Rayovac 2013 Annual Report Download - page 4

David R. Lumley
Chief Executive Officer
Anthony L. Genito
Chief Financial Officer
Spectrum Brands reported its fourth consecutive year
of record performance in fiscal 2013 with results that met
or exceeded financial guidance. Our Company expects fiscal 2014 to be
a fifth consecutive year of record results, including an increase in free
cash flow to at least $350 million, or about $7 per share, a significant
improvement from a record $254 million in fiscal 2013 and $208 million in
fiscal 2012. Our Company’s fiscal 2013 adjusted EBITDA margin of 15.8
percent was meaningfully greater than our peer group average.
In this annual report communication to shareholders, Chief Executive
Officer Dave Lumley and Chief Financial Officer Tony Genito answer
many frequently asked questions from analysts and investors.
What is Spectrum Brands’ strategy?
Lumley: We focus on and drive high cash-generating, consumer products
businesses by maximizing our Spectrum Value Model and our global
new product development and shared services infrastructures, increasing
distribution/shelf space at key retailers, adding new retail customers, and
expanding internationally. In fiscal 2014, we are launching “umbrella”
products in all divisions to help increase sales and distribution. Some of
them are shown in this annual report. And, we will maintain a continuous
improvement culture, a lean and efficient operating structure, and strong
expense controls.
What are the advantages of having such a diverse group of
businesses and brands?
Lumley: Our Company is well-balanced seasonally and geographically.
We have diverse, valued-based, market-leading and largely non-
discretionary products that compete in multiple, large and stable
categories with attractive growth prospects. Our brands are widely
trusted, enduring and generally carry a low cash register ring. We have
a good retailer customer balance globally. This gives us timely and clear
insight into consumer trends and needs with our everyday, replacement
product portfolio. There are many cross-selling opportunities across the
businesses by geography and by retailer. We have a very experienced
and proven senior management team with a record of achievement not
only here at Spectrum Brands but also in previous executive roles at other
leading consumer companies.
Genito: It is important to note that our battery business, like our small
appliances and personal care division, generates significant free cash flow
that we can deploy in a number of ways to enhance shareholder value,
such as debt reduction or investing in our higher-margin businesses.
What are the priority uses of your free cash flow?
Genito: Our top priority is debt retirement and reducing our total leverage.
We plan to pay down at least $250 million of term debt in fiscal 2014.
We have a quarterly dividend currently at $0.25 per share to service.
Our Board recently authorized a $200 million common stock repurchase
program effective over 24 months. It will be used in conjunction with our
debt reduction goals and especially when our share value trades below
our view of “intrinsic value” based upon our free cash flow metrics. Finally,
we continue to look for accretive, bolt-on acquisitions. With the significant
increase we expect in our fiscal 2014 free cash flow, we have a lot more
flexibility and options.
Just what is the Spectrum Value Model?
Lumley: It is the heart of our Company – a game changer redefining
the value proposition for retailers and consumers and helping to provide
stability and sustainable earnings. It is a go-to-market strategy that delivers
genuine value to retailers and consumers with products that work as well
as, or better than, our competitors – and for a lower cost. It provides higher
margins and lower acquisition costs to our retail customers, with retail
category growth, market share gains and excellent category management
and merchandising. We concentrate on winning at point of sale and not
through brand advertising. So we can invest in product performance, R&D
and cost improvement. That’s our model and it is working. Our products
are performance-driven brands. This allows us to benefit from consumers’
increasing focus on value and openness to trial and brand conversion
against often slower-selling, and sometimes declining, premium-priced
products. What’s the takeaway? Value is winning in the marketplace with
today’s smart shoppers. We think Spectrum Brands is a very attractive
partner/leverage for retailers and a compelling option for consumers.
Why do you like your consumer battery business?
Lumley: It is our principal global platform for the growth of our many
product lines and the historic foundation for our brand strength, product
quality, customer value proposition, solid retailer relationships, consistent
profitability and strong cash flow. Its unit growth tends to track GDP rates.
Simply put, it is a strong EBITDA-producing, cash flow generator with
steady performance year-in and year-out. We like that.
What is your acquisition approach?
Lumley: As our Black Flag and FURminator acquisitions in late 2011
showed, we look for accretive, tuck-in acquisitions primarily in our Pet and
Home and Garden divisions that bring quick and major manufacturing
and SG&A cost synergies, along with commercial benefits such as new
Q&A