Fiscal year 2000, our ninth consecutive year of record per share earnings, was truly a remarkable year. With revenue of almost $800 million and world-leading market share in each of our three main product lines, Electronic Chemicals, Metal Finishing Chemicals, and Graphic Arts Specialty Materials, we now have a much more balanced platform. This strategy was begun some five years ago with the acquisition of the Hercules Electronics and Graphic Arts business. It was completed with the W. Canning acquisition in late FY '99, and Polyfibron Technologies (NYSE:PTI) in late FY '00.
You will find that the numbers from prior years in this report have been restated. This is required to reflect the pooling of interests accounting treatment for the PTI acquisition. In the chart immediately following this message you will find the numbers broken down with and without Polyfibron. In addition, we have shown a pro forma cost of stock options. This is the way I view the results internally. In fiscal year 2000 revenues were $756 million, reflecting pooling (revenues not including PTI were $502 million). Last year we reported $382 million (restated to $610 million to reflect pooling). Earnings per share, prior to the one time acquisition charges, were $1.70 and were $1.40 after these charges. This is clearly not up to our standards. The lower than expected earnings resulted from investments in the future and management miscues.
INVESTMENTS IN THE FUTURE:
We firmly believe that the long-term interests of our customers, employees, and shareholders are best served by investing in the future when the time is right, not when it happens to be convenient. This can have the effect of producing uneven results. This year provided a good example. We decided to accelerate investment spending in our Via Tek operation, an important technology to produce double-sided printed circuit boards. This lowered fourth quarter earnings. We experienced significantly higher costs as the main beta site in the U.S. ramped up to production. We believe our patience will be rewarded. We are now able to demonstrate what we believe to be the most automated, highly efficient double-sided printed circuit factory in the world. Much of the automation has never been done before. Thus, understandably, we experienced delays and start up problems, but through the efforts of many, most particularly our dedicated Via Tek team, that is all behind us. There were other conscious decisions that hurt short-term profitability this year. In Graphic Arts, as we combined the new Polyfibron team with our existing liquid imaging unit, we offered positions to virtually every person in both organizations. Our focus was on growth rather than short-term cost reduction.
For a company that takes great pride in execution, FY '00 was not our finest hour. Our execution in the U.S. portion of the Canning acquisition was terrible, resulting in far higher costs as we jumped through hoops to provide the service levels our customers are accustomed to and deserve. These supply chain related problems are now behind us. I believe we should have reacted faster to a tough business environment in North America. We took too long to reduce costs. At the end of the year, we took the necessary steps, the benefit of which will not show until the second quarter of FY '01.
WHAT WENT RIGHT:
Europe and Asia went right. The majority of the Canning operation is in Europe where we executed superbly. Because of Europe, Asia, and the outstanding year in Offshore Fluids, the Canning acquisition was accretive as planned. Our European and Asian Electronic Chemicals team turned in an excellent performance. They found ways to meet our expectations even though they faced the same difficult environment as North America. It can be done, and we are learning from their success. Government delays in the closing of the PTI acquisition caused a year of uncertainty for our Graphic Arts team and yet, not one customer was lost during this period. This is a real testimony to their professionalism. We now have in place a fully integrated team focused on exploiting the exciting growth opportunities in Graphic Arts.
The responsibility for our miscues falls squarely at the feet of your CEO. We are a much larger company than we were just a short time ago. We want to continue that growth. I felt to do so, more responsibility needed to be delegated. That was the right thing to do, but the structure was not organized adequately to pick up where I left off. Oz Griebel, our President, and I believe we now have correct approach. We have long admired our management team in Europe and Asia. The old adage that management job satisfaction (and performance) is directly proportional to the distance from headquarters rings truer as time goes by. To replicate their success, we formed the Advanced Surface Finishing Group in North America, which comprises the former Industrial Product and Printed Circuit organizations, and the supply chain. In R&D, we have all the worldwide staff unified under one structure where we can share resources, which we believe will provide the maximum innovation.
NEW ASSIGNMENTS FOR SENIOR MANAGEMENT:
Advanced Surface Finishing management will be split between two long-term experienced executives. Pete Kukanskis, who has successfully run Asia and Printed Circuit Central R&D, will also assume responsibility for global Advanced Surface Finishing R&D and product management. Michael Siegmund, who led the successful Advanced Surface Finishing Europe, will now have responsibilities for the North American group as well. Dave Beckerman who was the CEO of PTI will now be responsible for Graphic Arts worldwide. Ray Pickens will have global responsibilities for Offshore Fluids.
Our strategy is to increase our technological understanding of clearly defined markets. We want to add value to our customers' processes with R&D and with superior technical service. This is the moat around the MacDermid business that, when well executed, provides excellent returns for our shareholders.
STRATEGIC REVIEW OF MAJOR BUSINESSES:
ADVANCED SURFACE FINISHES:
- ELECTRONIC CHEMICALS (Printed Circuit Technologies):
Electronic Chemicals is a highly attractive market. Its high growth and fast moving technology provides excellent opportunities for innovation. Until recently we were the only full line supplier to printed circuit manufacturers. The breadth of our product line and the technologies involved gave us an edge in product development. Recent consolidation of our competitors creates a new competitive dynamic. Our printed circuit electronics team has responded with rapid and important technological breakthroughs. We have introduced three important differentiated products that are gaining market share. The most important is Via Tek, where we are experimenting with a more vertical approach to the double-sided portion of the PC market by co-investing with our customers. I believe, longer-term, our innovation will continue to make this a very attractive market.
- INDUSTRIAL PRODUCTS (Metal Finishing):
As a result of four acquisitions in Europe, with revenues over $200 million, we have the leading position in the world in industrial metal finishing. This is the culmination of a strategy begun in 1990 when our revenues in this product line were approximately $30 million. We believe our scale gives us competitive advantage, especially when it comes to our ability to invest significantly more in R&D than our competitors.
As a result of the PTI acquisition we have gained critical mass in Graphic Arts. We have a strong team of technical and management talent needed to take advantage of many niche opportunities. This year we introduced a revolutionary printing blanket for offset printing called Prism. It promises to materially improve image reproduction, which we believe is a real breakthrough. In Flexographic printing, we introduced a new water wash plate that offers speed and environmental advantages, a series of higher resolution solid plates, a new plate for selective post print applications, and a series of plates for metal decorating. We think these constitute the most important series of new products ever introduced in this market in such a short period.
We think our long-term prospects are excellent. Our mission remains, "to create one of the worlds greatest industrial companies." Our confidence is based on the sustained performance of Advanced Surface Finishing in Europe and Asia, the new structure and improvements in the supply chain in Advanced Surface Finishing - North America, the exciting opportunities in Graphic Arts, and Via Tek. Even more importantly, our confidence rests in the Clan MacDermid who share a fervent determination to deliver superior value to our customers every day.
Three years ago when our earnings per share were $.85 ($.83, as restated for pooling accounting) we established a goal of $2.74 in FY '02. We stumbled this year. To get back on track we would have to make $2.15 in FY '01. It looks difficult, but we aim to get close to our goal over the next two years. Our long-term target is 25% compounded earnings per share growth. Only a handful of companies have produced a 25% long-term growth rate. Can we do it? We'll see. Rest assured, we remain positive and aggressive in our pursuit of a worthy target rather than compromising on one that might be more easily reached. I wouldn't bet against us. I know I speak for all shareholders in thanking the men and women of the Clan MacDermid for their effort in this tough year, and look forward to sharing the future success with each of you.
Disclosure: I am long PAH.