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Although
adjusted earnings per share were flat with last year, beneath the
numbers, there were clear signs of positive momentum as the growth
investments we have made in the last few years are beginning to pay
off. Our decisions to expand Strategic Accounts, pursue cross-selling, introduce strategic products
and add private-labeling are now yielding results and drivingsales
growth for Airgas in a weak industrial economy.
Positive momentum
In fiscal 2001, sales grew nearly 6% to $1.6 billion.
Total same-store sales were over 3% higher for the year, with greater
than 5% growth in gas and rent revenues, reflecting our strong gas
distribution franchise and the non-cyclical nature of this business.
Some of the drivers of this growth included:
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Our
Strategic Accounts program exceeded $130 million in revenues
in fiscal 2001, more than 8% growth from the prior year, as
large customers turned to us to help reduce their supply chain
costs. |
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We
are cross-selling more to current customers. For instance, nearly
30% of our Strategic Account business comes from accounts that
buy gases, hardgoods, and safety products. That penetration is twice the percentage
of just a year ago. |
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Safety
and other strategic product categories are contributing to sales
growth. Overall safety sales grew 9% to nearly $250 million. |
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Our
private-label Radnor brands reached an annual run rate of $45
million at
year-end, a 40% increase over the previous year. |
In addition to our sales momentum, free cash flow strengthened
15% to $0.94 per diluted share. The strong cash flow characteristics
of this business helped us reduce debt by $113 million during
the year, strengthening our balance sheet. |
Strengthening the team
More positive momentum can be seen in the attitude of the
team of people who run Airgas. During the last three years,
we have brought some outstanding talent into Airgas. In November
2000, we welcomed Glenn Fischer as president and chief operating
officer, who joined us after 19 years with BOC. We now have
a well-rounded group of seasoned veterans, who have helped
build Airgas into a $1.6 billion company, joined with new
leaders, like Glenn, who bring broad talents and expertise
to the company. We have a team to take this organization
to the next level.
We have established a strategic path forward, aligned the
company to achieve our goals, and focused on creating a strong
performance culture. We have extended our matrix organization
to better support our regional operations with functional
leadership that helps drive strong, consistent performance.
We believe we can best retain the entrepreneurial hallmark
of our local operations by letting them focus on going to
market and serving our customers.
The functional leaders will focus on supporting activities
and ensure that we transfer best practices across One Airgas,
allowing us to consistently leverage our strengths in key
areas across the entire business.
eBusiness eMerging
Our approach to eBusiness in the last few years demonstrates
that sure and steady can win the race. We have focused our
efforts on developing solid electronic catalogs and business
systems. As a result, Airgas eBusiness capabilities can have
a meaningful impact on our customers’ procurement and
transactional costs.
We are now beta-testing a second-generation product with extensive
mechanisms that are linked directly to our ordering and business
systems, real-time customer account information, and a comprehensive
electronic catalog with more than 200,000 stocked items. We
continue moving forward in the electronic marketplace, evaluating
each initiative on the same premise we have in the past, assessing
the value it brings to the company and to our customers.
The way forward
Airgas made great progress in the past year, but there is
much more to do. Specifically, we are working to establish
Airgas as the low-cost supplier in the industry and to drive
market-leading sales growth by leveraging our national distribution
infrastructure.
During the year, we took several short-term actions to improve
profitability. These include initiating price increases to
offset higher costs, reducing our operating costs, and exiting
low-return, non-core businesses. In February 2001, we sold
our Jackson Dome carbon dioxide reserves and pipeline to Denbury
Resources Inc. for $42 million. As part of the divestiture,
we obtained a long-term CO2 supply contract for this important
product, while reducing the risk and capital requirements
of owning this non-core asset.
We also mapped out five strategic operating initiatives to
help us reach our goal of $2 billion in sales, with operating
margins of at least 10%, by fiscal 2005. In the next section
of this annual report, Glenn and other key executives discuss
these strategies.
To help jump-start our initiatives, we established a full-time
team with dedicated resources, which we are calling Project
One. This work will realize short-term improvements from value-enhancing
programs and build the long-term scalable infrastructure that
will sustain our profitable growth, both organic and through
future acquisitions.
We are Airgas
Airgas is building tremendous momentum, and I am thankful
for everyone who hung in there with us through some tough
times. Special thanks go to Bill Rice, our former president
and chief operating officer, for his leadership in recent
years. Bill has announced his retirement plans, but remains
with us this year part-time and as a member of our Executive
Committee.
Airgas has better defined who we are in the past several years,
as we continue to grow and fortify the business. We’ve
made the right investments to leverage our strengths and better
serve our customers. We’ve also made the right investments
in people, adding to our talent base and our mix of skills.
As a team, we are all committed and accountable for achieving
our strategic goals.
We have built the leading franchise in the packaged gases
business and I see tremendous opportunity ahead. No one else
can beat our range of products, our national scope, or the
excellence of our people – the very things that our customers
want and need. I want to thank all of you – our shareholders,
our associates, and our customers – who have helped contribute
to the success of this enterprise.
Sincerely,
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Peter
McCausland
Chairman and Chief Executive Officer
June 8, 2001 |
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