Tote Notes - Winter 2018 - Vol 30, Number 1
STATE OF THE NATION
By Craig Phares
Fiscal Year 2017 Earnings Highlights:
- Petron: 9% above plan and a record high profit.
- West Penetone: 8% above plan.
- Penetone: Only 4% of plan but managed a slight profit
- West Ventures: 3% above plan
This time of year, shortly after the fiscal year end, is a time for reflection. To think about successes, failures and the way forward. And this year is no exception.
As the above summary points out, all operating companies ended the year profitable. Some more than others. I will take this opportunity to extract the more notable performance highlights by each entity:
The operation achieved another historical record high in sales and operating profit. A close eye on keeping costs in-line with revenue advances explains the profitability. The revenue growth was due to careful long-term planning and execution in 3rd party toll blending. As well as re-engineering the global mining franchise with key senior hires and organizational changes to its sales force.
OPM was 31%.
Despite the loss of Sobey’s business, which constituted over 20% of sales at the time, West Penetone managed success out of a very difficult situation. It was a case study in managing costs to revenue. Top line came in 4% above plan. But G&A expenses fell 9%. That is how you preserve profitability in a harsh environment. Adapt, where necessary, to win the day. Western Canada saw a 2H rebound that helped recover lost business in the east.
OPM was 17%.
Revenue grew 4% year-over-year, largely due to a surge in its military business. But cost of sales surged 7%. The disappointment on the cost side was driven by two main factors: stagnant fixed costs and raw material cost increases. The inability to adjust these costs downward resulted in extremely weak profitability.
OPM was 0.15%.
Investment gains and cash-on-cash returns exceeded budget. This year’s performance was solid and with low risk. But don’t confuse a bull market for brains. With the overall markets moving up, achieving these returns will become more and more difficult.
Return on Invested Capital: 17% pre-tax
The focus for all of the operating companies must be profitability. And the key metric is operating profit margins. Specifically, a minimum of 15%. Achieving financial success is imperative for many reasons. This includes the need to fund future initiatives, achieve responsible growth in the business, ensure broad job security, and invest in capital stock.
At Petron, global growth is causing the commodity cycle to turn up demonstrably. Similarly, the second and most recent capacity expansion for the toll blending business began ramping production in November. The next 12 months will show the full positive effects of both dynamics.
West Penetone is also benefiting from the commodity cycle upswing in Alberta. Specifically, oil prices turning up and therefore oil sand production increasing. In addition, eastern Canada has hired a new senior salesman focused on growing that region’s food and barns segment.
Penetone, despite best efforts, has consistently fallen short of the 15% OPM level.
This chronic failure demands a deep reorganization of business in order to reach 15% over the longer term. Fixed costs are being taken out, reduction of higher cost raw material usage has begun, and a new emphasis on sales, marketing and customer problem solving is being implemented.
West Ventures will remain focused on preserving capital while achieving above average risk-adjusted returns. Several recent investments are bearing fruit and will continue to produce handsome low-risk returns this year.
General Rick Lynch wrote a very inspiring and sagacious book entitled, “Adapt or Die: Leadership Principles from an American General”. It instructs the need to adapt to the unprecedented challenges of modern life and modern, global business brought on by an ever rapidly changing environment.
Fiscal Year 2018 looks very bright so long as we all adapt and avoid the less attractive alternative offered by General Lynch.
By John McHale
Petron had a very successful year in 2017 by any yardstick you wish to use. Our safety record in 2017 was outstanding. We are continuing a long trend without reportable lost time injuries. Still too many near misses is something we need to clean up in 2018.
Our overall quality metrics continue to be excellent. Our first time through is at 98% and our on-time shipments is at 99.3%.
We produced an additional 1.1 million pounds more in 2017 compared to 2016 and the pounds we produced were of a higher margin mix.
We passed a major ISO 9001:2015 quality audit with our auditor SRI with not one nonconformance. Congratulations to everyone at Petron who worked so hard on preparing for the audit and working so diligently on quality throughout the year.
We only recently completed our $4.2 million dollar expansion in mid-2016 and we were back again for another expansion in 2017. This time we added $750,000 in additional mixers and storage tanks to handle the brand-new toll blending business we secured from a major OEM. This new business, which started up in November, will be in excess of 600,000 Gallons of additional new business for Petron in 2018 which will equate to approximately $5 million dollars in new revenue in 2018.
Petron set an all-time record in profit in 2017 and we missed setting an all-time record in sales by less than 2%.
We are continuing to add to our team. Elisa just hired Brenda Spiegel as our SDS & Chemical Inventory Specialist to help her with all of the SDS, REACH, and regulatory issues. In addition, we just announced the promotion of Ramachandra Chandrasekar (Chandra) to Vice President of Sales and Marketing.
We are very excited about the prospects for 2018.
Evolution of STAR
By Paul Hayden
STAR? West Penetone has a STAR? Yes, we do!
It’s our Shutdown Turn ARound team that specializes in outage cleaning and consulting for various industries; mainly centered around Oil & Gas refineries. STAR team was formed in 2016 after much discussion on how we as a company could better support our customers and end users of our Shutdown Turnaround Products (SDTA); but more on that in a moment. STAR evolved from just a few products way back in 98’/99’.
In 98’/99’ a customer in the industrial service provider industry (ISP) asked then R & M Chemicals to formulate a product that could degrade and degas hydrocarbons. After an R & D period of over 18 months, along came ROC40. ROC40 competed with a product called Zymeflow. So we had product, but no customers and we didn’t know how to sell the product.
We tried many different approaches over the years and had our share of failures but we learned many lessons along the way. One of the biggest was: ROC40 chemistry is part of a larger equation involving proper procedures, manpower, equipment and time. Another lesson was the selling cycle with the target audience and thirdly, these products need our people to be educated as to what they are doing in the field. Product training quickly ensued.
Product training and knowledge led to the identification of other areas of need and that led to other product development that by 2016 rounded out to a complete product line and an ever-expanding customer list. During these years of product development, the product approval process with fortune 500 companies was ongoing as well. Pretty soon we were looking outside Canada to the US and Europe for sales and involving more and more of our staff in other countries for support.
In 2015 these needs led to the hiring of James Boyle in Houston and in early 2017 John Grams based in Calgary. Both excellent additions to the West Penetone family. James is a Chemical Engineer and focuses on sales while John is our Business Development Manager for STAR North America. These two people have been surrounded by a specialized team of professionals with many years of experience: Sean MacDonald, Technical support, shutdown planning; Greg Cebuliak, Chemist & product support; Wayne Dory, Sales and Project Supervisor to name a few. Together with other staff members they form STAR, a team that supports West Penetone products from scope of work development for the asset owners through to product recommendation and procedure execution.
One year into the STAR endeavour much work has been done, but much work remains as well. What we have achieved sets up a firm foundation to move forward and the outlook is very positive. The next couple of years will be critical to cementing the right path. Today we are crawling, next year we will be walking, the year after that we hope to be running. As the saying goes, “A long journey begins with the first step”. In this case we have begun the journey, stay tuned for updates.
By Todd Allison
Exceptional Customer Service is the core to every successful company. Over-delivering on customer’s expectations will not only provide long-lasting loyal customers, but it also helps create a positive and enthusiastic work environment. A few recent global statistics help support the importance of exceptional customer service – statistics gathered from Huffington Post/Forbes/Internet Blogs
- 1 happy customer equals on average 9 referrals. This could be referrals internally within their company or better yet, externally to other companies that may or may not be your customers.
- 1 unhappy customer who has complained equals on average 26 customers who are unhappy but have not said anything and complained. When it comes to sales, the probability of selling to an existing happy customer is up to 14 times higher than the probability of selling to a new customer.
- In a recent survey of more than 75,000 consumers, the number one most important factor in a customer’s loyalty is reducing their effort of doing business or solving a problem. Make it easy for customers to do business with your company.
- 77% of people say that valuing their time is the single most important thing a company can do to provide them with exceptional service.
- Exceptional Customer Service now more than ever, helps build your brand.
- Customers are willing to pay more when they have a positive & valuable Customer Experience.
- Companies that excel at Customer Experience grow revenues 4-8% above the market.
One thing is certain, in order to deliver an excellent customer experience, you have to know your customers better than ever before. This means creating complete customer profiles that help you understand and measure your customers’ behaviors at every touch point across multiple channels.
While much of the research and statistics center around external customer service experiences, we cannot forget about internal customer service experiences as well. The importance of positivity, good communication, respect and having fun with fellow employees is equally as important in building a strong and resilient culture.
Positivity –Can a smile be heard? Absolutely it can be heard – not only in the body language while you pass by a fellow workers’ desk, but in the tone of your voice while on the phone.
Communication – While positivity is very important in the success of any team, good communication is the basis of open and efficient dialog with customers and other teammates. Now more than ever, we live in a digital world and much of what we do is in an electronic format, but we cannot forget the importance of one on one conversations.
Respect - Treating people in a positive manner that acknowledges them for who they are and/or what they are doing. Being treated or treating an individual in a dignified manner. You must always behave in a respectful manner as this reflects on you, your character, integrity and values of who you are as a person.
Fun – When we spend over half of our lives at work, don’t forget to have fun with fellow employees as well as customers along the way. Having fun helps to create a positive culture, long lasting employees, loyal customers and most importantly it helps create strong, positive individuals who are the core to every successful company.
As we have done for the past 30 years, we annually recognize the extraordinary contributions made by our employees.
The 2017 Employee of the Year Awards went to: Anthony Kerhin (see photo). Hired right out of college, Anthony has been twice promoted in his 5 years and is now a Senior Chemist at Petron. Each and every year he has performed above average but this past year he began working on Research and Technical projects eventually handling 6 projects simultaneously and successfully, along with his other duties.
Emerita Cacheiro, West Penetone’s Inventory Coordinator was also promoted during her tenure. In addition to Inventory, she currently handles the IT responsibilities for the company which now include support for Syspro for all three companies. She gives all requests her immediate and professional attention.
The sales manager award goes to Jim Brooks, Military Manager at Penetone. Jim took on the responsibility of managing the whole sector this past year and also managed to exceed budget by $556K and last year’s sales by $611K.
New to West Penetone in 2017, John Grams was awarded Salesman of the Year for his impact in the petrochemical segment. He was successful in gaining the first sales of ROC 60 which will carry over into the US market.
Diane Broz (see photo), Purchasing Manager at Petron, made significant contributions this year in her role of procuring raw materials for the new product line. Also, she saved the company $86K in price concessions from our vendors. She played an extensive role in obtaining the ISO 9001:2015 certification.
Congratulations to all for their contributions.