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H.B. Fuller Company (NYSE:FUL)

Annual Shareholder Meeting

April 11, 2013 3:00 pm ET


Lee R. Mitau - Independent Chairman, Chairman of Corporate Governance & Nominating Committee and Member of Compensation Committee

Timothy J. Keenan - Vice President, General Counsel and Corporate Secretary

James J. Owens - Chief Executive Officer, President and Executive Director

Lee R. Mitau

Hi, I'm Lee Mitau. I'm Chairman. I'm happy to welcome you to the Annual Shareholders' Meeting, and my principal duty is to introduce some people and then sit down. So I'm going to introduce the board, and they're all here. Let's go in the order of the pictures: Tom Handley; Mike Losh, wave to the audience; Jim Owens, of course; Dante Parrini; Alfredo; John Van Roden; and Bill Van Sant. And join me in thanking them for their wonderful service to our company.

I also would like to mention that in attendance our -- is our auditing -- representatives of our auditing firm, Tom Lydon and Travis Rabe. They'll be available to answer any questions you might have at the end of the meeting. And we also have John Comer's [ph] here, who represents Broadridge, and is our inspector of elections.

And now, I'm pleased to turn the business part of the meeting over to Tim Keenan.

Timothy J. Keenan

I'll turn our attention now to the business portion of the meeting. I have an affidavit from our stock transfer agent that the mailing of our annual report, proxy statement and proxy card commenced on February 27, 2013, to shareholders of record February 13, 2013. 93.8% of the voting power of those shares is present at this meeting by proxy. Therefore, a quorum is present, and I now declare the meeting open for official business.

We have 4 proposals before us today for -- as presented in the proxy statement. The first is the election of directors; 3 directors have been nominated and named in the proxy statement for election to a 3-year term expiring at the 2016 annual meeting. Those 3 are Dante C. Parrini, John C. Van Roden and James J. Owens. All are currently directors and our board recommends a vote for each of them.

Each year, the company provides shareholders with an advisory vote on the compensation of our named executive officers as disclosed in the proxy statement. This is our second proposal. This advisory vote on executive compensation is not binding on the company. However, the Board of Directors will take into account the result of the vote when determining future executive compensation arrangements. The board recommends a vote for adoption of the resolution approving the compensation of the company's officers.

The third item is the ratification of the appointment of our independent registered public accounting firm. The Audit Committee is determined to engage KPMG LLP to serve as H.B. Fuller's independent registered public accounting firm for the fiscal year ending November 30, 2013. The board also recommends a vote for the ratification of the appointment of KPMG.

The fourth and final item is approval of the H.B. Fuller Co.'s 2013 Master Incentive Plan. As outlined in the proxy statement, the purpose of the 2013 Master Incentive Plan is to promote the interests of the company and our shareholders by aiding us in attracting and retaining employees, officers and consultants capable of assuring H.B. Fuller's future success. The Master Incentive Plan will provide those persons with an opportunity to acquire proprietary interest in the company and thereby align their interests with those of our shareholders. The board recommends a vote for the proposal to approve the 2013 Master Incentive Plan.

We'll now turn our attention to the voting of the shares. If there's anyone present who has not yet voted by proxy and would like to vote at this time, please let me know. Okay. There being none, I order the proxies received today to be voted as directed and that the votes be tallied. We'll announce the results at the -- later in the meeting.

And I'll turn it over now to Jim Owens for some remarks.

James J. Owens

Okay. Thanks, Tim. I'll try to keep my remarks brief. It's tough for me because 2012 was such a great, exciting year for the company. Let me first take my attention to introducing the Executive Committee and the corporate officers of the company. A few of them are present here. I'd ask them to stand up and be recognized: Jim Giertz, our CFO; Traci Jensen, Senior Vice President of the Americas; Steve Kenny is not present, he's our Senior Vice President of the EIMEA group; Pat Trippel, Senior Vice President of Market Development; Kevin Gilligan, also not present, VP of Global Operations; Tim Keenan, VP, General Counsel and Corporate Secretary; Jim McCreary, who's our Corporate Controller; Ann Parriott's not present, she's our VP of Human Resources; and Cheryl Reinitz, VP and Treasurer. I'd like to have you all join me in thanking them for their great, great leadership.

I'd also like to thank this next group of people on the next slide, and these just represent about a few of them, right, but these are the people that really make the great success happen at H.B. Fuller. 2012 was another record year and whether they're leading the efforts to market our products at trade shows, changing some of our processes in our plants in far, far places of the world. Whether it's in Latin America or India or even sweeping the floors of our plants in China, our employees are what make the success of our company, and I'd like you to join me in thanking them for their great service.

I won't read all this, you'll be thankful to know, but be advised that I will make some forward-looking statements and these advisers [ph] are well documented in our -- in all of our paperwork and documentation.

Overall, we're a company that focuses on adhesives. It's our people and our technology focused on customers that makes us a successful company in our business base. It's the core of what we do, drive a great set of people, a unique set of technologies to meet the ever-changing needs of customers. Anyone around the world who's putting anything together, we're a big part of making that a success.

2012, next slide, was a record year. It was a record year in sales. It was record year on profits. It was a record year of safety performance. Record year in the level of training. The company did outstanding performances overall, as you've all seen in the public records that exist.

Net revenue was up 21%. Organic sales was up over 6%; that's the third consecutive year of organic sales between 6% and 10%. Net income from continuing operations was up 16%, now, that's $2.20 a share, a new record. EBITDA was up 29% and, importantly, one of the key strategic metrics for us is to improve our EBITDA margin, which went from 10.9% to 11.7% from 2011 to 2012. And the stock price was up 47%, again, another record for our shareholders.

We started the year at $22.37, ended the year at $32.85, which was a 47% increase. And I think as of yesterday, the stock price was up again to $38.31. So certainly good appreciation for our shareholders as a result of the great work that's happening inside the company.

Dividends again will be increased. This will be the 44th consecutive year. I'm pleased to announce that the board approved today an increase from $0.085 a share to $0.10 a share. That's nearly a 17% increase. It's the 44th year in a row that we've increased the dividend. It's also the highest increase in dividend both in dollars and in percentages that the company's done in the last 25 years. So more great news for our shareholders.

All this is in line with a very clear strategic plan. The 2 operating goals we have: drive organic growth of 5% or 8%; EBITDA margin improvement up to 15% by the year 2015. Those 2 strategic targets from an operational standpoint are going to drive the company to $2.4 billion in revenue and $360 million in EBITDA. And they'll also lead to the 2 other important strategic goals we have, which is our return on investment capital and EPS growth.

How are we going to do these 2 things? That's the strategic question, and the next 2 slides summarize that. From organic growth, there's 4 elements to it. First and foremost is focus on our core areas of strength. We see good growth opportunities in the area of hygiene, packaging and durable assembly around the world, and by being a differentiated player in those areas, focusing on being the best in those areas, we're winning with customers.

We do it through sales and market expertise, understand the markets, the applications, the customers and the opportunities better than others. And we do it by investing around the world, being positioned in the places where growth happens with the right people and assets is an important part of our growth strategy. And finally, it's about innovation. Innovation is about identifying those opportunities that exist out there and then bring chemistry application ideas that [indiscernible].

So that's our first pillar. The second is to improve our margins. Certainly, a big part of that is completing the Forbo integration, meeting the targets that we've outlined to deliver as part of that integration. Second part of that is to grow in the emerging markets, notably Latin America and Asia, where we have a good strong infrastructures and a good opportunity to improve our margins. And then finally, it's to continue to manage our margins effectively through cycles of raw material movements, which is a trend that we've been able to develop and a competency we've been able to develop and capitalize inside the company [ph]. So those are the 2 pillars of our track record.

In 2012, those showed up in a long list of very significant accomplishments for the company. As everyone knows, we acquired the Forbo business, a $575 million business, and transformed our business and we initiated the integration. And in North America, completed most of the integration. 2012, a very significant event and transformation of our business occurred when we -- where it'll buy [ph] the Forbo business.

We also divested our Central America Paints business. This was long talked about among our shareholders and our executive team, but finally executed in 2012. It allows us to focus on our key strengths and allows that business to go on and be in a place where it can grow more effectively. Our goal is to be the best adhesive company in the world, both of these moves were big steps in enabling us to do that.

We also acquired the Engent business. This is a good enabler for us in a space that we want to grow in, which is the electronic space. In 2012, we also opened our facility in Pune, India. It's an important manufacturing site for us in a very large growing economy. And significant sales growth is happening in that region because of the investments we're making, not just in facilities, but in people and capabilities to win in the Indian market.

But we're elevating our team -- every day the strength of our team, through acquiring people and the skills and the competencies they develop, continues to elevate. And as people touched the senior management, as some of our investors did at the Analyst Day, they get a sense on how strong the H.B. Fuller leadership team is. That's a big driver of our growth, as well as the work we're doing throughout the organization to help people from a personal development standpoint.

Every person in the organization gets training every year. We want every one of our employees to get better and better. The world's a fast-moving place. An important goal for us is that everyone gets better at their jobs each and every year.

We improved our safety record. Second year in the row, we had a TRC rate below 1. It was again lower in 2012. And it is an important part of our philosophy of looking out for our employees, as well as the communities where we operate. And very proudly, we were also awarded a significant accomplishment as one of the world's most ethical companies. Less than 200 companies in the world will recognize that. It's a core value at Fuller to win the right way. That means for us winning ethically with good respect for our people. It was a great year in 2012.

When you want to look -- I can't summarize here today everything that we're going to do in 2013 to 2015, but the best way to learn about that is to review what happened on our Investor Day on February 7. It's recorded. It's on our website. It lays out very clearly what our strategy is, how we're going to drive the Forbo integration in detail. Traci Jensen and Steve Kenny went into great detail on exactly the goals and the accomplish -- we're going to achieve and when we're going to achieve them. Pat and Hassan spoke in detail about what our innovation plan is and do we have there. And for those of you who weren't able to attend, I encourage you to go on the website and click through it. It really tells a great story of what the future of H.B. Fuller's going to be over the next few years. Our first quarter this year, we delivered right on track with what we expected and we have high hopes for the rest of this year and the rest of our plans for 2015.

Finally, on 2013, the objectives are pretty clear: continue to drive organic growth; improve our EBITDA margins at the levels we've committed to; make certain we deliver on all the commitments we have with the Forbo integration; and build the innovation pipeline.

So, in summary, 2012 was a record year for the company. It's one that I think the employees in this company are very proud of. And we thank the Board of Directors for their support. And we thank our shareholders for their support in 2012. We're very excited about the future that's coming ahead in 2013 and beyond. Thank you.

I'll turn things over to Tim.

Timothy J. Keenan

The results for the shareholder vote are now final. I'm happy to report that all 4 proposals have passed. Therefore, Dante Parrini, John Van Roden and Jim Owens have been reelected to the board. The advisory vote on the compensation of our named executive officers has passed. The proposal to ratify the employment of KPMG has been approved. And the proposal to approve the 2013 Master Incentive Plan has also passed.

So there's no further business for the meeting. I'll declare the business portion of the meeting closed, and we can open up for questions and answers.

Question-and-Answer Session

James J. Owens

So most of the attendees here are our Board of Directors, so I hope I won't get tough questions from them. Any questions from the floor this afternoon? It's a snowy day in April in Minnesota, so not as many attendees as normal.

Unknown Attendee

Just keep up the good work. And I'm glad to be reminded of [indiscernible] that we classify the activities [indiscernible] concrete [indiscernible] or granite. I see that you're following that. That's an important thing. Safety training was always highlighted and you have a program. [indiscernible] annual meeting about another, whatever new idea of safety. And just for those -- and most of you I don't know, really talked to a few of you. But you should know I was telling someone earlier that I'm going to the Fuller meeting and I said, "Well, that used to be an event, just so you know." I'm sure you've studied things and read about it, but we've had them downtown at the auditorium and so on, hundreds of people, a rally really. And there were -- all the employee/owners and the participants and then, heavily, had the shareholders and families. It was really quite an event. So I congratulate all of you to keep it going, but don't lose any -- just keep a little of that tracked in. That it's a very -- this isn't just some company that been maneuvered [ph]; it's a real bona fide company.

James J. Owens

Thanks for the comment. Yes, you're right. Fuller has a great tradition, over 125 years of tradition of success built on strong values, focusing on employees and customers and our shareholders and our community. Doing that in the right way is a big part of who we are. And it's those traditions that we're building the success, so it's no doubt. And these meetings change. They'll probably change in the future as well, right? But...

Unknown Attendee


James J. Owens

Yes, and the shareholders have. But the traditions that made the company great are the things we're building on for -- thanks for your comment. Good. There are no other questions. Then we call the meeting to adjournment, or would you like to do that Mr. Chairman?

Lee R. Mitau

I'll delegate that to you.

James J. Owens

Okay, there we go. So I'll call this meeting adjourned. Thanks, everybody, for their time today.

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