State of the Nation

by E. W. Phares II

We have now completed the first half of fiscal 2010 and I am most gratified to report that we've had strong results both in sales and profit. In spite of a very weak domestic and international business climate, we are ahead of plan in sales and pretax profit through May. Our continued success with Encana in Canada was the major factor for our excellent results. As reported earlier, unfortunately we anticipate that a portion of the Encana sales will be reduced due to a process change within their operation. Further, we have lost a portion of the supermarket sales with Sobeys, however, our position in Quebec is extremely strong and we are continuing to enjoy business, on an interim basis, in Ontario. All other areas in Canada continue strong and we are optimistic that we will fully meet the revised profit plan.

Penetone sales are doing well and are ahead of plan and considerably ahead of last year. Operating profit is running somewhat behind plan but is anticipated with continuing strength in the military, pulp and paper, and pipeline markets that we will achieve profit plan for the year.

Petron sales have rebounded nicely and we're well ahead of sales and earnings for the first half. Improved economic conditions have considerably helped in the iron ore and steel industry and with continued improvement with ExxonMobil, we anticipate that these sales will counterbalance the large shortfall in the cement industry.

We are expanding our sales opportunities off-shore with additional personnel in Brazil and China. Second half looks quite bullish for Petron and we anticipate surpassing our original profit plan for the year.

In spite of the slow growth in the U.S., as well as in other areas of the world, our forecast for the year is optimistic and we fully expect that we will be equal to or better than our original forecast for 2010.

As always profound thanks to all of your combined efforts resulting in a profitable first 6 months.

West Penetone Second Quarter Results

by Jean Richard

Sales and bottom line results after six months were strong thanks to exceptional sales in western Canada. Unfortunately one of our key accounts out West has upgraded their operations and we expect a significant drop in sales to this account over the upcoming months. The “oil patch” however continues at a fairly robust pace and we have nice orders for “turnarounds” at a number of our major accounts.

In addition, we are working closely with the University of Calgary to develop a line of H2S scavengers – a market which we feel will expand significantly over the upcoming years (crude oil in Western Canada has a high sulfur content).

The supermarket segment was hit hard with the loss of the bulk of our business last January. We have however succeeded in retaining the Quebec market which has historically been the largest region of the 4 regions we supplied. Due to significant pressure on pricing we have introduced new “concentrated” versions of our degreasers & dish soaps. We are also working closely with Sobeys to introduce a new line of bacteria based products for the grease traps & trash compactors. While the barn market was slow in the first 6 months, it continues to grow, particularly in Quebec, with the addition of some major players from this region. We expect to see sales improve in this segment over the next 6 months.

No doubt the upcoming months will hold their share of challenges but we remain confident that our new projects and cost reductions will allow us to generate positive results.

Trade Booth in Swine Finery Well Received

By Phil Figdore

The snorts, squeals, and grunts could be heard, and sometimes an unmistakable odor wafted it's way past us, reminding us that we were at World Pork Expo 2010 in Des Moines, Iowa. Not that we really needed any reminding. WPX, as it's more commonly known, is the world's largest trade show specifically devoted to all things pork, whether it be stalls, waterers, feed, supplemental nutrients, pharmaceuticals, veterinary services, insurance, genetic material, carcass management devices...Well, you get the idea.

Bruce Muretta and Phil Figdore were there to launch Penetone's full line of cleaning and disinfecting products for hog operations, including barn and animal transport vehicle cleaning and disinfecting. The centerpiece of this is our new disinfectant Penquat FD, the first non-phenolic, non-glutaraldehyde, non-peroxide containing disinfectant shown to be effective against porcine circovirus and porcine respiratory and reproductive syndrom (PRRS) virus which are currently rampant in hog barns throughout North America. Based upon the success of the Canadian hog and poultry biosecurity program, Penetone made the decision to enter this market, and after some arduous development work, we were able to introduce our line in Des Moines.

Although only Bruce and Phil attended, we had tremendous assistance from Josee Mercure, who designed and produced our marketing brochure and trade booth in record time. So although Josee was not there in person, she had an incredible impact as the booth was well received by those who attended.

We made some good contacts with farmers, distributors, and veterinarians while there. Next stop: The Mercer County (Ohio) Fair. Soowee!

Training and Service are the Order of the Day

By Bob Colombo Petron has always been a company that focuses on training and service for our customer base. Over the years, Petron has con ducted training seminars in nearly every country where our products are sold. Seminars are conducted through our numerous distributors and oil company affiliations. Our training programs are constantly being updated to accommodate improvements to our product line. We continuously monitor new OEM requirements and standards, any new environmental issues and specific needs of our hundreds of end-users. In June, Fernando Salazar and I conducted training seminars in Chile and Peru. Our target audiences were the major Mobil distributor in Chile, Copec, the Mobil sales and service force in Peru, and our Peruvian Petron distributor, ERYS. The seminar for ERYS was conducted at their Peruvian office in the southern town of Arequipa. The seminars were done completely in Spanish with Fernando Salazar doing the heavy lifting. When needed, I provided detailed answers to talking points that seemed to attract more interest than normal. In all, forty-seven participants attended the seminars and the interaction with Fernando and I was excellent Our seminars started out with a presentation of the Petron Corporation and how we continue to grow in the specialty lubricants market through affiliations with major oil companies and distributors. Petron's history with Mobil goes back nearly two decades and our product line with Mobil has gone from our flagship open gear lubricant, Gear Shield NC, to nearly twenty products total. Our plant has had two major expansions and our product line has grown to include numerous greases and oils.

The seminars include specific ASTM and ISO tests that are globally accepted by the industries that need and depend on specialty lubricants in their daily operations. Some of these tests are identified with alphabetical names like FZG which is a test that is repeated twelve times under increasing resistance and determines a lubricants' ability to protect a gear-set as it goes through mesh from scuffing and wear that involves the removal of metal from the gear teeth. Probably the most influential calculation is the EHD test which is a compilation of nearly two-hundred calculations. The EHD calculation numerically identifies the thickness of the oil film that separates teeth as they pass through mesh and is referred to as Lambda. Lambda is a ratio and is the result of the calculated lubricant film thickness divided by the composite surface roughness of the gear teeth. This is a key test when categorizing open gear lubricants.

When we discuss the importance of regular service, we discuss the proper way to walk through a mining shovel or a mill room and what data to collect. We also emphasize the need to be consistent in how to collect the data, and how to enter the data into our new inspection forms; forms that allow our customer base to build a history of any component we lubricate. The new inspection forms are now web-based and can be pulled-up by customers that require access to this material. All of the Chile and Peru groups that attended our seminars will adapt these forms or use them as a model to design their own particular reports.

A variation of these seminars will be used in Australia in the coming months as well as Brazil in late July. The presentations can be easily custom tailored to fit any group that markets and supports our key mining products. As Petron continues to evolve, so will the support material that helps Petron be a world leader in our target markets.

Equipment Upgrade Doubles Output

By James Tormey

First, a little history on the unit we have been working with for thirty years: The machine was a six head, twenty liter gravity filler with a filling speed of one hundred and sixty units an hour (depending on product viscosity of course - the more viscous the product, the slower the filling). The six containers had to be placed on a flat piece of P.V.C for support, and then pushed along the conveyor until they were under the Nozzles making sure all were straight so the machine would not get damaged when the nozzles were pushed down with the aid of an air cylinder. Once the units were filled, the operator actuated the cylinder to lift the nozzles. Then he would push the six units along the conveyor to the capping station, place them on a pallet, and start the filling process over again. The replacement unit we have purchased is also a six head unit that can be fitted with four extra nozzles should we need to fill ten liter containers. Here the similarity changes dramatically. The filler has a motorized table top conveyor system, which is twelve inches wide and fifteen foot long , built specifically for our needs. There is an indexing system that allows six units to pass an optical sensor, which closes an air powered gate, then activates the machine to lower the nozzles into the containers and filling begins (this time we do not use gravity).We pressure fill through a manifold system that fills all six containers at the same speed, the filler is controlled by a timing device which is preset at the beginning of the operation. Once the containers are filled, the nozzles automatically lift out of the containers. Another gate opens allowing the containers to move on to the capping station while another six units automatically move into the filling station. This two man operation, labeler and operator, now fill three hundred and forty containers an hour making the cost of the equipment (seventy thousand dollars) pay for itself in less than a year. It also allows for greater productivity.

Service Awards

Achieving Service Milestones in the first half of 2010 were:

• Jimmy Hassell – 10 years
• Eversley Brown – 25 years
• Nathalie St-Amant – 20 years
• Jose Gonzalez – 10 years
• Marlon Martinez – 10 years
• Fred Luehrs – 10 years
• Richard Desbiens – 35 years
• Carm Albertson – 40 years