Edited from: “Letter from the chairman” annual report and company website
Nalco has implemented a three-part strategy with the goal of achieving strong long-term organic growth of better than 5%, 10% growth in adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) and free cash flow improvement of greater than 30%. Its three strategic objectives remain unchanged: generating organic growth, improving work processes and building alternate channels to market.
In addition, the company will invest in the right geographies, industries and technologies over the next several years, with around 20% of its business expected to grow at an average of 15%/year.
Nalco is investing “disproportionately” in hiring sales engineers to support rapid growth in geographic markets that include China, India and Russia, and in research and development for technologies such as membrane treatments, automated monitoring and control technologies, and improved end-product quality for customers in paper and other industries.
Nalco will implement process changes to serve its customers. It intends to implement a series of additional process improvements, improve production efficiency and reduce the amount of time employees spend on routine administrative tasks. Process improvements are its objective, but cost savings are said to be the main outcome.
Its price achievement objectives are believed to be “more focused” than in the past two years, particularly requiring added price from customers using technologies that disproportionately increase in cost. Throughout its business the company will continue to gain added price to absorb all of the costs related to its latest cost surge, including higher service costs and inventory carrying costs.
Several factors will contribute to Nalco achieving its strategic goals, such as:
Oil being produced today is in harder-to-reach, more technically challenging locations, and contains more impurities. All of these issues are expected to bring new business to Nalco.
Fresh wood pulp prices are high relative to recycled material, increasing the benefits of its ability to help customers use more recycled content or filler in the papermaking process.
Increasing environmental controls in many regions increase the payback for customer investments in the environmentally friendly technologies that Nalco offer.
the convergence of energy and water is playing a particularly important role in the global economy, creating an opportunity for Nalco to accelerate growth in the coming years.
Outlook
In the longer term, Nalco says it has a real opportunity to grow even faster than its current objectives through making the right investments and accelerating its cost improvements to pay for those investments, specifically, in more than a dozen large markets and about 100 countries in total. Its share of gross domestic product is well below the results it delivered in the US. It is confident it can improve its share in these markets.
Several key components in deriving adjusted EBITDA and free cash flow are expected to be as follows:
Amortisation expected at approximately $60m;
Depreciation should be about $130m;
Cash interest is targeted at approximately $220m, out of total interest expense of about $265m. This assumes that free cash flow is applied entirely towards debt reduction and dividend payments;
Cash taxes are projected at $100m;
Capital expenditures are expected to be about $120m. Normally, it would expect capital expenditures to run about $100m;
Pension funding should be $20m above expense;
Business process optimisation cash costs are targeted at about $5m; and
Net working capital is expected to be flat, as operating working capital gains are offset by uses of cash in non-operating working capital.
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Financial highlights: Nalco, year ended 31 December
|
|
2008 |
2007 |
2006 |
2005 |
2004 |
|
Sales ($ m) |
4,212 |
3,912.5 |
3,603 |
3,312 |
3,033 |
|
Operating Profit ($ m) |
-12 |
476 |
433 |
343 |
195 |
|
Net Profit ($ m) |
-343 |
129 |
99 |
48 |
-139 |
|
Total Assets ($ m) |
5,042 |
5,979 |
5,657 |
5,552 |
5,934 |
|
Diluted earnings per share ($) |
-2.44 |
0.88 |
0.67 |
0.33 |
-1.42 |
|
Number of Employees |
11,500 |
11,500 |
11,000 |
10,900 |
-- |
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Nalco
Company Structure
Nalco is a provider of integrated water treatment and process improvement services, chemicals and equipment programmes for industrial and institutional applications. In November 2004, Nalco completed its initial public offering (IPO). Blackstone and partners, Apollo Management and Goldman Sachs Capital Partners put in $992m in equity and raised $3.2bn in debt to buy Nalco for $4.1bn.
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