Smith helped bring CSP back from the brink of bankruptcy

Saddled with high-interest debt and nearly insolvent, Continental Structural Plastics Inc. needed financial discipline in late 2011 like no other time since its founding in 1969.

In a management shakeup, the Auburn Hills, Mich.-based compression molder hired Jon Smith as chief financial officer. Happy to get back into the auto industry and fresh off an industrial business bankruptcy exit — “you never want to do that again,” he said — Smith had the experience and drive to overhaul the company that everyone agreed was “dangerously close to being in a bad spot.”

“I've been in those situations before so it doesn't scare me,” Smith said in a telephone interview. “We had to do a lot of things very quickly.”

The “we” included Chairman and CEO Frank Macher (previously CEO of Collins & Aikman, Federal-Mogul Corp. and ITT Automotive) and President and Chief Operating Officer Steve Rooney (former vice president of operations of Johnson Controls and Plastech Engineered Products). The things they had to do included strategic moves and “garden-variety, daily remedial” steps, Smith said.

The last three years have been very busy, according to Kim Zitny, CSP corporate communications director, who nominated Smith for CFO of the year.

“CSP has experienced tremendous growth, including entering into a Chinese joint venture, acquiring five composite facilities from Magna, and most recently, entering into a strategic alliance with Mitsubishi Rayon to produce carbon fiber structural components,” she wrote. “Jon has a played a key role in structuring the financial aspects of all of these transactions, ensuring CSP continues to experience rapid, profitable growth.”

CSP now posts sales of about $600 million a year for lightweight composite materials and molded parts for the auto and other industries. The company has seen topline growth — an 18 percent compound annual growth rate — and 38 percent growth in earnings before interest, taxes, depreciation and amortization (EBITDA). CSP moved from a company flirting with bankruptcy into what Smith describes as a company “finally to the level we should be at.”

How they did it

The changeup in management at the private equity-owned company was followed by a call for improved communications. Share information regularly and keep it factually based, Smith said.

“No white washing of the real situation.”

The executives took stock of the “softest of the soft spots” and made an outline of what they felt needed to happen to improve the company's outlook.

“In a large way it meant starting to benchmark where you're at and monitor the progress,” Smith said. “Unless you do that, you might think you're getting better or you feel you're better but you can't see it in numbers and dollars.”

The management team started plugging in key performance indicators (KPIs) for the then-seven plants, which Smith said are run as a cross between a cost center and profit center. Targets were set for on-time delivery, scrap performance, PPMs (parts per million) and other metrics that measure plant effectiveness.

“Nothing breakthrough, but many things weren't being done with any regularity or in any kind of systematic way,” Smith said. “Every plant did some good things but there was no plant consistency.”

Standards were developed along with a communications and feedback process for the seven plants, which had different origins. Some were CSP, a few from an acquisition and one was acquired in a separate deal.

“We had to make things consistent and really become CSP more than just the label on the front door,” Smith said.

Individual plant budgets were created. Spending limits were set. A strict signature authority matrix was put into place to assure a proper level of review for resource commitments. And plant operations were reviewed monthly.

“Everybody knew what their limits of authority were and we were going to live by those things,” Smith said. “It's a very good process now. We go to the plants and work with them so we're all comfortable with the amount of task or stretch that's in their plan.”

The company also addressed commercial issues through increased communication and coordination between the plants, sales group and company executives.

“We know what the customers expect. We know what our expectations are. And we know how we should be operating,” Smith said. “You get those things together and you start operating much more effectively.”

They didn't get it all right in the first year, he added, but they made progress immediately and handled projects like automating some activities along the way.

“It probably took us three iterations of that over a three-year period to really get our planning process right,” Smith said.

Progress toward meeting all the targets was tracked and if something was off, like scrap performance, Smith said the question became: What do we need to throw at this plant to help get things done properly.

“It's not about finding blame or pushing buttons on somebody for lack of performance. It's about how do we all get there together and perform like we think we should,” he said.

IT ‘equally scary'

When he arrived at CSP, Smith said he also was struck by the lack of staff and vision in the IT department when it came to both maintaining equipment and communicating with customers.

“That was probably equal to where we were financially. It was equally scary,” he said. “I think it's one of those things that as long as you're shipping parts, for some folks that's OK, but unless you know the equipment is not going to fail, and you have backup if it does, how do you assure yourself there will no interruption of supply? We were way off the mark in that regard.”

Smith was put in charge of IT in addition to finance. New IT experts were hired, bringing that department up to 10 employees, and new disciplines implemented around data security, disaster recovery and systems redundancy.

CSP also outsourced its tax planning to a new audit firm. The changes yielded more than $15 million in tax abatements and incentives, according to Zitny.

Expanding overseas

In 2012, CSP started looking for a partner in China and in late 2014 signed a deal for a 50/50 joint venture with Qingdao Victall Railway (Group) Co. Ltd. The partnership aims to capitalize on CSP's light-weighting innovations and technology and the Chinese company's customer relationships and local market expertise.

Quingdao makes components for railcars, including passenger interiors that use a structural composite material similar to automotive exteriors.

“There was a logical connection for them and for us,” Smith said. “They got somebody to work with that actually makes the material they need as opposed to having to buy it 100 percent outsourced. For us, it was a connection to domestic automotive manufacturers they are familiar with in that area. And, we got an introduction into mass transit railway systems. That isn't our initial focus but we will get there.”

In October, the partners opened a 322,000-square-foot facility in Tangshan to make lightweight composite materials. Some equipment still is being installed and “earnest production” of pending orders will begin this year.

“This was an important step for us because CSP has historically been North American centric,” Smith said. “If we're going to be a global player, we knew we had to be in China and we had to be in Europe.”

In Europe, CSP has a facility in France for research and development that is equipped and partially staffed with experts in carbon fiber hybrid-type applications. CSP is working on sales and production capabilities next.

The management team looks at R&D as an investment in the future instead of an expense and that's translating into growth opportunities for the next five to seven years, Smith said.

“Where do we want the company to go?” he asked. “It's not just about selling the same stuff but what is the customer really looking for? You need to anticipate where the market is going so you have the R&D activity that will have you there with the right materials at the right time because if you wait for the customer to tell you, you're probably going to be late.”

By becoming more disciplined about cost and cost controls, CSP freed up money for R&D efforts, according to Zitny.

“Before the company was barely surviving as a commodity supplier,” she wrote. “Now it's recognized as an industry technology leader with profitable growth.”

A certain level of budget consciousness also is expected of the R&D staffs, Smith said, but the management looks at it differently from selling, general and administrative (SG&A) expenses.

“This is not a requirement to run the business; this is a requirement to guarantee the future of the company.”

Diversifying sales

Prior to CSP, Smith was CFO of RathGibson and before that he was senior director of finance for Magna Powertrain. In July 2014, he worked on CPS's acquisition of five sheet molding compound facilities from the exterior unit of Magna International Inc. The deal included three facilities in North Carolina and one each in Indiana and Saltillo, Mexico.

“It helped us diversify our sales product base a bit so we're now more heavily into heavy truck applications, industrial applications and marine where we were not before,” Smith said. “It broadened our customer base and helped us geographically in the North Carolina area, which is important for the heavy truck business.”

Smith said the acquired facilities weren't performing well at first but have improved with a focus on product quality and limiting rejects.

“We knew that would make them more successful,” he said. “They're not quite where we want but it's not an overnight process. They're getting there and we're proud of the results and what folks locally have done.”

The progress is another example of how the change in expectation across CSP helped change its outlook.

“The financials aren't just something we hand off to the accountants in the backroom,” Smith said. “This is something everyone has a part in.”