Excerpt from 2013 Annual Report
Chairman of the Board,
Chief Executive Officer and President
Dear Shareholders, Customers and Associates:
Current Shareholder Materials
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In 2013, we delivered record performance in sales, net income, adjusted EBITDA and net operating cash flow. We’re proud of this performance, especially because we achieved these record-breaking results despite weaker than expected economies in most regions. Over the last five years, earnings have nearly tripled—from $1.45 per diluted share in 2009 to $4.27 per diluted share in 2013. Adjusted EBITDA increased to $90 million. In addition, our strong cash flow continues to strengthen our balance sheet and we now have more cash than debt.
Quaker’s total shareholder return outperformed many major stock indices. The appreciation in stock price and dividends yielded a 45% return to shareholders in 2013 on top of a 42% return in 2012. Once again, Quaker’s average stock price—$66.29 per share—was an all-time high. In the second quarter, the Board approved an increase in our quarterly dividend to $0.25 per share—the 37th time we increased our dividend in 42 years as a public company.
CAPTURING GROWTH OPPORTUNITIES. During the year, we experienced a slowdown in steel demand and industrial activity in Europe, North America and South America, as well as other economic uncertainties around the globe. Despite these external challenges in 2013, our revenues grew to $729 million, a 3% increase over 2012. Over the same period, we achieved double-digit growth in net income.
We maximized our opportunities for revenue growth in 2013. We increased sales to existing customers, gained market share in our core businesses, re-established relationships with prior customers and developed new business with new customers. For example, of the new steel mills that were commissioned globally last year, we won 8 of the 10 mills where we participated in the bidding process. I want to thank our associates for making these growth opportunities happen despite the difficult environment.
We have made and continue to make good progress against the strategic plan we put in place in 2009. In primary metals, we continue to increase our share of our customers’ business. In metalworking, we are working to build a market-leader position in the tube & pipe and engines & transmissions segments—and are making headway. And, to ensure our future and take into account an ever-changing and challenging environment, we reviewed and updated our strategic plan.
CONTINUING TO INVEST IN GROWTH INITIATIVES. We have completed seven acquisitions since mid-2010, including the 2013 acquisitions of a business primarily related to tin plating in the U.S. and a chemical milling maskants distribution network in China. Integration of these businesses into Quaker is still in its early stages, but we have begun to realize their benefits. By introducing our newly acquired technologies to our existing customers and leveraging our global reach to enter new markets, we are gaining a wide range of new opportunities. In our specialty grease business (acquired in December 2010), we grew existing business, enhanced profitability and identified “next steps” to expand into global markets. In aluminum hot rolling (acquired in July 2010), we have added new business in Europe and the Middle East. And in die casting (acquired in October 2011), we gained business in China, Southeast Asia and South America.
We are confidently investing capital and resources to establish a larger footprint and build capacity in regions where growth is most robust for us. During 2013, we built a new manufacturing plant in Qingpu, China to keep pace with that region’s growing opportunities. At the same time, we made progress in our plan to build a new facility in India.
A LOOK TOWARD THE FUTURE. While traditionally the purpose of this letter is to report on the past year, most of you, like me, are more interested in the future. The future looks bright for Quaker. With our strategic growth initiatives and implementation plans in place, we’re on the right track to continue to increase our revenue and profits. We have many reasons to be positive about what’s next for us. And the financial strength we’ve generated over the past five years gives us the flexibility to fund our growth initiatives and to act quickly on acquisition opportunities.
“Where will future growth come from?” Essentially, Quaker will draw on four sources—our base markets, market share, prior acquisitions, and future acquisitions.
- Growth in our base markets. We expect our base markets to grow at a faster rate than they have in the past few years. We anticipate at least modest growth in all regions of the world during 2014—a welcome change from the previous environment where at least one part of the world was experiencing a weakened economy. And, we foresee a brighter outlook for our core end-markets—steel and automotive.
- Gains in market share. Over the past several years, we had to overcome the uneven global markets and grow organically by increasing our market share. We expect our success in growing share to continue. Our “customer intimate” business model differentiates us from our competitors. This is a model based on establishing strong relationships at multiple levels in our customers’ organizations, gaining a deep understanding of their needs, and solving their critical business challenges with urgency—unique in the specialty chemicals industry and difficult for others to duplicate. Committed to implementing our model successfully, we believe we will retain this advantage. Our delivery on this model, combined with our exceptional talent and technology, makes us confident we will continue to gain share.
- Leveraging our acquisitions. In addition to organic growth and market share gains, we expect our recent acquisitions to contribute to our bottom line. Through our recent acquisitions, we gained five new product technologies. We are in the midst of using our global infrastructure and customer relationships to market these technologies in new regions around the world.
While we are still in the early stages of doing this, I’m optimistic that these recent acquisitions will be a strong source for our future growth.
- New strategic acquisitions. Moving forward, we will continue to explore new acquisition targets to strengthen our position in our existing markets and to bring new technologies to our markets. We believe there will be potential acquisition opportunities in our market space over the next several years that can create significant value for our shareholders. As I mentioned earlier, our strong cash flow and balance sheet positions provide us tremendous financial flexibility to make these acquisitions.
POWER IN DISTINCTION. We have been on a path to establish ourselves as a market leader with a clear and recognizable difference compared to our competitors. We made a commitment to become a company that creates true value for our customers by delivering tangible solutions that help their business success. While there is always more work to do, we are now that company.
Our strong performance in 2013 is a testament to the strength of this differentiation and to the discipline and ability of Quaker associates to execute our strategic growth initiatives around the world. Our associates work hard, have determination and are driven to find “right solutions” to challenges every day. And they have staying power. I’m proud to say, we have low turnover at Quaker. This is key for us because our associates are our most valuable asset. Our culture fosters continual learning and development with opportunities for advancement into key positions. In addition, we have been fortunate to attract new and experienced talent in all regions to further our competitive advantage.
In the coming year, we remain committed to achieving outstanding performance, returning value to our stakeholders and being a progressive force in our customers’ success. In closing, I thank all of you—our shareholders, our customers and our associates—for your continued support and confidence. Our future together continues to be bright.
Michael F. Barry
Chairman of the Board, Chief Executive Officer and President