Q1 2003
NYSE: SGK
Schawk
Global Imaging Resource Network
Schawk is one of the GLOBAL LEADERS in the delivery of innovative, real-world,
brand-building imaging solutions to the packaging and advertising markets,
generating industry leading return on investment to its clients.
Recognized throughout the industry for setting the HIGHEST STANDARDS in three
key core competencies -- 1) brand consulting and design, 2) graphic services and
prepress, and 3) enterprise products -- the Company has built a powerhouse of
brand imaging management solutions that helps their clients achieve strategic
business goals.
Schawk DELIVERS on its core competencies by bringing an extraordinarily deep
knowledge base, specialized expertise, proven best practices and advanced
technology.
Schawk believes it is the LEADING SINGLE-SOURCE SOLUTION for global consumer
products companies and advertising agencies and the brands they manage. Because
the Company's capabilities span from one end of the workflow to another, Schawk
is the best choice to help global organizations transcend boundaries to build
brands.
Investment Opportunity
- - Internal growth coupled with acquisition growth due to the highly fragmented
$15 billion global market in which Schawk participates.
- - Increasing global coverage and dominant industry share in the areas of
Packaging, Ad Agency and Promotion. Currently, the Company has the only
high-end prepress presence in Asia.
- - Infrastructure that meets both global and regional client needs. Operations
in United States, Canada, Mexico, Singapore, Malaysia, China and Japan, with
plans to expand into Europe.
- - Focus on innovation and R&D, creating superior solutions and high ROI for
clients, including software to make workflow more efficient, from producing
higher quality images faster to tracking brand assets.
- - Highest level of customer satisfaction. Standards and measurable benchmarks
to ensure achievement of client goals. Client retention greater than 95
percent over last five years.
- - Knowledge Management Software -- P.a.R.T.S.(TM) --provides competitive
advantage and high ROI for its clients with project and asset management
tools to reduce production time from conception to store shelf.
- - Penetrating approximately 10% of U.S. graphic services for packaging market
and 3% U.S. advertising and promotion market.
Market Data -- June 2, 2003
- ---------------------------
Recent Price $10.54
Debt/Capitalization 30.8%
52-Week Range $8.99 -- 10.97
Dividend Per Share $0.13
Shares Outstanding 21.4M
Trailing 12-month EPS $0.68
Market Capitalization 225.6M
Trailing 12-month P/E 15.3
Institutional Ownership 2.92M
Book Value Per Share $4.38
EBITDA/Share (TTM) @ 3.31.03 $1.79
Full Year 2002 Revenue $186.2M
Branding Without Boundaries
Opportunities for global commerce grow larger everyday. Advances in
communications and computer technology are changing the way people and
businesses connect. Geography is no longer a barrier to exchanging information,
goods and services.
Schawk provides global brand imaging solutions across the entire workflow --
from upstream services like brand consulting and design to downstream graphic
services like digital art production, output of proofs and film and platemaking,
and digital asset management. The Company is driven to become the dominant
global provider of brand imaging solutions by being the preferred choice of the
world's leading consumer product companies. This is being accomplished through
the coordination of intellectual capital, advanced technology and best practices
to drive high ROI solutions for its clients.
The only service provider of its kind to offer true global solutions, Schawk
offers integrated solutions through its business units and alliances in North
America, Asia, Latin America, Europe and Australia.
Schawk has mastered the ability to leverage information from all knowledge
sources and the technology to communicate seamlessly and rapidly. The Company
has taken the calculated steps to exceed the new metrics of today, and
tomorrow's, business world. The Company is extremely well-positioned to maintain
leadership in the industry by delivering global solutions, faster, to its
clients.
By moving from individual to group competency thinking, Schawk has unified its
individual practices and products, essentially transforming the Company from
30-plus individual units into three core competency groups ready to develop best
practices and efficiencies for its clients, taking advantage of economies of
scale.
In 2003, Schawk's vision is to
- - Provide the highest quality of client services through guardianship and
partnership
- - Relentlessly pursue and develop innovative resources, solutions and
technology
- - Help its clients drive the most value through their brands
- - Elevate the standards of the industry as a whole
Key Drivers For Success
Schawk's products and services are essential to its clients' success. The
Company's clients
- - Are 19 percent of the Fortune 500 and 27 percent of the Fortune 100
- - Are typically food and beverage companies, which have more complex and
demanding packaging graphics requirements
- - Have a higher than average level of new, expanded or enhanced product
introductions
- - Are very market dependent on graphic/images to sell their product or brand
- - Have extremely high demands for brands and images, particularly for
worldwide quality and consistency
- - Have a high sensitivity to shortening image creation and process times
- - Are less sensitive to price than to the issues of return on investment of
marketing dollars, quality and shorter process times
- - Generally have left their prepress and graphic design requirements to
others and not built that capacity in-house
- - Understand the high ROI potential from working with Schawk
Schawk is focused on new business development through an aggressive sales
strategy, with goals to grow top-line revenue by 20 percent on average over the
next five years through a combination of organic growth and acquisitions.
Industry Overview
Graphic services are the tasks involved in preparing images and text for
reproduction to exact specifications for a variety of media, including packaging
for consumer products, point-of-sale displays and other promotional materials.
The worldwide market for graphic services to the advertising and consumer
packaging products industry, Schawk's target market, is estimated to be as high
as $15 billion.
As technology advances in the imaging industry, "speed to market" has become and
continues to be a significant differentiator between Schawk and its competition.
To build upon its leadership position, Schawk actively evaluates system and
software products and independently develops software for its operations.
Growth Strategy
Over the last 50 years, Schawk has built a solid platform for growth through the
development of existing account relationships, strategic acquisitions, global
alliances and value-added services. Schawk employs state-of-the-art equipment
and software in order to stay ahead of the technology curve. The Company has
seen tremendous growth, from annual sales of $118 million in 1997 to $186
million in 2002.
Some areas in which the Company is leading the market include:
Graphic Services -- This profitable market with few players requires a higher
skill level than other prepress competencies. Schawk is focusing on increasing
its market dominance in this area by widening the gap with its competitors.
Brand Consulting and Design Services -- A natural extension of existing
business, this area is profitable, has a large growth potential and does not
require significant capital expenditures. Schawk is growing this business by
delivering more value to its clients than Schawk's competitors within this
market.
Enterprise Products
Asset Management and Online Proofing -- A new growing technology and
non-commodity service, Schawk has a tremendous opportunity to dominate
this new emerging market.
3-D Software and Development -- A new growing technology and
non-commodity service, this technology is expected to replace
conventional processes. Schawk has a tremendous opportunity to dominate
this new emerging market.
Acquisition Strategy
By avoiding markets with commodity or soon-to-be commodity conditions and
capitalizing on its experience with Fortune 500 companies and its global
presence, Schawk is responding to the needs of the market and of its clients. By
selling "project engagements" with bundled solutions, the Company is in the
beginning stages of an evolutionary process that will result in smaller
percentage of revenue from products such as film and plates and a higher
percentage of revenues from services.
All acquisitions must satisfy one of the Company's Core Market Goals, must have
a history of profitability and must immediately enable the Company to be a more
visible player in a sector. Once an acquisition target has been identified,
synergies will be identified and set as post-closing goals and executed within 3
to 6 months after the close of the acquisition.
Brand Consulting And Design
Through Anthem Group, Schawk offers strategic brand consulting and concept
design. The division offers consumer products companies and corporate clients
global solutions, regional insight and local service, including:
- - Brand strategy
- - Research consultation
- - Brand and category audits
- - Process management
- - Name generation
- - Branding systems
- - Identity design
- - Package design and systems
- - Sales collateral
- - Point-of-sale merchandising
- - In-store environments
- - Photography
- - Illustration
- - Copywriting, translation
- - Proofreading
- - Art production
- - Full production implementation services
Supported by Schawk's technology resources, Anthem Group also leverages the
knowledge and experience of the Company's graphic services providers. By using
research as a foundation and design as a tool, this group creates branding
solutions that build business and inspire loyalty in clients everywhere,
including Cadbury Beverages, Calvin Klein, Campbell Soup Company, General Mills,
Microsoft, Nestle, Ocean Spray, Guinness and Bayer.
Recently Schawk...
- - Operating income increased 26.3 percent to $21.8 million for the year ended
12/31/2002
- - Net income was $13.5 million or $0.62 per share for the year ended
12/31/2002, a 68 percent increase over 2001
- - First quarter 2003 net income increased significantly over previous two
year's first quarters
Graphic Services
Through its Graphic Services, Schawk solves strategic business issues by
transforming global brand workflows. Services include:
- - Consulting
- - Prepress
- - Photography
- - Large-format digital printing
- - Retouching
With over a half century of experience, no other provider serving the packaging
and advertising markets comes close to the wealth of workflow and imaging
intelligence and high ROI Schawk brings to its clients.
Graphic Services closes the gap between what's expected and what's delivered.
Applied in conjunction with its prepress services as a total solution, Schawk
delivers measurable results, unparalleled value and high ROI to its clients.
Each of these service offerings can provide clients outstanding new
possibilities in the way their brands are presented to the world.
Premier and Established Customers
Schawk's customer base includes relationships going back over 40 years. With
client retention of over 95 percent for the last five years, the Company's ten
largest clients accounted for 34.5 percent of sales in 2002. Revenue from the
top ten customers grew 10.7 percent in 2002.
Multinational consumer products companies need to access and distribute digital
image content on a global basis. Through its technological capabilities and its
global presence, Schawk excels in meeting its clients' needs to have a
consistent image, regardless of where the package is printed.
Enterprise Products
Schawk's newly established Enterprise Products group is dedicated to creating
and developing Web-based products and services for global companies. These
products are custom-built to meet the unique needs of each client, offering
clients the ultimate in functionality and management flexibility. These services
and products are researched, created, developed, managed and delivered through
two Schawk business units -- InterchangeDigital(TM), the creator of PaRTS(TM)
(Production and Resource Tracking System) and Schawk 3D.
InterchangeDigital - Creates products and solutions like digital asset/media
content management, online proofing and project management, asset
storage/distribution and management eReporting to streamline global workflow.
PaRTS(TM) is the leading, scalable,
configurable Digital Asset Management solution available which supports the
storage, retrieval and distribution of digital creative assets. Clients include
Ben & Jerry's, ConAgra, Eveready Battery Company, Keebler and Mead Johnson
Nutritionals. Enterprise-wide benefits include: increased productivity,
maintenance of brand consistency, streamlines approval cycles, improved
production workcycles, extended investment in digital assets, improved workteam
collaboration, protection of valuable intellectual rights and cross-media
publishing.
Schawk 3D - Creates high-impact 3D imaging solutions that provide a more
effective and cost-efficient alternative in cases where photography and
retouching are not viable options.
Over the next five years, Schawk's goals are...
- - Achieve top line growth of 20 percent on average
- - Acquire and integrate profitable companies each year
- - Achieve low to mid-teen operating margins
- - Achieve mid-teens percentage earnings per share growth annually
Income Statement
Schawk, Inc.
Consolidated Statements of Operations
Three Months Ended March 31, 2003 and 2002
(unaudited)
(In Thousands, Except Per Share Amounts)
Schawk, Inc.
Comparative Consolidated Statements of Operations
Quarters Ended March 31, 2003 and 2002
(in thousands)
$ %
2003 2002 Change CHANGE
---- ---- ------
Net sales $48,705 $43,618 $ 5,087 11.7%
Cost of sales 27,679 26,016 1,663 6.4%
------- ------- -------- -------
Gross profit 21,026 17,602 3,424 19.5%
Gross margin percentage 43.2% 40.4%
Selling, general and administrative expenses 13,555 12,504 1,051 8.4%
------- ------- -------- -------
Operating income 7,471 5,098 2,373 46.5%
Operating margin percentage 15.3% 11.7%
Other income (expense)
Interest and dividend income - 5 (5) nm
Interest expense (528) (747) 219 (29.3%)
------- ------- -------- -------
(528) (742) 214 (28.8%)
Income before income taxes and minority interest 6,943 4,356 2,587 59.4%
Income tax provision 2,742 1,670 1,072 64.2%
------- ------- -------- -------
Effective income tax rate 39.5% 38.3%
Income before minority interest 4,201 2,686 1,515 56.4%
Minority interest in net loss of subsidiary - 38 (38) nm
------- ------- -------- -------
Net income $ 4,201 $ 2,724 $ 1,477 54.2%
======= ======= ======== =======
Balance Sheet
Schawk, Inc.
Consolidated Balance Sheets (In Thousands)
March 31,
2003 Dec. 31,
(unedited) 2002
---------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 1,745 $ 2,051
Trade accounts receivable, less allowance for doubtful accounts of
$1,411 in 2003 and $1,269 in 2002 40,305 37,946
Inventories 9,601 8,540
Prepaid expenses and other 3,162 3,539
Refundable income taxes 167 889
Deferred income taxes 1,716 1,713
---------------------------------------
Total current assets 56,696 54,678
Property and equipment, net 38,939 40,652
Goodwill 60,826 60,476
Other assets 4,687 4,664
---------------------------------------
Total assets $161,148 $160,470
=======================================
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $ 5,093 $ 4,696
Accrued expenses 13,043 13,787
Income taxes payable 1,512 --
Notes payable to banks 2,327 3,281
Current portion of long-term debt and capital lease obligations 6,379 6,260
---------------------------------------
Total current liabilities 28,354 28,024
Long-term debt 33,180 37,186
Capital lease obligations 75 46
Other 1,017 1,029
Deferred income taxes 4,443 4,418
Stockholders' Equity:
Common stock 186 186
Additional paid-in capital 86,020 85,922
Retained earnings 30,762 27,253
Accumulated comprehensive loss, net (756) (1,558)
---------------------------------------
116,212 111,803
Treasury stock, at cost (22,133) (22,036)
---------------------------------------
Total stockholders' equity 94,079 89,767
---------------------------------------
Total liabilities and stockholders' equity $ 161,148 $ 160,470
=======================================
Contact
James Patterson
Chief Financial Officer
Schawk, Inc.
847.827.9494
jpatterson@schawk.com
OR
Kristine Walczak
Dresner Corporate Services
312.726.3600
kwalczak@dresnerco.com
Definitions of Statistics on Page 1
MARKET CAPITALIZATION -- this non-GAAP measure is a measure of the size of the
company in relation to other public companies and is defined as the stock price
as of the closing of the stock market on May 7, 2003 multiplied by the number of
common shares outstanding as of the most recent practical date (April 30, 2003).
EBITDA, AS ADJUSTED / SHARE (TTM) @ 3/31/03 -- this non-GAAP measure is not a
measure of operating results, but rather of the company's ability to service
debt. It should not be construed as an alternative to either (i) operating
income or (ii) cash flows from operating activities. It is defined as operating
income plus depreciation and amortization plus restructuring and other charges
less gains on the sale of assets.
Reconciliation of EBITDA* --
Operating Income 24,363
Plus Depreciation and Amortization 11,528
Plus Restructuring and other 2,631
Less Gains on Sale of Assets (Net) (574)
EBITDA 38,002
*All numbers Trailing Twelve Months, In Millions
DEBT / CAPITALIZATION -- this non-GAAP measure is a measure of financial
strength and liquidity. Debt is defined as all short-term debt, current portion
of long-term debt, current portion of capital lease obligations, long-term debt
and the long-term portion of capital lease obligations. Capitalization is
defined as Debt plus total stockholder's equity.
TRAILING 12 MONTH EPS -- defined as the sum of the last four publicly reported
quarterly fully diluted earnings per share amounts.
TRAILING 12 MONTH P/E -- this non-GAAP measure is a measure of the valuation of
the company in comparison to other public companies. Trailing 12 month P/E is
defined as the current price of the common stock of the company divided by the
last twelve months fully diluted earnings per share.
BOOK VALUE PER SHARE -- this non-GAAP measure is a measure of the value of a
company in comparison to other public companies. Book value per share is defined
as the amount of net
assets on the balance sheet (total stockholders equity) divided by the total
number of shares outstanding.
This presentation may include "forward-looking statements" within the meaning of
Section 21E of the Securities and Exchange Act of 1934, as amended and are
subject to the safe harbor created thereby. These statements are made based upon
current expectations and beliefs that are subject to risk and uncertainty.
Actual results might differ materially from those contained in the
forward-looking statements because of factors, such as, among other things, the
strength of the global economy in general and specifically market conditions for
the consumer products industry, the level of demand for Schawk's services, loss
of key management and operational personnel, our ability to implement our growth
strategy, the stability of state, federal and foreign tax laws, our ability to
identify and exploit industry trends and to exploit technological advances in
the imaging industry, the stability of political conditions in Asia and other
foreign countries in which we have production capabilities, terrorist attacks,
wars and other geopolitical events, as well as other factors detailed in Schawk,
Inc.'s filings with the Securities and Exchange Commission.