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#Look, I think there's absolutely additional growth in earnings in 2017.
You know, I'm made a little cautious about the contribution from the services businesses.
I think we feel much better, as I mentioned today, as we sit today looking into 2017 for both Refractories and energy services, we were facing some pretty significant slowdowns and declines last year.
But where those businesses hit this year and what those markets are this year, much healthier position.
I'm cautiously optimistic.
I don't think until we see oil prices, if we want to talk specifically about energy services, to really see something over $60 per barrel.
I don't really think that is driving some meaningful production and filtration business, but we are seeing some better activity today so that's a positive.
Refractories business is at 73% capacity utilization.
That's up almost 7% from where we sat last year.
That's another healthy indication.
And maybe while do first, and then I will conclude, Dan, is I will let <UNK> give you a little bit of color ---+ <UNK> <UNK> ---+ give you a little color on what we're seeing here around the world in oil and gas, and then <UNK> <UNK> on refractories and steel.
Yes, Dan, its <UNK> here.
I think we kind of bottomed out at the beginning of Q4 last year, and I think that we're at the beginning of an upcycle now.
We are seeing stabilization of the rig count here in the US offshore.
We're seeing an uptake in the rig counts on land, and internationally our business is growing quite well, I would say.
I think we predicated our plan on $45 to $55 oil.
We're around the high side of that today, around $54.
As <UNK> said, once we get to $60 and we can sustain $60, then we'll see much more infrastructure spend, I would say, in the EMP environment.
So I think we're at the beginning of the uptick and I think we're looking forward to a good year.
Want to give us a little color on refractories.
Sure.
Hi, Dan.
The global steel production in 2016 was fairly flat, and the utilization rates were around 70%.
As <UNK> pointed out, our expectations are to be better this year.
So, US rates, when you look at US rates, as he pointed out, we went early in the year from 70%, we're up to about 73%, and we're seeing orders picking up for the steelmakers over Q4.
So that's a positive indication.
Expectations for us, for 2017, we expect them to remain at similar levels for the time being, but also expect a possible uptick in the second half, so that should help us in our growth initiatives.
Dan, let me complete the picture for you.
Look at the minerals businesses, we just had 22% growth in metalcasting.
We've got some really strong orders in China for metalcasting.
So we see that continuing.
We are going to continue to ramp up Sun Paper filler satellite in the beginning of this year, which will improve some PCC volumes.
You know we tripled our Resistex sales this year, and we look at that growth continuing especially as we start to introduce some of those products into Asia.
So I think there's a lot of good things going for the Company to start generating some revenue growth, and I think that will yield higher earnings in 2017.
Thanks.
Hi, <UNK>.
Sure.
The sales in China is about 15% of the Company sales right now.
It's growing at about a 10% pace on an annualized basis.
So it's becoming a relatively sizable portion of the Company.
When I talk about developing the organization there, that will require some overhead expense and SG&A, but the way we look at things in the Company is, we manage our total overhead expenses to the Company's growth rate.
So we will be moving and shifting ---+ we always have been doing this as we shift resources from areas that may not be growing to those that are.
So we will manage that expense control ---+ or manage that expense outlay.
But it will require some broadening of talents to better support that growth and accelerate it, even in China.
Capital will require capital ---+ we are the two main areas of capital expenditures for growth will be in the performance materials and the Paper PCC business, as it always has been.
No real capital needed, very small capital needed for construction technologies.
We've got plenty of capacity around the world and in China right now.
So, it will be more for new technologies in the Paper PCC business, and in performance materials.
You don't sound very good, <UNK>.
A cost savings target for 2017.
Well we do have targets, we set them internally.
We set, actually, pretty tall stretch targets for <UNK> Mayger's team, who runs our supply chain group.
This year we probably had about $10 million to $13 million of across-the-board supply chain savings.
The way we planned the Company, <UNK>, is when we plan our business units and operating income, we do one thing very standard.
We put, we build into our forecast a 10% per year productivity improvement.
And a 3% variable cost improvement in each of our businesses.
That's the target.
Expense savings, we look at it based on the business and where it's growing, and what it needs, but on an operating basis, we target those levels every year.
Now what that has yielded is about a 3% variable cost savings, and a 5% productivity improvement on average every year for the past six years.
So those are targets, and they're kind of standard.
But we do have some supply chain targets as well.
This year will be a little bit more challenging with energy costs flattening out.
We participated in some energy savings last year.
But we do have those targets as well.
G&A, <UNK>, was $92 million in 2016.
CapEx, you're right, it was only $62 million this year.
We expect that to probably be around $70 million to $75 million next year.
Really is dictated on ---+ it's really driven by Paper PCC.
We built ---+ we finished building one satellite plant this year and so that will be, the increase will be, if we start to build satellites, but that probably won't be until late if at all next year.
We had actually ---+ we did and we mentioned on the last call.
We had some working capital as a challenge for this year.
Especially in the first part of the year.
We had a number of payment terms extended on us, particularly in energy services and steel, as those large customers kind of inflicted some changes on us, but that drove up our working capital.
You know we took some actions toward the second half of the year, though some of that those receivables were extended.
We tried to offset that with payables and work through some inventory reductions.
We did make some progress in the fourth quarter, some good progress on inventories.
And improved our outstanding collections, but it was something with more of a draw this year than last.
Working capital ---+ I can give it to you on a day's basis.
We typically run around 90, 97, 92 days, so we're looking to get ourselves back to where we were.
I don't have the exact numbers, I think in 2014 we were around 92 days.
I think we're up about six days in total working capital as a Company.
What I can give you is, from over the past two years, our sales ---+ foreign exchange has impacted our sales negatively by $135 million.
It's impacted negatively operating income by about $18 million to $20 million.
So as we stay here, I'm not making any predictions on where currency is going, but if you go back to 2014, that is the kind of leverage you are looking for.
Yep.
Thanks, Rosemary.
Let me answer the last question first and then I'll give you some color.
New products constitute ---+ new products that we've launched over the past five years ---+ constitute about 12% of the Company's sales today.
We've got, of those there's probably about 83, 85 new products, and they have the potential ---+ the growth potential of about a little over $300 million, a little over $300 million, $325 million in total sales.
Of things that we've launched that are still developing.
What I mentioned in terms of development of new technologies, they are in areas in the Paper PCC business.
We've developed ---+ we've launched our New Yield product last year.
New Yield, that was the first facility with Sun Paper, and so we've worked through that technology at that location, and have made it more robust over the past year, so that has matured.
As well as commercialized, it has matured.
Our geosynthetic clay liners like Resistex have also matured.
We've deployed them through a number of red mud containment ponds, as well as coal ash.
And we've refined that product even further over the past couple of years and it has become more robust.
So let me let <UNK> <UNK> give you a little feel for some of the technologies in paper that he's seen trial activity on, on and those that have been maturing.
That's right, <UNK>.
Well, as you know we have a good technical capability for coating of high-end packaging.
But beyond that, beyond producing glossy coating with our PCC product, we have other technologies with Fulfill and New Yield, that we're pursuing into packaging.
Fulfill and New Yield can provide strength, light weighting, fiber displacement, all of these properties are important in the packaging market and we some good active opportunities there.
In fact these opportunities are not just in China, they're currently active in all regions.
Further out, we have some new technologies in addition to Fulfill and New Yield, that we've not announced yet, but they are advancing in Asia and in fact, the rest of the world as well.
So, beyond PCC several good developments there.
Some other technologies in the performance materials, Rosemary, things like Enersol, and our lightweight litter, and I'll let <UNK> give you a little color on those.
Hello Rosemary ---+ on lightweight litter, I know you've asked about that before, that's been a product that we commercialized really just over the last year here in the US.
And it's been pretty successful in terms of the traction in the overall market.
The space ---+ within the space in the cat litter category, the lightweight litter now is about 12% to 15% of the retail dollars.
It's held steady at that level.
Our customers are principally large mass merchandising retailers, they're getting a private label product on the shelves as we speak, and we're seeing pretty good development of those markets as we go along.
So, we're still on the small end, in terms of what the value is but the rate of growth looks quite promising.
But beyond the US, we're really looking at that lightweight litter technology that we have and the capabilities we have to move quickly into China and other parts of Asia to introduce that product.
The whole idea of domestication of pets in that category is rapidly changing in that emerging market area, and we would like to jump fast into this type of product into that region.
We think it makes a lot of sense.
So we're pushing very heavily and I'd like to think that we will be introducing a product in China by the end of this year.
In terms of the Enersol area, which again is our crop health additive, we have distribution now well-established in key geographies, principally Brazil, China, India, and of course here in North America.
Some areas of that are influenced by crop prices, like we are seeing today.
However, on a number of different smaller crop areas, fruits, vegetables principally, we've seen very good trial data and beginning to get more each year into broadening our distribution in the key geographies.
Once the key money crops begin to recover, we see a quite substantial growth potential beyond that base that we have today.
It is not a replacement it's an enhancement, and in some cases, many cases now, what we're really doing is called formulating our particular additive with the micro nutrients that are used in soil additives.
So we're sort of compatible, if you will, with existing macro and micro nutrients.
What I guess I'm referring to is our technology pipeline.
So, two things.
One, we operate our technology development in a stage-gate process.
So every year, we have a number of ---+ and we will probably show this to you in the next couple of calls, but I will highlight the new technologies that are coming in.
The ones that are moving through, and the ones ---+ the ones that we've developed that have matured another year that are becoming ready for commercialization.
So with any new product, and they evolve as they're out on the market.
When we enhance them, and we make them even more effective, once we see how they've worked with a number of different customers.
I think those that are in the pipeline have matured another year and will be commercializing this year.
And those that are already commercial, that have been enhanced and changed and developed for a broader customer base.
That is kind of what I mean by matured.
Both, in and about to be in the marketplace.
The other thing I will let you know, I mentioned some of the produced water technologies that are taking hold in the energy services.
We've got the new laser systems and other refractory formulations as well in refractories.
So there are a number of fronts where we see new products contributing to growth in 2017.
Part of my dissertation, as you put it.
It felt like it, I guess.
Some of the changes, the organizational changes that I intend to make are getting a little bit closer to those customers and making sure we have the points with those customers.
Because really understanding how these things are working and quickly making decisions, and quickly enhancing them.
So just speeding up that communication with these new products are some of the things that I think can help us go faster, and that's what I referred to in terms of organization changes that I think will help the growth trajectory.
They are good margins, Rosemary, and its really driven by the market price of chromite.
So, we have a general fixed mining cost, so that we're price takers in the market of chromite.
I will give you an idea ---+ chromite prices at the beginning of last year were around $100 per ton and they've climbed almost $340 a ton late this year, so very quick climb, and that's what we're participating in.
It is really driven by demand in China, so over the past two or three years, stocks, market has changed a little bit.
Maybe I'll let <UNK> give you an indication of what changed three years ago, but it was driven by consumption in China right now.
Yes, <UNK>, the situation that this chromite is used ultimately to produce stainless steel.
So a lot of more consumer, as well as some industrial area.
So that demand has continued to be fairly strong in China, particularly.
China must purchase all of the raw materials that go into ultimately into producing these goods.
So, the chromite the comes from South Africa ---+ where our mine is ---+ is approximately 70% of that supply going into the country.
And essentially what's happened over time is there has been a rebalancing of the grades of the chromite going into the country and that rebalancing is more favored ---+ the type of mineral that we have at our disposal.
So we're definitely riding that wave, that wave goes up, it definitely can come down.
But at this time and for certainly a foreseeable future, we see a fairly positive outlook, but it is a volatile, it can be a volatile end market.
Appreciate that, <UNK>.
Look, we usually don't guide out even a year, so I'm going to hesitate to give you numbers out three to five years.
I do think though, that the Company has the potential, at least the minerals segment of the Company, has the potential to grow the top line, with traction.
Again it may not be linear, but has the opportunity to grow 5% or 6% range.
The challenges we've had over the past couple of years in terms of our top line have really been two things.
The services businesses, energy services and refractories, I mentioned over the past two years about $230 million of sales decline due to foreign exchange.
But I think that growth, as it is now stabilized and will turn the other direction, I think what those growth trajectories in the top line are possible over the next five years.
I think that will yield even higher levels of earnings growth on the bottom line.
And that's because we ---+ our ability to turn a dollar of revenue into very strong profits, I think is evident.
So I think over a longer period of time, that 10%-type earnings growth, albeit, it may not be linear, on a comparable basis of the next 5 to 10 years is possible.
The trial activity is actually quite a long sale process.
It requires, what it requires most is time on the machine.
And when you are trialing ---+ so first, understanding the needs of the customer, understanding the pigment they're using, the paper grades they are producing, understanding how PCC can help them in terms of enhancement of quality in paper and saving cost in terms of pulp.
I can give you a quick equation ---+ PCC is a direct one-for-one replacement for pulp.
Pulp, if you're making it, averaged $350 cash cost and we sell PCC for $120.
If you're buying pulp, you're probably paying $800 a ton and we're selling it to you for $120 per ton, so there's a big cost advantage.
Not so easy, you have to make sure the paper works.
It works within the chemical systems and on that machine, and that's the trial activity.
So first, its understanding the value equation for the customer, describing that value equation and then getting time on the machine.
It's been difficult to get time on the machines in China and Asia the past year, due to some of the dynamics have been changing over there in terms of paper and supply, with Indonesia.
With a lot of paper that has come back from the US into Asia, it's circled his way through India, Indonesia and China and that made it difficult to get time on those machines.
Once you get time on the machine, and that may be scheduled out a number of months, it may take a month, a three week trial, and then some feedback, and it may take another trial.
But once ---+ and we've seen this over the past 25 years ---+ it's almost always shown that PCC is a higher value pigment, saving money.
And then it gets into, what type of capital required to put a satellite on that location.
And then how we negotiate a 10 to 15 year commitment by both parties, and that's not something taken lightly by either side.
Getting together and putting a satellite on-site of a plant and being there, I think the average lifespan of our satellites right now are almost 20 years.
When we're doing these things, we are there for long periods of time, as partners with that customer.
That cycle takes time, that can take a year in some instances, and that's what's happening right now.
I think, certainly, in the minerals-based businesses, we all focus acquisitions.
Our template has been ---+ mineral-based, but minerals that have a technology component, or something that we can apply mineral technologies to.
To make them value-added constituents in whatever they go into.
I think, you know with a bentonite-based set of businesses, it provides us avenues in that mineral.
But also in the markets that are in metalcasting, consumer-products, household personal care, those markets and that mineral provides an area and platforms for those growth.
Same with the carbonite side.
In our specialty minerals segment, we have opportunities for growing in the specialty segment and also in further development of those minerals around the world.
So, we have both market-type platforms that we can move into, and also mineral-type platforms.
It doesn't necessarily have to be bentonite or carbonite that we look at, but something that is also parallel in a market that we currently serve, maybe in another mineral.
And that's what we looked at when we bought AMCOL with bentonite.
I think I gave you a two-dimensional kind of pallet for where we can explore, but primarily it will be in the minerals businesses.
Well, absolutely I think making sure we have the reserves around the world to support the growth in the regions that we're growing and our current base business.
Sometimes I don't think about it an acquisition, but as necessary ongoing capital to sustain the business long-term.
But that may come through acquisition in terms of buying a position that comes with those reserves.
What I think of is, I balance, obviously the shareholder value creation of the acquisition.
So it really depends on what it is.
We tend to look for being accretive right out of the gate.
If something wasn't or if it was neutral, it would have something in there that generated significant, relatively near-term cash flow improvements for us to want to buy it.
Were pretty disciplined about how we look at acquisitions and how we value them.
We value them from many different angles and you've probably seen historically we've been pretty disciplined about how we go about that.
That concludes today's conference call, and thank you for your interest in Minerals Technologies, and have a nice day.
