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Ashland Inc. is a diversified chemical company that has four major divisions (in order of largest to smallest as a share of revenue): Ashland Distribution, Ashland Performance Materials, Valvoline, and Ashland Water Technologies. [1] Ashland Distribution brought in $4.0 billion in revenue in 2007 and is a leading 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.[2] The Performance Materials earned $1.6 billion in revenue in 2007. The division is split into three segments: Composite Polymers, Casting Solutions, and Specialty Polymers and Adhesives. The Composite Polymers group makes fire and corrosion resistant polyester resins and gelcoats that are used in the construction, automotive, and marine industries. The Casting Solutions group produces chemicals and materials used in the metal casting industry. The Specialty Polymers and Adhesives group makes products that are used in packaging, roofing, and structural applications. [3] Valvoline is a leading brand in automotive lubricants and earned $1.5 billion in revenue in 2007. It operates the second largest chain of quick-lube centers under the name of "Valvoline Instant Oil Change." The group markets many brand name lubricants such as Valvoline, MaxLife, SynPower, Eagle One, and Car Brite. Rising oil prices have negatively impacted the profit margins of this group, because many of its products use oil as a major input. [4] Ashland Water Technologies is the smallest segment, bringing in $818 million in revenue in 2007. It is a major supplier of chemicals used for water treatment, paper manufacturing, mining, waste treatment, and paint production. [5]
[edit] Business FinancialsAshland makes money by selling and distibuting chemicals, adhesives, lubricants, plastics, and other materials. The majority of its business is in North America, but it has a large and growing position in the European market. The following is a chart covering total revenue and operating income since 2002: [6]  [edit] Ashland DistributionAshland Distribution delivers plastics and chemicals in North America through a system of 68 facilities and 35 third-party warehouses. In Europe, it makes deliveries of plastics in 16 countries through a network of 18 third party warehouses and 1 self-owned warehouse. 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). It also does environmental services such as hazardous and non-hazardous waste collection, recovery, recycling, and disposal. One of its major customers for environmental services is the U.S. auto industry. The group earned $4.0 billion of revenue in 2007.[7] It'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.[8]
[edit] Performance MaterialsThe Performance Materials group makes corrosion-resistant and fire-retardant polyesters, metal casting chemicals, and adhesive solutions. It has 32 manufacturing facilities in 15 different countries. Its composite polymers, sold primarily to the transportation, construction and marine industries, is marketed under the brands DERAKANE and HETRON. Metal casting chemicals include sandbinding resin systems, refractory coatings, release agents, engineered sand additives and riser sleeves that are used by the metal casting industry. Adhesives are sold to the packaging and converting, printing, building and construction, and transportation industries. [9] 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.[10]
[edit] ValvolineValvoline makes lubricants, chemicals, and appearance products to the automotive industry. It sells under many brands including Valvoline, MaxLife, Pyroil, Eagle One, Car Brite, and Zerex. It is comprised of four core business groups: Do it Yourself (DIY), Do it for Me (DIFM), Valvoline Instant Oil Change, and Valvoline International. 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. The International group has dealers in over 100 countries but is primarily based in Europe and Australia.[11] 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.[12]
[edit] Water TechnologiesWater Technologies is the smallest group and produces chemicals used in water treatment, paper processing, welding, fire fighting, and rescue services. It operates 11 manufacturing facilities in 8 countries. It's biggest customers are municipalities and the mining, oil refining, paper processing, and food processing industries. [13] The first chart gives a breakdown of revenue by region. The second chart gives operating income for the group over the past few years.[14]
[edit] Key Trends and Forces[edit] Possibility of recessionThe housing, construction, automotive, and marine industries all produce durable goods that are expensive and people purchase and keep for years. A recession would decrease the incomes of consumers, causing them to cut back on spending on durable goods because they can wait until economic conditions improve before buying again. Thus, people purchase fewer goods such as cars, houses, and luxury items. This would negatively impact the automotive, construction, and marine industries all or which are major customers of Ashland Inc. Those three industries account for 43% of Ashland Distribution's revenue and 74% of Performance Materials' revenue. The Valvoline segment relies almost entirely on the automotive industry because its products are targeted for that industry. The automotive and marine industries are major customers of the Water Technologies segment[15] Thus, a downturn in the economy would negatively impact Ashland's profitability as those industries decline.[16] As the following table shows, durable goods production, housing starts, and automobile manufacturing have all fallen during 2007. [17]  [edit] Rising Oil PricesMany of the chemicals and products that Ashland makes, particularly the Valvoline lubricants, use oil and other hydrocarbons as inputs. Thus, an increase in the price of oil would increase the costs to the company. Additionally, due to the competitive nature of many of the industries Ashland operates in, it cannot pass on the extra costs to customers, decreasing profit margins. Also, Ashland's suppliers may end or fail to meet contractual obligations due to rising oil prices. A disruption in supplies would hurt Ashland's operations. [18] Oil Prices have been rising over the past few years as the following graph shows. [19] At the same time profit margins have been falling sharply for the Ashland Distribution and Water Technologies segments. [20]
[edit] Environmental and Labor RegulationMany of Ashland's products have had toxic effects on people. People have sued the company for large sums of money based on personal injury charges. As of September 30, 2007 there were 46,300 active lawsuits against Ashland. Also, Ashland's current and formers subsidiaries open it up to increased liability. For example, Riley Stoker Corporation, a former subsidiary of Ashland, produced industrial boilers that contained asbestos. Although Ashland sold Riley in 1990, it is still liable for any damages that result from the asbestos.[21] Due to the toxic nature of many of the chemicals that Ashland produces, it is highly susceptible to environmental, labor, and health & safety regulation. The regulations increase costs of production because Ashland has to use manufacturing methods that comply with the regulations. Also, new laws make Ashland responsible for any environmental damage that results from its manufacturing. The federal Comprehensive Environmental Response Compensation and Liability Act makes 'potentially responsible parties' liable for the clean-up costs at contaminated sites. Ashland is a 'PRP' at 69 sites. The costs of decontamination are uncertain. The Toxic Substances Control Act has been invoked to make Ashland conduct an audit itself in order to discover any violations of the act. More stringent regulations would reduce the profitability of many of Ashland's operations.[22] [edit] OutsourcingThe majority of Ashland's sales are to industries (such as construction, automotive, and marine) in North America and Europe. Outsourcing to developing countries where costs are lower decreases the demand for these industries in North America and Europe. As many manufacturing companies shift overseas, they will reduce demand for Ashland's products in North America and Europe. Ashland is investing in increasing its production capacities overseas, particularly China. The share of revenue coming outside of North America and Europe has been growing in recent years. [23] However, in 2007 only 7% of revenue was from outside of North America and Europe, potentially indicating a weak presence in developing economies that could hinder fully profiting from their economic growth. [24] [edit] CompetitionAshland has many competitors because of the diversity of its products. It is difficult to define market share because in the diversified chemicals industry because companies sometimes compete only on a few select chemicals instead of the entire industry. Therefore, it is helpful to look at the competitors for each of the four segments of the company. [edit] Ashland DistributionAshland Distribution's two biggest competitors are Univar NV (UNIVR.AS) and Brenntag. However, the $70 billion chemical distribution industry is highly fragmented. The top 50 companies only hold 40% market share. [25] [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. However, it is a concentrated industry; the 50 largest companies hold a market share of 70%. The biggest players are Dow Chemical Company (DOW), DuPont (DD) , and Occidental Petroleum (OXY). Big companies have a competitive advantage because of economies of scale and lack of much brand differentiation between most chemicals that allows them to fully profit from lower costs. [26] [edit] ValvolineValvoline competes in the $4 billion Automotive Oil Change and Lubrication industry with over 4,000 companies. It is highly fragmented with the biggest 50 companies having a combined market share of less that 40%. Valvoline is one of the leading brands along with Jiffy Lube, Mobil, Pennzoil, Castrol and Texaco. [27] [edit] References
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