Interview with:
Ronald H. Braam, President and CEO - featuring: their two major operating segments: Metals
and Chemicals:. The Metals Segment, operating as Bristol Metals,
LLC, manufactures pipe and piping systems from stainless steel and other alloys for
the chemical, petrochemical, liquid natural gas (LNG), pulp and paper, pharmaceutical,
mining, power generation, brewery, food processing, waste water treatment, nuclear and
other industries. The Specialty Chemicals Segment is comprised of four operating
companies: Blackman Uhler Specialties, LLC,
Organic Pigments, LLC and SFR, LLC; produces specialty chemicals for the carpet, chemical,
paper, metals, photographic, pharmaceutical, agricultural, fiber, paint, textile,
automotive, petroleum, cosmetics, mattress, furniture, and other industries. |
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What is interesting
about Synalloy Corporation is that while they are two very diverse Chemicals and Metals
businesses, they service and sell to the same industries in many cases
Basic Materials
Steel & Iron
(SYNL-NASDAQ)
Synalloy Corporation
2155 West Croft Circle
Spartanburg, SC 29302
Phone: 864-585-3605
Ronald H. Braam
President and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
Published – April 12, 2007
BIO:
Ronald H. Braam
President and CEO
Born in 1943, in Cincinnati, Ohio, Mr. Braam received his Degree in Chemistry at the University
of Cincinnati.
He was employed by Emery Industries (now Cognis)
until 1972 when he moved to Cleveland, Tennessee to join Manufacturers Chemicals
Corporation. He served as President of Manufacturers Chemicals from 1976 until the company
sold to Synalloy Corporation in 1996. Following the sale of the company to Synalloy, he
continued in his role as President of Manufacturers Chemicals and assumed additional
responsibility for the Blackman Uhler Specialties Company in late 1999 and the Organic
Pigments unit in 2004.
He continues as President of the Chemicals Segment of
Synalloy and on January 1, 2006 was named CEO and President of the Parent Corporation.
Ron and his wife, Mary, reside in Cleveland, Tennessee.
Company Profile: Headquartered in Spartanburg, South
Carolina, Synalloy Corporation has been in business since 1945 and employs over 440 people
with operations in South Carolina, Tennessee, and Georgia. The Company is a diverse
manufacturer comprised of two major operating segments: Metals and Chemicals.
The Metals Segment, operating as Bristol Metals, LLC,
manufactures pipe and piping systems from stainless steel and other alloys for the
chemical, petrochemical, liquid natural gas (LNG), pulp and paper, pharmaceutical, mining,
power generation, brewery, food processing, waste water treatment, nuclear and other
industries.
The Specialty Chemicals Segment is comprised of four operating companies: Blackman Uhler Specialties, LLC, Organic
Pigments, LLC and SFR, LLC, all located in Spartanburg, South Carolina and Manufacturers Chemicals, LLC in Cleveland, Tennessee
and Dalton, Georgia. The segment produces specialty chemicals for the carpet, chemical,
paper, metals, photographic, pharmaceutical, agricultural, fiber, paint, textile,
automotive, petroleum, cosmetics, mattress, furniture, and other industries.
CEOCFO: Mr. Braam, you have been CEO of
Synalloy a little over a year; what was your vision when you became CEO and where are you
today?
Mr. Braam: “I did not apply for the
job, I was drafted. I sold my company to Synalloy in 1996 and slowly over the next few
years, picked up the responsibility for the other chemical operation, Blackman Uhler
Chemical that was the cornerstone of Synalloy formed in 1945 and then Organic Pigments as
we exited the dye business. I was somewhat aware of what was happening on the Metals side,
but this opened up a new world for me. The first six months I was getting my feet on the
ground and learning that business.
What is interesting about Synalloy is that while we are two very diverse businesses, we
service and sell to the same industries in many cases. We are intermediate manufacturers
to the chemical industry. The chemical industry has been a large user of pipe and piping
systems for many years. We also sell to the paper business on the chemical side with a
variety of different chemical applications and that has also been our mainstay for many
years for the metals business. Therefore, we are seeing some degree of synergy between the
two divisions because we both know things about the industries that we are serving and we
are sharing those and trying to work together more and more.
Our philosophy is that we are looking for businesses that will stay in the US and will not
be subject to going offshore. With our Metals and Chemicals businesses, we are supporting
manufacturing businesses. While we are keenly interested in exporting all of our products
through a variety of channels, we also are very interested in focusing on those businesses
that strategically look like they are going to be able to survive in our environment here
in the United States.”
CEOCFO:
How do you identify your potential customers?
Mr. Braam: “I think industries that do
not have a high degree of labor intensity, and are relying on new technologies and
concepts, are good industries to try to follow. There are other industries that because of
the cumbersome nature of products that do not lend themselves to importing. A good example
of that would be this mattress business where we are focusing our attention on the
upcoming July 1, 2007 deadline for the Consumer Products Safety Commission new rules for
fireproofing mattresses and bedding. We have been in a joint development venture with
Felters Corporation that is located in Spartanburg as well. We have focused on developing
chemical systems and they focused on developing the fiber applications that will go into
the various components in mattresses.
The bedding industry is interesting. We have four major players; we call them the four
S’s, Sealy Corporation (NYSE: ZZ), Simmons Bedding Company, Serta Mattress Company,
and Spring Air Company. However, besides these four major players, a significant market
exists that is really a very decentralized type of business. There are a lot of regional
small manufacturers of bedding and mattresses because of the distribution and so forth. We
feel this industry is going to stay and that we are on top of that with some unique
chemical applications and fabric applications that will be part of this growing demand for
fire retardants. We are hoping that will crank up in the last half of the year (2007) and
boost our sales that have been fairly strong in the chemical business for the last year.
An area on the Metals side is the growing need for alternative energies and we see the
federal government driving this now. It is a good thing and it is a shame they didn’t
do it about 25 years ago when President Carter first sounded the alarm, when we had our
first shot over the bow by the Middle East. We supply the ethanol plants that require a
lot of piping. They will be built near the center of the country in the corn belt and
further south where switch grass is also an option.
We have been very successful in penetrating the energy markets over the past couple of
years to take advantage of the growth in those markets. It takes a lot of pipe to build an
ethanol plant as well as in facilities for the regasification of liquid natural gas. Heavy
wall pipe is used in the liquefaction of natural gas overseas. We have been very
successful in our bidding and acquisition of the regasification contracts to support that
industry for most of the installations that have taken place in the US and we are bidding
strongly overseas to take advantage of those markets too. One of our biggest strengths is
our ability to offer a full line of stainless steel pipe. The larger the diameter and the
heavier the wall, the more difficult the pipe is to manufacture and it cuts out a number
of competitors that we have. It also makes for a heavy product and we sell by the pound so
that is a very profitable business. Another important market is waste water treatment,
with many of the large municipalities opting to replace their aging infrastructure. This
requires a lot of large diameter pipe. We have been successful in several of those
contracts and are perusing more as we speak.”
CEOCFO:
Are you able to pass along the cost of raw materials?
Mr. Braam: “The Metals business has a
unique situation in that one of the key components is nickel, an expensive component in
stainless steel and some other alloys. When those raw materials increase, surcharges are
attached for the cost of raw material. We have been in a cycle of rising nickel costs, but
we have been successful at passing these increased costs through increased selling prices.
The key in this business is watching your inventory because you need to be keenly aware of
when those things turn. There is a strong demand for nickel throughout the world. China is
taking a much larger portion of just about all commodities now, and that demand is keeping
the price of nickel up, which keeps the price of our products up.
On the Chemicals side, we went through a couple of tough years in 2005-2006, as you know
from going to the gas pump. The petroleum prices went up and feed stock prices went up for
raw materials that are derived from petroleum. We were chasing that increase in cost of
oil all through that period and we were successful in raising our prices to recover raw
material cost. Unfortunately, our margin shrunk, but I think our strategy of just trying
to recover the raw material cost helped us gain some confidence from our customers and
they felt like we were being fair. In those cases, we did not lose very much business. It
was a question of, do you try to get more than what your cost is going up or do you fairly
pass it through and hope for relief later. There has been a little bit of relief but
mostly what we have seen on the chemical side is that the raw material cost has
stabilized.
One of our strategies involves using more renewable sources in our feed stock; we are
working with many vegetable-based products in trying to formulate new products going to
new markets. Some of this is reinventing the wheel because years ago when I got into this
business, about 40 years ago now, there were a lot of castor oil-based products, vegetable
oil-based products and vegetable derived fatty acids. Therefore, in a sense, we are
relearning what we knew in the past, because over the years, many people have gotten away
from that in favor of petroleum-based products. We feel like we might be a bit ahead of
the curve on refocusing on those renewable sources. We have projects going at all of our
chemical sites that utilize that concept.”
CEOCFO:
Is R&D a significant part of Synalloy?
Mr. Braam: “We have R&D (research
& development) teams in place at all three of our chemical operations. We have a
branch of Manufacturers Chemicals in Dalton Georgia, where we do some development of
colors for the carpet industry. We have development chemists here in Cleveland, TN that
are constantly working on new projects. I would say that most of our research is geared to
applications. We have a slogan that we have used at Manufacturers Chemicals for many
years, which is ‘Problem-Solving Chemicals’. We look at customer problems, new
applications and develop products that are cost effective and get the job done.
At Blackman Uhler Specialties, we do a lot of contract manufacturing for major chemical
companies and international chemical companies. In many cases, our development chemists
collaborate with our customers’ chemists. Many times will be given the beginnings of
their development work and we will have to figure out how to commercialize it. It
doesn’t always go smoothly into the manufacturing arena. In many cases, we get to
tweak their processes and apply them\n to our particular equipment and configurations. At
Organic Pigments, we are looking to serve the customers’ needs. In many cases, we are
given the charge to come up with a particular color, cast and particle size. We put our
knowledge to work with the things we have done in the past to develop those color lines.
On the Metals side, there isn’t a lot of research going on, but we are constantly
trying to improve our processes by balancing our capacities, looking at our flow of
materials and trying to pick up on the latest welding techniques. It is more of a process
applications type of development that we do.”
CEOCFO:
Synalloy recently announced a 49% increase in annual earnings; how do you continue the
good success?
Mr. Braam: “We have hit a period where
our products are in high demand, and we happen to be in the right place at the right time.
We are on the cutting edge of this energy boom, where there is a realization that we have
to do other things than what we have been doing for the last hundred years and we are well
positioned. We continue to maintain our traditional businesses in paper, chemicals and
waste water treatment. Our Piping Systems fabrication division has a strong backlog,
ending the year at $55 million, up about $35 million over the previous year-end. In
addition to supplying our strong distribution base, we are going to continue to produce
pipe to just take care of our fabrication customers.
On the Chemicals side, Manufacturers Chemicals has been a pretty steady, profitable
organization since it was acquired in 1996. We made a few small acquisitions over the
years that have put us into niche areas that have strengthened the business. I think the
big difference we saw was that we got out of the dye business after an unsuccessful effort
several years ago to expand our dye business through an acquisition. We ultimately spun
that off and focused strictly on our chemical business. We focused on bringing in more
projects so that we got away from feast or famine and had enough critical mass in the
business to sustain us quarter-to-quarter. As a result, we were much more profitable at
Blackman Uhler last year. We also moved Organic Pigments from Greensboro, NC to fill up
the space that was occupied by the dye business, so we got better utilization of Spartanburg,
more cost sharing of our infrastructure and we were able to liquidate the property in Greensboro.
We got more efficient and leaner and recognized what was needed to sustain our businesses
and grow them. Those are the reasons we have been successful and I would say we are
continuing on that same track.
It is always hard to say what the economy is going to do. We had a report that there was a
downturn in January (2007) in the overall economy, factory orders dropped more than they
have in the past three years. Those things will happen, but if we continue with the
strategy that we have and stay focused, fighting the battles everyday, that should build
this side of the business. In addition, we have the prospect of some large volumes as we
get into the second half of the year with the Fire Retardant business. We are as well
positioned there as anybody in the marketplace and we have a partner in Felters
Corporation that has pursued the market and gotten in with the majors promoting our
products. We feel that will help to sustain our growth.”
CEOCFO: In
closing, what should investors remember about Synalloy?
Mr. Braam: “We have our nose to the
grindstone and all of our management team is focused on solving our customers’
problems, looking for markets that are going to be with us and are not going offshore.
Because of the fact that we are a leader in the stainless steel piping business, we are
going to continue to be a key player in that market. In addition, we have many of the
negative aspects behind us on the chemical side, particularly the dye business that was so
closely tied to the textile industry. In fact, Manufacturers Chemicals was closely tied to
the textile industry for many years until we began to diversify and get into the metal
working, chemical, paper, waste water treatment, janitorial and mining; as well as many
other areas. We are lean and have a better understanding of what faces us and we are
looking ahead at realistic objectives with strong teams in place.”
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