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Investor Relations
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A Letter to Shareholders To Our Shareholders 2008 was another truly outstanding year for K -Tron, as we delivered strong growth across our broad mix of leading material handling equipment businesses. Our focus continued to be on producing results, and for the fourth straight year we set new records for revenues and earnings. Reflecting this excellent performance, we ended the year with a robust balance sheet, including approximately $15.00 per share in cash. In short, despite the economic turmoil we encountered in the second half of 2008, it was very clearly our best year yet. 2008 Financial Highlights Our record financial results in 2008 once again demonstrated the success of our business model, with all comparisons being to what were record numbers in 2007:
As good as our 2008 results were, they simply continued a trend that began seven years ago and that has been accelerated by four major acquisitions in 2003, 2006 and 2007, all of which have met or exceeded our expectations. Since fiscal 2001:
We are justifiably proud of what we accomplished in 2008 and of the seven consecutive years of higher revenues, net income, earnings per share, EBITDA and shareholders’ equity that we have produced. This is quite a remarkable track record, and we achieved it through solid organic growth in both our process and size reduction business lines, accretive acquisitions, high standards of operational excellence, relentless attention to costs and details, and the dedication and hard work of our employees around the globe. The New and More Difficult World We Now Face But the world we were in has now suddenly changed. The housing bubble has burst, havoc has been wreaked on the global and U.S. financial markets and instead of easy credit there is almost no liquidity in the system. As a result, there has been a rapid deterioration in all major economies of the world in recent months, and many of our customers, particularly plastics compounders and pulp and paper companies, have been adversely impacted by reduced demand for their products and face gloomy prospects for the rest of this year. While one of our strengths is a broad customer base across several different industries in addition to those just mentioned, which will help us weather this storm, it is clear that we will see the effects of this economic deterioration on our business and that we need to plan for what may be a prolonged and difficult downturn in certain parts of our business. And we are doing just that. The program we have implemented to protect our company and help us navigate the current economic turbulence includes the following actions: (1) we have placed There Will Be a Recovery While we cannot know how long the current economic recession will last, we can be sure of one thing: there will be a recovery. When that happens, we want to be well positioned to resume organic growth in our existing businesses and to exploit new growth opportunities. With this in mind, we are currently working hard on several of the more promising growth opportunities that we have identified, three of which are highlighted below. Growth Opportunities As we’ve realized for years, our greatest opportunities for profitable growth are right in front of us: satisfying the new and emerging needs of our customers and helping them to succeed in their businesses. Here’s a brief report on three of our most significant growth opportunities and how we are responding to them right now. The Pharmaceutical Industry – Demand for highly accurate feeders is increasing in the pharmaceutical industry, which we believe is at the beginning of a transition from batch processing to continuous feeding. Reasons for this are to reduce costs, improve process efficiency, optimize use of equipment and add flexibility to the production process. Many of the leading pharmaceutical companies have established continuous process test lines, and we believe that our K-Tron Process Group is most often the supplier of choice for these engineered process solutions. While the pace of change will likely be gradual, primarily affecting new plants, new lines and new drugs, we expect that the pharmaceutical industry will be an attractive growth market for us for many years. Global Expansion of Our Pneumatic Conveying Equipment Business – We are in the very early stages of expanding our K-Tron Premier pneumatic conveying equipment business globally by selling this equipment through our Process Group’s distribution network to markets in Europe and Asia, where our K-Tron Feeders business is very well established. The combination of our feeding and pneumatic conveying equipment brands in these markets will enable us to offer our process customers integrated material handling systems with engineering, manufacturing, commissioning and after-sale services from a single source, something that is not widely available today. This strategy should enhance our Process Group’s value proposition as the “one-stop shop” for our process customers and help those customers to consolidate and simplify their procurement work by reducing their number of key suppliers. Biomass Energy Generation – The biomass energy generation industry has recently emerged as an area of potential high growth for our Size Reduction Group. Biomass energy generation includes the processing and combustion of organic waste products, such as tree bark, wood chips and construction debris, to produce steam and electricity. The use of these natural products to produce energy results in no net release of greenhouse gases, which makes them both an economical fuel and a potential source of saleable carbon credits. Harvesting, sawmilling and pulp and paper companies, in addition to the electric utility market, are increasingly relying upon biomass processing to utilize raw materials more fully. The biomass energy generation industry already is and increasingly will be an important growth driver for our Jeffrey Rader subsidiary, which has substantial experience in this area and is well-positioned to capture a meaningful share of new applications through its facilities in the United States, Canada and Sweden. In Closing In closing, K-Tron is well prepared for its future, despite the intense financial turmoil of the moment. We have delivered seven years of higher revenues and profits to our shareholders, which demonstrates our ability to execute upon and optimize the many opportunities that our mix of businesses provides. Our balance sheet is strong, with cash exceeding $42 million at year-end versus debt of just $23.662 million, $21.0 million of which is not due until September 2011. While parts of our business will face quite difficult markets this year, we nevertheless expect to remain solidly profitable and to generate cash to pay down debt early, to capitalize on the growth opportunities we have identified and, if we find the right company at the right price, to make an acquisition. We will bide our time and act prudently during this period of economic turbulence, but we will not be patient and we will be a leader. We have a seven-year record of organic growth, accretive acquisitions and developing new growth opportunities, and we look forward to better markets in a year or two and to our next “best year yet.” Thank you for your support. Edward B. Cloues, II |
