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Now that Pacific Safety
Products is a major player in law enforcement and the Department of National
Defense in Canada, they are positioned
to expand into the United States
Defense
Safety Products
(PSP-TSX Venture)
Pacific Safety Products Inc.
2821 Fenwick Road
Kelowna, B.C. Canada V1X 5E4
Phone: 250-491-0911
David Scott
Chief Executive Officer
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
March 23, 2006
BIO:
David Scott - Chief Executive Officer
Mr. Scott recently retired as Chief Executive Officer and President of General Dynamics
Canada. His responsibilities included operations in the United States, Canada and the United
Kingdom, with annual sales in excess of $750 million dollars, and the management of over
five thousand employees. Mr. Scott brings 35 years experience in the Aerospace and Defence
industry, holding executive positions in both Operations and Program Management in Canada
and the United States.
Company Profile:
PSP is a world leader in the design, production and sales of protective products for law
enforcement, military, fire and EMS personnel. “We bring everyday heroes home
safely.” TM
CEOCFO: Mr. Scott, what was your vision when you joined
Pacific Safety, and how has that developed?
Mr. Scott: “I joined Pacific Safety in 2003 as a
director of PSP and I was asked to be a director
because of my background in aerospace and defense. The company was then embarking on
diversifying their core product line from law enforcement to include defense.
Subsequently, in September of 2005, I became CEO of Pacific Safety Products and the vision
is to take it to the next level of development in our markets and expand from Canada into
the United States. We also wanted to increase our participation in the
defense market for protective systems and that is still the vision, but right now
it’s the execution that we are working on.”
CEOCFO: How do execute and what’s next?
Mr. Scott: “When I became CEO, I assessed the
organization with respect to what the skill sets were that we had, what our market was and
I spoke to a number of significant customers of ours to understand their views of our
products and services. I then started to adjust some of our products lines to emphasize
the benefits and value of what we brought to the market and over time have started to
develop additional skill sets that we can employ in the organization. We looked at how we
can work as a unified organization, because we have multiple locations, some through
acquisitions and we were trying to make sure that the integration process was complete so
that everyone had a common operating picture.”
CEOCFO: Can you give us a picture of the industry between Canada
and the United States?
Mr. Scott: “The industry for protective systems and
protective clothing, with respect to Canada and the United States, there are similarities,
but obviously, the markets in the United States is huge compared to Canada. The
similarities start with there being a few large players and a lot of smaller players who
work around the fringes. It is an industry that has a need to continually innovate,
because of the textile markets and the new products being brought onto the markets by the
textile manufacturers. It is relatively low cost with regards to R&D; the quality is
paramount, because we are in the business to protect someone’s life, so the quality
of the product is the most essential part to the approach to the market.”
CEOCFO: Where do you stand in the industry?
Mr. Scott: “With respect to Canada we are a major
player; we probably occupy a space of about 65 to 70% of the law enforcement market in the
large cities as well as the provincial police forces. With respect to the Department of
National Defense in Canada, we are currently a significant supplier of protective
equipment with our fragmentation protection vests and chemical protection suits. Our
fragmentation vests are now used with the deployment in Afghanistan. With respects to the U.S.
market we are still have our toes just gingerly in the water, but we are making some sales
with our traditional product lines in the U.S. and have done so for a number of years. We
have also expanded now to included direct sales, as well as distribution
sales for law enforcement. In the near future we hope to be able to pursue U.S. federal
government agency business and the Department of Defense business, by having a facility
located in the United States. However, that is still in the consideration phase.”
CEOCFO: You had a profitable quarter, which I know is
significant for you; tell us about your financial situation?
Mr. Scott: “The company has gone through what I describe
as a ‘saw tooth’ chart if you were looking at a graph; in terms of
profitability, where some years we have been profitable and others not. The awarding of
these two contracts from the Department of National Defense in Canada was a significant
occurrence; however, the volume was something greater than the company had typically
experienced in the past. As a result, it took us a little longer to get into production
than had been anticipated and in the meantime, we were investing considerably in some new
product development areas. Therefore, we had a rather weak 1st Quarter this
year; we had done some restructuring during that quarter and it was reflected in a write
off of just under $600 thousand Canadian. This last quarter is more reflective of what the company can do; we are in full
production on these major contracts, we are meeting our production targets for our costs
and our order book is growing significantly from both domestic sales and additional sales
in the United States. Therefore, I think the quarter reflects what the organization can
do.”
CEOCFO: Why should people be buying from Pacific Safety as
opposed to your competitors?
Mr. Scott: “We provide a quality product; we are
incredibly responsive to our customers and provide tailored solutions. In addition, we are
relatively small in size, so we are able to be proactive and also react to the customer
requirements in a very short period of time. Therefore, we think that is one of the
discriminating factors with regard to buying a PSP product, as well as the support that we
provide to our customers throughout the use of the product.”
CEOCFO: Where does the support play a factor?
Mr. Scott: “I believe that it is the maintenance of the
quality of the product. We have a lifetime testing program, so that when we deliver a
product to a customer at prearranged scheduled dates, we will take that product in the
field and retest it to make sure that its protective qualities have not deteriorated over
time as a result of wear or exposure to environmental conditions. We also work very
closely with some very significant customers in providing that type of support. We have
what is probably the best ballistics test lab in Canada, outside of a government
lab.”
CEOCFO: You have a number of safety related products as well
as the personal and body armor; what is the range and what areas are growing the most for
you?
Mr. Scott: “I believe the growth over the next 2 years
will continue to be in the defense market. I think the application of technology to
textiles or smart textiles; will be where the biggest growth will occur; where the
individual dismounted soldiers will have sensors and health monitoring capabilities woven
into the fabric of his ballistic vest or his fragmentation protection vest, or his
chemical protection suit. Therefore, I think that is a significant area of growth. I
believe that homeland security and generally the protection of critical infrastructure,
both in the United States and Canada will be a growth area and that may include
suppression devices or sensory devices, but I believe that we can play in this area
because of our experience in the core markets. The third part of our business is emergency
medical response, where we provide basic kit bags for first responders. Because we have a
market with first responders that is significant here in Canada and to a lesser extent, in
the United States, I think that we want to grow that market by adding additional products.
I would like to point out that we are in the process of bringing on-stream two different
products, although I can’t speak specifically right now because we haven’t
signed the agreements yet, however they will broaden our products and allow us to
penetrate more first responder business.”
CEOCFO: Do you see consolidation in the industry and will you
be looking at acquisitions?
Mr. Scott: “We see consolidation for sure and at some
point the bow wave for DoD (Department of Defense)) business in the United States that is
currently aimed at the military I think will
start to lessen and that will prompt the need for revenue growth through acquisition by
the big players. For ourselves, given our size, an acquisition is probably necessary
downstream over the next 2 and 3 years, to sustain the growth that we’ve seen through
organic growth. However, I think that there is a lot of opportunity for organic growth for
safety products in the next 2 years and I think that we will take a look at acquisitions
in a measured fashion and ensure that if we are going to do something
like that, we can make that work and bring real value to our shareholders as opposed to
just growing the order book for the sake of growing the order book.”
CEOCFO: Is reaching investors a focus for you?
Mr. Scott: “It is! We are not terribly widely held, but
we do have investor relations internally. For our current investors I would say that we
are able to perform to the markets expectations and we will continue to be profitable and
continue to grow the top-line. We are interested in attracting new investors and I think
that the best way to attract is to demonstrate our ability to perform, both on the top
line and the bottom line.”
CEOCFO: In closing, what should potential investors know that
doesn’t jump off the page when they first look at the company?
Mr. Scott: “I would say that we are in a marketplace
that has seen significant growth overall in the 4½ years, since September 11, 2001. We
are in a market that is addressing the needs of an apprehensive society and I believe that
we are swimming with the tide in being in this marketplace. I think in the next 2 or 3
quarters, we will be able to show that indeed is the case.”
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