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OMNOVA Solutions is focused on developing long-term partnerships with
their customers to assist them in achieving their strategic goals and financial
objectives, drawing from leadership positions, new product innovations and an improved
cost structure in the company’s Performance Chemicals, Decorative Products and
Building Products business segments
Basic Materials
Specialty Chemicals
(OMN-NYSE)
OMNOVA Solutions Inc.
175 Ghent Road
Fairlawn, OH 44333-3300
Phone: 330-869-4200
Kevin M. McMullen
Chairman, President and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
November 3, 2005
BIO:
Kevin M. McMullen
Chairman, Chief Executive Officer and President, OMNOVA Solutions Inc.
Kevin McMullen is Chairman, Chief Executive Officer and President of OMNOVA Solutions
Inc., a $746 million company and leading producer of emulsion polymers, specialty
chemicals, and decorative and functional surfaces. OMNOVA Solutions was spun off from
GenCorp in October 1999. Mr. McMullen was elected Chairman of OMNOVA on February 4, 2001
after being appointed CEO on December 1, 2000. Previously, Mr. McMullen was President and
Chief Operating Officer since January 4, 2000. He joined the Company on September 9, 1996
as President of GenCorp’s – then OMNOVA’s - Decorative & Building
Products business. Prior to joining GenCorp, Mr. McMullen had been with General Electric
Corporation’s Lighting Division in Cleveland, Ohio, where he was the General Manager
of Business Development and Strategic Planning for the $3.5 billion business.
He received his bachelor’s degree in economics from Denison University in Granville,
Ohio where he graduated with highest honors and went on to complete his MBA from the
University of Chicago, with concentrations in marketing and finance. Mr. McMullen is a
member of the Board of Directors of OMNOVA Solutions and Steris Corporation and is a
trustee of Akron Tomorrow.
Company Profile:
OMNOVA Solutions Inc. designs, develops and
manufactures emulsion polymers, specialty chemicals, and decorative and functional
surfaces for a variety of end uses. The company’s Performance Chemicals segment
provides emulsion polymers and specialty chemicals to makers of paper, carpet, nonwovens,
textiles, tape, and floor care and construction products. The Decorative Products segment
produces commercial wallcoverings, coated fabrics, and vinyl and paper laminates for large
commercial and some residential refurbishment and new construction. The Building Products
segment supplies single-ply roofing systems to the commercial roofing market.
OMNOVA Solutions was spun off from GenCorp Inc. in
1999 into a separate, publicly traded company on the New York Stock Exchange. The company
has sales of close to $800 million.
CEOCFO: Mr. McMullen,
what is your vision for OMNOVA?
Mr. McMullen: “The vision for our company is to focus on
developing long-term partnerships with our customers that assist them in achieving their
strategic goals and financial objectives, and at the same time, generate positive returns
to our shareholders.”
CEOCFO: Will you give us
an example of how you put that vision into concrete terms?
Mr. McMullen: “Our diverse business segments have
different competitors, industry structures and areas of focus, so each of these businesses
has very customized strategies to serve their respective markets. But there are five
company-wide initiatives that we are all focused on.
First, we are driving focus on productivity and cost
leadership in our businesses. We have had major restructuring of our base cost over the
last couple of years. We have established a global procurement organization to source raw
materials offshore where there are opportunities to do that. We are pursuing LEAN SixSigma
in a big way; we are now in our third year of deployment and it is having a significant
impact on eliminating waste, focusing on value in the eyes of the customer, and
streamlining some of our processes.
Second, we are standardizing our business systems and processes. We are about to embark on
Phase II of an SAP implementation for our enterprise-wide resource business system. We
have already implemented it in our paper and carpet chemicals businesses; we look to roll
it out across the rest of our chemicals segment in Phase II and then ultimately to the
rest of our company.
The third area of major emphasis is to focus on value
from the perspective of the customer; as part of that, we are holding a lot more “voice
of the customer” interactions to drive our priorities internally. We have embarked on
a program called The Profit Specialist™, which is a tool to help our people
understand value in the customer’s eyes from a cash flow and profitability
standpoint, and focus our efforts on those things that ring the cash register for our
customers.
A fourth area is innovation. While we have taken a lot of cost out of our company, one of
the things we have increased our investment in is new product development so that we can
continue to offer new innovations that add to the value that we can deliver to our
customers and that differentiate our company from our competitors.
The last area is globalization. We are still North
American centric but we see many opportunities to globalize the leadership positions we
have in offshore markets, which will come in the form of joint ventures, alliances and, in
some cases, wholly owned operations. We have examples of all of these in our company now
and look to build on them as we move into the future.”
CEOCFO: Do you have the
right management in place to move forward?
Mr. McMullen: “I think we have a very solid team. We
have been through some challenging market environments. Virtually all of our raw materials
are petroleum-based, so there has been a tremendous amount of inflation in that area. In
addition, we’ve experienced weak market conditions from prolonged downward cycles in
some of our markets, which are just starting to come back. I have great respect for our
people’s focus and determination to work through these tough situations and focus on
what can improve our business and improve our customers’ business. I think that we
have done a great job. We have made changes in some areas over the past couple of years so
that now I think we have a good group of leaders as well as people throughout the ranks of
the company.”
CEOCFO: You have had a
good quarter in spite of the difficulties!
Mr. McMullen: “Yes, we have. I mentioned some of the
challenges that we faced, but the good news is the last two quarters were profitable for
us. We just announced our third quarter and, despite our raw materials hitting yet another
record high, we were able to turn in a positive earnings quarter of 5 cents from
continuing operations, which is about 15 cents better than we did a year ago. It isn’t
like we had a lot of wind in our sails from our raw materials or markets; where we have
seen improvement is from a lot of hard work by our people, and it is good to finally see
it hit the bottom line.”
CEOCFO: Do you see the
mix changing in your three divisions?
Mr. McMullen: “Over time, our chemicals business has
taken on a bigger role than it did a few years ago. This has occurred as a result of some
volume increases in that business as well as a lot of pricing that we have been able to
achieve to help offset the raw material inflation. Our decorative products business has
probably been through the toughest market conditions. We sell a lot into commercial office
space for refurbishment and new construction and manufactured housing and segments like
that, which have been in prolonged decline. As a result, the size of that business has
been reduced a bit over the years. Today, chemicals is over half of the company and our
decorative products division is about a third and our commercial roofing business makes up
the balance.”
CEOCFO: Where do you see
growth?
Mr. McMullen: “I would certainly see our decorative
products business rebounding. We have taken many steps to get volumes headed in the right
direction. We are doing everything we can to bring products to the market, and to look at
adjacent markets to go after to grow our position. Certainly, with a little help from
improving markets, I think decorative products could take on a bigger role as we go
forward. I think our chemicals team is doing a great job of executing and bringing new
products to market as well, so I expect we will continue to grow that business. We also
have a lot of offshore opportunities in these markets.”
CEOCFO: What do you see
two or three years down the line?
Mr. McMullen: “I think we will continue to be a leaner
organization. We will continue to streamline and simplify our processes. We will leverage
the investments we have made in SAP. Three to five years from now, I think we will have a
new set of products out in the market that will bring the value to our customers to a
whole new level than what we have today. There are a number of products that we have out
there now that are being trialed by our customers and I think that will only accelerate as
we go forward. In addition, I think we will be a more global organization than we are
today. Today, about 85% to 90% of our revenue is North American based; we have two joint
ventures in Asia that we do not consolidate into reported revenue, but we are still very
North American centric. Three to five years from now, you will see us being a much more
global business.”
CEOCFO: What is the
market opportunity internationally?
Mr. McMullen: “I would argue it is quite large in terms
of the market potential. Take, for example, our paper latex business. About 25 to 30% of
the world’s demand for that is here in North America and the rest is in offshore
markets.
One of the strengths of our company is that, across
our different businesses, we are the leader in most of the key markets we serve here in
North America. That gives us a unique ability to build on that as we go offshore. Many of
our customers are looking for us to move with them as they globalize their business to be
able to supply them around the world, and we are seeing some good opportunities right now
that we are pursuing as part of our globalization efforts.”
CEOCFO: What is the
financial picture like?
Mr. McMullen: “We have been through a challenging
period, but “improving” is probably the simplest way to describe it. Despite the
challenges, we have been generating positive cash and paying down debt. We have less
leverage on the company now than we did back a year or two ago. If we hit analysts’
expectations for the fourth quarter, we will reduce debt to EBITDA to about 3.5 times,
which would be down from the high of a few years ago. Our earnings per share is
considerably up from what it was a year ago, up 15 cents in the most recent quarter from
the same period a year ago, and more than that in the second quarter. We have indicated to
the street that we expect to be profitable through the end of the year despite the raw
material situation, which has been extremely dynamic. Our goal for all of our businesses
is to get them to double-digit operating profit margin levels; we are not there today but
we look to get to that level in the future.”
CEOCFO: In closing, why
should investors be interested and what should they know that they might miss about the
company?
Mr. McMullen: “One of the challenging things is to
understand the company given its diversity. I think the key point I would make is that
OMNOVA is a good value play. We feel very good about the company and some of the actions
we have taken here over the last eighteen months to two years. The markets are improving
in our key categories. We have a tremendous amount of pricing actions that have been
implemented and others that are underway to help us offset the raw material inflation. We
are the leanest we have ever been from a cost structure standpoint, so there is a great
deal of operating leverage as we get some more volume. We have introduced a lot of new
products into the market with more coming. We have leadership positions that we think give
us an inherent competitive advantage vs. tier II and III competitors. Those are the things
I would point to as to why I think we are a very attractive value play as we sit here now.”
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