STRATEGIC PLAN 1999-2002 Presented to the Board of Directors January, 1999.

STRATEGIC PLAN

1999-2002

Presented to the Board of DirectorsJanuary, 1999

Herr-Voss’ executive management and the Company’s planning team members have identified five (5) major strategic goals for the next three years (1999-2002).


1.Increase revenues to $200 million annually by 2002•EBITA to exceed $30 million•RONA of 25+%



2.Balance earnings



2.Balance earnings3.Improve organizational effectiveness



2.Balance earnings3.Improve organizational effectiveness4.Improve technology to support the strategic goals



2.Balance earnings3.Improve organizational effectiveness4.Improve technology to support the strategic goals5.Maximize shareholder value

Over the next three years, the economy, both domestically and internationally, is likely to continue its slowdown,

straining the ability of Herr-Voss’ customers to commit to major capital equipment orders at the same levels as over

the past several years.

ECONOMIC OUTLOOK

Real GDP % Change

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

1997 1998 1999 2000-03

U.S.

World

Source: IMF and CBO

The steel and aluminum industries are likewise estimated to slow in reaction to this environment.

INDUSTRY OUTLOOK

Source: Paine Webber, World Steel Dynamics Source: Aluminum Association of America, U.S. Industry & Trade Outlook ‘98, and U.S. Geological Survey

Annual % Change in Steel Production & Consumption--U.S. and World

-4.0%

0.0%

4.0%

8.0%

1997

1998

1999

2000

2005

U.S.ApparentConsumption

WorldApparentConsumption

World CrudeProduction

% Annual Change in Aluminum Production/Shipments-- U.S. and World

0%

2%

4%

6%

8%

1997

1998

1999

2000

2001

2002

U.S.Shipments

WorldPrimaryProductionU.S. PrimaryProduction

Herr-Voss estimates that the total market for capital equipment manufacturing today approximates $365 million domestically,

more than double that of 1994. Herr-Voss, Pro-Eco, Braner, and Bradbury have kept pace, at the expense of Stamco and Delta.

Capital Equipment Market: 1994 = $180 Million

Braner9%

Bradbury4%

Pro-Eco14%

Stamco14%

Herr-Voss18%

Other24%

Delta17%

Capital Equipment Market:1998 = $365 Million

Herr-Voss21%

Delta8%

Stamco12%Pro-Eco

17%

Braner10%

Bradbury9%

Other23%

Note: Market share calculations are based on estimated sales orders, not revenues.

MARKET SHARE

The first, and overarching goal, is to Achieve $200 million in Annual Revenues by 2002. This goal is supported by several key

objectives, as follows:

Revenues lead the way, growing to exceed $200 million.




EBITA exceeds $30 million by 2002.





RONA surpasses 25%.




Expense growth is contained, driven by process efficiencies and productivity improvements.


RONA surpasses 25%.





Growth of the base business, building on core competencies and adding new products, contributes $140+ million by 2002.

.


RONA surpasses 25%.







RONA surpasses 25%.

Strategic partnering accounts for $30 million.






3-5 acquisitions, start-ups, and joint ventures, totaling $75 million in revenues, complete the goal attainment.


RONA surpasses 25%.







3-5 acquisitions, start-ups, and joint ventures, totaling $75 million in revenues, complete the goal attainment.

Calculated share valuation grows from $25 in 1998 to $90 in 2002.


RONA surpasses 25%.


Capital outlays are driven primarily by 3-5 acquisitions, start-ups (e.g., H-V Chicago, H-V Mill Rolls), and joint ventures, totaling

$59 million over the three-year period. As the following schedule shows, the projected RONA makes the plan attractive both

financially and strategically.

CAPITAL SPENDING

$ Millions FY00 FY01 FY02 TotalCore Acq/Start-

Ups/JVsCore Acq/Start-



Ups/JVs

Acquisitions/JVs/Start-Ups

$15.0 $34.0 $10.2 $59.2

Facilities & Equipment $1.5 $1.7 $.3 $2.0 $.6 $5.2 $.9Technology $.5 $.5 $.3 $.2 $.2 $.2 $1.0 $.9TOTAL $2.0 $15.5 $2.0 $34.5 $2.2 $11.0 $6.2 $61.0

RONA onAcquisitions/JVs/Start-Ups

12.9% 18.3% 26.8%

Note: RONA’s not presented for facilities and technology.

While the first strategic goal addresses the growth

imperative of Herr-Voss and the desired quantity of

revenues, the second goal—Balance Earnings—deals with

the composition and quality of revenues.

REVENUE MIX 1999-2002

Note: Strategic Partnering-Services represents H-V Mill Roll Services, Inc.

Note: Strategic Partnering-Services represents H-V Mill Roll Services, Inc. and new ventures.

Revenue by Product - 1999Revenue = $85MM

Capital ($62MM)

73%

Services ($20MM)

23%

Strat. Prtnr-Svs ($3MM)

4%

Revenue by Product: Core 2002Revenue = $145MM

Svcs. ($34MM)

24%


3%

Capital Equip. ($77MM)

55%

Strat Prtng-Cap ($25MM)

18%

Revenue by Product: 2002 TotalRevenue = $210MM

Svcs($89MM)42%

Strat Prtng-Cap ($25MM)

12%

Capital Equip. ($87MM)

42%


4%

…The combined effect of the shifts in product mix and the domestic/foreign mix improves the quality of earnings by providing

cyclical balance and solidifying customer relationships.

* The foreign component is marginally below the 35% target at 3/31/02 since the full-year impact of the third jointventure is not completely realized.

Geographic Mix of Revenue: 1999Revenue = $85MM

Domestic ($68MM)

80%

Foreign ($17MM)

20%

Geographic Mix of Revenue: 2002 Revenue = $210MM

Foreign ($67MM)

32%

Domestic ($143MM)

68%

2002 Total Revenue:

$200+ million

Core Revenue:

$140+ million

Acquisitions/Joint Ventures:

$75.0 revenue

Total EBITA:

$30+ million

RONA:

25+%

STRATEGIC BUSINESS MODEL-2002

The third strategic goal

—Improve Organizational Effectiveness—

addresses those structural changes and process improvements that will be necessary to achieve all of the

other strategic goals.

…The schematic on the following page shows how Herr-Voss will organize its major lines of business and support functions over the next three years.

•HV Callery

•HV Conway

•Packaging

•Project Management

•Engineering

•Production Control

* Plus: Acquisitions, partners, alliances, start-ups

•HV Callery

•HV Conway

•Packaging


•Engineering


•HV Conway Rolls

•HV Mill Rolls

•HV RCI

•HV Chicago

•Valley Rolls

•Parts

•Field Service

•Maintenance* Plus: Acquisitions, partners, alliances, start-ups

•HV Callery

•HV Conway

•Packaging


•Engineering


•HV Conway Rolls

•HV Mill Rolls

•HV RCI

•HV Chicago

•Valley Rolls

•Parts

•Field Service

•Maintenance

•HV Ltd.

•Daido Herr

•Nippon Herr


•HV Callery

•HV Conway

•Packaging


•Engineering


•HV Conway Rolls

•HV Mill Rolls

•HV RCI

•HV Chicago

•Valley Rolls

•Parts

•Field Service

•Maintenance

•HV Ltd.

•Daido Herr

•Nippon Herr

•Purchasing

•Quality

•Safety

•Business Development

•HR

•Finance

•Sales/Marketing

•IT


Through this strategic plan and its day-to-day execution, Herr-Voss will build a corporate culture characterized by:

Teamwork

Quality Management

“Out of the box” Thinking

Bias for Action

Open Communications

Empowerment

Change Management

Job, Team & Company Ownership

Recognizing Accomplishments & Performance

Customer Service Orientation

CORPORATE CULTURE

The 5 strategic goals build on the Herr-Voss’ existing core competencies and build new competencies for success.

•Significant Customer Relationships

•Engineering

•Manufacturing

•Field Service

•Diverse Product Offerings

•Industry Leader in Levelers

•Roll Grinding

•Retrofitting and Rebuilding of Equipment

CORE COMPETENCIES 1999

HERR-VOSS STRENGTHS IN 2002

Engineering

Standardization

Manufacturing of Selected Equipment

Alternative Manufacturing

Software for Process Controls


Engineering

Standardization




Selective Outsourcing

Enhanced Service Including Preventative Maintenance

Significant Customer Relationships

Diverse Product Offerings to Target Markets

New Product Offerings


Engineering

Standardization









Major Contract Management

Partnering

Maintain Position in Levelers; Enhance with Additional

Services

Industry Leader in Roll Grinding And Other Roll

Services


Engineering

Standardization









Significant Industry Player in Retrofits And Rebuilds

Significant International Presence

Technology Enhanced Processes

Formalized R&D (“H-V Labs”)

Major Contract Management

Partnering

Maintain Position in Levelers; Enhance with Additional

Services

Industry Leader in Roll Grinding And Other Roll

Services

IMPROVING OPERATIONAL EFFICIENCY

Work process evaluations in engineering and manufacturing to create capacity and reduce the expense and inefficiency of re-work.



Standardization in engineering and manufacturing processes to contain costs, increase profitability, speed delivery to customers, and reduce unnecessary customization.




Project closure concepts like a “quick response team” to react to problems will be evaluated. A Project Management system with empowered and accountable Project Managers will be instituted.




Project closure concepts like a “quick response team” to react to problems will be evaluated. A Project Management system with empowered and accountable Project Managers will be instituted.

Sales processes redesigned to focus on and select those customers most likely to be profitable to Herr-Voss, to accelerate and streamline the proposal/bid/estimating phase, and to provide a

more rapid and competitive response to customers.

MAXIMIZING HUMAN POTENTIAL

Compensation systems will be refocused toward performance-based pay and team initiatives which foster empowerment and reward accountability.



Benefits programs will continue to respond to employee needs while seeking maximum economic value for the shareholder.




Incentives, financial and non-monetary, as well as short-term and long-term (including forms of equity participation) will recognize superior performance.




Incentives, financial and non-monetary, as well as short-term and long-term (including forms of equity participation) will recognize superior performance.

Training will be strategically focused on preparing the workforce for

the challenges of executing the plan. Emphasis on leadership skills, technical training, communications and teamwork.

The fourth strategic goal addresses the critical need for

Improved Technology

to help support and facilitate the achievement of the other goals.

Improved technology must support:

1. Streamlined work processes to create the capacity for growth.



2. Innovation and faster product and process development.




3. Effective administrative and office systems to lower the ratio of administration growth to business growth.





4. A corporate culture of openness and empowerment.






5. A focus on the customer to facilitate access, understanding, and communications.

.







6. New acquisition integration.







6. New acquisition integration.

All IT investments must accrue real benefits by improving operations and/or the marketability of products, and meet

ROI targets...

The first four strategic goals, taken together, help to realize the fifth strategic goal—

Maximize Shareholder Value

This strategic plan:

Improves corporate profitability through significant revenue growth, increased efficiency, and improved organizational effectiveness.

MAXIMIZING SHAREHOLDER VALUE



Enhances customer service by developing the information and processes to better focus on customers, and understand and meet their needs.





Enriches employees through empowerment, open and candid communications, pay systems that recognize and reward achievement, and shared vision and commitment to the future.






Earns public respect by outperforming the competition and setting the standard that others seek to emulate. Over the longer term, public respect is measured by share price in a public offering.






Earns public respect by outperforming the competition and setting the standard that others seek to emulate. Over the longer term, public respect is measured by share price in a public offering.

Meets the expectations of the Board of Directors by achieving the ambitious goals of this plan, doing so without incurring undo risk, while substantially raising the shareholder value of the Company.



Over the three years of this strategic plan, shareholder value is maximized as measured by key indicators, as follows:


$ in Millions 1999 2000 2001 2002 CAGR 99-02EBITA $13.3 $16.2 $19.1 $23.0 20.2%RONA 31.9% 31.4% 37.1% 44.6% 11.8%

Core Business


Note: Core Business includes the strategic partnering for capital equipment. The strategic partnering for services is included with Acquisitions/Joint Ventures/Start-ups.



$ in Millions 1999 2000 2001 2002 CAGR 99-02EBITA - $1.9 $9.0 $15.9 186.4%RONA - 12.9% 18.3% 26.8% 44.1%

Core Business

Acquisitions/Joint Ventures/Start-Ups





$ in Millions 1999 2000 2001 2002 CAGR 99-02EBITA - $1.9 $9.0 $15.9 186.4%RONA - 12.9% 18.1% 26.2% 44.1%

$ in Millions 1999 2000 2001 2002 CAGR 99-02EBITA $13.3 $18.1 $28.1 $38.9 43.1%RONA 31.9% 27.2% 28.0% 35.1% 3.3%Projected Share Value $30 $35 $55 $90 44.2%

Total

Core Business

Acquisitions/Joint Ventures/Start-Ups



ACTION INITIATIVESGoal #1

•Core business earnings--15% p/a

•2-4 strategic partnerships, annual revenue $4-10 million each

•New international markets, turnkey projects, partnerships, and aftermarket services

•New services operations--acquisitions/start-ups/JVs

•New products, capabilities, and service offerings







Goal #2•Two business opportunities p/a

•One technical services company acquisition p/a

•Aftermarket grows by 15% p/a









Goal #3•SBUs as a framework to focus growth

•Project Management systems

•Work practices, engineering, and shop operations

•Performance-based pay with incentives for performance

•Training programs concentrating on skills required for growth and success












Goal #4•IT system that fosters open communications and information sharing

•Advanced financial analysis tools including project and job costing

•IT to support improved work process efficiencies

•IT that supports sales and marketing growth

•IT approach to acquisition integration

















Goal #4•IT system that fosters open communications and information sharing

•Advanced financial analysis tools including project and job costing

•IT to support improved work process efficiencies

•IT that supports sales and marketing growth

•IT approach to acquisition integration











Goal #5•High performing company as measured by key indicators

•Debt consistent with growth objectives

•Company reputation as measured by customer, employee, and peer group analyses

•3-5 long-term strategic partnerships with customers/competitors/suppliers

•Exceed Board expectations; accomplish the goals of this strategic plan

STRATEGIC PLAN 1999-2002 Presented to the Board of Directors January, 1999.

Documents

Transcript of STRATEGIC PLAN 1999-2002 Presented to the Board of Directors January, 1999.