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KMG
Chemicals selling to stable clients and generating strong positive cash flow
Basic Materials
Chemical Manufacturing
NASD: KMGB
KMG Chemicals, Inc.
John Sobchak
Chief Financial Officer
Interview conducted by:
Walter Banks
Co-Publisher
CEOCFOinterviews.com
June 2002
Company Profile:
KMG Chemicals produces and distributes
mature, specialty chemicals to niche market
customers in North America and globally. The company grows by acquiring and
optimizing stable chemical product lines and businesses with established production
processes. KMG Chemicals was
originally a distributor of the wood preserving chemical pentachlorophenol (penta), used
to protect the majority of electric and telephone utility poles in the United States. The
company began producing the product with the 1986 startup of its plant in Matamoros,
Mexico. In 1991, KMG purchased a
Creosote distribution business. Creosote is used for treating RR crossties, bridge timbers
and pilings in the United States. It expanded internationally in 1993 by acquiring a
foreign producer’s sodium pentachlorophenate (sodium penta) businesses. Sodium penta
is used for the prevention of fungal growth in freshly cut lumber in select international
markets.
Its current operations are focused on the wood treatment and agricultural chemical
markets, which it entered in late 2000, with the acquisition of Bueno 6® (MSMA),
an agricultural herbicide that was being divested by a major producer. MSMA is used primarily
to protect cotton and other crops from weed growth. By applying management expertise and
operating cost efficiencies, KMG seeks to expand profitability and extend the economic
life of its mature chemicals.
KMG operates a
modern, state-of-the-art production facility, the company's Maquiladora site, built along
the Texas/Mexico border in 1997, near Matamoros, Mexico. Located on seven acres, the site
provides for ample expansion capacity. Product distribution facilities are located at
Matamoros, Mexico; Brownsville and Houston, Texas; Tuscaloosa, Alabama; and at several
contract terminals, including New Orleans, Louisiana.
Interview Highlights:
- How has KMG Chemicals achieved its growth?
- What product area was there first acquisition?
- What product area have the expanded into?
- In building their product pipeline, do they incorporate R&D?
- What is their management strategy for improved margins?
- Do they add a new executive whenever they make an acquisition?
- Where is their production facility?
- Are they currently screening through possibilities for future acquisitions?
- Are most of their acquisitions made for products in US or international markets?
- Do most of their revenues come from the US or abroad?
- Is their focus strictly on products with a fully developed market place?
- Which of their product areas generate the most significant revenues and will that trend
continue?
- What are the names of their products and into what markets are they sold?
- What is their competitive edge and are their barriers to entry in their Industry?
- What were their 3rd Quarter earnings and what were the contributing factors?
- Will they be looking at any expanding any of their markets?
- Do they have the cash and/go credit to go forward with their acquisition strategy to
build out their business?
- What is their sales model?
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