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Graham Corporation’s
vacuum equipment is integral to the efficiency of oil refining and petrochemical
processing; thus positioning them in the right place at the right time to take advantage
of an increasing global demand for oil and petrochemical products
Industrial Goods
Metal Fabrication
(GHM-AMEX)
Graham Corporation
20 Florence Avenue
Batavia, NY 14020
Phone: 585-343-2216
William C. Johnson
President and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
March 9, 2006
BIO:
William C. Johnson
President and Chief Executive Officer
Mr. Johnson joined Graham Corporation in November 2004. Previously, he was Senior
Vice President and General Manager for ESAB Welding and Cutting Equipment, a global
welding and cutting equipment manufacturer. His career has included extensive
experience in the manufacturing sector, including General Manager of the ABB Distribution
Transformer Division from 1996 to 1999 as well as other senior management positions within
the ABB organization. Mr. Johnson earned his Bachelor of Science degree in Ceramic
Engineering from Alfred University in Alfred, New York and his MBA from Rollins College in
Winter Park, Florida. He was an officer in the United States Navy from 1985 to 1990,
serving in the submarine fleet.
Company Profile:
With world-renowned engineering expertise in vacuum and heat transfer technology, Graham
Corporation is a designer, manufacturer and global supplier of ejectors, pumps,
condensers, vacuum systems and heat exchangers. Over the past 70 years, Graham
Corporation has built a reputation for top quality, reliable products and high-standards
of customer service. Sold either as components or complete system solutions, the
principle markets for Graham’s equipment are the petrochemical, oil refining and
electric power generation industries, including cogeneration and geothermal plants.
Graham equipment can be found in diverse applications, such as metal refining, pulp
and paper processing, ship-building, water heating, refrigeration, desalination, food
processing, drugs, heating, ventilating and air conditioning.
Graham’s reach spans the
globe. Its equipment is installed in facilities from North and South America to
Europe, Asia, Africa and the Middle East.
CEOCFO: Mr. Johnson, what attracted you to join Graham
Corporation as their Chief Executive Officer?
Mr. Johnson: “I joined Graham Corporation in November of
2004 from the welding and cutting industry. I was attracted to the opportunity at Graham
Corporation because it is a public company that has been in business for 70 years and has
a very unique culture. It was originally a family-owned business, and even through it is
now public, Graham still has a very close-knit feel to it. They have an enormous potential
with the resurgence of the markets they serve, particularly within the oil refining and
petrochemical markets. I recognized the chance to improve their products and the overall
operation of the business.”
CEOCFO: How have things
changed since you have been at Graham?
Mr. Johnson: “The market has come back very strong in
the last 18 months. The world is undergoing a shortage of refining capacity. Our surface
condensers and vacuum ejectors systems are integral in the oil refining process to produce
end products such as gasoline, diesel fuel, kerosene and jet fuel. We have seen a
tremendous demand for products in new installations due to this worldwide shortage of
refining capacity. Stringent regulations on emissions throughout the world are also
forcing the oil refining industry to lower the sulfur content of fuels requiring the
revamp of existing refineries with new vacuum systems as well.
In order to capitalize on this strong demand, we have
implemented many changes in our engineering and manufacturing processes to increase our
capacity. We are working to implement more automation on the front-end of the process to
prepare initial bid requirements more quickly. A number of lean manufacturing principles
are now incorporated into the manufacturing facility and production process.
There has also been a shift of our primary markets
from domestic to the expansion in the Middle East and Asia. We have put a sales operation
in place in China and are in the process of adding engineering capacity there as well.”
CEOCFO: Are there
markets you would like to have greater penetration, and if so, how do you plan to
accomplish that?
Mr. Johnson: “As I just mentioned, we are establishing
an operation in China that will have project engineering, application design and sales
resources. Due to the time, distance and language barriers, it is important to have the
right people in place to work with customers in the local markets, and we are starting to
work orders through that operation.
Another market proving very important to us is the
Tar Sands projects in Canada. It is one of the largest reserves of crude in the world, and
our vacuum equipment is required to process this heavy crude. Additionally, the Middle
East is seeing growth in petrochemical segment. There are a number of ethylene plants
being constructed because the cost of raw feed stock, natural gas, in that part of the
world is significantly less expensive. There are many large installations for
ethylene production or secondary petrochemicals that are either being built or in the
planning stages at this time.”
CEOCFO: Will you tell us
about the competitive landscape?
Mr. Johnson: “That is an interesting question. Let me
give you an example. In a multi-billion dollar oil refinery processing 100 thousand
barrels of oil per day, the Graham content may approach $5 million. The efficiency of our
vacuum system is extremely important in the process and helps determine the overall yield
of end-products from each barrel of oil. Our customers come to us because we have proven
to them for 70 plus years that we know how to design equipment to increase their yields.
When we engineer our products and systems, put the equipment in place and it works; then
they are reluctant to switch suppliers because our products have become an integral part
of the yield of that refinery. Therefore, our competitors have a very difficult time
growing into these channels because they don’t have the long history of successful
projects to point to that proves they are knowledgeable in these complicated projects.”
CEOCFO: Are you able to bring on enough new engineers that
have the expertise for these projects, and how do you face the challenge of finding
talented human resources?
Mr. Johnson: “We have had to attack that problem with a
number of different solutions, including improving the overall efficiency of our existing
department. We have brought an element of automation to our existing engineering
processes, including implementation of CAD design software and programs, which we continue
to enhance and improve upon. Certainly, hiring people is a longer-term solution, but it
can take new engineers anywhere from 18 months to 2 years to become effective and
contribute to the engineering output. A third solution we utilize is to outsource some of
the engineering and design functions to lower cost regions.”
CEOCFO: What are you doing in the area of lean manufacturing?
Mr. Johnson: “We’ve taken a number of steps in this
area. We implemented a 5S program, which involves cleaning, organizing and
visualizing the work place, so there is a sense of flow through the manufacturing process.
Once the flow is in place, human resources can be used in more effective and efficient
manners. For example, we are constantly looking at our inventory and the point of use
inventory so it is in close to each step in the process where it is needed. The overall
throughput of the shop, how product moves through the factory and what needs to be done to
keep things continually moving, is constantly being examined. New manufacturing equipment,
personnel training and automation has been and will continue to be upgraded in our
facility. We have made a lot of changes in this area in the last year and have come a long
way towards our goals.”
CEOCFO: Can you tell us about Graham’s current financial
picture?
Mr. Johnson: “We have performed very well through the
first three quarters of our fiscal year, and our stock price has reflected our
performance. We have a very strong balance sheet and cash position; we’ve been
generating cash with our earnings and are in a good position from this point of view.”
CEOCFO: As you grow and move into places like China, how do
you maintain the unique corporate culture that you mentioned earlier?
Mr. Johnson: “You have to be upfront with your employees
and help them understand the overall strategy and how they fit in and how they can
contribute. This goes a long way to removing their fears. Some of the individual jobs will
change, but people will react positively if they know what to expect. We have a great
can-do culture. The Graham team has done an exceptional job at building a tremendous brand
and a company we can be very proud of today. We want to continue to build on our history,
and to ensure your employees are supportive, they must understand the vision.”
CEOCFO: What do you see 2 or 3 years down the line for
Graham?
Mr. Johnson: “Certainly we want to grow the company. We
are moving into different geographic channels as well as different end users in some
cases. We believe the current upward trend in the refining and petrochemical markets will
continue to be strong in the next few years. We have a solid base to build upon and intend
to profitably grow the company and position ourselves into these growth markets where we
can dominate over the next 10 years.”
CEOCFO: Is reaching the investment community a focus for you?
Mr. Johnson: “As with internal communication, it is
important external constituents are clear about the direction we are headed in all along
the way. Our shareholders and the investment community are important to the success of our
future growth. Therefore, we work very hard to be candid in all of our communications.”
CEOCFO: Addressing potential investors, what do people often
miss about Graham that they should recognize?
Mr. Johnson: “Graham has really never had any coverage, so our business is not
understood very well. For instance, many people who follow the oil industry’s ups and
downs believe that we should as well. However, in reality, our business opportunities
follow the difference in price between sweet and sour crude. As the world’s reserves
of sweet crude have dwindled, more sour crude is being acquired to replace it. As world
demand is increasing, much of the demand is going to be supplied from sour crude that
requires Graham’s vacuum process. Therefore, the future market drivers for our
products are very strong because the sweet crude reserves of the world are decreasing. If
people in the investment community understood that they would have a much more positive
outlook on our future.”
CEOCFO: In closing, sum it up for us; what should people
remember about Graham and the industry drivers?
Mr. Johnson: “Graham is a company that is one of the few
pure plays within the energy sector right now because of our unique product positioning in
the refining and petrochemical industries. The rising middle class and growing economies
in China and India are going to continue to expand, and with that, the need for gasoline
and fuels and more refining capacity. These strong market drivers will continue to push
the demand for our products. Our long history and customers’ trust in our brand is
unparalled.”
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