The Game
Our approach to business begins with a clear definition of
our playing field and the commercial role we play. Although
we melt steel and aluminum, and forge or extrude these metals,
we no longer view ourselves as a steel company or an aluminum
company. Rather, we serve the Vehicular Products and Building
Products markets. And at our core, we are a valued supplier
to the automotive industry and to the window and door industry.
We live and breathe “Light Vehicle Build Rates,” “Housing
Starts” and “Remodeling Expenditures.”
It is a subtle but important distinction that we define our
role based upon who we serve and how we serve them, as opposed
to what we make. Although our operational activities and our
distinct value proposition are founded upon superior processes,
our mission is to delight the customer. So, our mantra is “Market-driven
and Process-based.”
We say that Quanex’s competitive advantages are process-based
for several reasons. Quanex is committed to operational excellence,
lean manufacturing practices, formal quality principles and
the Kaizen approach to continuous process improvement. In addition,
Quanex’s leadership is largely enabled by unique or advanced
process technology: MACSTEEL is the only North American steel
company using a rotary-continuous casting process that flows
directly into the rolling process. AMSCO employs one of the
most automated, high-volume window screen fabrication processes
in the industry. Nichols Aluminum utilizes the most efficient
flat-sheet aluminum casting equipment available, along with
state-of-the-art scrap preparation capabilities. Superior manufacturing
and logistics, coupled with robust quality practices and high
value-added services, enable our divisions to consistently
surpass other suppliers in terms of customer satisfaction.
The Objectives – How We Will Win
Earn Returns in Excess of Our Cost of Capital
Achieve Profitable Growth - Externally
via acquisitions and organically by adding more content and
value to our product offerings.
Outperform the Markets We Serve - Through
superior processes, distinctive service and outstanding execution.
The Rules
Strategic Principles
- Adopt a Customer-Centered Focus
- Protect, Nurture and Grow Our Core Businesses
- Fix or Sell Our Non-Core Businesses
- Achieve Sustainable Competitive Advantages Through Effective
Differentiation
- Maintain a Conservative Financial Structure
Operating Principles
- Ensure Robust Safety and Regulatory Compliance
- Couple Lean Thinking With Smart, “80/20” Execution
- Pursue the Highest Levels of Quality, Innovation and
Service
- Promote a “We Can Do It Better” Culture
The Players
Leadership Principles
- Maintain Unimpeachable Integrity
- Expect Reality-Based Vision
- Practice Team Play
- Emphasize Hands-On Management Practices
- Adopt a Keen Sense of Urgency
- Develop Motivated, Committed Employees
At Quanex, our Game Plan is not an empty promise; we live
it daily. Our key success factors and action plans are linked
to it. Leaders are rewarded in relation to it. The Game Plan
guides our corporate development activities.
The Score
Throughout 2003, the Company made progress as we moved forward
in step with our Game Plan. Our first goal was to create economic
value by earning returns in excess of our targeted 10% cost
of capital. Although our return on average invested capital
in 2003 was 9.3%, which fell a point short of our target, we
did significantly outperform our most direct competitors. The
markets we serve were impacted by: (i) rising raw material
costs, primarily scrap metal; (ii) higher energy costs; and
(iii) a difficult winter season for homebuilding and remodeling
in the Midwest and Northeast.
We achieved our goal for growth as sales outpaced the prior
year by 4%. This enabled Quanex to pass the $1 billion revenue
milestone for the first time in the Company’s history.
The Playbook
Quanex continues to invest in our core businesses, the stars
in our line-up. Core business units possess a combination of
the following attributes:
- Target market alignment,
- Attractive returns,
- Value-added products,
- Differentiated processes or technologies,
- Customer intimacy and
- Strong market shares.
Leading our roster of core businesses are MACSTEEL, a leading
manufacturer of engineered alloy steel bars for automotive
and other applications, and the Engineered Products Division
(EPD), which is made up of a number of business units that
hold premier niche positions in the window and door components
(“fenestration”) industry.
Major steps have been taken to fortify this first-string
team. The pace of acquisitions has clearly accelerated at Quanex.
This is a result of a more crystallized growth strategy, the
availability of capital and a refined set of acquisition criteria.
The most important acquisition filter is strategic adjacency
to our core divisions. Other key attributes include: superior
process technology, strong management, engineered-type products
and a history of innovation. Healthy returns and market leadership
are also critical.
In the first quarter of fiscal 2004, Quanex acquired two
companies, each of which fits closely with our acquisition
criteria. North Star Steel – Monroe, a scrap-based producer
of special bar quality and engineered steel bars, will be aligned
with MACSTEEL, and TruSeal Technologies, Inc., a leading manufacturer
of insulated glass spacer systems and sealants, will enhance
the fenestration product line offered today by the Engineered
Products Division.
For the fifth straight year, Quanex enjoyed cash provided
by operating activities over $75 million, and over $100 million
in 2003. As of October 31, 2003, our debt-to-total-capital
ratio had fallen to 4%, compared with 15% and 44% at the end
of fiscal years 2002 and 2001, respectively. Although the debt-to-capital
ratio has risen as a result of our recent acquisitions, we
continue to have the cash flow and capacity to finance additional
corporate development activity throughout 2004.
With the Game Plan in hand, Quanex management is proceeding
with confidence and clarity toward the achievement of our goals
for shareholder value growth.
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