- Acquired Flexible Products, an automotive anti-vibration parts supplier
- Gross margin increases from 10.5% to 12.1%
- Paid dividends of CAD $0.20 per share
- Compounding impacted by weakness in the mining market
2013, A Year of Transition
In October, we announced the successful completion of our acquisition of all the shares of Flexible Products Co. (“Flexible”), a privately-owned U.S. company that is a leading supplier of innovative and cost-effective anti-vibration solutions to the North American automotive market. The acquisition was valued at approximately US$51 million plus certain working capital adjustments associated with the ongoing operations of the business and is expected to be immediately accretive to the Corporation’s earnings per share in 2014 and free cash flow per share. Flexible has an excellent growth runway with new auto platforms, new products, and global growth opportunities. Flexible will add incremental revenues over $110 million and EBITDA of $10 million.
The acquisition was financed with debt, with the Company announcing that it has entered into a new debt facility with a syndicate of banks led by its existing banker. The secured facility is comprised of a US$40 million revolving credit facility and term loan facilities of US$45 million and C$13.7 million and improves AirBoss’ capital structure and providing greater flexibility to support the execution of its growth strategy.
Subsequent to year-end, we hired Tim Toppen as President of the Company. Mr. Toppen will have overall responsibility for the Company’s growing businesses; in rubber compounding, engineered products, auto parts and defense. Mr. Toppen brings over 30 years of management experience in the rubber industry in both the public and private sector and we look forward to his contribution to revitalize the business.
The trends realized in 2012 continued through 2013 as volumes declined in key markets including mining and defense. Although an improvement in tire tolling occurred toward the end of the year, it did not meet expectations. In addition to the sales volume decrease, sales dollars were also impacted as raw material costs declined. Conversion costs were not reduced, corresponding with volume decreases and impacted margins. The Defense sector provided results consistent with 2012, however is expected to remain weak until 2015.
As we enter 2014, we have established focus areas to drive AirBoss’ performance initiatives on both the cost and revenue side. Our goal is to improve our operating margins through more efficient business processes, leveraging manufacturing resources and strategic growth. Examples of our focus areas include:
Operating Margin Improvement
Our combined spend is over $180 million. There are opportunities to work with certain customers and suppliers to increase purchasing power and drive cost savings. We will achieve this through Centralized purchasing.
The AirBoss group manages 8 mixers and 75 injection molding presses with different capacities and capabilities using different manufacturing processes. We believe if we apply best manufacturing practices and optimize utilization across all facilities we will reduce cost, lower breakeven points, provide flexibility, and free capacity for new opportunities.
Through new product development and lifecycle management, we will leverage our compounding technology and engineering expertise in order to penetrate high margin / high growth markets.
Flexible is a very successful business serving the automotive sector with various growth opportunities. The plan is to accelerate this growth through the introduction of new products, in new geographic markets, at a competitive price.
As AirBoss grows, we will assess our organizational needs and add essential resources as required. Our first external hire will be a global Purchasing leader to drive our centralization effort.
AirBoss has an excellent balance sheet with the capability to finance additional acquisitions. We are developing a strategic roadmap for growth, organically and through acquisition. Plans will include our target criteria.
Overall in 2014, AirBoss will continue to see weakness in the mining and defense end markets. However, we are encouraged by the many opportunities to increase operating margins and execute strategic growth. We look forward to sharing our journey as we progress through the year.
I wish to take the opportunity to thank our shareholders and employees for their support over the last year and look forward to continued growth in 2014.
Chairman & CEO