2016 Chairman's Letter
In 2016, Franklin Electric recovered well from a challenging 2015 with organic growth and increased profits. We generated strong cash flow and our return on invested capital made a significant improvement back towards historical levels. Employee safety improved, and we continued to execute on our Key Factors for Success with improved quality, a record number of new product introductions, and an expansion of our field service and training initiatives around the globe.
Financial Highlights for 2016:
- Fully diluted earnings per share increased ten percent to $1.65 on a three percent sales increase
- Return on invested capital(a) increased 250 basis points to 16.0 percent
- Net cash flow from operations and after capital expenditures was $82 million or 104 percent of our net income of $79 million
These results affirm both the underlying strength of the two principal end markets we serve — water and retail fuel pumping; and our strategy to grow our business globally, through product line extensions and entering adjacent markets.
Nearly forty percent of our sales are in developing regions of the world. Even with continued political, social, and economic uncertainty, our water businesses in Latin America and Turkey delivered record results in 2016 and we continued to expand our presence and reach in Southeast Asia, where we also achieved record results. We expanded our distribution footprint in Europe, and we recovered, and in some areas increased, our market position in our largest market — U.S. Groundwater.
Our focus continues to be on our principal customer, the professional contractor/installer. Around the globe, these individuals trust their livelihood to Franklin Electric, and we focus on their success by providing quality products, when and where they need them, and by supporting them with training and service on the telephone or on site.
Our Fueling Systems business leads the industry with contractor training which we have expanded through our recently launched FFS PRO: University. Our relentless focus on contractor safety and our strategy of providing the lowest total cost of ownership has resulted in major marketers and oil companies specifying our equipment. The resulting sales and earnings growth in 2016 led to another record year for the Fueling Systems business.
This focus on a system solution is an important component of our strategy across both of our businesses. Over the last year, in our Water Systems business, we introduced a new platform of application specific drives and expanded our motor and pump offering to provide more efficient systems that will save our customers significant amounts in energy costs the world over. During 2016, we also expanded our Fhoton SolarPak line of pumping solutions for when electricity is not readily available or is a costly alternative.
For us to remain competitive, provide superior returns to shareholders, and greater value to our customers in an increasingly competitive global market, we leverage our global Franklin footprint with the objective of providing the best quality at the best cost. Cross-functional teams of Franklin employees are focused daily on continuous improvement and ‘lean’, drawing on experience from around the globe to deliver the best value solutions to our customers, wherever they may be.
In closing, I would like to thank our Franklin Electric team for executing on another successful year for the company. Their dedication and commitment to our customers is outstanding. I would also like to thank our Board of Directors. Over the years, Franklin has been privileged to have a Board that is engaged and supportive of the Company’s leadership and integral in the development and execution of our strategy.
Thank you for your continued investment in our Company.
Gregg C. Sengstack
Chairman of the Board and Chief Executive Officer
(a) Return on average invested capital = (earnings before interest, taxes divided by average year-end net debt plus equity).
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