The headwinds sparked in FY2018 have continued through FY2019 and added further pressure on financial performance. Top-line and bottom-line results were down from last year. However, undaunted by ongoing geopolitical uncertainty and marketplace pressures, the Company has made substantial progress in a number of areas in FY2019. Progress was made on our facility consolidation initiative on multiple fronts. Our debt was paid down to zero. Also, free cash flow improved over FY2018. This has allowed the Company to continue its investments in operations, ensuring return on your investment in Chase Corporation.Though it was a trying year in many ways, one consistent highlight has been Chase employees. As our global footprint grows, we are indeed fortunate to be able to count on a solid workforce and to also bring on world-class people to help address future challenges and opportunities. Chase has a long track record of success and we believe that it is attributable in great measure to our cultural foundation. Our people—their drive, their resilience, their resolve and discipline at all levels— have always served our customers and shareholders well, as they will in the year ahead.
Today, Chase Corporation has a portfolio of complementary brands serving a variety of markets worldwide. Inorganic and organic growth over the past several years has required that we expand and strengthen our senior management capabilities. Our businesses are more complex, and following consolidation and streamlining of product lines and manufacturing facilities we have restructured our internal and external reporting process to more accurately reflect the manner in which the current business is being managed and operated. In FY2019, the Company reorganized into three reportable operating segments: Adhesives, Sealants and Additives, Industrial Tapes and Corrosion Protection and Waterproofing. The segments are distinguished by the nature of the products manufactured and how they are delivered to their respective markets. It is very satisfying that these three business segments are now managed by Vice Presidents who have been promoted from within and who possess the skill, talent and experience that will bring great value to our organization.
Adhesives, Sealants and Additives offers innovative and specialized products consisting of both end-use products and intermediates that are used in, or integrated into, another company’s product.The segment sells predominantly into the transportation, appliance, medical, general industrial and environmental market verticals. Products include moisture protective coatings and customized sealant and adhesive systems for electronics, polymeric microspheres, polyurethane dispersions and superabsorbent polymers.
Industrial Tapes features legacy wire and cable materials, specialty tapes, and other laminated and coated products. These products are generally used in the assembly of other manufacturers’ products, with demand typically dependent upon general economic conditions. The segment sells predominantly to established markets, with some exposure to growth opportunities through further development of existing products. Markets served include cable manufacturing, utilities and telecommunications, and electronics packaging. Offerings include insulating and conducting materials for wire and cable manufacturers, laminated durable papers, laminates for the packaging and industrial laminate markets, custom manufacturing services, pulling and detection tapes used in the installation, measurement and location of fiber optic cables and water and natural gas lines, cover tapes essential to delivering semiconductor components via tape-and-reel packaging and composite materials and elements.
Corrosion Protection and Waterproofing is principally composed of project-oriented products that are primarily sold and used as “Chase” branded products. End markets include new and existing infrastructure projects for oil, gas, water and wastewater pipelines, highways and bridge decks, water and wastewater containment systems, and commercial buildings. Products include protective coatings for pipeline applications, coating and lining systems for waterproofing and liquid storage applications, adhesives and sealants used in architectural and building envelope waterproofing applications, high-performance polymeric asphalt additives, and expansion joint systems for waterproofing applications in transportation and architectural markets.
Research and Development (R&D) is a key strategic area of the Company. Our investment in R&D continues to increase as new products and application opportunities arise and we continue to support customer efforts to innovate. In the past year we have brought new leadership to the department and added additional technical resources that will allow us to remain a leader in the markets we serve. Cost pressures have led to the further prioritization of our ongoing consolidation efforts. Tangible progress was recognized in FY2019, including launching the next phase in our facility consolidation and rationalization initiative — the relocation of our pulling and detection manufacturing operations into our Hickory, NC facility. This was coupled with the completion of the consolidation of our wire and cable materials operations into our Oxford, MA and Lenoir, NC facilities. The fiscal year also saw Chase achieve the full pay down of the debt incurred to acquire Zappa Stewart in the prior year, and the generation of free cash flows surpassing the prior year.
While no acquisitions were completed in FY2019, we remained active in the M&A market, maintaining a pipeline of potential targets along with ongoing due diligence efforts. We maintain a disciplined approach with our analysis of valuations and have not felt compelled to stretch for opportunities presented.
ADHESIVES, SEALANTS AND ADDITIVES
Our specialty chemical intermediates product line, which has a predominantly North American market focus, surpassed the prior year sales mark, resulting in a year-over-year increase in total revenue for the Adhesives, Sealants and Additives segment. The specialty chemical intermediates product line had the comparative benefit of the full-year contribution of the Zappa Stewart business in FY2019. By contrast, our electronic and industrial coatings product line was adversely affected by Asian market headwinds, and finished FY2019 behind the prior year.
Our pulling and detection, cable materials and specialty products product lines in FY2019 obtained strong domestic sales. However, the Industrial Tapes segment as a whole fell short of total sales achieved in the prior year when factoring in FY2018 sales related to the now- divested structural composites product line. The segment enters FY2020 the beneficiary of both the Pawtucket, RI and Granite Falls, NC consolidation projects, both performed to improve efficiencies and gain economies of scale for the segment’s two largest product lines.
CORROSION PROTECTION AND WATERPROOFING
The Corrosion Protection and Waterproofing segment’s revenue was down for FY2019. Declines were concentrated in the pipeline coatings and bridge and highway product lines. Prolonged construction contraction in the Middle East and the nonrecurring high profile bridge jobs completed in the eastern U.S. in the prior year drove these results. The segment’s other product lines, building envelope and coating and lining systems products, fared better in FY2019, showing year-over-year sales growth.
THE INTERNET OF THINGS
The Internet of Things (IoT) will be a growth driver due to the need for greater bandwidth and desire for more data. The rate at which devices are entering this market is explosive. While our pulling and detection tapes, conformal coatings and communication cable materials are anticipated to realize the greatest lift from this macro trend, a myriad of products in all three segments are poised to benefit.
5G (fifth generation cellular wireless) will also impact this trend, increasing the demand for further infrastructure build-out to support this evolved technology.
We expect continuing challenges in FY2020. The trade war has and will continue to unsettle markets around the world, and the resulting turbulence will require that the Chase team be alert and responsive to what lies ahead. In a difficult year, our flexibility and responsiveness have given us confidence, and this confidence will continue to manifest in our ability to address threats and take advantage of opportunities in the period ahead. We will remain grounded in the core strategies that have served us well for many years.
Thank you for your continuing support.
Adam P. Chase
Chief Executive Officer
Peter R. Chase
Christian J. Talma
Chief Financial Officer