Business
Irani sees renewed growth at Olin New president cites Olin's greater emphasis on specialty chemicals—goal is to raise their share to 50 % of chemical sales by late 1980's William J. Storck C&EN, New York
When Ray R. Irani took over as president and chief operating officer of Olin last month, he became second in command in what might be de scribed as a frustrated turnaround chemical company. His job now is to help get Olin back on the climb it enjoyed until its recent setback. A survival exercise in the early 1970's completely reshaped the me dium-sized chemical producer, drawing it much more toward its traditional chemical base. The sur gery worked, or so it seemed. Olin recorded more than six years of con secutive quarterly earnings increases and saw its stock price triple toward the end of this period. It got through the vicious 1974-75 recession with hardly a scratch. But then came a series of reverses beginning in late 1977, which have left the company on an earnings plateau with declining profit margins most of
the time. Wall Street hasn't given up on Olin, but has put its stock price back on hold. In 1980, however, Olin has shown signs of renewing investors' faith. Performing above the industry aver age in the recession, in particular on the strength of its countercyclical swimming pools chemical business, Olin has shown some of the same spunk that got it through the last re cession. In the shell-shocked second quarter, Olin's earnings held about even with a year ago, whereas those of the chemical industry lost 12%. Olin's profit margin on sales moved up to the industry average of 5.6% after trailing considerably in the past few7 years. For the third quarter, Olin's net income increased 1.7%. To stay on the upswing, Olin will have to continue improving its core chemicals business. It was a sharp earnings decline in this area that largely pulled the company off the growth track in the late 1970's. Oddly enough, it is in chemicals that Olin has put most of its investment money in a big capital spending campaign since 1975. According to Irani, there are a number of reasons for the chemical group's poor performance during the past few years. For one thing, the company's fertilizer operations were contributing about 50% of the chem ical group's operating profits during 1973 and 1974. By 1979 the fertilizer
Irani: 1979 was the bottom
business was losing money. Olin di vested itself of this business in late 1979, so that drain on profits is gone. In addition, a major capital expansion program during the past five years has absorbed a lot of money that eventually would have made its way into earnings. Capital costs associated with environmental control also contributed. Finally, he says, several commodity chemicals, notably chlorine and caustic soda and urethane chemicals, did poorly in the late 1970's. Irani believes that 1979 was the
Olin's sales have been growing steadily...
... but profits have been behaving erratically...
... causing profit margins to suffer over past two years
$ Billions 1.8Γ
$ Millions 80 I
Net income as % of sales 5.5 5.0
4.5
4.0
1.0
ct 1975
18
3.5
55
76
C&EN Oct. 20, 1980
77
78
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79
1975
76
77
78
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79
1975
76
77
78
79
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CHECKOFF NEW PLANTS m Caustic soda* Diamond Shamrock plans to increase capacity for dry caustic soda 20% to unspecified level at Deer Park, Tex., in fourth-quarter 1980. Di- * amond estimates that its part of total U.S. dry caustic production is "well* over 20%."
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• Enzymes· Miles Laboratories plans to build more-than-$20 million plant in Elkhart, Ind., to make diverse line of enzymes for uses such as corn wet milling, brewing, baking, and cheesem&kinfg scheduled completion is second-quarter 1982.
• Ethyl alcohol. Diamond Shamrock and Amstar Corp. have agreed on project in which Diamond will build and operate 12.5 million gal-per-year (83 million lb-per-year) ethyl alcohol plant in Dimmitt, Tex., adjacent to Amstar's corn wet milling plant. Amstar will supply dex* trose feedstocks for fermentation and distillation when plant is on stream in early 1982. m Fructose/ethyl alcohol. A. E. Staley plans to build $200 million plant at London, Tenn., to convert 70,000 bushels per day of corn into high-fructose syrup for food and beverage industry and into ethyl alcohol for fuel uses. Capacity will be 600 million lb of .u. syrup md 40 million! gal (264 million lb) of alcohol pbr year. • Epichlorohydrin rubber, B. P. Goodrich chemical group plans to expand capacity by "significant" undisclosed amount at Avon Lake, Ohio, by end of 1981. This product, used in automotive components, has had 25% market growth in past five years. m Fluoropolymers. Allied Chemical is expanding capacity for proprietary line of these resins by undisclosed amount to be completed by first quarter of 1981 at company's Elizabeth, N.J., plant. • Hydrofluoric acid* Allied Chemical plans to spend about $50 million to more than double capacity to total of 95,000 tons per year at Geismar, La.; startup /: scheduled for late 1982.
• Isocyanates. Rubicon Chemicals has begun detailed engineering for addition of 150 million lb per year to capacity for diphenyl methane diisocyanate at Geismar, La., by early 1983; existing capacity is 100 million lb. • Methyl anthranalate. Sherwin-Williams plans to expand unspecified capacity in St. Bernard, Ohio, 50% by October 1981 for product used to make herbicides and saccharin. Project cost of $5,5 million also covers new administration building, new 6O,0Q0~sq.ft. warehouse, and conversion of oil-fired boiler back to coal. • Polyacrylates. B. P. Goodrich chemical group plans to expand capacities for three proprietary lines of these resins. Capacity for Carbopol resins will be doubled at Calvert City, Ky., in two stages, the first to be completed in late 1981 or early 1982. Scheduling of second stage is not disclosed. A threefold expansion for other two resin lines, called Carboset and Good-rite K-700, will be completed at Avon Lake, Ohio, m first-quarter 1982.
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• Polyethylene, high-density. Gulf Oil Chemicals plans to expand capacity at Orange, Tex., to 575 million lb per year from present 420 million lb through debottlenecking program to be completed in mid-1982. • Polystyrene. Arco Polymers subsidiary of Atlantic Richfield plans to increase capacity 54% to 500 million lb a year for proprietary line of expandable polystyrene at Monaca, Pa.; work to be done in phases with completion by 1984. m Sodium chlorate. Pennwalt plans "major" expansion at Tacoma, Wash., to unspecified capacity level; completion expected in mid-1982. m Specialty chemicals. Noracco, Azusa, Calif., is building facilities on 55-acre site in Helena, Ark., to make various peroxides and stéarate. Initial production in second-quarter 1981 will be methyl ethyl ketone peroxide with capacity of 9 million lb per year; other planned products are benzoyl peroxide, peroxy esters, and metallic stéarates.
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Oct. 20, 1980 C&EN
19
Chemicals' share of Olin's sales is constant...
. . . operating profit share has fallen dramatically...
. . . but chemicals' portion of capital spending stays high
Chemical sales as % of total
Chemical operating profit as % of t o t a l 5
Chemical capital spending as % of total
50
80
85 80
I ι.
60
40
20
70
65
60
0 1975
76
77
78
79
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76
77
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79
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76
78
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a Operating profit is sales minus cost of selling and cost of goods sold.
bottom for chemicals operating profits as a percentage of total. He thinks that there will be improvement this year and that strategies set up over the past few years will ensure that chemicals do not sink that low again. One of the strategies, according to Irani, has been the company's huge percentage of capital spending in chemicals. In 1979 chemical capital spending amounted to $130.2 million
or 80.8% of the company's total capi tal expenditures. And, Irani says, the key to the strategy is that a dispro portionate amount of the $130.2 million went to build up the compa ny's specialty chemicals capabilities. Irani does not cite a figure for spe cialty chemical capital spending, but it is probably higher than 50% of the total chemical budget. The emphasis on chemicals, and specifically specialty chemicals, is
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C&EN Oct. 20, 1980
Circle 55 for demonstration
very evident at Olin. Irani's appoint ment is a further indication of the company's strong commitment to chemicals. The company's new president has a B.S. degree in chemistry from the American University in Beirut, Leb anon, and a Ph.D. in physical chem istry from the University of Southern California. He is one of the few top executives in the chemical industry who started his career as a research scientist. Prior to joining Olin in 1973, he worked in research at Monsanto and Diamond Shamrock. He started at Olin as vice president for research and development for its chemicals group. He rose to senior vice president of the group, then executive vice president, and finally its chief operating officer in 1978 and, later that same year, president of the chemicals group. The emphasis on specialty chemi cals is making Olin take a harder look at its commodity chemicals business as well as other segments of the com pany. Specialty chemicals presently make up about 30% of Olin's chemical sales against 70% for commodity chemicals, according to Irani. The corporate goal is to raise specialty chemicals' share to 50% by the latter part of the decade. This will be ac complished through in-house devel opment, acquisition, and divestment of some low-performing chemical lines. In commodity chemicals, Irani says, Olin must be either the low-cost producer at present or be able to reach that position in the foreseeable future. To achieve this, he says, re search and development is the most important part of the formula. How ever, even if the company reaches the position of low-cost producer in many of its commodity chemicals, Irani says that the sales growth will be slow.
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Olin also is working hard to increase its productivity, one of Irani's long-time pet subjects. Employment at the company has dropped from 31,000 employees in the early 1970's to just over 21,000 in 1980. The number of exempt professional employees is down 6% from what it was just two years ago and nonprofessional employment is off just about the same percentage. Irani says that this reduction in workforce has been accomplished with no layoffs. "Proper business planning on the part of management can avoid layoffs," he says. "No employee felt the 6% reduction because of reassignments and restructuring of jobs." However, at the same time, he says that Olin's turnover rate of 12% is much too high. Employee turnover considers all reasons for leaving— death, retirement, resignation, and termination. Olin also is using R&D to increase productivity of its plants. Through changes in process technology, the company is trying to get more out of its existing plants. The program, which has taken a large R&D commitment, has been rather successful, according to Irani. He says that now some plants are producing above their design rates and at the same time taking less energy per pound of product than they did previously. Olin got in early on the big buildup in process research since 1973. Olin also has worked at eliminating start-up problems at new plants by hiring the workforce well in advance of plant completion. At some of the plants hiring begins up to 18 months before the plant is finished. Six months before completion, all of the workforce has been hired. This allows the new employees time to see the plant actually being built and through training to become familiar with all of its processes. The success of this approach was demonstrated earlier this year when the company's new unsymmetrical dimethylhydrazine plant began operating, according to Irani. Within a week of plant startup, the facility was operating at capacity with no problems, he says. There is still much to be done at Olin. Irani says that his biggest challenge as a member of the company's chief executive office—which includes chairman of the board John M. Henske and vice chairman Edward P. Lyons, as well as Irani—is to push explicit growth plans for Olin. These will include selective acquisitions, increased emphasis on international investment, and an increased commitment to technology. Irani also has to decide which businesses are just not going to make it. D
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