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 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. [edit] Business OverviewAshland 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] [edit] Business and Financial MetricsTotal Revenue grew 7.7% in Fiscal 2007 from $7.277 to $7.834 billion and operating income grew 29% from $165 million to $213 million.[14] In Fiscal 2005 there was an 'unusual income' listed on Ashland's balance sheet, because the company sold a 38% stake in Marathon Ashland Petroleum LLC to Marathon Oil Corp. This sale resulted in $1,531 million in 'unusual income', explaining the unusually high amount of operating income in Fiscal 2005 relative to other years.[15] Operating Income is a good indicator of the company's performance because it removes the variability of tax rates across the many nations (including the U.S., Germany, Brazil , China, Argentina, India, Russia, Spain, Portugal, Hungary, Czech Republic, Romania, and others[16]) it operates in and the year-to-year differences in interest income or expense. The following is a chart covering total revenue, operating income, and net income (in millions of USD) since 2004: [17]
[edit] Geographic DistributionThe majority of Ashland's business is in North America, but it has growing positions in the rest of the world. In 2007, revenue from outside of North America grew to 28% from 22% of total revenue. [22] Revenue from the Asia/Pacific region grew 49%; revenue from Europe grew 37%; North America's revenue decreased 3%; and revenue from the rest of the world increased 24%. [23] Ashland plans to invest $80 million in expansion projects in China, including a new commercial and technology headquarters in Shanghai and a fifth manufacturing facility in the country. [24] [edit] Business Segments[edit] Ashland Distribution (52% of revenue, 20% of operating income) [25]Ashland Distribution brought in $4.0 billion in revenue in 2007 and 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.[26] Ashland Distribution delivers plastics and chemicals in North America through a system of 68 facilities and 35 third-party warehouses. [27] In Europe, it makes deliveries of plastics in 16 countries through a network of 18 third party warehouses and 1 self-owned warehouse. [28] 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).[29] In addition to distributing materials, the segment sells environmental services such as hazardous and non-hazardous waste collection, recovery, recycling, and disposal.[30] Ashland Distribution's biggest customers are the construction and transportation industries, accounting for 40% of revenue. The first chart gives a breakdown of who buys products from Ashland Distribution. The second chart gives a breakdown of the share of each product in earnings. The third chart shows operating income for this group over the past few years.[31]
[edit] Performance Materials (20% of revenue, 41% of operating income) [32]The Performance Materials division earned $1.6 billion in revenue in 2007. The division is split into three segments: Composite Polymers, Casting Solutions, and Specialty Polymers and Adhesives.[33]
Performance Materials has 32 manufacturing facilities in 15 different countries.[41] 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.[42] Adhesives are sold to the packaging and converting, printing, building and construction, and transportation industries. [43] The first chart gives a breakdown of who buys products from the Performance Materials group. The second chart gives a breakdown of the sales by region. The third chart shows operating income for this group over the past few years.[44]
[edit] Valvoline (20% of revenue, 40% of operating income) [45]Valvoline makes lubricants, chemicals, and appearance products for the automotive industry, generating $1.5 billion in revenue in 2007.[46] It sells under many brands including Valvoline, MaxLife, Pyroil, Eagle One, Car Brite, and Zerex.[47] It is comprised of four core business groups: Do it Yourself (DIY), Do it for Me (DIFM), Valvoline Instant Oil Change, and Valvoline International.[48] DIY targets consumers who do their own car maintenance while DIFM targets those who have dealers or mechanics fix their cars. The chain Valvoline Instant Oil Change has 265 company-owned and 544 independently-owned centers in 38 states.[49] The International group has dealers in over 100 countries but is primarily based in Europe and Australia.[50] In 2007, 26% of Valvoline's revenue came from the International group.[51] The first chart gives a breakdown of who buys products from the Performance Materials group. The second chart gives a breakdown of the sales by region. The third chart shows operating income for this group over the past few years.[52]
[edit] Water Technologies (11% of revenue , 7% of operating income) [53]Ashland Water Technologies is the smallest segment, bringing in $818 million in revenue in 2007.[54] It is a major supplier of chemicals used for water treatment, paper manufacturing, mining, waste treatment, and paint production. [55] It operates 11 manufacturing facilities in 8 countries.[56] Its biggest customers are municipalities and the mining, oil refining, paper processing, and food processing industries. [57] The first chart gives a breakdown of revenue by region. The second chart gives operating income for the group over the past few years.[58]
[edit] Key Trends and Forces[edit] Ashland is vulnerable to downturns in the housing, construction, automotive, and marine industriesIn 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.[59] The Valvoline segment relies almost entirely on the automotive industry because its products are targeted for that industry. [60] The automotive and marine industries are major customers of the Water Technologies segment. [61] Thus, Ashland is vulnerable to a decline in housing starts, auto manufacturing, and marine industries.[62] As the following table shows, durable goods production, housing starts, and automobile manufacturing have all fallen during 2007. [63]  [edit] Rising Oil Prices drive up the costs of producing many of Ashland's petroleum based productsMany 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.[64] Oil Prices have been rising since 2003 as the following graph shows. [65] During the same time period, profit margins have been shrinking for all of Ashland’s segments. [66]
[edit] Environmental legislation makes Ashland liable to asbestos lawsuits and clean-up costs at contaminated sitesMany different environmental laws have an effect on Ashland. Listed below are some of the most significant acts from Ashland's perspective:
[edit] CompetitionBecause of the diverse nature of their product offerings, each of Ashland's segments faces a different set of competitors. [edit] Ashland DistributionAshland Distribution's two biggest competitors are Univar NV (UNIVR.AS) and Brenntag.[77] However, the $70 billion chemical distribution industry is highly fragmented.[78] The top 50 companies only hold 40% market share. [79] [edit] Performance Materials & Water TechnologiesThe Performance Materials and Water Technologies segments compete in the Chemical Manufacturing industry. It is a $120 billion industry with over 1,200 companies.[80] However, it is a concentrated industry; the 50 largest companies hold a market share of 70%.[81] The biggest players are Dow Chemical Company (DOW), DuPont (DD) , and Occidental Petroleum (OXY).[82] 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. [83]
[edit] ValvolineValvoline competes in the $4 billion Automotive Oil Change and Lubrication industry with over 4,000 companies. [88]It is highly fragmented with the biggest 50 companies having a combined market share of less that 40%.[89] Valvoline is one of the leading brands along with Jiffy Lube, Exxon Mobil (XOM), Pennzoil, Castrol and Texaco. [90]
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