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Article Excerpt
Original Source: FD (FAIR DISCLOSURE) WIRE
UNIDENTIFIED SPEAKER: Okay, another good morning, everybody. I think I see some more awake faces. The Jones staff actually reminded me that Cooper is going to have their outlook meeting in New York next weekend, and a lot more detail than you're going to hear today, but we're really pleased to have Cooper come, especially Kirk Hachigian, and make a special effort to come in in this difficult weather last night.
As many of you know, we've written extensively on Cooper. We think this is one of the most exciting companies in the space. It's a company that's evolving faster than I think people realize. A lot of exciting things going on, driving a lot of value, and like I say, Kirk is here to give us a word, with more to come next week. Kirk?
KIRK HACHIGIAN, CHAIRMAN, PRESIDENT, CEO, COOPER INDUSTRIES: Thank you very much. Thank you. Thank you very much. It's a little bit of a tricky time for us. We just finished our Board meeting yesterday afternoon, and we have our outlook next week, but this has always been a great conference, and as Bob said, he knows our Company extremely well and he knows the space pretty well, so it's a pleasure to be here, and we want to thank the Lehman people for having us.
Our Company will be 135 years old this year. We started with Crouse-Hinds in the electrical space in 1981, and then we acquired McGraw-Edison in '85, which brought us Bussmann Lighting and Power Systems. Today, we're 87% electrical with some of the best brands in the industry. We're growing. We have high specification, great margins, and a terrific portfolio from which to work with.
Our end market diversity is certainly a real strength of the portfolio. 60% of the business today is industrial/utility, so a large exposure to two pretty good end markets. Within that 38% there in the green that you see, in industrial, I'll point out that 45% of that is international, or $1 billion of that is international. Of the non-residential, the 26% non-residential, we have 30% of that that's international, or $450 million. Of the 22% utility, 25% is international. And then, again, the 14% residential, electronics and telecommunications. These markets represent great opportunities for us to grow the core and to acquire and build our size and scale around these platforms.
We run the Company in a matrix. We have eight P&L's that own the day-to-day responsibilities of running the Company. We have five business initiatives that have clear owners at the corporate level. Measure books to measurability and accountability is within that structure. Our business initiatives are mainly focused on growth and deliver both short-term benefits as well as position the Company for long-term success.
Customer loyalty is all about maximizing the opportunity within this existing portfolio, leveraging our channels, our end users, our brands, our size and scale technology to make us the easiest supplier to do business with.
The U.S. electrical distribution continues to be a core channel for Cooper. We launched the Cooper Connection several years ago, and we have delivered a solid core growth rate over the last several years. We continue to invest in our partner distributors, improving our service, enhancing our marketing programs, and providing richer incentives for our key partners.
Innovation is our second initiative. We continue to imbed new technologies in existing products. We use new technologies to improve and extend the benefits of new products and services, software, RF-Technology, LEDs, advanced materials, and Tom is going to take a little bit of a deeper dive on innovation in a few minutes.
The measure of success around innovation is our vitality index, faster growth, better margins, and customer loyalty driving customer productivity, whether it's energy efficiency, utility productivity or any other type of customer service and productivity across the board.
Globalization we have now been at for three or four years. Next week, you'll have a chance to meet our China country manager, and our Middle East country manager will be joining us for our outlook meeting. We're investing in sales, distribution, manufacturing, brands, and we're winning key projects in key markets around the world.
This initiative, while early, has been generating tremendous success. We're up $800 million from 2003. We're building momentum. As we exited 2007, we're up 22% internationally in 2007. And if you look back to 2001-2002, none of this infrastructure really existed, so we expect to be able to maintain the momentum on our international growth that we've seen in 2007.
Talent development is our newest initiative. It's core to our long-term success -- attracting, developing and retaining the best leaders and talent. I'm a product of the GE system. Jim Williams, our Senior VP of HR, is a product of the Honeywell system. We have people from Emerson on our staff, Danaher and others to benchmark and Cooperize our talent development initiative.
And while the initiative is new, transforming the talent within Cooper is not. We've been at this for the better part of six years, and it was a great recognition for an institutional investor to recognize Cooper in the same neighbor with these other companies mentioned on the page above. So that was great recognition, and, again, we think that we're moving in the right direction.
We've made a number of changes on the talent side, building the process capability and, again, the program. We've upgraded over half the HR field leaders, we've improved the front-end feeder programs tied to recruiting and to the university recruiting system, we've redesigned the assessment potential rating process, we've improved our performance reviews and our development programs, and we have rigid succession planning. Net, net, net. Again, we're making progress on this initiative, and it's key to our long-term success.
Operational excellence, while we started this four years ago, we are the beneficiaries today of having a strategic sourcing initiative where we source 38% of our costs of goods sold from low-cost countries. Our structuring from 2002 and 2003 resulted in the closure of 27 factories, and now 58% of our headcount is in low-cost countries, and we have delivered productivities between the 2% to 3% costs of goods sold for the last four years.
The big deal here as we go forward is going to be around lean, and we are on a journey that will take us 18 to 36 months, and we expect to have significant improvements in service, quality, cash, safety margins as we move forward with the lean initiative. And so over the last four to five years, the portfolio, the initiatives and the leadership team has delivered a great balance of growth, earnings improvement and cash flow. And the word "balance" here is the key word.
When you think about our long-term strategy, not much has changed. We still believe that the core can deliver at least 3% GDP growth over...
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