Commercial Vehicle Group, Inc. (NASDAQ:CVGI)
2013 Annual Meeting of Stockholders
May 16, 2013 1:00 PM ET
Richard Snell – Chairman
Patrick Hayes – Computershare Representative
Chad Utrup – CFO
Mervin Dunn – President and CEO
Kevin Frailey – President and General Manager, Global Electrical Systems
Gerald Armstrong – President, North & South American Markets
(Starts Abruptly) today, our members of the Board of Directors and members of the executive management team. I’d like to take a moment right away to recognize Merv Dunn, President, CEO of CVG as well as the Board Member, who announced his retirement earlier this year. We will certainly miss Merv’s insight and counsel and appreciate his leadership over the past 14 years and we wish him nothing but the best in his next phase of life.
I would also like to recognize, Jack Kessler, who is retiring from the Board after years of contribution to the company. Jack, your service and your impact will be remembered and we all thank you for it. Thanks, Jack.
Okay, we will begin the formal business portion of the meeting and discuss the results of the voting on matters presented in the proxy, after which, we will adjourn the formal segment of our meeting and management will provide an overview of the company and answer any questions you may have.
To begin, any stockholders present today who have previously executed proxies for this meeting and wish to revoke them and vote in person or stockholders who have not executed proxies for this meeting and wish to vote may do so at this time.
Any stockholders wishing to vote in this manner please raise your hands, so we can distribute ballots. Let the record reflect that no stockholder has chosen to revoke his or her proxy or vote in person.
I’d now like to introduce Patrick Hayes, a representative from Computershare, the company’s transfer agent, who will serve as the Inspector of Election and will count the votes cast by stockholders. Mr. Hayes has available for inspection by any stockholder present at this meeting first has certified a list of the holders of record of common stock of CVG as at the close of business on March 18, 2013 the date of record, a copy of the notice of this meeting and an affidavit of mailing of the notice to the shareholders.
Any stockholders wishing to inspect these documents may do so at the conclusion of this meeting. Mr. Hayes, would you present your report?
Mr. Chairman, I wish to report that 27,423,994 shares out of the 29,365,754 shares common stock outstanding and entitled to vote are represented by proxy at this meeting. I therefore declare a quorum is present for purposes of this meeting
A quorum being represented at the meeting and I declare this meeting to be duly convened and constituted.
The first item of business on the ballot is the election of Class III Directors, Scott Arves, Bob Griffin and I have been nominated to serve as Class III Directors of CVG until the Annual Meeting of Stockholders in 2016. Is there a motion calling for a vote on this proposal? Is there anyone second this motion?
I second the motion
Thank you, I hereby declare the nomination is closed and submit the matter to a vote of the stockholders.
The second item on the agenda is a non-binding advisory vote on the following resolution. Resolved that the compensation paid to the Company’s named executive officers as disclosed pursuant to item 402 of Regulation S-K, one of our favorites including the compensation discussion and analysis, compensation tables and narrative discussion is hereby approved.
Is there a motion calling for a vote on this proposal?
Chairman, I move the resolution be approved.
Is there anyone second this motion? Thank you. I hereby declare this motion duly made and seconded and submit the motion to a vote of the stockholders.
The final item on the agenda is to ratify the appointment of KPMG LLP as the Company’s independent registered public accounting firm. James Sanderson, Brian Campbell of KPMG are here today and available to respond to appropriate questions.
Is there a motion calling for the ratification in the appointment of KPMG?
Mr. Chairman, I move to ratification of the appointment of KPMG as the Company’s independent registered public accounting firm.
Is there a second to that motion?
I second the motion
I hereby declare this motion duly made and seconded and submit the motion to a vote of the stockholders. As no stockholders have chosen to revoke their proxies and vote in person, the polls are hereby declared closed. Will the inspector please report the results of the voting?
Mr. Chairman, the votes on the election of directors and other proposals have been tabulated. On the motion for the election of Class III directors, each of the individuals nominated to serve as a Class III director received the appropriate number of affirmative votes for election.
On the motion for the non-binding advisory proposal, on the compensation of the named executive officers, the appropriate number of affirmative votes has been received.
On the motion for the ratification of the appointment of KPMG LLP to service the Company’s independent registered public accounting firm for 2013, the appropriate number of affirmative votes has been received.
Thank you. I then hereby declare that each of the nominees for director have been elected, that the non-binding advisory resolution approving the compensation of named executive officers has been approved and that the appointment of KPMG LLP as the Company’s independent registered public accounting firm has been duly ratified.
If there is no further business to discuss, this concludes the formal portion of our business and the meeting is now adjourned.
I would like to make one comment before I turn this over to the management on the Board’s search for a new CEO. We are pursuing this diligently and urgently. I know it’s important to all of you, but we are going through all the steps as we should, because it’s important decision.
We have interviewed several very qualified candidates both internally and externally and we are moving to a decision as quickly as we can. I would expect that we’ll be in a position to announce the new CEO within the next one to two months.
So, having said that, I’d like to turn the meeting over to management for an overview of the company after which we will be happy to answer any questions that you may have.
Hi, I’ll get started, we’ll figure out the microphone. (audio gap) a lot of what we are going to talk about today that we went through (audio gap) roughly eight months (audio gap) it’s important for us that every time we talk to employees and shareholders, obviously everybody here, but we continue to talk about strategy, obviously with the change with Merv retiring and it’s really important for us to make sure that everybody understands our strategy is intact. And that’s what we are going to go through today.
So when we talk about our strategy, as most of you know there is basically a four prong approach to it. Geographic diversification, end-market diversification, becoming a technology leader and of course people development.
You’ll notice that two of the four legs of our strategy is based on diversification and there is a very, very important reason for that and it’s on this next slide for those of you on the webcast.
On slide 5, 75% roughly 76% of our markets are in very cyclical industries. Everybody knows the North American Class 8 market and how cyclical it is as well as the medium to heavy duty side of the global construction equipment recently is more cyclical than we have seen in the past.
And these graphs, if you look at and with the top left, that’s the North American Class 8 production peaks to valleys and that’s just over the last four years on a quarterly basis. And on the top right, our revenue since you track that. So it goes up, it peaks, and then it goes down into a valley. Well, it’s hard to manage our cost structure when that happens, at least in the valleys.
And the same is true on the bottom, when you look at the construction, production it’s cyclical and more cyclical. We’ve seen in the last half of 2012 and what we think we are seeing in the first half of 2013, which is very cyclical.
And if we had the global construction broken down by quarter, it would be much more significant than what it is year-by-year, but the data that is transmitted out, unlike you have in heavy truck with starts have the same thing in global construction that we can operate it in the quarter, we just have the yearly amounts.
But even with the yearly amounts, it is quite cyclical even at this and we are seeing much more so like Chad says from the fourth quarter – third and fourth quarter and in first quarter of 2013.
So, this is a key reason of why, call it has two of the four major prongs of our long-term strategy are based on diversification. Growth is obviously a piece of that, the diversification. So that we are now – which is on up and down all the time when these markets happen like this, it’s critical for us.
And so as we look at our five-year targets along with diversification, we want to focus on 50% of our revenue being outside of North America. We are roughly 75% in North America today.
And for those of you that have been with us for a while, especially as employees, we’ve seen this come from when we all started at 100% Class 8 in North America. So this is a significant change and to be the size that we are now compared to the $67 million we were back then and still have this much. So it is very important that we continue to grow, totally but also outside of North America. So that we are not impacted this much.
Another objective from a diversification standpoint, no single end-market more than 35% of our total revenues, that gets into where our OEM truck globally today. I’ll get to it, it’s about – it’s half of our business. So we would like to target no more than 35%.
And lastly, we want to maintain a balance of our customer base across all of our markets, products and geographic regions. So, from a diversification standpoint, these are kind of the three sub-goals outside of diversification.
And as – so as Merv was just talking about, if you just look at 2012, in North America, we had 79% of our total revenue was based – manufactured in North America in 2012. And as Merv said, this used to be a 100% and a significantly smaller number, 7, 8 times the size from say 15 years ago.
And so we’ve made it then, but we’ve got a long way to go. Our objective is 50%, continue to grow, continue to make that donut I’ll call it, much larger. But we’ve got some ways to go on continuing to diversify.
I think, also, it’s very important to remember we are not saying that we are going to shrink North America. We are saying we are going to grow everything, but we are going to grow outside in North America to pass that right, because that’s where the growth potential is.
When you look at China alone, a year ago with 1 million Class 8s compared to our 250,000. It tells you that that’s where the growth is for potential and the same thing with India. Not there today, because all markets are down a little bit or significantly. So, but that’s where the growth is.
On a similar note, I touched on no single end-market, more than 35% of our revenues, this is last year, 50% heavy truck, roughly mid-to-high 40% is actually Class 8 North America, the rest is global truck.
So, we’ve made some headway that used to be, again a smaller number, but it used to be about 95% heavy truck and we are significantly larger, but still 50% heavy truck. But we come a long way in construction. So, again progress, but we’ve got ways to go to achieve our objectives.
And lastly on diversification, continue to maintain a well-balanced portfolio by customer. This looks significantly better than it did 10, 15 years ago. So, we want to make sure that we keep an eye on not allowing any single customer to become a too bigger piece of our pie and we’ve come a long way.
Yeah, back then, as Chad is saying, we only had two customers really, one was Paccar and one was Volkswagen. So, to maintain the type of growth that we have since as to begin to move into the international markets, to follow our customers, we had to go into these areas and it’s been tremendous.
I mean, you look at the jobs that our plant has done with these customers, the Paccar plant run at 150 PPM that we – I could remember when we took over one business from – young man it works here now that needs to be our buyer, we did 55,000 PPM in that same plant now I refer in that 50 PPM.
The electrical group with the CAT Platinum Award two years in a row. I don’t even know any other supplier as long as I’ve been said won it one year and then to do this, and then the John Deere Supplier of the Year Award. Our guys are just doing a fantastic job. That’s what wins business.
So if you recall back the last couple of slides, there is four prongs to our long-term strategy. Lot of tactical items underneath those objectives with this four prong approach. Pursue a diversification obviously continued growth and the third piece of that is the technology piece and product piece. Kevin and Gerry are going to speak to these next several slides.
Thanks, Chad. My name is Kevin Frailey. I lead a group called Electrical Systems. My retirement gift to Merv is to limit my part of this presentation to one slide. Believe me he is very grateful for this act of kindness. So…
I am here to open up the discussion of technology leadership and as I do that, I want to remind you that technology leadership does not have to be overly complex. Sometimes technology leadership can be in the form of removing complexity altogether for the customer experience.
We got two items, two initiatives on the slide; one pertains to the hybrid delivery of power or electric drive. If you follow the leaders in construction equipment, all of these leaders are introducing exciting mean machines, that do a lot more with less fuel and CVG’s part is to deliver that power with or that electricity to where it needs to go in a safe problematic, trouble-free way.
When you are dealing in a 24 volt environment, you have electrical failure. The cause to that failure could be the loss of function, inconvenience that is a hazard. When you are dealing in the high-voltage environment, and you have a problem, the cause to the failure could be fire and that is beyond the hazard.
So CVG with the R&D center is working on a way of combining the right element of cable, the right terminal, and the right joining technique to take resistance out of the equation and make sure, just as I said, the power of the electricity gets to where it needs to be without any problems.
And they really value their contribution. The second initiative pertains to something that we continue to talk about the product is not new. Other people can produce, a wire harness that has a molded outer. It certainly does look better, it certainly does assemble better, it certainly does give you tremendous durability, but in the way our competitors put the product together it’s often very costly and very time-consuming to get the mold process right.
We are working just down the hall here with a rapid prototyping group to take that cost of tooling and to take the time element, involved in that mold and reduce it by at least 75%. When you do that, you can give the customer everything that I just described, the aesthetics and the durability and the ease of assembly which you can do it in an environment that’s very fluid and they really appreciate that.
Technical difficulties for the technical part of the portion. All right, Gerry Armstrong, I’ll do that and I am going to talk about a few of the things we are working on in the Seat business which has just won a many things, but pretty significant for us last year.
First is in the truck business, typically in the truck, where most of our truck seat business is in North America and South America. There is two products that cover three ranges, the entry level or Vocational, the value proposition, there is the mid-range on Highway and then there is the luxury again.
Most competitors and us in the past we covered all three ranges really with new products, you are having entry level, that is up featured to sell into the mid-range or a high level that the content to sell into the mid-range.
Well this last year, we introduced a branded seat that we are making in our National facility, that’s in the mid-range designed specifically for the mid-range at lower cost and improved performance.
What’s the main technology in a truck figures is engine seat, it’s where it takes the vibration as a frequency that the vehicle produce that’s harmful to your body and converts it to another frequency that’s less harmful.
So, we enable to offer our customer an a la carte for every range so that you can target their specific needs of their end-user customers in these truck seats is a huge win for us and it should be very productive for us on a go forward basis.
Next segment I’d like to talk about is the one that really shows the power of CVG, it’s really in the construction seat area. We won five new programs this last year across the world with three new seats.
These seats were designed partially in Asia, partially in Europe, partially in North America, at lower cost, by lower cost, lower design cost. Because they took segments and it was already being developed in those various markets.
Lower manufacturing cost, lower package cost and quicker speed to market, which has allowed us to get our first major wins in North American structured market-to-market that we then knocked out for the last several years. So this really shows the power of leveraging these 18 companies that we put together over the last seven years.
Great job guys. That really shows the power of CVG. A little bit on our five-year target for the target revenues. 2011, $0.83 billion.
Yeah, I think the takeaway from this slide, this is the exact same slide we show at the end about eight months ago at our Investors/Analyst Day and it’s really the first time we revealed our long-term targets, in this case, it’s a five-year target for top-line growth. Obviously that needs to translate into bottom-line growth as well.
But the point of putting this slide up today is, again to reinforce that, management, the company, it hasn’t changed. The strategy is still there. 2013, some of our markets have a dipped a little bit some new programs and startup production have shifted a little bit. But at the end of the day, we are still standing here behind what we put up as our five-year target.
So, there may be some things that shift here and there, but the point being we are still standing behind our top-line growth target and as you can see between 2011 and that far right column of $1.6 billion, we plan to generate that growth roughly halt through organic growth and roughly half through acquisition growth. So, again, we are fully engaged and planning on ahead - marching down to that five-year goal.
And that’s actually the last slide of the formal presentation, but I will turn it over to Mr. Dunn for some closing comments and really maybe a walk through what the company has become since Merv has been here over the last 14 years as Dick mentioned earlier. We are all very thankful for what Merv has done in his time here and we could get through some closing remarks from him at this point.
Thank you, Chad and the reason this time of the year is my favorite meeting is because, when you look at a slide like this, well, I mean, got to learn and so, Chad, said this was my slide, in reality it’s your slide and it’s a slide that you all allowed me to lead you through.
This is the tremendous growth that we have had as a company that’s been on your shoulders and it’s been your accomplishment. And when I joined the company, we drop down to – when I took over, we drop down to about $67 million run rate. And everybody kind of avoided me because the kind of – they worried they may not be here in the next day, but that’s okay, I was kind of worried of may be not there either.
So, we all came through it. We came through the dips, and every time we come out of the dip, we came out as a stronger company and we came out with growth plans. And the growth plans that we had and that we are talking about today that Chad and this management team will carry forward are the same things that we talked about in 2000, what are we going to do?
This is what we put our plans on and to be in this job, you got to be about 50% comes through creating a vision and the other is perspiration part, it comes through. And it’s always, always been just a super delight to be with this company. it’s a phenomenal company and it will continue to be.
Each of the brands that we’ve grown, a big milestone was when we took the company public, did the IPO in August, in the 2004, we stepped up the acquisitions pretty fast and furious many of you all here came through some of these acquisitions, Mayflower, Monona Wire, Cabarrus. 2006, we did a groundbreaking on the areas that you all are sitting in, moved to a wonderful community here in New Albany, they have made us feel welcome.
They have done everything possible to make us this success and we are very proud to be part of this community. We kept continuing doing the acquisitions. We moved into the Czech Republic and I skipped over 2004 which is an extremely important milestone when we opened up our China facility. And we didn’t go into the partner – the wholly-own foreign entity owned by CVG and the success rate there that the China team has put together has just been phenomenal.
We have had very much success in about every operation we’ve had. We’ve opened up in the Ukraine. We’ve opened up in, I guess the Czech Republic, India, and the amazing thing is if you look back to what I always refer to, we started up on a little office behind the Adult Book Store over in Alum Creek in Columbus Ohio.
To now be standing in a place like this and to be working with people like you all is really what’s made this company a great place to work and thank you all for allowing me to be part of it. Thank you.
So, there are no questions? Yeah, it tells me we got to take a question. So, I’d like to open it up for questions if there is any questions. No questions? Well, thank you all very much and again you are big part of my family and I appreciate it.
[No Q&A session for this event]
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