KEWAUNEE SCIENTIFIC CORPORATION

Presentation Made by David M. Rausch
At Kewaunee Scientific Corporation’s
2013 Annual Meeting of Stockholders*
This morning, I will discuss the details of our financial results for Fiscal Year 2013. I will share with you
some of the multiple steps we took to make Kewaunee Scientific Corporation profitable for the long-term,
provide information on the Company’s accomplishments last year, and present the outlook for this fiscal
year.
Fiscal Year 2013 continued with some of the challenges we experienced the previous year, but in the end,
it was a rewarding year for Kewaunee Scientific Corporation. We continued to see a weak domestic
economy, specifically, spending in the public sector, and witnessed a sporadic global economic recovery.
Escalated raw material costs, including steel and petroleum related materials, persisted throughout the
year and challenged all of our manufacturing groups. The long-term fragile financial condition of most of
the states, many still with historically higher unemployment rates, and the soaring legacy cost of pensions,
negatively affected the spending on educational construction projects. Unfortunately, this condition
continues to impact the publically funded portion of our business. Adding to the continued anxiety about
the U.S. economy has been the persistent European debt crisis and the protracted debt ceiling debate in
Washington D.C. Today, the U.S. economy continues to expand at a much slower pace than desired.
Recently, the Commerce Department reported that the gross domestic product increased at a meager 1.7
percent annualized rate last quarter after a revised downward increase in the first quarter. Businesses
were cautious about hiring and investing in the beginning of the last fiscal year, but started to free up as the
year closed. Economists remain concerned about the downward slope of growth. This type of retraction in
our economy can become a self-fulfilling prophecy of worry for businesses and consumers alike.
I am pleased to report that we continued our significant progress in a number of important areas. We took
extensive measures that position Kewaunee for an ongoing profitable future. During the fiscal year, we
maintained our aggressive initiatives on lowering our manufacturing and overhead costs, increasing our
support for our strengthened and expanded dealer network, and bringing additional innovative products to
the marketplace.
Sales for Fiscal Year 2013 were $117 million, up 14% from sales of $103 million in the prior year, and the
highest in the Company’s history. The increase in sales came from both our Domestic and International
Sales Groups.
Sales from domestic operations were $93.5 million, up 11% from sales of $84.1 million in the prior year.
The domestic marketplace for privately funded projects returned during the second half of the year,
although at extremely competitive prices, while opportunities for publicly funded educational projects
further dropped and remains depressed. We took advantage of turmoil in the Laboratory marketplace
caused by a change in ownership at a major competitor, to gain market share and increase sales in the
marketplace. The domestic marketplace produced improved sales of small and medium size projects that
more than offset the fewer large projects. During the year, we significantly strengthened our support
structure for our domestic dealer network, giving Kewaunee the strongest dealer network in North America.
Our International Operations had an outstanding year with sales increasing to $23.6 million, up an
impressive 26% from sales of $18.9 million in the prior year. Our increasing international presence and
broad capabilities brought significantly increased sales and earnings for the year. Our strong international
dealer network has Kewaunee well positioned to take advantage of the growing number of laboratory
opportunities in both Asia and the Middle East.
The Company’s order backlog decreased to $80.2 million at April 30, 2013, down from $86.2 million at
April 30, 2012. The domestic backlog increased slightly in FY 2013. The international backlog declined as
several large orders received in previous years completed within the year. Kewaunee remains well
positioned to grow its domestic and international order backlog in the coming years due to our strong
domestic and international sales network and the opportunities we see in those marketplaces.
Net earnings for the year were $3,044,000, or $1.17 per diluted share, up from net earnings of $1,031,000,
or $0.40 per diluted share, in the prior year. Earnings for the year were favorably impacted by the
increased domestic and international sales and lower operating costs, which more than offset the
continued pressure from lower selling prices, increased raw material costs, and the aforementioned
decreased demand for state and local government publicly funded educational projects.
The first three quarters of our fiscal year continued the foundation established in the fourth quarter of the
previous year, concluding with the fourth quarter which provided a great finish to the year, as demonstrated
by the this comparison chart.
The Company’s gross profit margin last year increased to 19.0%, compared to 18.6% the previous year.
This increase reflected the increase in sales volumes and lower operating costs. This improvement
occurred despite higher raw material costs, the competitive price pressures of the marketplace, and the
lack of educational projects.
Operating expenses for Fiscal Year 2013 were $17.0 million, or 14.5% of sales, compared to $16.4 million
or 16.0% of sales the prior year. The slight increase in operating expense dollars resulted primarily from
the 14% increase in sales, while the percentage of expense to sales decreased significantly, reflecting our
continued focus on overall cost reductions.
The Company’s financial condition remains strong. Working capital increased to $25.1 million as of
April 30, 2013, up from $23.4 million at the end of the prior year. Cash on hand at the end of the year was
$6.5 million, as compared to $6.9 million at the end of the prior year. The debt-to-equity ratio was .33-to-1
at year-end, as compared to .36-to-1 at the end of the last fiscal year.
During the Fiscal Year, we continued to experience increases in raw materials and persistent pricing
pressures in the market place, which pressured our gross profit margins. We continued our aggressive
cost reduction efforts throughout the Company. Throughout the year, we used lean concepts and
meetings to identify major cost savings projects in all manufacturing facilities. We also targeted orders and
examined products within each category of the orders for value engineering and commodity cost reduction
opportunities. These efforts carried out across the entire organization provided actual cost savings of
$1.9 million for the year, and now fully implemented, will generate annualized savings going forward of
$2.5 million.
Last evening, we released the results of our first quarter, which ended July 31. Sales for the quarter
increased to $32.0 million, up 19.9% from the prior year’s sales of $26.7 million. Net earnings for the
quarter were $1.6 million or $0.61 per diluted share as compared to $0.25 per share last year. I am also
pleased to announce that your Board of Directors approved a cash dividend of ten cents per outstanding
share to stockholders of record at the close of business on September 10, 2013, payable on
September 24, 2013. We are very pleased with the first quarter results. Our domestic and international
operations continued the strong performance of Fiscal Year 2013.
Looking forward, we remain confident that the combination of last year’s efforts at reducing costs, coupled
with our ongoing cost savings initiatives and our sales organization’s diligent pursuit of orders, will continue
to provide positive results. Our plan continues to be strengthening and supporting our dealer network, both
domestically and internationally, to achieve increased sales and to cultivate our relationships with the major
lab planners and designers to ensure we are developing and providing the new products they require.
During this past fiscal year, we moved our banking relationship to Wells Fargo Bank, signing an agreement
with a three-year term, and negotiating very competitive short term and long term rates with significantly
increased limits and flexibility to better handle our projected future cash needs.
At the end of the fiscal year, we initiated negotiations to purchase the minority partners’ interest in our
International Sales Operations in Singapore and India. With the completion of the transaction in the first
quarter of this fiscal year, Kewaunee will now retain most of the earnings of our International Operations
Recent fluctuations in the markets in India, and in particular the Indian Currency, the Rupee, are not
expected to significantly affect our business within India, but it will impact the reported quarterly earnings
due to the currency conversions to US Dollars. However, we do not expect this to substantially change our
reported earnings.
We commenced and completed an expansion in our Metal Plant in Statesville, North Carolina. We have
judicially utilized capital this past fiscal year to expand our manufacturing capacity in all plants,
domestically and internationally, ensuring that we can take full advantage of domestic and international
opportunities as they become available in the market.
We exceeded productivity and efficiency goals for all three manufacturing facilities this fiscal year.
Metal productivity increased 2.9%.
Resin productivity increased 7.7%.
Wood productivity increased 18.5%.
We are extremely pleased with these productivity increases, a reflection of the aforementioned focus on
cost reductions across all manufacturing facilities.
We continue to strengthen our relationships with all of the major Domestic Laboratory Planners and
Laboratory Architectural firms. These lab designers represent the vast majority of high-end laboratory
projects. We have become the company of choice for their projects, and we are now the company they
look to for assistance in designing and developing their new products. These relationships provide a
greatly increased prospect of closing orders designed by them.
As the domestic laboratory business slowed in recent years, these firms have looked overseas for additional
business, into the Middle East and Far East. As they venture overseas, their desire is to work with a company and
with products they are familiar with. Our focus with all of these firms is to be their domestic and international
resource of choice.
We believe all of these actions, plus the continual development of new innovative products, like the
Interceptor line of Bio Safety and Laminar Flow Cabinets, the DetectAir Ductless Fume Hood line, and the
wide range of adaptable and flexible furniture solutions, gives Kewaunee the greatest selection of services
and products in the industry. These products are helping to expand our reach into the laboratory and
healthcare marketplace and expand our market share.
We have focused on strengthening our support for our International Sales Organizations through our office
in India with added pricing capability and increased drafting capacity. We have the ability to provide
customers with 2D and 3D design layouts, including complete mechanical and electrical design and
turnkey installation. We are well suited to react to expanding sales as the international markets in India,
Singapore, and the Middle East, continue to show growth with projects large and small.
We continue to have strong representation in the growing Middle East markets; in Jordan and Iraq with the
Karmel Group; and in Kuwait, Qatar, and the UAE with Advanced Technology Group. We have
strengthened our presence in Saudi Arabia with the addition of the Abdulla Fouad Holding Company. They
have offices throughout Saudi Arabia. We believe this strong, professionally managed organization will
bring additional sales to Kewaunee in the important Saudi Arabia market.
We continue to look to China as an opportunity for sales growth. We have two dealers established in
China selling the complete product line and one dealer selling fume hoods and safety cabinets
manufactured in India. We are looking for opportunities to expand representation. We are pursuing and
currently servicing many multinational pharmaceutical and chemical companies that we have already
provided products and services domestically. These multinationals have established themselves in the
corridor between Beijing and Shanghai to expand into the growing Chinese marketplace. Our goal is to
service these companies and domestic Chinese customers.
The Healthcare Sales and Marketing team continues its focus on this growing market. It is projected that
total healthcare spending will increase from 5% to nearly 8% per year in the next four years to over
$4.2 trillion by 2017. Overall, healthcare spending is projected to be over 19% of GDP by the end of the
decade. The sweeping healthcare reforms in the Affordable Care Act appear, at least in some form, to be
here to stay. While these reforms have tempered the growth projections of infrastructure spending, the
trend is still for sustained healthcare spending growth and the resulting investment in facilities to support
the growth. While we have always supplied products for laboratories in healthcare, we have broadened
our focus with a dedicated website, MoreToTheTable.com, with direct marketing campaigns to health
system decision makers, and with focused trade show participation. We are bringing Kewaunee further
into the healthcare marketplace with a dedicated sales team concentrating on exposing Kewaunee
products to Hospitals, Clinics, Long Term Extended Care Facilities, and Healthcare Group Purchasing
Organizations.
We are also working with several of our existing laboratory dealers across the nation. They have all
identified the healthcare market for its growth potential in the coming years. They have developed their
own dedicated healthcare sales initiatives in their organizations, to focus their efforts on growing this
business segment for their organization and for Kewaunee. With these dealers, we are taking Kewaunee’s
complete product offering into this healthcare market with:
Just as we continually do in our core laboratory products business, we will be looking for additional
products that will take us further into the healthcare marketplace.
As we move forward, your management team and every Associate within the Company remain focused on
providing a consistent dividend for our stockholders, while providing our customers the best quality
products and service in the industry. We promise to remain focused on these goals.
David M. Rausch
President and Chief Executive Officer
Kewaunee Scientific Corporation
August 28, 2013
*The above information is an abridgment prepared from a presentation made by David M. Rausch,
President and Chief Executive Officer of Kewaunee Scientific Corporation, at the Company’s 2013
annual meeting of stockholders held in Chicago, Illinois on August 28, 2013.
Certain statements in the above transcript constitute "forward-looking" statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that could significantly impact results or achievements expressed or implied by such
forward-looking statements. These factors include, but are not limited to, economic, competitive, political, governmental,
and technological factors affecting the Company’s operations, markets, products, services, and prices.