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Last Monday I attended SSD's annual stockholders meeting. Although the Board and officers were present, the meeting was a one-man show put on by Barclay Simpson, who is a real gem! Barc is in his eighties, and is in charge of Investor Relations--not an important part of the Company, he says, but it's fun!

Barc began by saying SSD had allowed itself to become too dependent on U.S. housing starts. He said "We must lessen this dependence on something over which we have no control." He emphasized their focus on long-term earnings growth even at the cost of current earnings, saying that some of the steps they are taking to ensure that future growth will increase current year costs. He then put on a slide show he said he given the financial analysts in New York in January. The focus of the slides and his presentation was on the following:

(1) Europe, which he said is showing a great deal of promise, now accounting for 33% of their business and finally providing a good return on investment. European sales increased 20% in the fourth quarter of 2006, he said. They see competition in Europe, but it is by country; there is no Europe-wide counterpart to SSD. Some of these individual competitors may be acquisition candidates, he said. He disclosed they have bid on "a small German company with manufacturing operations in China" and expect to be able to buy them.

(2) SSD's dominance of their market, maintained through their $12M test lab in Stockton, CA, along with seven other test facilities, over 100 patents ("a handful are really protective", Barc said, "the rest are for scare value"), the fact that over 90% of architects specify SSD products, their practice of paying extra to obtain analyses of the composition of the steel they use as a way of maintainng quality control and other ways. "No one else comes close" said Mr. Simpson.

(3) New products and new facilities. He mentioned several new products and tools, such as a new laser welder installed by Duravent that is leading to new markets, a new anchor system used to repair cracked concrete at airports and other facilities, etc., all meant to build non-housing sales. He said Quikdrive, their latest acquisition, reported 2006 sales of $35M, up 16%. They have opened some new facilities in Europe as well.

(4) China. They have sent one of their senior sales people and his family to live in Hong Kong so he can cover the mainland. They also plan to begin manufacturing in China, though he didn't say when.

(5) Acquisitions--they have retained JPM and Euro-Consult to find acquisition candidates.

Barc repeated what he's said on the conference calls--they are NOT for sale, and they will not use their cash to repurchase more stock. His statement was "You don't build a company by buying your own stock!"

There were few questions, although one older fellow tried to push the idea of SSD paying out 80% of earnings in dividends.

I have to say that while I try to remain dispassionate about my investments, Mr. Simpson and SSD are hard to dismiss as just another ticker symbol. He is an intelligent and charming old gentleman who seems to have imparted his values and personality to the company he built. I guess I'll just have to stick my SSD shares in the "core holding" category, at least for the next few years.


(also posted this on the BMW Board)

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