 | |
- close
- close
|
|
Topic
Top news source/blog that we're missing
Why do you recommend this news source?
|
||
WIKI ANALYSIS
Nalco Holding Company (NYSE:NLC) sells custom water treatment systems to manufacturing companies. NLC's products conserve water use and extend the life of industrial equipment. The company has the largest market share in the water-related services and chemicals market (by sales) with 17% of an $18.6 billion market.[1] In 2007, NLC's revenues grew 8.6% to $3.9 billion, up from $3.6 billion in 2006.[2]
Nalco's engineers visit companies of all industrial types, analyze their equipment and water treatment needs, and design custom chemical treatment systems for these clients.[3] For example, the company's water treatment systems could be geared towards maintaining the life of a hydraulic pump, removing particles from water to improve production (such as in paper making or crude oil extraction), and ensuring both solutions conserve water in the process. The company's energy services segment has grown revenue the fastest since 2004, and in 2007, it led segment revenue growth with 8.8% growth.[4]
As the product of a private equity leveraged buyout, Nalco has a large amount of debt on its balance sheet. In 2008, the company will pay $266 million in debt obligations, or 6.8% of 2007 revenues.[5] From 2009 to 2013, however, the company's annual debt obligation will jump to at least $1.3 billion, or 33% of 2007 revenues.[5] Nalco has a debt to equity ratio of roughly 2.97 with $3.19 billion in debts outstanding.[2]
Company Overview
Nalco creates water treatment systems and chemicals to help reduce water consumption, improve productivity, and increase the life of industrial equipment. The company's engineers typically work at their client sites to engineer water treatment systems that conserve resources. This close interaction often helps garner repeat business.
Nalco is the largest company by sales that focuses exclusively on water treatment, with roughly 17% market share.[1] Its closest competitor, GE Water, has only half of its market share.[1] The majority of the industry is made up of small regional companies that focus on specific geographies, though there has recently been consolidation in this market. For example, on December 10, 2007, Nalco purchased an 87% stake in Mobotec USA for $28 million in an effort to expand their end-to-end consulting services with Mobotec's air pollution treatment technology.[4]
To maintain its market share as the number one water treatment services comany, Nalco also maintains a research and development team of more than 490 personnel to help create new product offerings to further improve water usage in industrial processes. [6] The company has 600 U.S. patents and 2,000 worldwide patents. The average remaining duration on their patents is approximately 9 years. [7]
Business and Financial Metrics
In 2007, the company reported revenue growth of 8.6% to $3.9 billion, up from $3.6 billion in 2006. The company has been steadily increasing its profit margins over the past 5 years from a low of -6.59% in 2003 to 3.3% in 2007.[2]
Sales are diversified by customer, industry, and geography. No single customer accounted for more than 3% of net sales and sales are dispersed geographically with 48% from North America, 29% from Europe, 14% from Asia, and 9% from Latin America. [9] The company's raw materials are also diversified with its largest single raw material representing barely 1% of sales and 4% of raw material purchases.[7]
Business Segments
Nalco is composed of 3 main segments -- Industrial and Institutional Services, Energy Services, and Paper Services. Another segment, Other, incorporates logistical consulting Nalco sells to clients as well as any joint venture activity. [10] Despite the different business segments, Nalco's water treatment services are present throughout Nalco's three core segments. Water treatment programs accounted for 73% of Industrial and Institutional Services sales, 19% of Energy Services sales, and 17% of Paper services sales.[11]
- Industrial and Institutional Services ($1.761 billion in revenue, $387.6 million in net income): The industrial and institutional services segment provides custom water treatment programs for cooling water, boiling water, pollutant control, etc. This segment serves customers in aerospace, chemical, pharmaceutical, mining, power, food and beverage, manufacturing, marine, and institutional clients like hospitals, universities, and hotels. This segment accounted for 45% of total revenues.[8]
- Energy Services ($1.180 billion in revenue, $257.8 million in net income): The energy services segment provides treatment systems for natural gas, petroleum, and petrochemical industries. The segment addresses both upstream process improvements and downstream process improvements with innovations that help improve oil and gas recovery as well as improve the efficiency of refining equipment. The segment's largest customers have been working with Nalco for over 10 years, and the segment's customers include most large, publicly traded oil companies. As the global energy sector has grown (see Rising Worldwide Demand for Energy), energy services revenues have grown relative to total revenues from 27% to 30% from 2005 to 2007.[8]
- Paper Services ($748 million in revenue, $118.2 million in net income): The paper service segment offers treatment systems that address all stages of the papermaking process. The segment helps improve the efficiency of both pulp and paper processing applications for all types of paper grades spanning tissues, cardboard, and graphic paper. This segment's customers include the 20 largest paper companies in the world, with 8 of Nalco's 10 largest paper service customers having worked with Nalco for more than 15 years. Paper segment revenues represent 19% of the company's total revenue.[8]
Key Trends and Forces
Rising demand for energy helps increase energy sector revenues
As energy demand has risen over the past several years, Nalco has seen its energy segment earn an increasing percentage of the company's total revenues going from 27% of revenues in 2005 to 30% of revenues in 2007.[8] The company's energy segment led revenue growth with an 8.8% increase in segment revenue in 2007.[4]
The company's energy segment improves efficiencies for both upstream and downstream oil operations. As companies target increasingly difficult-to-reach crude oil deposits, Nalco's upstream products become increasingly desirable as a way to rid crude oil of higher levels of impurities. Nalco's downstream products help with refining oil into other petroleum products, and with 54% of Nalco's sales origination from outside the U.S., they stand to benefit from rising worldwide energy demand.[8]
Limited access to additional capital may hurt the company in an industry downturn
The company is highly leveraged with $3.3 billion in debt outstanding as of December 31, 2007.[2] In 2009, the company expects its debt expenses to skyrocket to $1.5 billion annually.[5] Nalco only has another $200 million of borrowing capacity under their revolving credit facility.[12] Given the company's already high leverage and the recent turmoil in credit markets, it will be difficult for the company to obtain additional financing in the event of a downturn in their industry.
The water treatment industry is in the process of consolidating and changing the competitive marketplace
In December 2007, Nalco purchased Mobotec USA to help expand its product offering and provide better end-to-end treatment systems for its clients. [4] The global water treatment market is fragmented with thousands of companies serving industrial users, but it has been going through a consolidation process over the course of this decade. With its diversified treatment experience, Nalco has benefit from being able to offer client's water treatment systems for every stage of their manufacturing process. As competitors diversify through acquisitions, there will be more competition for Nalco as an end-to-end water treatment system provider.
On the chemical manufacturing side of the industry, Dow Chemical Company (DOW) announced a plan to buy Rohm and Haas Company (ROH) in July 2008. In 2006, Dow Chemical Company (DOW) also purchased China-based Zhejiang Omex Environmental Engineering, and another big deal announced in July was Ashland (ASH)'s purchase of Hercules (HPC). Akzo Nobel N.V. (AKZOY) acquired ICI in January, and Henkel announced the sale of its industrial water treatment business to BK Giulini. Another company, Kemira also has a history of building its water treatment portfolio with the 2007 acquisition of Nheel Quimica and Dalquim Industria e Comercio.[13] BASF SE (BASFY) also just announced that it would acquire Ciba Specialty Chemicals on September 15, 2008 for $5.5 billion.[14]
Emerging markets have an increasing need for water
Nalco has seen the highest growth rates in the Other Americas and Asia/Pacific geographic areas over both 2007 and 2006. At 10.4% growth and 12.6% growth, Other Americas and Asia/Pacific were the only two areas that grew at double digit rates in 2007. Both the United States and Europe/Middle East/Africa have grown at 8% and 6%, respectively, for both 2007 and 2006.[8]
As emerging markets develop, demand for water grows both on the consumer and industrial end. Consumers will drink and use more water with the products they buy, and industries will require more water to create new products. As seen with Nalco's product lines, water is an input in nearly all industrial products so a country's growth rate gives some indication of the country's demand for water chemicals and treatment.
Competition
Because Nalco operates in a variety of water treatment sectors, few companies compete with Nalco directly in every sector. The main competitor in water treatment is GE Water, but there are also smaller regional and local players, including Drew Industrial (part of Ashland (ASH)), ChemTreat, Inc., and Kurita. In energy, the main competitors are Baker Petrolite Corporation, GE Water Technologies, and Champion Technologies. In paper, the main competitors are Hercules (HPC), Kemira Oyj (OMX: KRA1V), Ciba Specialty Chemicals Holding, BASF SE (BASFY), and Akzo Nobel N.V. (AKZOY). [6]
- Baker Petrolite - Baker Petrolite is a business unit of oilfield equipment maker Baker Hughes. Baker Petrolite makes specialty chemicals for oil and gas production that helps improve production and reduce equipment wear.
- GE Water - GE Water is a unit of General Electric Company (GE)'s Infrastructure division. They make water treatment chemicals as well as pumps, filters, and fluid controls that help purify water and maintain equipment against corrosion.
- Akzo Nobel N.V. (AKZOY) - Akzo Nobel manufacturers performance coatings, decorative paints, and other specialty chemicals. Akzo's coatings products help maintain industrial equipment life and compete directly with Nalco.
- Ashland (ASH) - Ashland is a diversified chemical company with four wholly owned divisions. The company's Ashland Water Technologies division competes directly with Nalco as it supplies chemical and non-chemical water treatment systems for industrial processes.
- BASF SE (BASFY) - BASF is a transnational chemical company with five major business segments. Their Chemicals segment, Performance Products segment, and Oil and Gas segments all compete with Nalco with products designed to enhance industrial processes and improve equipment performance.
| [15] | Nalco | Baker Petrolite | GE Water | Hercules (HPC) | Akzo Nobel N.V. (AKZOY) |
|---|---|---|---|---|---|
| Market Cap | 2.86B | NA | NA | 2.15B | 9.34B |
| Employees | 11,560 | 2,5501 | 4,0001 | 4,660 | 43,510 |
| Revenue | 4.10B | 844.00M | 572.70M | 2.26B | 13.7B |
| EBITDA (ttm) | 699.20M | NA | NA | 284.00M | 699.2M |
| EPS (ttm) | 0.980 | 844.00M | 572.70M | 1.325 | 3.23 |
| P/E (ttm) | 20.72 | NA | NA | 14.40 | 17.09 |
Market Share
Nalco has a 17% share of the broader water chemicals and treatment market.[1]In each of its 3 main business units, though, Nalco has unique competitors. Nalco has the number 1 position and 18% of market share of Industrial and Institutional Services; number 1 position and 32% of Energy Services; and number 3 with 9% of Paper Services. [11]
References
- ↑ 1.0 1.1 1.2 1.3 1.4 Making Sustainability Work (Presentation to UBS Climate Change Conference)
- ↑ 2.0 2.1 2.2 2.3 NLC, 2007, 10-K, Page 30
- ↑ NLC, 2007, 10-K, Page 2
- ↑ 4.0 4.1 4.2 4.3 NLC, 2007, 10-K, page 41
- ↑ 5.0 5.1 5.2 NLC, 2007, 10-K, Page 54
- ↑ 6.0 6.1 NLC, 2007, 10-K, Page 16
- ↑ 7.0 7.1 NLC, 2007, 10-K, Page 17
- ↑ 8.0 8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 NLC, 2007, 10-K, page 98
- ↑ NLC, 2007, 10-K, Page 3
- ↑ NLC, 2007, 10-K, page 97
- ↑ 11.0 11.1 NLC, 2007, 10-K, page 6
- ↑ NLC, 2007, 10-K, Page 21
- ↑ "Water treatment swirls through consolidation", ICIS, August 19, 2008
- ↑ "BASF to buy Ciba Specialty Chemicals for $5.5 billion", MarketWatch, September 15, 2008
- ↑ YahooFinance:Nalco
| ||||||
|
|
