June 2008 Interview with: Synalloy Corporation (SYNL-NASDAQ), President and CEO, Ron Braam - featuring: their large and small diameter pipe for energy companies and specialty chemicals for the carpet, chemical, paper, metals, photographic, pharmaceutical, agricultural, fiber, paint, textile, automotive, petroleum, cosmetics, mattress, furniture and other industries.

Synalloy Corporation (SYNL-NASDAQ)

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Synalloy Is A Diversified Company Supplying The Growing Need For Large And Small Diameter Pipe For Energy Companies And The Manufacturing Needs For Regional Production For Larger Chemical Companies



Basic Materials
Steel & Iron
(SYNL-NASDAQ)

Synalloy Corporation

2155 West Croft Circle
Spartanburg, SC 29302
Phone: 864-585-3605



Ron Braam
President and CEO

Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
Published – June 13, 2008

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 Oleochemicals) 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 480 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 (BU Specialties), 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, would you bring us up to date on the focus of Synalloy today?

Mr. Braam: “Our focus on the metals side of the business continues to be manufacturer of large diameter pipe that can go into piping systems that require those diameters. This is the most profitable side of our business.

The smaller diameter pipe is less profitable and it is being impacted by dumping by the Chinese, I will go into that later. The opportunities for use of large diameter pipe in our piping systems continue, even in light of the weak economy and the general consumer economy, and that is because we are involved in long-term projects.

The things that we are working with involve energy systems like liquid natural gas (LNG), gasification and liquefaction plants around the world. We are also involved with wastewater treatment systems and water treatment systems. The infrastructure of many cities is decaying, so there is a continuing need for upgrades and this a niche for us. In addition, with the need for alternative energies, the use of coal has increased to produce electricity. This is requiring tighter standards with regard to emissions, so we have begun to build a lot of scrubber systems for coal plants. The boom in the ethanol plant construction has slowed down. There were a lot of plants built last year for production of ethanol and we participated in quite a few of those projects.

On the chemicals side, we have continued to grow the business but it has been a tough beginning of the year because of significant increases in raw materials. We are involved in significant and frequent price increases to our customers. We have to be very sensitive to those increases. We need to cover our increasing raw material costs, but we don’t need to lose the customers in the process so I think we have been very successful with that. We are growing our revenues but we have had some challenges in the first quarter regarding new start-ups and projects with the chemical contract manufacturing side because of learning curves and installations of new equipment to handle those projects. Both sides of the business going into the second quarter showed increases in revenue. Our profits were up nicely over the fourth quarter, but they didn’t match the first quarter of last year when the price of nickel was very high and we benefited from that in our Metals Segment. We were pleased with the results in light of the current business conditions.”

CEOCFO: What is the competitive landscape like for you?

Mr. Braam: “On the metals side we don’t have a lot of competitors; we basically have about four domestic producers that produce the range of sizes that we do, and only one of the four has the piping systems plant to be able to fabricate pipe internally. That gives us a competitive advantage. The Chinese cut into what I call the underpinning of the metals business, the six-inch and under diameters in stainless. They engaged in pretty significant dumping beginning about the second half of last year and continuing through the end of the year. There is now a trade case that we feel fairly confident about that is being brought to trial in Washington, so we should have some results regarding the trade case later this year.”

CEOCFO: Is it strictly cost of piping when people are choosing who they should use, or is there a service component that would cause them to choose you?

Mr. Braam: “We have a good reputation in the industry. The pricing is usually important with any business, but we have gotten a lot of repeat business based on trust and reputation from existing customers. Our distributors who rely on us have been with us a long time. Therefore, reputation and quality are important along with on-time delivery; those are all things that we continuously try to improve.”

CEOCFO: You mentioned infrastructure worldwide; do you have much international business and do you see that as a growing area?

Mr. Braam: “We are working with a group in Europe. The weakness of the dollar has made us competitive. For the first time in many years, we have an opportunity to participate in that market. We are in the early stages of that effort. We have shipped product around the world for engineering projects with regard to LNG facilities, oil producing and refining plants. On the chemicals side of the business, we found ourselves being in a unique position because of the weakness of the dollar as well. We have been exporting products in the paper and agriculture industries. Our sales are up a good bit compared to last year with regard to those two areas.”

CEOCFO: Regarding the specialty chemicals; what is it you are actually making?

Mr. Braam: “Manufacturers Chemicals supplies diverse markets through direct contact by its own sales force and by supplying other manufacturers with intermediates. We do toll work as well for larger chemical companies such as Hercules, which is our biggest customer in the Chemicals Segment. These companies need regional manufacturing of their product lines and rely on us to do that. The Cleveland site produces defoamers, surfactants and lubricating agents and those products are used in many markets. Originally, this was a textile chemical company but the same chemistries find their way into paper, metalworking products, mining, agriculture, water treatment and janitorial products and we have branched off into all of those areas. The carpet industry is also an important customer for the Dalton location. We supply specialty dyes and many of the finishing agents that go into carpet production.  We also supply a lot of products that go into the latex that is used in the backing of the carpets.

The BU Specialties plant is more specifically a contract manufacturer. We have a few of our own products that we produce there for Manufacturers Chemicals’ resale, but primarily we are dealing with the larger chemical companies that need regional manufacturing for production of their products. We have a nice balance of capabilities between the Spartanburg site and the Cleveland site, and we are able to do a lot of different types of processes that we don’t necessarily duplicate at the two sites. It gives us a broad range of capabilities. Organic Pigments is also located in Spartanburg; its primary objective in the past has been sale of aqueous pigment dispersions to the textile industry. We still do that but we are trying to diversify into graphic arts, ink, agriculture, latex, rubber and plastics. We are also finding that there is a need for fine particle-sized aqueous dispersions of chemicals. These are typically larger volume products than the pigment colors. This is a brand new area for us that we are just now beginning to develop. Organic Pigments has been our weakest company within the Chemicals Segment and we have struggled to overcome the loss of the textile business, but I think we have a plan that will allow us to accomplish growth through the production of the chemical dispersions.”

CEOCFO: When we spoke last you talked about looking into more natural oil-based products: how has that developed?

Mr. Braam: “We have grown the natural oil-based products through our sulfation primarily, but also through trans-esterification, but one of the problems that we have encountered is that with the demand for these oils for the alternative fuels such as the biofuels and ethanols, we have seen spikes in prices of those naturally occurring oils just as with petroleum and you know what petroleum is doing. This is just something that the entire chemical industry is experiencing and it seems like every time you turn around there is another scarcity or significant price increase. A few weeks ago there was the earthquake in China and the result was a significant impact on phosphorous-based products. Those kinds of things are creating challenges for the chemical industry, but everybody is experiencing it, so we are in the same boat. We just need to manage it and we feel like we are doing that effectively.”

CEOCFO: What is ahead for Synalloy?
Mr. Braam: “We hope that the commodity pricing slows down a little bit, but we aren’t holding our breath. We are continuing to look for new markets. We are expanding on our relationships with our contract customers on the chemicals side and finding new opportunities all the time. The large chemical companies are finding it more and more efficient to use operations like ours to have their products made and that bodes well for us. On the metals side of the business, we certainly look forward to winning our trade case along with our other domestic competitors to get fair market conditions for selling our small diameter pipe. We also continue to work hard to keep our backlog for the piping systems plant high. We also are constantly on the look out for acquisition candidates that fit with our two businesses and we are always evaluating those possibilities. We certainly hope that in the near future we will be able to successfully accomplish some acquisitions that enhance our capabilities and allow us to enter new markets.”

CEOCFO: What is the financial picture of the company?

Mr. Braam: “Pretty sound. The earnings were up for the first quarter over the fourth quarter, we made thirty cents a share. It wasn’t where we were last year in the first quarter, but we have to remember that last year there was a real spike in nickel prices that permitted us to raise and surcharge the prices of our stainless pipe. That spike came as a result of surcharges as well as strong business; it was maybe the easy way to make money. We are now in a more normal market and we have picked up increased revenues on the pipe side.”

CEOCFO: In closing, why should potential investors be interested and what should people understand about Synalloy that does not jump off the page?

Mr. Braam: “First of all, we are not tied to the consumer economy; we are tied to long-term needs on our metals side. We have a deteriorating infrastructure in a lot of these areas, we have a tremendous need for diversification in the energy field, and a lot of those things require stainless steel pipe and pipe systems. That future looks pretty bright for the next several years and probably beyond. We will be in a transitional phase moving away from oil and to diversify into probably all of the above. I do not think there will be a single energy source that is going to be our savior; it is going to be a combination of a lot of things. We just need to continue penetrating those markets. I didn’t mention nuclear, but Bristol Metals is one of two domestic companies that has a nuclear stamp and is capable of producing stainless products used for that industry. We have already had announcements of new plants that are on the drawing boards and this is just one of the answers to the energy shortage. On the chemicals side we have small, regional manufacturing sites that can work well to enhance the larger chemical companies’ abilities to market their products and we can produce them economically.”

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“First of all, we are not tied to the consumer economy; we are tied to long-term needs on our metals side. We have a deteriorating infrastructure in a lot of these areas, we have a tremendous need for diversification in the energy field, and a lot of those things require stainless steel pipe and pipe systems. That future looks pretty bright for the next several years and probably beyond.” - Ron Braam