BRC
#Thank you.
Appreciate the questions, <UNK>.
Good morning, George.
Absolutely.
Thanks <UNK>.
I'd like to talk a little more generically if I could.
I will say we're very excited in the long-term growth prospects of our healthcare business.
We believe going into 2015, we had not been investing in development of new products and R&D in that space at all, despite our PDC business.
We have changed that methodology dramatically.
And as a result, the group is both energized, motivated, and I am extremely excited about the product sets that they will be introducing in the next few years.
Now, it does take a little longer, as you are aware, in healthcare, to gain traction with products.
But once you've gained it, you have significant hold on the customer as opposed to some of our other industries.
In addition to that, I believe you were asking about the safety identification space.
That is an area that we're doing well in.
But we can obviously continue to do better.
We haven't seen a downward trend.
We're actually pushing for an upward trend, and believe we have differential advantages there.
Once again, as we invest in new and R&D and new development efforts that are really designed to reflect the voice of our end customer, much more effectively than we had before, that we will continue to see growth in what is already a very, very strong space for <UNK>.
Yes.
<UNK>, this is <UNK>.
I actually can.
And that is our Brazil business in US dollar terms, frankly, has been shrinking quite substantially.
Partly because of the organic sales decline that we just mentioned of actually a bit north of 15%.
But frankly, more importantly, the depreciation of the Real.
So our business is now sub $20 million, so it's been shrinking.
And that is quite a challenge, if I could add some color that, based particularly on your spillover effect.
If we start by looking at Asia, that area for us has been flat, and it's been a tremendous macroeconomic challenge.
In particular, if we dive down a little deeper, you'll see that it's China that is actually the cause of the challenge.
I don't think that should be a surprise to anyone on the call, based on the macroeconomic issues in China and the difficulties that everyone is facing there.
That said, Brazil is a significantly bigger challenge for us.
And the changes there are concerning, not just to us but once again to everyone doing business in that country right now.
We are reacting quickly and actively to that situation.
We have been there for a long time.
Our new President of the division is getting his feet wet in a strong way in that area.
He is working actively and personally with me and with <UNK> and with the leadership in that organization, to make sure we're making the best long-term decisions to maximize value for <UNK>.
Let me start ---+ I think that's a very fair set of questions.
Let me start with your first one.
The impact was actually quite significant to the tune of about $6 million.
But also was fairly good margin business.
So we are rebuilding from that point in regard to the revenue.
But beyond that, I want to be clear, operating efficiencies in our new locations are not nearly to my level of expectations, or to the level of operating efficiency that we had in our existing facilities.
Long-term, we are going to change that dramatically.
I know that the infrastructure we've put in place in Louisville is far superior to the infrastructure we had before.
And in Tijuana, we believe fundamentally, that we can create a workforce and a dynamic environment that will improve on our situation there as well.
So we are making great strides forward.
Did I ---+ if you could repeat any other parts of your question you had.
I'd be glad to answer further.
We were digging, as you astutely assessed, and we mentioned, we were digging out of a hole that we created.
So since we no longer have that hole and are digging out, we have good confidence.
That as we dig out of the situation, as we become much more efficient and effective, we will be able to drive our focus back to where it needs to be.
And that is innovation, customer service, working directly with our customers and our channel partners to make sure we provide what we do very, very well.
And that has not been able to be our total focus over this past year.
Let me touch on the platforms first.
So our comment was on ID Solutions that we anticipate upper teens, if you will, from a segment profit margin.
We finished the year of 2015 at about 18.5% or so, 18.6% to be exact.
So we would anticipate slight improvements.
With year-on-year improvements in the back half of the year.
On the Workplace Safety side, we finished the year at 15.5% segment profit margin.
And our guidance was mid ---+ I'll say mid ---+ I'm sorry ---+ mid-teen segment profit margins.
So we would expect, I'll say, a slight increase in our Workplace Safety profit margin.
From a G&A perspective, we do anticipate, and as <UNK> mentioned in his prepared remarks, we clearly are focusing on driving down our G&A expense.
Actually focusing on driving down SG&A expense to be a bit broader.
And as we look at the run rate coming out of the quarter, going back to your question specifically on G&A, we finished at $28 million in the quarter which is effectively, I'll say, a pretty good run rate going into FY16.
So that's effectively what we've factored in.
So not huge improvements in G&A in FY16, but as <UNK> commented, this is clearly an area that we see improvement opportunities in FY17, FY18, and beyond.
To be very specific on that on the longer term, we're looking, as we really decentralize our model, to make sure that we're doing business differently and not the same way we've been doing it and trying to squeeze savings out of just cuts.
The goal will be to make sure that we actually gain the advantages of the decentralized model.
Those are great questions.
I actually want to change the term.
I realize we used rationalization in our presentation, and that's because that's more of an industry-standard term.
We are using optimization within <UNK>.
And there's a significant real difference between rationalization and optimization.
And the reason for that is, we do have a large curve and a long tail in many of our products.
But for us to take a look at that tail and say we're going to cut the tail, would be dramatically problematic.
And therefore, a very easy solution is not one that would be very effective for us.
To give you a great example is, we sell the alphabet and we don't sell very many Qs.
But you can't pull the Q out of the alphabet and say, since we don't sell a lot of them, we're not going to have them.
Other examples are, we need to be offering full portfolios to our customers of offerings, and we may sell a product in red, white, black, yellow, purple, green, orange.
And we literally may not sell any of the yellow, purple, green, and orange.
But we need to be able to present, or extremely small amounts, we need to be able to present the full product portfolio to our customers so that they understand that if they have needs in those areas, they can create products.
Another opportunity for us is we have great, great selling, great margin products that have sister products that we have not effectively marketed together with the primary product.
And as an end result, the sales difference in revenue and margin of the one product to the other is dramatic.
We need to make sure we understand where those products are, how we need to tie them together, and how we need to drive them forward.
Then, there are some large opportunities, and this is speaking to IDS specifically, where we have products that really, A, don't relate to our other products.
B, aren't really in our driven market segments.
And, C, to your point, may actually be pulling us down as opposed to raising us up.
I am more than willing to take a revenue hit if the end result is better total profitability for the Company.
And we will therefore, drive our revenue growth through innovation, new products, new emerging markets, which we're also excited about, and new industries.
More than glad to drive our revenue that way.
And we are changing some of our models with our total Company force so that they understand that it's profitable growth that counts.
And growth for the sake of growth is not acceptable.
And straight out, there are some segments in some parts of our business that that disconnect has been obvious to me in the recent past.
And we need to work hard to fix that.
At this point, although personally I'd like to say it for our analysts.
I don't want to speak publicly to it, because of the competitive nature of that answer.
I will tell you that we do have a specific target.
Not based on an arbitrary number, but based on some very extensive analysis we've been doing over the past six months.
And that target will shift some of our product offerings, but I want to be very careful about publicizing that target at this time.
Not because of you or the analysts, I'd be thrilled.
But just the competitive nature some of that information.
But you should know that we have been doing an awful lot of analytical work prior to setting this as one of our major focal point initiatives for the year.
Thank you.
Appreciate your questions.
Good morning, Charlie.
Very good sir.
Thank you.
I appreciate it.
Yes.
Morning, Charlie.
This is <UNK>.
I absolutely can comment on the digital side.
So with respect to Workplace Safety.
If you look at the total revenue base in Workplace Safety, which would include certain businesses frankly that don't have much in the way of digital sales at all because that's not their business model.
If you look at the total revenue pie, 15% of that is digital sales.
And if you go back in history, a little over a year ago, it was about 13% of the total pie.
So clearly, digital sales are growing in the Workplace Safety business, and that's really where our main focus is.
Now we obviously have digital sales in our ID Solutions business, it's much less.
It's not a critical piece of the sales, and frankly, we haven't talked about it that much externally because it isn't as relevant to the organization.
So that's where we stand with digital sales.
Sure.
Let me add a little color to that.
Let's start with the IDS, which is a smaller portion, but we'll start.
We are also transferring their platforms to be able to be mobile capable.
Because we want the next generation of users, and hopefully the tech savvy generation that I'm in, to be comfortable and at ease working with <UNK> products regardless of the platform and able to facilitate their needs quickly.
That said, a much larger driver of revenue in the near future is affected in WPS.
The markets are quite different, Australia, you mentioned, as an example.
There is a particular case of where the mining industry, all of the commodities, are a major factor to their economy.
And therefore, to our economy within Australia.
That's been a major drag.
As far as the actual digital models, the United States is changing rapidly, more rapidly than Europe, as an example.
And the United States, that transformation which initially we were behind in our actual in platforms, I now believe we're ahead of our competition.
But we have to migrate that to all of our different platforms, as opposed to the four that we've created.
That means that we had some catching up to do, and that we have not gained the traction of that change over as significantly as we would want to.
Because we really do do a tremendously good job with catalogs.
So now switch to Europe, since that transformation has been much more limited in Europe, the Europeans are and it appears remain much more comfortable with the catalog than you ---+ particularly with all the languages involved.
I believe, and don't hold me to the exact number, but it is 15 different languages that we produce catalogs, unique catalogs in Europe.
That creates a great advantage and a great niche focus for us, that has allowed our sales to grow and to grow well in that area.
So really what you're dealing with is very different profiles in those different business areas.
And that's why you're seeing different results, and that's why we're being a little more open today about explaining what the root causes are.
So that it does help you to understand why we're seeing pressures in one area versus another area, and why that rolls up to the stream that you're looking at.
Hopefully that helps.
That is not something at this point we want to speculate.
And I will say, straight out, that things are changing so rapidly in some areas that I think it would be at our peril to speculate on an actual percentage.
What I will say is that we understand it's a need to be properly positioned in the digital space.
We have actually made a leapfrog effort in that area.
Leaping beyond technology where we're behind, to the technology and platform methodologies where we're actually ahead.
And we're going to stay ahead, because we believe that our product offerings, our customer service, our methodologies to get to the market, our reputation, all make us a strong presence in the market.
And what has been in inhibiting us to the largest extent is the fact that people found it almost impossible in many cases to reach us in the ---+ through the internet, and through mobile applications.
Thank you.
Great questions.
Good morning, <UNK>.
Absolutely.
The very good news is, we are not seeing margin pressures from the top, from the revenue line.
That's excellent news, very positive.
We've also done a lot of analysis in this area to make sure that we aren't seeing dramatic pushes in margin erosion from that end.
That's the good news.
You were correct, though.
The operational inefficiencies, and I'll actually have <UNK> comment specifically on that in an instant, are what's driving the key difference with what I would expect, what I want, to what we're doing.
If we take a look at how we consolidated in Europe two years ago, and how we consolidated North America last year, fundamentally, our expectations, our method to deploy things, our approach was problematic at best.
We ended up transferring an awful lot of technology very, very quickly, without the level of blueprint, so to speak, the road map, and the core support that was needed.
Once you get behind that curve, it becomes extremely difficult to catch up.
And we've been pouring vast resources, and continue to, into that.
We have lots of employees that are very new at their jobs.
They have high enthusiasm, but low experience rates in what we do.
And we have been stretched thin as a result with making sure they have the proper support and proper capabilities.
We see, in looking at these operations, that customer service has to be our number one priority.
As such, you are going to see a much higher level of support, and therefore, cost than we would normally believe these businesses should or would dictate.
That's going to remain for a while, because we're not going to get behind that curve again.
<UNK>, do you want to comment on any specific numbers related to that.
Sure.
Yes.
Let me just recap a couple of numbers related to the IDS profitability, and that is, the reported profitability was 14.4% segment profit.
Included in that 14.4% were a fair amount of non routine charges to the tune of $7.4 million pre-tax.
If you exclude those items, the IDS segment profit would have been 18.1%, which of course, is still down from the 20.2% last year.
And that gap from 18.1% to the 20.2% is exactly what <UNK> is talking about.
It's the inefficiencies that we are still feeling within the platform.
Let me add one more comment.
What could I have done differently in this past year.
In hindsight, looking back at the situation, we needed to flood those businesses with even more support by far when we saw how bad the problems were.
We began flooding them.
We began bringing in people.
But I believe that if we want to learn from our mistakes, we have to own up to them and we have to move forward.
A couple of mistakes that I believe are key is how we went about the whole project.
But then once the project was becoming such a challenge, we should have added even more resource quicker.
And that may have cost us even more initially, but I believe in the long-term when you do that, it ends up costing you less over the total life.
We are absolutely in that position right now.
We are absolutely doing that.
And, as a result of the situation, as I said, we'll be doing it longer and in a more costly manner than I would certainly like.
But I'm not about to change that approach right now until we all feel confident that our customers are going to continue to get the service that they expect and deserve from us.
Let me think.
Yes.
I think that that's probably a good assumption.
That it's consistent.
I don't have the numbers in front of me.
I'm shooting a bit from the hip.
But yes, I think that that would be consistent.
Yes.
The way that you get to the low end of the range would be an assumption that some of these efficiencies, actually a big piece of the efficiencies that we've been feeling, continue into the future.
Inefficiencies.
Yes, inefficiencies.
He needed to add an i into that.
That would clearly would be the big piece.
Would be the inefficiencies continuing in IDS.
And as I said before, and I don't want to be redundant.
But we are going to err on the side of caution at this point.
In regards to making sure our facilities are staffed with experienced people who can help the transformation continue to go at the most effective methodology.
And that will be ---+ the change will be determined when we feel very confident that we can slowly remove some of the safety nets we've put in place.
I want to be clear.
Yes, they did escalate in the fourth quarter.
That relates to my earlier comment about if in hindsight, one area that I would've fixed earlier would have been to flood the businesses with even more support.
Although we had given them a fair amount of support, even more support earlier.
And yes, you're seeing that reflection of that change in the fourth quarter, and you're seeing that ongoing cost.
I'm going to have to ask you ---+ we had a technical glitch right after you said you'd seen this as a GDP business.
The technical glitch interrupted some of your question.
So to answer your question, I fundamentally believe the core of our business is a GDP growth business.
I also believe that we have technologies that we are going to deploy in the future that will be supplemental to that core GDP business.
So in the three to five year timeframe, we hope to have additive ---+ we expect to have additive revenue on top of that from these initiatives.
That said, your question comes back to, if I see the growth around GDP, and your consistent with that, and you plan to do that in the future, why are you adding the resources.
And the answer back is, I think you have to look under the hood of the engine.
The engine may be heading to the hill.
If we aren't very, very positive with our customer interaction and we haven't been.
That our customers could have reason to grow frustrated with us, despite our great history, despite our great products.
We need to make sure that that doesn't happen.
With a company our size, with our history, there's a lot of natural momentum built into the flywheel.
We can't afford to jeopardize that momentum to get it restarted again.
As we see in the case of the revenue that we lost, is much, much more difficult than keeping it going, and so we absolutely know we have to add the resources.
We had to add it to make sure the customer experience went back to the expectation that it had been.
Yes, they were buying.
But that doesn't mean they're happy, and you want to make sure your customers remain extremely happy with you.
Now, let's get the other half of that, <UNK>, if you don't mind.
Yes, your other question was on working capital and the cash flow impact.
As you know, our fourth quarter, we did have a nice, I'll say, a nice tailwind from working capital.
We do anticipate that a piece of that will continue into FY16, specifically with respect to inventories.
Inventories are still at an elevated level, and we are planning for some of that to come down.
So we expect working capital to be a slight tailwind for us in cash flow next year.
Thank you.
Appreciate the questions.
Well for WPS, you're exactly correct.
We believe that we have reset to a new norm in that area.
As far as IDS as one of the things I said earlier in my point, was very good news is we've been analyzing over the last year plus.
And I don't want to go back too far in detail, but we have not been seeing pricing pressure in that regard.
So we do believe fundamentally over the next two to three years, we will be able to offset some reasonable amount of pressure that we see in the future from competitive situations.
And improve upon that, based on the fact that the biggest by far drag on our margins have been the operational inefficiencies created through the consolidation efforts.
And there literally is no number two at this point in that the number two is much, much farther down on the scale.
Absolutely.
We are a small enough player in the region, obviously both as a percentage of our sale and a percentage of the market that we do see some potential upside.
We certainly don't want to count that into our guidance.
We certainly don't want to plan, because some of these programs because they tend to be much more OEM based in Asia, take longer.
And so we continue to invest in the region, particularly for OEM type export sales.
We're not counting on that lifting the boat this year, just due to the nature of the timing of those.
We've made a lot of decisions in that realm.
I don't want to get into the actual specifics of pay and things along that nature.
But I will say we've analyzed our cost structure, our pay structure, our personnel involved, the experience levels, our overall support structure, our processes and procedures.
We've literally gone under the engine every way possible.
And in many ways, yes, have had to make some changes based on some initial analysis done a couple years ago in some cases wasn't actually applicable to the end situation.
So that may be the level of people involved, that may be how we structured it (technical difficulty) some very positive changes in that regard.
Thank you, sir.
