1. GS –Hydro US, Inc.
Roadmap for creating a
World Class Organization
2. Personal View
GS Hydro US is not a “healthy” company. Our product offering is 40 years old, our
employees are not adequately engaged, and we haven’t had a clear vision for who
we are or want to be as a company in quite some time.
My goal is to transform GS Hydro US into a World Class Organization and we will
need to make significant changes in order to do it. Those changes include:
-Creating a clear Vision for our employees, customers, investors, and vendors
-Establishing consistent and crystal clear roles and responsibilities for every person
and department
-Holding people accountable for those responsibilities
-Choosing products and target markets suitable for our long term goals
-Become more systems and processes driven vs. people driven
3. Personal Vision
• Create and implement a business model in which employees are motivated and
engaged, owners receive excellent return and equity on their investment,
customers have a strong preference to work with us, vendors prefer to sell to us,
and our competitors are afraid of losing their business to us. In other words –
become a World Class Organization.
4. Personal Mission Statement
• We will operate an organization that creates tremendous value for its
ownership while also creating extraordinary opportunities for its
employees.
• We will consistently deliver leak free piping systems for demanding
applications using quality materials, with multiple delivery methods,
and that will in every way exceed our customers expectations.
• We will operate this organization on purpose and with intent. We will
do it with honesty, integrity, and with an unwavering commitment to
safety and the environment.
• We will have a clear vision of what we do, how we do it, and why we do
it.
5. US Market Summary
• GS-US has historically focused on core GS products and services in core GS
markets such as O&G, Testing, and Steel from our Houston, TX facility. It is a
constant and costly challenge to consistently develop enough sales prospects for
the small niche market our products serve from our one location. Our
competition has the same issues which has caused the market to be segregated
with Tube Mac big on the East Coast and Canada, BAR in the Midwest, and GS
on the Gulf Coast. Parker seems to have given up on the US market for now.
• Leak free - ultra clean piping systems are great but only the most demanding
applications actually “require” them or can justify their premium costs. We
compete much more with welding than we do with other weldless companies.
6. Issues and Opportunities
• Issue: Limited Geographical Presence in US
– Opportunity: Have numerous GS-US offices close to our strongest potential
target markets and customers
• Issue: Limited/Niche Product Range
– Opportunity: Expand and differentiate our offering while taking advantage
of our existing need for project inventory and purchasing abilities
• Issue: People Dependent Business Model and Severe Limitations on
Growth due to the Niche Nature of our Product and Services
– Opportunity: Automate and centralize estimating, pricing, and engineering
functions. Automate and centralize key fabrication technologies – become
more process oriented vs. people oriented. Expand our product offering to
include “common” connection technology.
7. Business Growth Concept
We will dramatically grow GS-Hydro US through a synergistic combination of
organic growth, core business improvement, acquisitions, and branding.
1) Open 25+ “GS Local” hose and tubing shops within five
years in strategic locations around the US, Mexico, and Canada.
2) Complete review and optimization of all processes, systems,
roles, and responsibilities.
3) Key acquisitions of existing companies with strategically
important offerings be it geographical, product oriented, or
market driven.
4) Building of the GS-Hydro “Brand”
8. Organic Growth
• GS Hydro US will revolutionize the way non-welded piping systems and
hydraulic hose is marketed and sold in North America. We will do this by
establishing “GS Local” hydraulic hose and tube shops in every region and
market area where there is or should be a demand for our core product.
The attributes of a GS Local office is that they will be:
– Self Sufficient/Self Managed
– Differentiated from our competition
– Operated by GS systems and processes
– Designed to support growth of GS “Core” product
– Structured for rapid-profitable-scalable growth
– Inexpensively started with minimal risk/exposure
– “Franchise Ready” – Faster Growth and Lower Capital
9. Core Business Improvement
• Restructure of our “Lead Fulfillment and Conversion” Department
– Aligning technical sales/quoting with project management and engineering
• Review and Optimization of all Processes, Systems, Roles, and Responsibilities
– Pricing Tool, Training, Order Entry/Processing, Reporting Structure, Performance Pay,
Lead Generation Strategy, Field Work, Shop Processes
• Refocus Sales Efforts to Reduce Dependence on Oil and Gas
– Steel, Testing, Plants, Mining, Pulp and Paper, Hoses, Cranes, Mobile Transports
– BUT, Continue Developing our Land Based, Offshore, and Subsea Product Offerings
• Pursue New Markets and Seize New Opportunities when they Arise
– Processing Plants, Subsea Equipment, Skids, Test Equipment
• Improved Commodity and “Distribution” sales
– Bulk Commodity Sales, Strong Web Presence, Strategic Relationships
10. Acquisition Targets
• Bar Hydraulics – Competitor with strong presence in Northern US and Canada
– mostly steel and plants – rarely compete directly with them – very good
owner/manager – inferior but generally accepted in-house product line ;). The
owner is “definitely” interested in selling and recently had a sale fall through. He
obviously has a number in mind so the deal could be done quickly.
• Streamline Pump Systems – Small hydraulics company in Houma, LA –
similar business model as GS but with different products – Pressure Test Units,
offshore and subsea skids, high pressure fittings (Fine Lok), twin ferrule (Fine
Lok), excellent account base, possible IPR, and strong engineering
• Fine Lok – Designs, engineers, and manufactures instrumentation and high
pressure (HIP, Autoclave) fittings – manufactured in Canada – competes directly
with Swagelok (equal certification in place) – possible strategic relationship with
or acquisition of them
• Plastic Extrusion Company – TBD – GS Hydro branded clamp bodies
11. “GS-Hydro” Brand
• We must develop a way (Brand) of doing what we want to do that dramatically
differentiates us from anyone else.
– Clamps – Manufacture own Clamp Bodies – Metal components from LMC
– Hydraulic Hose - Branded or Co-Branded – Manuli/AlfaGomma/Balflex
– Valves – Continue Branding Program with MHA
– Tubes – Continue or Expand Branding Program
– Other – Twin Ferrule Line, HP Fitting Line, Hose Sleeves, Flange
Protection, Test Pumps, Chart Recorders, Testing Rooms
– Systems, Processes, Delivery, Warranty, Commissioning, Flushing, etc
– Techs/Staff – “Uniforms” – Consistent Image - Create Sense of Team
• GS Brand Statement – “Process driven delivery of leak free hydraulic hose and tubing”
12. Future Competition
• I am not overly worried about our existing primary competitors – Tube Mac, Bar,
Parker, or even Welding. I am worried about the competition that is coming.
– Tess – Opened first office in Houston with plans for rapid expansion in the US – primarily
hose business with intentions to pursue offshore hose management
– Stauff – Bringing DIN 2353 to the US – decent US distribution network and plans to
introduce hose and possibly tube services to the US
– Pro-Serve – UK based company with growth plans – have similar piping (welded) but
also offers most any other kind of piping, fabrication, electrical, offshore or on
– Alatas – Offshore crane service company that is the established US leader in hose
management – primarily because of the other services they offer like rope access, NDE,
crane inspections, etc.
13. Goals and Objectives
• Start Implementation and Execution of the “Business Growth Concept” - Immediately
• Pricing Tool/Processes/Structure Fully Implemented by Q3 - 2016
• Have 25+ “GS Locals” @ $2.5M/YR & 20% ROS ($62.5M/$12.5M) – 5 Years
• 1.5 X our “Core Business” revenue ($12M/YR) – 3 years – 2x ($16M/YR) - 5 Years
• 20%+ ROS for our “Core Business” ($2.5M/YR) – 3 years
• First Major Acquisition Completed by Q3 - 2016
• Have Limit of Authority and LOC Access Suitable for Execution of the Plan
14. Financial Plan
1st Year 2nd Year 3rd Year
Number of Locations 1 2 3
Annual Sales 747 2,844 6,036
Gross Margin % 36% 37% 35%
EBIT 20 431 866
EBIT% 3% 15% 14%
Headcount 4 16 28
CAPEX (Leased) 168 168 168
Working Capital:
Inventory 93 262 399
Accounts Receivable 44 122 186
Accounts Payable (58) (137) (259)
Core Working Capital 79 248 327
(KUSD)
Bridge financingfor 1st year working capital will be required,
subsequent years 2 & 3 will be funded byinternal cash flow.
All CAPEX will be leased, combinedlease costs are included in P&L.
Leases will be accounted for as capital leases.
Cummulative cash flow for the first three locations expected to be 0.6
MUSDbyend of year 3
Breakeven EBIT in the first year followed by14%EBIT inyear three.
Sales growth per branch locationassumes an annualized growth of
300%over the first 3 years.
Hose shop at Air Center Blvd. location open1st Qtr of first year, Branch
office in south Houston open 1st Qtr insecondyear, Branchoffice in
west Houston open 3rd Qtr of second year. Opening dates could be
accelerated since we currentlyhave existingqualified employees.
15. Resource Requirements
• List requirements for the following resources:
– Personnel – Intent is to add as supportable – not grow a large organization
before revenue starts. GS Local Employees will be added as we open
stores and grow. We may need someone to oversee the building of the
pricing/engineering model and someone experienced with creating
“franchise” type processes and systems.
– Technology – Two major items are needed. 1) Pricing tool/engineering
software <60K and 2) CNC bending/grooving equipment ($1M +). Both
items can be leased to minimize cash expenditure.
– Finances – Our intention is to lease most all of the equipment and vehicles
needed for the plan. Our cash flow projections are positive and we would
ask for a contingency LOC (line of credit) of $1M.
16. Resource Requirements (cont)
– Promotion – We would like to develop a strong web presence to actively
promote online sales of all our commodity products. The web is not going
away and a nicely executed web site and commerce portal would be very
beneficial. Site itself nothing fancy – basically a very straightforward means
to price and order products with minimal basic technical data.
– Products – We are forecasting an increase in inventory but it should be
relatively modest if we (GS US) can choose our vendors. Again – increases
in inventory value would be directly tied to increases in revenue.
– Services – There would be modest legal costs to properly protect the
company from liability and possibly an increase of accounting cost
depending on the final business structure created.
– Equipment – Equipment for the GS Hydro Locals will be detailed in my
presentation but again – most of it will be leased to minimize risk and cash
flow.
17. Risks
• Risks are minimal – with the exception of the CNC equipment, all other
expenditures are relatively low and could be mitigated in the event of failure.
The pricing/engineering tool is needed regardless of our success or failure
launching the GS Locals. The only other financial risk is the cost of rent. If we
open a GS Local and it fails – the rent costs don’t go away although they could
possibly be mitigated by a sub-lease or buyout. We expect to sign no more than
a 36 month lease and will aim for less.
• We are at an awkward time as far as the market goes which provides both
opportunity and risks. The opportunities are that we can possibly acquire
companies and great people more economically and customers are considering
new suppliers. The risks are that the market hasn’t bottomed out and customers
are only looking at new suppliers in order to dramatically lower cost.
18. Rewards
• The rewards for the anticipated success of this Business Concept are
extraordinary. Success will include:
– Extremely Happy Investors – both financially and because the business
becomes “saleable” due to its growth, branding, differentiation, distribution
footprint, and its lessoned reliance on people vs. processes and systems.
– Employees will be engaged and motivated by the opportunities created and
clear roles and responsibilities they have. They will work for a “healthy”
organization.
– This same model could be expanded into both our existing country
locations and new global target markets like India or Australia.
19. Is This a Good Plan?
• Gives us better geographic and sales access to new and existing customers
• Makes more efficient use of our labor supply
• Provides career path from 18 years old to 67
• Gives us a good distribution network for new products
• Provides a layer of stability against market changes
• Easier and faster growth with systems instead of people
• Creates more opportunities for GS Hydro Core Business
• It’s scalable – can ramp up growth quickly – especially with franchising
• Limited capital requirements – especially with franchising
• Good model for pay for performance comp plans
20. Immediate Action Items
Group Level Actions
•Approval to Proceed with First 3 Houston GS Locals
•Establishment of Milestone Success for Opening More
•Approval for Ordering Equipment, Signing Leases, Hiring for GS Locals
•Approval for Ordering Pricing/Engineering Tool
GS US Level Actions
•Finalize starting inventory and equipment, new order entry process, order
MSU’s, arrange leasing, update non-compete forms, determine legal
structure/issues, find shop space, find PM for pricing tool implementation,
finish roles and responsibilities, etc, etc, etc
21. Management Team
• Kevin Kisamore – Managing Director
- Turnaround Management Experience – 20+ Yrs.
• Scot Wilkerson – VP - Operations/Estimating
- Contractor Experience – Sales/Ops/Eng – 20+ Yrs.
• Bernard Brown – VP - Business Development
- Contractor Experience – Sales/Ops/Eng – 12+ Yrs.
• John Willhite – Controller
-Corporate Accounting/Finance – 30+ Yrs.
• Sharla Grossie – HR/Accounting
-HR/ Accounting/Finance – 10+ Yrs.
26. Branch Office Proforma P&L – 5 Yr
GS Hydro US, Inc.
Branch Office Proforma P&L
(KUSD)
Year N Year N +1 Year N +2 Year N +3 Year N +4
Sales:
Branch Office 630 2,202 4,785 7,494 8,784
Remote Distributors 117 642 1,251 1,791 2,127
Total Revenue 747 2,844 6,036 9,285 10,911
Driect Material Costs (35%) 261 995 2,113 3,250 3,819
Production Related:
Production Labor Costs 110 430 1,065 1,338 1,350
Production Fringe Benefits 37 154 327 386 390
Shop Supplies 15 57 121 186 218
Maintenance 7 28 60 93 109
Safety 1 3 5 5 5
Warranty 6 22 48 75 88
Lease on Cargo Van & Equipment 42 105 189 210 210
Total Production Related Costs 218 799 1,815 2,292 2,370
Net Margin 267 1,050 2,109 3,744 4,722
Net Margin % 36% 37% 35% 40% 43%
Administrative Costs:
Admin Salaries 85 213 450 700 700
Admin Fringe Benefits 23 58 123 191 191
Auto Allowance 9 23 41 45 45
Credit Card Discount Fee 5 18 38 58 68
Advertising 11 25 25 25 25
Rent 90 225 405 450 450
Utilities 5 13 23 25 25
Telephone / Internet 1 3 5 5 5
Auto, Fuel, Tolls, etc. 2 5 9 10 10
Office Supplies 1 3 5 5 5
Parent Admin Service Fees 15 57 121 186 218
Total Admin Costs 247 640 1,242 1,699 1,742
Depreciation - - - - -
EBIT 20 410 866 2,044 2,980
EBIT % 3% 14% 14% 22% 27%
Headcount 4 16 28 30 30
Avg. Branch Sales $ / Employee 158 138 171 250 293
Capex Leased Leased Leased Leased Leased
Expense items included in Parent Admin Service Fee:
Liability Insurance
Property Insurance
Professional Fees - ISO Certification
Professional Fees - Accounting & Admin
I.T. Support
27. Cash Flow
GS Hydro US, Inc.
Branch Office Proforma Cash Flow
(KUSD)
Year N Year N +1 Year N +2 Year N +3 Year N +4
Income (EBIT) From Operations 20 410 866 2,044 2,980
Changes in Working Capital:
Accounts Receivable (*) (93) (262) (399) (406) (203)
Inventories (*) (44) (122) (186) (190) (95)
Cash Flow From Operations (117) 25 281 1,449 2,682
Financial Investments:
Initial Capitalization (Loan) 117 - -
Repayment
Net Change in Cash Position 0 25 281 1,449 2,682
Beginning Cash Balance - 0 26 307 1,756
Ending Cash Balance 0 26 307 1,756 4,437
(*)Assume AR turns 8 times a year
(*)Assume Inv turns 6 times a year
