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THE SINGER N.V. COMPANY
THE SINGER N.V. COMPANY
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Highlights of Singer
Presentation to Analysts
The Metropolitan Club, New York City
December 4, 1997
Topic: |
Restructuring Program / Pfaff Acquisition Appointment of New President and Chief Executive Officer.
Please refer to the Press Releases section of the website to view these announcements. |
Speakers: |
Mr. James Ting, Chairman of The Singer Company Mr. Stephen Goodman, newly appointed President and CEO
of The Singer Company |
The presentation was attended by approximately 68 analysts and heard via conference call, by approximately
117 other interested parties.
Introduction:
- Introduction of James Ting
- Announced retirement of Iftikhar Ahmed, after 31 years. Will remain on the Board
- Introduced Stephen Goodman - President and CEO, The Singer Company
Agenda:
- Singer business profile and company overview
- Pfaff acquisition - approved by Semi-Tech Global on December 2 , 1997
- Hart Scott Rodino approval expected in 30 days
- Restructuring program - details - over 3 years
- $186 Million pre-tax ($181 million after tax) charge in 4Q of 1997
What is Singer?
- A well respected brand name plus a leading international retailer and distributor of consumer durables
- A sewing machine manufacturer
- A finance company
- It is very heavily represented in high growth emerging countries
International Distribution Network
- 72,726 selling points, including dealers, stores and canvassers
Sales By Product Line
- Total = $1.7 billion, includes affiliates, particularly Thailand (49.9%) but (excludes Furniture)
- 30% home appliances, 20% home electronics and 36% sewing machines
Sales Product Mix
- Consumer durables had grown to 53% in 1996 from 27% in 1990
- 39% of consumer market (based on units)
- Add Pfaff (4%) to further increase leading share
- Now a complete line of sewing machines
Operating Income by Markets
- Emerging markets dominate Singer results at 87% in 1996 and 1997
- This is good and bad. However, the potential strength in developing markets is where you want to be in the long term.
Installment Sales
- Singer is a finance company as well.
- It started this way and credit sales are still an important element of doing business, particularly in emerging markets. (Door-to-door sales and installment sales)
- Not increasing as % of sales as credit has been tightened.
Historical Performance (1990 - 1994)
- Outstanding results in this period
- Singer went public in 1991 after being acquired by Semi-Tech Global in 1989.
Performance (1995 - 1997)
- 1997 down due to devaluation of currencies and related currencies
- Pfaff included for 4Q
- Estimated net income of $21 million for the year is before the one-time charge
- December is an important month for Singer and hence the figures are "estimates"
Reasons for Decline (1995 - 1997)
- Currencies - Singer in US dollars - has been strong
- Manufacturing is in dollar based countries (Brazil and Taiwan)
- Emotional - as growth occurs, expansion is undertaken and over capacity is added
- Exogenous - 1995 - Mexico
- 1996 factors - Brazil and Furniture
- 1997 factors - See chart ($43.5 million)
- Reconciliation: 43.5 + 21 = 63.5 = $1.25 per share starting estimate.
- Management Miscalculations
- Furniture is the big one.
Pfaff Acquisition
- Price = $157.5
- Cash = $50.0
- Receivable = $32.5
- Preferred Shares $75.0 (essentially debt @ 7.5%)
- Preserve cash
- Convertible at Singer's option
Singer Rationale for Acquiring Pfaff
- Singer will be largest industrial sewing machine manufacturer, 20% share
- Juki = 19% and Brother = 11%
- Singer is in the low and mid-range products, Pfaff concentrates on high-end.
- Integrate manufacturing, sales and distribution to gain synergies.
Consumer Sewing Machine Market Share
- Pfaff adds only 4% share, but an important piece as it is the upper end primarily, and this complements
the Singer line and increases Singer's # 1 status.
Combined Sewing Network
- Singer + Pfaff = over 77,000 distribution points
- Pfaff deals in the smaller mom and pop shops where demonstration element is very important.
- Singer distribution emphasis is with mass merchants and dealers.
Pfaff Performance
- 1993 - 1996 results - losses
- 1997 revenues will be $413 million
- Operating income = $19.5
- Net income = $7 million, evidences the turnaround at Pfaff.
- Intention was always to sell Pfaff to Singer once that it was turned around.
- Benefits: industrial sewing - combined sales force, full line etc.
Restructuring Program Highlights
- Manufacturing oriented
- $104 million annual cost savings by year 2000
- $186 million pre-tax charge for 4Q of 1997 ($181 million after tax)
- $220 million of asset sales net , more than enough to fund the restructuring costs
Why Is the Company Doing These Things?
- Salary, wages and benefits - able to save substantial money.
- Unit costs will decline
- 5,531 in manufacturing areas over 3 years + 400+ in sales and marketing
Summary of Cost Savings
- Annual savings in salaries and benefits = $162 million
- Other savings = $10
- Volume cost = $35 (capacity declines)
- Costs of added workers in new locations = $28
- Tax on savings = $5
- NET ANNUAL SAVINGS (after 3 years) = $104 million
One-Time Charges
- Closure of manufacturing facilities = $106
- Marketing restructuring and other = $45
- Write-off of Property, plant and equipment = $35
- Total pre-tax charge = $186
Asset Sales
- Proceeds by location = $230 (69 in 1998)
- Tax = $10 (many tax loss carryforwards)
- $220 Net proceeds go to invest in new facilities and to fund closure costs
Investing
- Of $76 to be invested, $52 to be spent at Podolsk, Russia
Funding
- Net of restructuring costs and new investment, asset sales and reduction in inventory total = $103 million for period of 1997- 2000 (for the restructuring program only, not the total company)
- 1997 shows inventory reduction of $65 and a total of $105 over 1997 - 2000
1997 Results With One-Time Charge
- Operating Income = ($49.3)
- Net Income = ($160.0)
Balance Sheet at 1997 Year End (includes Pfaff balance sheet)
- Cash is down to $95 million - pay down bank debt and other liabilities
- Accounts receivable - down
- Inventory – up as a result of acquisition
- Debt - Singer debt down and acquisition of Pfaff debt
- Equity - loss for the year plus the equity of Pfaff
Enhance Shareholder Value
- Goodman compensation is strongly tied to generating shareholder value
- Realize the restructuring benefits
- Strengthen and grow ongoing operations
- Strategically reposition the company (water products + possibly others)
- Increase transparency and investor communications (will be available to talk)
To receive a mailed copy of the slide presentation that accompanies these notes, please go to the
Talk To Us - Investor Relations section of the website and complete the request form.