.9
8.2
12.9
$
28.6
5.1
8.6
12.0
$
29.6
5.5
8.6
11.3
$
108.7
22.2
35.3
48.8
$
54.5
$
51.2
$
54.3
$
55.0
$
215.0
(1) Brady is presenting EBITDA because it is used by many of our investors and lenders, and is presented as a convenience to them. EBITDA represents net income before interest
expense, income taxes, depreciation and amortization, and non-cash impairment charges. EBITDA is not a calculation based on generally accepted accounting principles (GAAP). The
amounts included in the EBITDA calculation, however, are derived from amounts included in the Condensed Consolidated Statements of Income data. EBITDA should not be considered as
an alternative to net income or operating income as an indicator of the company's operating performance, or as an alternative to operating cash flows as a measure of liquidity. However, the
EBITDA measure presented may not always be comparable to similarly titled measures reported by other companies due to differences in the components of the calculation.
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BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
Diluted EPS, excluding impairment, restructuring & non-routine tax charge
Reconciliation of Diluted EPS, excluding impairment, restructuring and non-routine tax charge:
Diluted Earnings Per Share Excluding Impairment, Restructuring, & Non-Routine Tax Charge:
This is a measure of the Company’s diluted net earnings per share excluding the current year Asia non-cash
goodwill impairment charge, current and prior year restructuring charges, and current year non-routine non-cash tax
charges related to an internal reorganization. We do not view these items to be part of our sustainable results. We
believe this earnings per share measure provides an important perspective of underlying business trends and
results and provides a more comparable measure of year-on-year earnings per share growth. The table below
provides a reconciliation of diluted net earnings per share to diluted earnings per share excluding the impairment
charge, restructuring charges, and non-routine tax charge:
Diluted Earnings (Loss) per Share
Non-Cash Goodwill Impairment
Restructuring Charges
Non-Routine, Non-Cash Tax Charge
Diluted Earnings per Share Excluding
Impairment, Restructuring Charges,
& Non-Routine Tax Charge
Three Months Ended
July 31,
2012
2011
$
0.22 $
0.55
0.14
0.03
0.11
-
Twelve Months Ended
July 31,
2012
2011
$
(0.34) $
2.04
2.19
0.18
0.12
0.11
-
$
$
0.47
$
0.58
2.14
$
2.16
All reconciling items are presented net of tax. Tax effects are calculated consistent with the nature of the
underlying transaction. Diluted loss per share and all reconciling items for the twelve months ended July 31, 2012,
are presented using total diluted shares of 52,821 for the period.
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BRADY 2012 ANNUAL SHAREHOLDERS’ MEETING
Net Income, excluding impairment, restructuring & non-routine tax charge
Reconciliation of Net income, excluding impairment, restructuring and non-routine tax charge
(‘000s of USD):
Net Income Excluding Impairment, Restructuring, & Non-Routine Tax Charge:
This is a measure of the Company’s net income excluding the current year Asia non-cash goodwill impairment
charge, current and prior year restructuring charges, and current year non-routine non-cash tax charges related to
an internal reorganization. We do not view these items to be part of our sustainable results. We believe this net
income measure provides an important perspective of underlying business trends and results and provides a more
comparable measure of year-on-year net income growth. The table below provides a reconciliation of net income to
net income excluding the impairment charge, restructuring charges, and non-routine tax charge:
Net Income (Loss)
Non-Cash Goodwill Impairment
Restructuring Charges
Non-Routine, Non-Cash Tax Charge
Net Income Excluding
Impairment, Restructuring Charges,
& Non-Routine Tax Charge
Three Months Ended
July 31,
2012
2011
$ 11,659 $ 29,583
7,109
1,563
5,616
-
Twelve Months Ended
July 31,
2012
2011
$ (17,911) $ 108,652
115,688
9,567
6,523
5,616
-
$
$ 112,960
24,384
$ 31,146
$ 115,175
All reconciling items are presented net of tax. Tax effects are calculated consistent with the nature of the
underlying transaction.
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