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Ashland Inc. (NYSE: ASH) is a diversified chemical company comprised of four major divisions: Ashland Distribution, Ashland Performance Materials, Valvoline, and Ashland Water Technologies. [1] Ashland Distribution distributes chemicals and plastics in North America and Europe.[2] The Performance Materials segment makes materials that are used in the construction and automotive industry. [3] Valvoline markets brand name lubricants for automobile engines.[4] Ashland Water Technologies is a supplier of chemicals used in water treatment and mining. [5]

Rising oil prices have decreased profit margins for Valvoline, because many of its lubricants use oil as a major input. [6] They also negatively effect Ashland Distribution by increasing transportation costs. [7] Additionally, downturns in the automotive and housing industries affect Ashland because they account for the majority of Performance Material’s revenue.

Business Overview

Ashland is divided into four major divisions: Ashland Distribution, Ashland Performance Materials, Valvoline, and Ashland Water Technologies. [8] Ashland Distribution distributes chemicals and plastics in North America and Europe.[9] The Performance Materials division makes materials that are used in the construction, automotive, marine industries, metal casting, and packaging industries. [10] Valvoline markets many brand name lubricants such as Valvoline, MaxLife, SynPower, Eagle One, and Car Brite. [11] Ashland Water Technologies is a major supplier of chemicals used for water treatment, paper manufacturing, mining, waste treatment, and paint production. [12]
In July 2008, Ashland acquired the chemical company Hercules (HPC) for $3.3 billion.[13]

Business & Financial Metrics[14]

In 2009, ASH generated a net income of $71 million on $8.11 billion in total revenue. This represented a 57.5% decrease in net income from 2008 on a 3.3% decrease in total revenues.

Business Segments[15]

Ashland Aqualon Functional Ingredients (10% of total revenue)

This segment offers products that are primarily used to modify the properties of aqueous systems; these products are typically sold to manufacturers. The Functional Ingredients segment is comprised of the following businesses:

  • Regulated Industries: This division sells products to bakery, beverage, dairy, other food, hygiene, and cosmetic manufacturers.
  • Coatings Additives: This division sells products to paint and coating manufacturers; some of its products can add gloss, spatter, and leveling properties to paints.
  • Construction: This division sells products like cements, plasters, concretes, and other materials for construction purposes.
  • Energy and Specialties Solutions: This division offers products for the oil and gas industries that include solvent thickeners, workover fluids, and oil-well cementing slurries.

Ashland Performance Materials (13% of total revenue)

This segment is split into three divisions: Composite Polymers, Casting Solutions, and Specialty Polymers and Adhesives.[16]

  • The Composite Polymers group makes fire and corrosion resistant polyester resins and gelcoats that are used in the construction, automotive, and marine industries. [17] The group sells vinyl ester resins under the brand names DERAKANE and HETRON. [18]
  • The Casting Solutions group produces chemicals and materials used in the metal casting industry. [19] The products include: sandbinding resin systems, refractory coatings, release agents, engineered sand additives, and riser sleeves.[20] It also sells casting process modeling, core making process modeling and rapid prototyping services.[21]
    • The Specialty Polymers and Adhesives group makes products that are used in packaging, roofing, and structural applications. [22] The group also makes specialty coatings used in the printing industry. [23]

Performance Materials has 32 manufacturing facilities in 15 different countries.[24] Its composite polymers, sold primarily to the transportation, construction and marine industries, is marketed under the brands DERAKANE and HETRON. Chemicals used in the metal casting industry include sandbinding resin systems, refractory coatings, release agents, engineered sand additives and riser sleeves.[25] Adhesives are sold to the packaging and converting, printing, building and construction, and transportation industries. [26]

Ashland Consumer Markets (20% of total revenue)

Thsi segment makes lubricants, chemicals, and appearance products for the automotive industry.[27] It sells under many brands including Valvoline, MaxLife, Pyroil, Eagle One, Car Brite, and Zerex.[28] It is comprised of four core business groups: Do it Yourself (DIY), Do it for Me (DIFM), Valvoline Instant Oil Change, and Valvoline International.[29] DIY targets consumers who do their own car maintenance while DIFM targets those who have dealers or mechanics fix their cars. The Valvoline Instant Oil Change chain has 265 company-owned and 544 independently-owned centers in 38 states.[30] The International group has dealers in over 100 countries but is primarily based in Europe and Australia.[31]

Ashland Hercules Water Technologies (20% of total revenues)

Ashland Water Technologies is a major supplier of chemicals used for water treatment, paper manufacturing, mining, waste treatment, and paint production. [32] It operates 11 manufacturing facilities in 8 countries.[33] Its biggest customers are municipalities and the mining, oil refining, paper processing, and food processing industries. [34]

Ashland Distribution (37% of total revenue)

Ashland Distribution is a distributor of over 7,000 chemicals, solvents, plastics, composite materials and additives. It is the largest plastics distributor and third largest chemicals distributor in North America.[35] Ashland Distribution delivers plastics and chemicals in North America through a system of 68 facilities and 35 third-party warehouses. [36] In Europe, it makes deliveries of plastics in 16 countries through a network of 18 third party warehouses and 1 self-owned warehouse. [37] It distributes chemicals and plastics from Ashland's other segments as well as other companies such as Dow Chemical Company (DOW), Exxon Mobil (XOM), Sunoco (SUN), and BASF SE (BASFY).[38] In addition to distributing materials, the segment sells environmental services such as hazardous and non-hazardous waste collection, recovery, recycling, and disposal.[39] Ashland Distribution's biggest customers are the construction and transportation industries.

IMAGE:ASH-Segments2009.jpg[40]

Key Trends and Forces

Ashland is vulnerable to downturns in the housing, construction, automotive, and marine industries

In a recession people purchase fewer cars, houses, and luxury items, because they cut back on discretionary spending. The automotive, construction, and marine industries are major customers of Ashland Inc. Those three industries account for 43% of Ashland Distribution's revenue and 74% of Performance Materials' revenue.[41] The Valvoline segment relies almost entirely on the automotive industry because its products are targeted for that industry. [42] The automotive and marine industries are major customers of the Water Technologies segment. [43] Thus, Ashland is vulnerable to a decline in housing starts, auto manufacturing, and marine industries.[44]

Rising Oil Prices drive up the costs of producing many of Ashland's petroleum based products

Many of Ashland’s chemicals and products, particularly the Valvoline lubricants, use oil as an input. Rising oil prices increase the cost of manufacturing these substances. Chemicals from different companies are near perfect substitutes because they have the same chemical structure. This lack of brand differentiation, the company has difficulty raising prices because customers switch to other companies. As a result, rising oil prices reduce profit margins.[45]

Environmental legislation makes Ashland liable to asbestos lawsuits and clean-up costs at contaminated sites

Many different environmental laws have an effect on Ashland. Listed below are some of the most significant acts from Ashland's perspective:

  • A former subsidiary of Ashland, the Riley Stoker Corporation, produced industrial boilers that were allegedly insulated with asbestos. Although Ashland sold Riley in 1990, it is still liable for any damages that result from the asbestos.[46]
  • The Federal Comprehensive Environmental Response Compensation and Liability Act makes 'potentially responsible parties' (PRP) liable for the clean-up costs at contaminated sites. Ashland is a 'PRP' at 69 sites. [47]
  • The Toxic Substances Control Act has been invoked to make Ashland audit itself in order to discover any violations of the act.[48]
  • Ashland is a defendant in 30 cases alleging methyl tertiary-butyl ether (“MTBE”) contamination in groundwater.[49] Ashland is charged with manufacturing and selling MTBE containing gasoline, a charge the company denies.[50]

Competition

Because of the diverse nature of their product offerings, each of Ashland's segments faces a different set of competitors.

Ashland Distribution

Ashland Distribution's two biggest competitors are Univar NV (UNIVR.AS) and Brenntag.[51] However, the $70 billion chemical distribution industry is highly fragmented.[52] The top 50 companies only hold 40% market share. [53]

Performance Materials & Water Technologies

The Performance Materials and Water Technologies segments compete in the Chemical Manufacturing industry. It is a $120 billion industry with over 1,200 companies.[54] However, it is a concentrated industry; the 50 largest companies hold a market share of 70%.[55] The biggest players are Dow Chemical Company (DOW), DuPont (DD) , and Occidental Petroleum (OXY).[56] Big companies have a competitive advantage because they can reduce costs through economies of scale; lack of brand differentiation means that consumers will purchase the cheapest brand. [57]

Valvoline

References

  1. Yahoo! Finance
  2. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Ashland at a Glance", pg. 8
  3. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Ashland at a Glance", pg. 8
  4. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Ashland at a Glance", pg. 9
  5. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Ashland at a Glance", pg. 9
  6. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Ashland at a Glance", pg. 9
  7. Ashland Business Fundamentals, pg. 3
  8. Yahoo! Finance
  9. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Ashland at a Glance", pg. 8
  10. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Ashland at a Glance", pg. 8
  11. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Ashland at a Glance", pg. 9
  12. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Ashland at a Glance", pg. 9
  13. http://www.herc.com/abouthercules/news/08/Ashland.asp Press release by Hercules Inc.
  14. ASH 2009 10-K pg. F-5  
  15. ASH 2009 10-K pg. 2-5  
  16. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Ashland at a Glance", pg. 8
  17. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Ashland at a Glance", pg. 8
  18. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Ashland Performance Materials", pg. 18
  19. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Ashland at a Glance", pg. 8
  20. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Ashland Performance Materials", pg. 18
  21. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Ashland Performance Materials", pg. 18
  22. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Ashland at a Glance", pg. 8
  23. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Ashland Performance Materials", pg. 18
  24. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Business", pg. 18
  25. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Business", pg. 18
  26. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Business", pg. 18
  27. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Ashland at a Glance", pg. 9
  28. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Business", pg. 19-20
  29. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Business", pg. 19-20
  30. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Business", pg. 19-20
  31. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Business", pg. 19-20
  32. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Ashland at a Glance", pg. 9
  33. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Business", pg. 20
  34. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Business", pg. 20
  35. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Ashland at a Glance", pg. 8
  36. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Business", pg. 18-19
  37. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Business", pg. 18-19
  38. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Business", pg. 18-19
  39. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Business", pg. 18-19
  40. ASH 2009 10-K pg. M-1  
  41. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Ashland at a Glance", pg. 8-9
  42. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Ashland at a Glance", pg. 8-9
  43. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Ashland at a Glance", pg. 8-9
  44. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Risk Factors", pg. 22
  45. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Risk Factors", pg. 23
  46. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Legal Proceedingsactors", pg. 24-25
  47. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, " Legal Proceedings ", pg. 25
  48. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, " Legal Proceedings ", pg. 25
  49. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, "Risk Factors", pg. 25
  50. Ashland Inc. (ASH), Annual Report, Fiscal Year 2007, " Legal Proceedings ", pg. 25
  51. Hoovers.com
  52. Hoovers.com
  53. Hoovers.com
  54. Hoovers.com
  55. Hoovers.com
  56. Hoovers.com
  57. Hoovers.com
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