Tote Notes - Fall 2016 - Vol 28, Number 4
STATE OF THE NATION
By Craig Phares
Since the last edition of Tote Notes the world economy has continued to show little signs of acceleration. GDP growth in Europe and Japan was only 0.3% and 0.2% respectively, and U.S. growth is barely keeping up with inflation at 1.4%. The world’s former growth engine – China – self reports that it is growing at 6.7%. If this figure is believable, the growth is all debt fueled.
The net effect of this “no growth” environment is showing up in numerous ways. U.S. auto sales have flatlined since the summer, retail sales have turned negative, earnings at the world’s largest mining companies (Glencore, Rio Tinto & BHP) are at historic lows, and credit write-offs are starting to rise as borrowers miss payments.
One of the more illuminating data points is the sales-to-inventory ratio, which historically has been an accurate forward indicator of economic growth. A low number is positive, a high number is indicative of a recession. In 2008 the reading was 1.4 – just before the Great Recession. The rating fell to under 1.15 two years later as the recovery took hold. Recently the reading has soared to as high as 1.38. This is worrisome.
After 3 quarters ending in September, weakness is being felt across the West franchise. Year-to-date figures:
Key Operating Statistics
- Penetone: 12% behind plan; Down 3% YoY
- West Penetone: 9% behind plan; Down 18% YoY
- Petron: 11% behind plan; Down 8% YoY
- Penetone: a loss greater than last year; plan is for a profit
- West Penetone: 8% behind plan; down 18% YoY
- Petron: 7% behind plan; down 2% YoY
Adjustments are being made to face the dual challenges of weak sales and poor profitability. Corporate overhead, SG&A expenses, and material costs are being cut. A thorough realignment of costs to revenue is under way and will continue into Q4.
Having said that, as Goldman Sachs CEO rightly pointed out, “You can’t [cost] cut you way to prosperity.” And neither will West. We continue to invest capital in strategic markets such as pulp and paper, refining turnarounds, and toll blending. In addition, we are looking at acquisitions to complement existing business in military & civil aviation and mining lubricant markets to enhance our existing franchises.
The longer term future looks very bright. With green shoots sprouting from strategically targeted new business initiatives:
- Significant wins have been achieved by our new STAR Team housed jointly in West Penetone and Penetone. With pieces of business at large major oil companies throughout North America. In the next several years this will be a significant business on its own.
- Pulp & Paper began bulk shipments to all the major tissue manufacturers in North American and exclusive global supply deals are in the works.
- The private label business with Caterpillar has been explosive this year. The ground work for this was laid out years ago. A prescient call and flawless execution.
Over the next several quarters brace for further change. Change that is needed to achieve long-term, meaningful and sustainable growth.
Success a “team” effort
Forward thinking makes for bright future
By John McHale
Petron continues to make plans for the future. We completed our $4.1 million dollar expansion in late spring 2016. We added 8,000 square feet to the warehouse and 13,000 square feet to our manufacturing plant. We added one new 10,000 gallon mixing kettle and 2 new storage tanks. In addition to adding the extra room we needed to safely accommodate current business, we also added space to allow us to take on future business opportunities. We now have room for an automatic packager. We are currently working on a payback for the automatic packager.
We continue to provide opportunities for personal and professional growth within Petron. We recently promoted both Francisco Cerrillo and Ramachandran Chandrasekar to key geographic sales manager positions. In the case of Francisco he will now be in charge of all Latin American and Caribbean sales. Chandra will be responsible for all sales to India, Middle East, Northern Africa and China. We promoted Dave Smith from compounder to Production Supervisor effective October 17th.
Sales at Petron have been below plan and prior year after the first nine months. There are some key reasons, namely—a major oil company we do toll blending for cancelled a product line after the start of our fiscal 16, it was in the budget for 2016, but it did not materialize. Our largest Petron distributor in Latin America has an unusually high inventory of Petron products and they are working off that inventory before resuming normal order patterns. And lastly there is a general malaise in the mining industry with copper and iron trading at slightly above decade’s low commodity pricing—which affects the mines production levels and use of our products.
All that being said Petron will finish 2016 with the second most profit ever. Second only to 2015 which was an all-time profit record at Petron. So in spite of some unforeseen headwinds Petron keeps marching ahead, planning and executing on a strategy of growth.
Making a chemical hygiene plan personal
By Greg Cebuliak
A common laboratory practice, whether in industry or academia, is a safety plan that reduces worker exposure to hazardous or toxic chemicals. Comprised of several elements, including standard operating procedures, this plan will often be designated as the Chemical Hygiene Plan or CHP. This practice will also be adopted, in some formal matter, for workers in industrial settings, such as manufacturing or fabrication, and is very similar in structure and function. But how does one know when a chemical is hazardous or toxic? Although a rather complex question, the answer can be boiled down to essential elements including route of exposure, the biologically effective or active dose, and whether any adverse effects actually occur at that dose.
Unfortunately, running through the gamut of toxicity testing for any particular chemical can be both laborious and ethically questionable, resulting in incomplete or only qualitative toxicological data. Consequently, such hiccups in toxicology and epidemiological study do produce instances of detrimental health effects in human populations who have been unknowingly or unwittingly exposed. For example, until about a decade ago, hard-surface cleaning formulations adopted the use of a rather cost-effective and robust cleaning solvent called ethylene glycol monobutyl ether or EGBE. It is a rather useful solvent in that it removes both water insoluble oils and water soluble soils. A side-effect of EGBE’s prolific use included instances of hemolytic anemia, or red blood cell breakage, for those who inhaled the substance or absorbed it through their skin. Although now largely removed from consumer cleaning products, EGBE is largely controlled in Canada, within stringent concentration limits, because of this exposure in order to reduce rate of exposure, and subsequent health effects, to future users of such products.
This brings the conversation back to the Chemical Hygiene Plan. A CHP keeps in mind that the dose makes the poison and lends to the notion that just because a chemical is present, it does not mean that it is harmful in the amount present. And this is where a CHP should be become a little more personal. Chemical exposure occurs in everyday life as well with health effects arising from the structure of a chemical, rather than its origin, and how much stays in your body with that particular structure. So, should we worry that pears and potatoes, for example, in fact do contain chemicals that are rather toxic to humans? No. Should we, however, endeavor to be more cognisant, knowledgeable, well-informed, and properly skeptical about the products we consume or use in our daily lives and their potential health effects? Well, I suppose that choice is entirely up to you.
- 10 Years - Francois Richard, W/P
- 10 Years - Michele D’Alessandro, Penetone
- 40 Years - James Tormey, W/P
- 45 Years - Volkert Lindloge, W/P
Congratulations to all for this achievement!