MARKETS

Advanced Forecasting for Greater Sales and Profits

Advanced forecasting of combust, flow and treat products can be obtained for each plant and each corporation based on plant capacity. The investment for new products, replacement products and repairs can all be related to projected and existing capacity. The power industry forecasts start with the capacity of each generator. Municipal wastewater forecasts can be determined based on the MGD of primary and secondary treatment. The same approach can be used for refineries. Pulp and paper forecasts can be achieved with tons/yr of pulp. Mining is more of a challenge because purchases vary with each type of ore. The industry which is most challenging is the chemical/fertilizer industry. There are many different products requiring many different processes. This necessitates forecasting production of each chemical and then grouping these chemicals by common requirements. For example, TDI, Cl, and MOP/DAP all include processes with highly corrosive fluids. The forecasts for corrosion resistant products for each plant can be determined based on the production or usage of corrosive chemicals at each plant. Here is an example tabulation for Chlorine.

The same procedure can then be repeated for other corrosive chemicals and forecasts made for each CFT product. McIlvaine routinely forecasts purchases for the top 30 chemical companies. However, many of the top purchasers of corrosion resistant products are not in the top group for all CFT products. The challenge is to segment the corrosion resistant purchases separately from the others. The following companies are all significant purchasers of corrosion resistant products.

This group includes the top 20 chemical companies and the top companies in the chlorine, TDI and MAP, DAP segments. Exxon is the seventh largest purchaser of valves in the chemical industry (their oil, gas and refining purchases are determined separately). However, they are not a major player in production of the three corrosive chemicals displayed in this chart.

Advanced Forecasting to determine the purchases of a specific product by a specific company in the next year allows for a direct effort by the supplier well in advance of the actual purchase. This effort can result in specifications and decisions ahead of time which greatly improve the order potential. The cost of this type of analysis is no longer prohibitive. For more information, contact Bob McIlvaine at rmcilvaine@mcilvainecompany.com.

The Power of Innovation for Suppliers of Combust, Flow and Treat Products

There is a sea change in the route to market for suppliers of combust, flow and treat products. It is being caused by the adoption of digital technologies. Suppliers have to navigate a course every bit as challenging as did Eastman Kodak. The monumental failure of this company was to underestimate the power of innovation and overestimate the power of positioning in a non-digital market. The result was a company which was best able to achieve what Apple has accomplished and instead stifled R&D and tried to delay or prevent the transition to digital cameras.

Suppliers of Combust, Flow and Treat (CFT) products can harness the power of innovation only if they understand customer needs in every niche where there is potential. There is voluminous data already available to facilitate this understanding. With process management software and data analytics the availability of useful data will expand by orders of magnitude. The individual supplier is already overwhelmed by this avalanche of information. However, just as IIoT connects things in vastly large numbers the Industrial Internet of Wisdom (IIoW) can connect knowledge and people and harness the power of the avalanche rather than be buried by it.

Innovation will potentially generate large revenues and profits as per the Apple example. It starts with understanding customer needs. This is prohibitively expensive for any one company.

Companies such as Primex and MOGAS have found ways to share this cost using the Wikinomics concept. Many companies support Users Groups. However, harnessing the power of the avalanche is going to require even more interconnection in the new digital world.

Ultimately there should be interconnection addressing all segments with potential power in the avalanche. Organized decision systems around industries, processes and products should exist in millions of niches. Google and other search engines employ large numbers of people. However, IIoW will need to employ even more to keep up with the avalanche in an organized and decisive way.

Who should spearhead this activity: governments, consultants, associations or suppliers? The group with the most to gain are the suppliers and there is a strong case to be made as to why they should lead rather than follow. The McIlvaine Company believes its primary role should be as a consultant rather than leader even though it has developed Decision Systems such as Coal-fired Boilers.  McIlvaine can aid suppliers. This assistance comes as part of a 5-step program.

THE FIVE STEP BUSINESS PROGRAM is the navigation tool and the Lowest Total Cost of Ownership Validation (LTCOV) is the ship most likely to ensure a successful voyage. Innovation is the fuel to maximize the speed and quantity delivered. The foundation of successful innovation is the Industrial Internet of Wisdom (IIoW)

With IIoT, remote monitoring and data analytics, the customer will possess continuing total cost of ownership analyses of each product.  To persuade the customer to buy more of his product the supplier will need to deliver insights which are superior to those already in his possession.  Persuading the customer to buy a new product requires the supplier to demonstrate greatly superior knowledge. The advantage of the new environment is that the customer is much more receptive to products which will provide LTCO.

 In order for the supplier to create the LTCOV for a specific product in a specific process he will first need: 

·         Information about the plant process

·         Performances of competitive products in that process

·         Relevant general factors such as cost of electricity, weather and geography.

·         Relevant customer factors such as production cycles, financial criteria and personnel capabilities

If the supplier has a product which is proven in a similar process, then it is valuable to establish the similarities and differences between the two processes. This is particularly relevant if:

·         This is a new product and only used to date in the other process

·         The severity and criticality of the other process is similar to the given process.

INNOVATION: Innovation will be more important in the new market environment. The reason is that customers have the process management systems and data analytics to analyze the new product potential.  They already will have documented the short comings of existing products and processes.

This new and better innovation must be validated for each application. This requires a high level of process and product knowledge to first develop the product and then to communicate that knowledge convincingly.

EXAMPLES: Here is the way some companies are gaining and communicating this knowledge. 

PRIMEX:  This company has been involved with dry scrubbing systems for coal-fired boilers for decades. They helped create the Dry Scrubbers Users Group (DSUA) and are very active in the annual conference. They consult for several NAES power plants and have access to the continuous process management data supplied by the OSIsoft systems.

They are analyzing the performance of all the components. Because of their extensive experience they have recommended changes which have greatly improved operations.

The bag design was causing some problems. Primex patented a modification and then licensed this patent to the bag manufacturers. At the latest conference, there was a good sharing of information among suppliers and users relative to the control valve washing protocol. Primex will be able to incorporate this knowledge into their advisory service.

McIlvaine has proposed to the DSUA and to Primex that the McIlvaine “Dry Scrubber Decision Guide” be used to create an ongoing decision system on dry scrubber components and processes.  This would provide currency and organization to the overall effort and provide the four knowledge needs: Alerts, Answers, Analysis and Advancement.

MOGAS:  This valve manufacturer and severe service technology company organizes a biennial conference on autoclaves for extraction of metals from ores. Ekato, an agitator supplier, Koch-Knight who furnishes autoclave components, NobelClad, a supplier of explosively clad alloys, and Caldera, a consultant specializing in extraction are co-sponsors.

MOGAS has captured a large share of the severe service valve market for these applications. Their process knowledge and innovative engineering philosophy have resulted in special valve designs with unique coatings to reduce corrosion and erosion.

There are similar applications with larger markets. One is tight oil including oil sands and shale. Another is the power plant FGD where Ekato is the leading supplier of agitators. Scaling is a problem in both applications. Improved valve and agitator designs for one market can be applied to others.

The bi-annual autoclave conference has spurred innovation. Wouldn’t on-going decision systems on this subject be a logical next step forward? Application oriented decision systems can be supplemented by product-oriented systems such as valve decisions for severe service slurry valves: or “agitators for abrasive and corrosive applications”.

HRSGS USERS GROUP:  The organizers of this bi annual conference and McIlvaine are ready to help suppliers organize decision systems around HRSG products. There is already a good start with a decision guide on HRSG valves. The next step is to identify suppliers willing to support this effort.

The sea change in the CFT markets will require major adjustments by the suppliers. Those who follow the Apple rather than Eastman Kodak example will be able to navigate the route to maximum ROI and profits. Details on the 5-step business program are provided at www.mcilvainecompany.com.

Coal-fired Boiler Repair and Replace Market Greatly Exceeds Repair and Replace Market for Other Generation Sources

Coal-fired power capacity in the world will only be growing at one percent but there is a huge replace and repair market which will continue to exceed that of other generation sources.  Manufacturers of consumables will find that 99 percent of their market is at existing plants while suppliers of valves, pumps and compressors will find that the market at existing plants is ten times larger than for new plants.  This is based on a product life of 10 years.  So, 10 percent of the products will be replaced each year compared to an equivalent of only one percent which will be sold for new plants.

This high ratio of replace to new requires an adjustment in sales strategy.  Most suppliers rely on sales leads rather than targeted efforts.  The replace market is predictable and needs to be addressed by targeted efforts months in advance of any order. Most large coal fired boiler operators are embracing IIoT and data analytics.  This gives them the ability to make purchases based on lowest total cost of ownership.  Fewer than 200 coal fired utilities will buy most of the replacement equipment. Profiles and plans for each of these utilities are included in the 42EI Utility Tracking System.

Utilities replace entire boiler systems rarely if ever. By contrast new dust collector bags are purchased every two years and treatment chemicals are purchased continuously.  So, the treatment chemicals market is 99 percent base on existing plants and only one percent for new plants.

The replacement market is much more predictable.  The market for air pollution control systems can vary by 1000 percent from one year to the next whereas the market for consumables only fluctuates by a few percent a year.

The advent of IIoT and the power of the Industrial Internet of Wisdom to help utilities make better choices along with the concentration of purchasing among 200 utilities is causing a sea change in the market.

The projects and profiles relative to the 200 top utilities is found in the 42EI Utility Tracking System.

A 5-step business program to navigate the sea change is discussed at www.mcilvainecompany.com.

INDUSTRY NEWS

Babcock & Wilcox (BW) Amends Rights Offering, Withdraws 2018 Guidance for Renewable Segment

This week Babcock & Wilcox provided an investor update and announced that it amended the terms of and extended the expiration date for its pending common stock rights offering.

Rights Offering

B&W has amended its rights offering to: 

·         Increase its size to $248 million;

·         Lower the per share subscription price from $3.00 to $2.00;

·         Increase the number of shares issuable per right to 2.8 from 1.4; and

·         Extend the expiration date from April 10, 2018 to April 30, 2018.

Vintage Capital Management LLC has agreed to increase its backstop of the rights to $245 million.

Effective March 21, 2018, B&W appointed Robert M. Caruso, a Managing Director of Alvarez & Marsal North America, LLC, to serve as Chief Implementation Officer, reporting directly to B&W’s board of directors. Mr. Caruso will work in tandem with B&W’s Chief Executive Officer, Leslie C. Kass, and his duties include assisting management in reviewing strategic options, developing the five-year business plan, identifying opportunities for cost savings initiatives, evaluating B&W’s cash flow forecast, and analyzing uses of working capital.

Jenny L. Apker, B&W’s Chief Financial Officer, has informed B&W that she will retire as CFO on June 1, 2018 for health-related reasons. Ms. Apker is expected to continue to work with B&W as a non-executive employee until August 31, 2018 to assist in the CFO transition. Joel K. Mostrom, a Senior Director of Alvarez & Marsal North America, LLC, will assume the role of interim CFO on June 1, 2018. B&W expects to begin a search for a permanent CFO in the second half of this year.

The 1^st Quarter Update and 2018 Outlook — As B&W has worked to progress its Renewable energy projects in Europe, management, with review from the Chief Implementation Officer, preliminarily identified approximately $51 million of additional estimated costs to complete the projects. The largest portion of the additional estimated costs are related to the project with the previously announced steel beam failure.

The status of B&W’s six Renewable energy projects as of March 31, 2018 is as follows: 

·         The first project, a waste-to-energy plant in Denmark, is estimated to be 97 percent complete and is targeted to be completed by mid-2018

·         The second project, a biomass plant in the United Kingdom, is estimated to be 86 percent complete and is targeted to be completed by mid-2018

·         The third project, a biomass plant in Denmark, is estimated to be 98 percent complete and is targeted to be completed by mid-2018

·         The fourth project, a biomass plant in the United Kingdom, is estimated to be 88 percent complete and is targeted to be completed by mid-2018

·         The fifth project, a biomass plant in the United Kingdom, is estimated to be 61 percent complete and is targeted to be completed by late 2018

·         The sixth project, a waste-to-energy plant in the United Kingdom, is estimated to be 81 percent complete and is targeted to be completed by the second half of 2018

B&W intends to seek not only insurance recoveries, but also plans to seek additional relief from its customers and will pursue other claims where appropriate and available. There can be no assurance as to recovery amounts that B&W may realize. The $51 million of additional renewable project costs do not take into account any potential recoveries to mitigate these losses.

In B&W’s Power and Industrial segments, performance through 1^st quarter 2018 has been largely as anticipated, and B&W is reiterating its previous guidance for these segments:

·         Power: revenue down 5 percent to flat compared to 2017; gross margin approximately 20 percent

·         Industrial: revenue up 14 percent to 19 percent compared to 2017; gross margin approaching 20 percent

Given the additional costs discussed above, B&W is withdrawing its 2018 guidance for the Renewable segment and is updating its 2018 consolidated adjusted EBITDA guidance to a range of $20 million to $40 million. Beginning with the release of its 1^st quarter 2018 results, the company will provide segment level EBITDA that will allow investors to better assess segment performance.

As of March 31, 2018, B&W had estimated cash and cash equivalents, net of restricted cash, of $37 million and $177 million outstanding under its revolving credit facilities. Upon completion of the rights offering, B&W expects its cash and cash equivalents, cash flows from operations, proceeds from asset sales and its borrowing capacity under the bank credit facility will be sufficient to meet its liquidity needs for at least the next 12 months.

Strategic Alternatives

B&W continues to make progress with the possible divestitures of its MEGTEC and Universal businesses. In addition, the Company continues to evaluate potential options regarding non-core assets.

The DowDupont Recommendations for Advanced Manufacturing and McIlvaine Thoughts on IIoT and IIoW

Andrew Liveris is the Executive Chairman of DowDuPont, a $73-billion holding company (the two giant chemical companies merged in September). Mr. Liveris will relinquish the role of executive chairman of the combined company April 1. Co-lead director Jeff Fettig will assume that role at the company.

The McIlvaine Company has consulted for Dupont and Dow periodically over the entire 44 years since incorporation. Some of the consulting has been technical including provision of a test scrubber to better measure performance. Marketing advice has been provided for RO membranes, Teflon gloves, Tyvek garments, the larger water market and the potential for amine scrubbing and sulfuric acid production for the power industry. One assignment relative to water markets addressed the Dow U.S. versus international capability. Therefore, we read with interest the recent comments of Mr. Liveris on this subject.

Liveris is the author of Make It in America:  The Case for Reinventing the Economy, in which he writes that America’s economic growth and prosperity depends upon a strong manufacturing sector. According to Liveris, there is a widespread lack of understanding among the public of what today’s manufacturing — which he referred to as advanced manufacturing — actually consists of. (Definitions vary, but the OECD defines advanced manufacturing technology as computer-controlled or micro-electronics-based equipment used to make products.) Liveris stated, “We are generating a new wave of technology to generate a knowledge economy. And a knowledge economy will need things made. They’ll just be made differently.”

Advanced manufacturing might include making smartphones, solar cells for roofs, batteries for hybrid cars, or innovative wind turbines. Liveris said he had visited a DowDuPont factory the previous week that is working on advanced compasses to enable wind turbines with blades the size of football fields. The goal is to produce blades light and efficient enough to make wind power a viable reality. “That’s technology. That’s advanced manufacturing,” he said.

Liveris said that 7.5 million technology jobs left America between 2008 and 2016 because the country wasn’t supplying appropriate candidates. The reaction of many businesses was to re-locate to “the Chinas, the Indias, and the places that were supplying that sort of skill.” In the United States right now, he said, there are half a million technology jobs open, but American educational institutions are only graduating roughly between 50,000 and 70,000 candidates per year, so there’s a “massive under-supply.” In the next three years, there will be 3.5 million jobs created, and Liveris said the U.S. might only be able to fill about 1.5 million of them through a combination of graduation and immigration. “Unless immigration is fooled with, which is a whole other issue.”

According to Liveris, a critical reason for America to revive its manufacturing sector is to promote innovation. “Something that we at Dow and many of us in manufacturing know: If you have the shop floor, if you make things, you have the prototype for the next thing, so you can innovate.” Conversely, if you stop making those things, your R&D diminishes dramatically, he said.

Liveris called advanced manufacturing “the best path for the United States” and said, “We’re so naturally suited for it if we’d just get the policies to help us.”

A big proponent of STEM education, Liveris said that American schools are not graduating the workers we need. “We have convinced ourselves that a four-year college degree of the skills we used to have in the last century is what we should still keep producing.” He said that re-tooling American education needs to happen immediately, with STEM education incorporated at every level including elementary school. STEM is a curriculum based on the idea of educating students in four specific disciplines — science, technology, engineering and mathematics — in an interdisciplinary and applied approach.

Why the Industrial Internet of Wisdom should be a major factor in STEM and advanced manufacturing.

During much of the period when McIlvaine was consulting for Dow Midland there were accelerated retirements and other methods to cope with the shift of a good percentage of production to overseas locations. The retiring people typically were the most experienced. 

The concept of the Internet of Wisdom to empower IIoT includes connecting knowledge and people. It involves knowledge systems led by not just subject matter experts (SMEs) but subject matter ultra-experts who continually learn as they help improve the decision systems and guide the users. In this manner you retain the services of the senior people and with the construction of the decision system ensure that their knowledge will not be lost.

The McIlvaine IIoT and Remote O&M service champions the use of SMUEs to be a third-tier source of wisdom in the monitoring of all the combust, flow and treat components. They are available in crises and through cloud access can be instantly provided with necessary details. Their work on the decision systems will result in guidance by the operators in the developing countries and ensure that the crises are kept to a minimum.

Mr. Liveris makes a very good point about building advanced manufacturing in the U.S. However, the more basic products made by Dow/Dupont need to be produced near to the end markets. The development of Dow subject matter experts and decision systems will generate a number of high level jobs in the U.S. This can be in addition to the STEM-trained personnel who will be working in advanced manufacturing. Many aspects of the more basic STEM program can also be enhanced by some access to the decision systems.

Is 3M Leading the Way to IIoT for Industrial Filter Suppliers?

3M is now remotely monitoring and replacing $22-furnace filters with use of a blue tooth enabled pressure sensor.  We are reporting on this development and then commenting (see material in red) relative to the opportunity for suppliers of dust cartridges, commercial HVAC filters, liquid cartridges and cross flow membranes.

Filtrete™ Smart Air Filters, the first-ever Bluetooth^®-enabled HVAC air filters for the home, are now integrated with Amazon Dash Replenishment to automatically reorder air filters when they need replacing. Filtrete Smart Air Filters are available for purchase on Amazon.com and at participating retailers nationwide.

Suppliers of replacement industrial filters are seeking new ways to reach their customers.  You can find filters through general E-commerce sites such as Grainger or more specialized sites such as Harrington Industrial Plastics or even the Nalco site. However, the supplier is providing a discount to the E-commerce site. With direct automatic reordering the filter supplier has higher filter margins and can also generate sensor and software revenues.

Filtrete Smart Air Filters, paired with the Filtrete™ Smart App and Dash Replenishment, take the guesswork out of when to change your air filters and what size and type to purchase. The filters contain a Bluetooth^®-enabled pressure sensor that, when paired with the app, allows customers to track filter life based on airflow and usage, not just time. Dash Replenishment automatically reorders new filters and delivers them right to your door when you need them.

The knowledge about furnace filters is well known but many industrial applications are very complex. If the filter supplier acquires deep knowledge about the process they can provide very valuable filter management decision making through data analytics.

“We know it is incredibly common for people to forget details about their air filters such as size, type, and the best time to replace filters, so it was important for us to create a simplified and streamlined product experience for consumers,” said Patrick Hiner, New Product Marketing Manager, Filtrete™ Brand. “Many people understand that as a filter’s effectiveness diminishes from use, airflow can be restricted and impact the home’s indoor air quality. Integrating Filtrete Smart Air Filters with Dash Replenishment is a smart and easy way to help manage a filter’s lifecycle, so air filters are changed when they need to be – not too early and not too late.”

To get started, customers simply set up Dash Replenishment through the Filtrete Smart App using their Amazon account credentials. The Filtrete Smart App tracks filter lifespan, type and size, and Dash Replenishment will automatically reorder the correct product when the life of their filter reaches 10 percent. Dash Replenishment enables connected devices to automatically reorder goods from Amazon whenever supplies are running low. For more information, visit: https://www.amazon.com/dash-replenishment.

The industrial filter supplier has the opportunity to provide the filters on a yearly contractual basis. He eliminates administrative cost for the customer and can increase margins and revenue. One option is a variable cost contract which is based on the number of filters needed throughout the year.

Another option is an O&M contract for a fixed amount. The supplier takes on the responsibility of minimizing filter usage through continuously monitoring conditions and advising the operator of needed changes in the operation to avoid premature filter failure. If the supplier does not have complete control it is better to structure this type of contract under a “shared savings” basis. The present yearly filter cost is the benchmark. The filter savings in a subsequent year is shared between supplier and customer. This provides a very big profit potential for the supplier and lowest total cost of ownership for the customer.

The Filtrete Smart App also provides data on outside air quality and gives other useful tips for helping to improve indoor air quality. Users can decide how much interaction they have with the Filtrete Smart App by opting into specific smartphone notifications. The app can also pair with compatible indoor air quality monitors to provide real-time indoor air quality readings. (Monitors sold separately.)

Many filter suppliers are divisions of larger companies who can leverage the filter opportunity to sell complete integrated O&M systems with process control management packages including edge computer analytics. Nalco operates a 24-7 remote monitoring center to control treatment chemicals.  It also sells Pall membrane filters on its E-commerce site. Alternatively, it could monitor these filters and replace them as needed.

Danaher may want to capture this membrane filter revenue itself.  It has the Chemtreat line of treatment chemicals to compete with Nalco. It also owns Hach and supplies all the analyzer technology. It purchased Pall several years ago. It is targeting IIoT and can leverage this activity.

Nederman has acquired Auburn who makes broken bag detectors. It is has also acquired NEO Monitors who makes TDLS analyzers.  We have been conducting webinars on the use of TDLS for optimizing combustion in coal fired boilers as well as many other applications where instant and accurate sensing of H₂O, H₂S, CO₂, NH₃ and C₂H₂ is required. Nederman supplies complete dust collection and mist elimination packages with extraction hoods as well as contaminant removal.  Control of air flow through ducts and hoods to minimize dust escape around the hoods while also minimizing air flow and energy consumption can result in huge savings for the customer. Nederman has a digital initiative and is very likely to be pursuing this opportunity.

Parker Hannifin has acquired Clarcor and its Total Solutions division. This group supplies all the filters for automotive and other industrial plants. It buys competitor filters as requested by the customer and eliminates all the administrative costs of buying thousands of filters from many sources.  Parker Hannifin has all the controls and software to supply complete IIoT and Remote O&M packages. So, it could easily monitor every filter and replace as needed.

Eaton is another company which has it all. They make a number of different filter types. In certain industries such as food they have a variety of products such as adsorbers and other purification products which are important to the quality of the end product. They have all the electronics and software to supply complete packages to reduce costs and improve product quality.

3M is leading the way. Industrial filter manufacturers should realize that the train is leaving the station.  McIlvaine conducts monthly webinars on the use of IIoT in different industries.  Rio Tinto is moving toward the mine of the future where ore is extracted in central Australia and transported to the sea cost terminal with no human operators.  BASF in Germany has standardized on OSIsoft, Samson valves and E+H instrumentation for all its plants around the world (McIlvaine has a 150-slide presentation just on these opportunities at 100 BASF plants) Arcelor Mittal is making substantial reductions in the operating cost of making steel around the world with centralized purchasing and extensive total cost of ownership analyses.

So, a filter supplier who is not yet even on the train platform would be well served to accelerate his pace and make sure he is not left behind.

Information on the IIoT and Remote O&M service is shown at N031 Industrial IOT and Remote O&M.

Details on the complete business program are shown at www.mcilvainecompany.com.

Turkey has Major Coal-fired Power Plant Initiative

Two years ago in 2016, the government announced an ambitious development strategy known as Vision 2023 (Hedef 2023 in Turkish), with the primary goal of making Turkey one of the world’s ten biggest economies by 2023, coinciding with the Turkish Republic’s 100^th anniversary. Part of this strategy includes plans for enhancing domestic energy capacity to reduce dependence on imported energy sources such as oil, natural gas, and anthracite coal (“hard coal”) due to the considerable and adverse impact foreign energy dependency has had on Turkey’s current account deficit, a notorious economic indicator in Turkish business circles. With that in mind, the government has identified lignite coal (“brown coal”) privatization as the next tool towards achieving energy independence.

Although estimates can vary based on the source and the calculation methodology, Turkey is estimated to have total coal reserves of approximatively 8.7 billion tons. However, hard coal, which has a higher calorific value, accounts for only about 0.3 billion tons, whereas brown coal, which has a lower calorific value, makes up the approximately 8.4-billion ton remainder. Since brown coal is the most abundant indigenous fossil energy resource, lignite coal reserves are crucial for an independent energy policy in Turkey, and the government is making serious efforts to expand the use of lignite coal-fired power plants across the country.

Turkey’s Ministry of Energy and Natural Resources announced the initiation of a privatization process for local lignite coal resources about a year ago. The Privatization Administration kicked-off preparations for this privatization with the transfer of operational rights for certain lignite coal areas, with the ultimate intent of privatizing all lignite coal assets owned by the national electricity generation company, Elektrik Üretim Anonim Şirketi (“EUAŞ”) and its subsidiaries. The purpose of the privatization is to establish lignite coal-fired power plants in those areas in an attempt to boost domestic energy generation to meet the rising demand. The privatization of the Çayırhan Coal Reserves, which was completed in 2017, will pioneer the tender initiative, and five lignite coal areas are expected to follow:  (i) Trakya (Çerkezköy ve Çatalca), (ii) Eskişehir Alpu (iii) Kırklareli Vize, (iv) Afyon Dinar, and (v) Konya Karapınar. In addition, four more lignite coal areas including Afşin Elbistan C-D-E sectors will most likely be included in the privatization program, albeit they have not yet been officially announced.

In total, Turkish coal-fired power plants have an installed capacity of approximately 15,200 MW (20.6 percent of total capacity). Hard coal-fired power plant installed capacity is 7000 MW (8.8 percent) and the installed capacity using domestic lignite is 9000 MW (11.8 percent). Turkey has embarked on an ambitious program to build new power plants, some with the latest supercritical and circulating fluidized bed boiler technologies to burn mainly lignite and imported coal:  Izdemir Enerji (350 MW), ICDAS Elektrik (600 MW) and Atlas Enerji (600 MW) started operations in 2014; Tufanbeyli Enerjisa (300 MW), Silopi (270 MW) and Bolu-Göynük 1 (135 MW) started operation in 2015; and Bolu-Göynük 2 (135 MW) started operation in 2016. All new power plants must comply with the EU Large Combustion Plants Directive (2001/80/EC).

Another 7000 MW of coal-fired power plants are under construction, this being the largest such construction program outside China and India. In 2015 alone, the Turkish government approved the construction of three new coal-fired power plants, that will increase capacity by 2480 MW: Filiz Enerji was given approval for a 1200-MW coal-fired power plant in Canakkale on the Aegean coast; Atakaş Energy received approval for a 680-MW power plant at İskenderun on the Mediterranean coast; and IC İçtaş Energy has permission for a 600-MW power plant near the city of Adana in the south of the country. In 2016, Tosyalı Electricity received approval for another 1200-MW power plant at İskenderun.

In line with the government’s plans, 90 coal-fired power plant projects are under construction to produce an additional 18,500 MW installed power capacity by 2023.

CECO Environmental Corp. Reports Disappointing Results Due to Challenging End Markets – Refreshed Operating Strategy Gaining Momentum in 2018

CECO’s Chief Executive Officer Dennis Sadlowski commented, “In the 4^th quarter of 2017, we accelerated actions behind our previously communicated refreshed operating strategy. We implemented a restructuring program to reduce costs, began to refocus our portfolio including exiting non-core and low critical mass areas and are investing in our core segments to accelerate growth. Despite ongoing market challenges that reduced volume and generated disappointing financial results, we have maintained solid gross margins and with a refreshed outside-in approach to our business, picked up key wins and increased bookings quarter over quarter. Our book to bill ratio exceeded 1:1 for the first time in seven quarters representing an inflection point for the company.”

Mr. Sadlowski added, “Heading into 2018, we have already moved swiftly with the clarity of our strategy to transform the business to win market share and make an impact on our customers and the world in which we live. We demonstrated our commitment to our new strategy through the initial actions on our non-core asset sales and investments in simplification and production machinery. We will continue to invest in our growth platforms and major account relationships with key customers around the world to ensure the company is best-positioned as markets begin to rebound.”

Here are the Highlights of the 4^th Quarter 2017 report. 

·         Revenue of $73.5 million, compared with $100.0 million

·         Gross profit of $25.6 million (34.8 percent margin), compared with $35.7 million (35.7 percent margin)

·         Non-GAAP gross profit of $25.7 million (35.0 percent margin), compared with $35.8 million (35.8 percent margin)

·         Operating loss of $(8.2) million, compared with a $(50.4) million loss

·         Non-GAAP operating income of $3.5 million, compared with $14.7 million

·         Net loss of $(11.6) million, compared with a $(51.2) million loss

·         Non-GAAP net loss of $(1.7) million, compared with non-GAAP net income of $12.0 million

·         Net loss per diluted share of $(0.34), compared with $(1.49) loss per diluted share

·         Non-GAAP net (loss)/income per diluted share of $(0.05), compared with $0.35

·         Adjusted EBITDA of $4.9 million, compared with $16.3 million

·         Bookings of $91.4 million, compared with $77.7 million

·         Backlog of $168.9 million

Full-Year 2017 Highlights 

·         Revenue of $345.1 million, down $71.9 million

·         Gross profit of $113.2 million, down $21.7 million

·         Gross margin of 32.8 percent, up 40 basis points

·         Net loss of $(3.0) million, or $(0.09) loss per share

·         Non-GAAP net income of $9.5 million, or $0.27 per diluted share

·         Adjusted EBITDA of $34.5 million

Revenue in the 4^th quarter of 2017 was $73.5 million, down 26.5 percent from $100.0 million in the prior-year period.

Operating loss was $8.2 million for the 4^th quarter of 2017, compared with a $50.4 million operating loss in the prior-year period.  Non-GAAP operating income was $3.5 million (4.8 percent margin) for the 4^th quarter of 2017, compared with $14.7 million (14.7 percent margin) in the prior-year period.

Net loss was $11.6 million for the 4^th quarter of 2017, compared with a $51.2 million net loss in the prior-year period. Non-GAAP net loss was $1.7 million for the 4^th quarter of 2017, compared with non-GAAP net income of $12.0 million in the prior-year period.

Net loss per diluted share was $0.34 for the 4^th quarter of 2017, compared with net loss per diluted share of $1.49 in the prior-year period. Non-GAAP net loss per diluted share was $0.05 for the 4^th quarter of 2017, compared with non-GAAP net income per diluted share of $0.35 for the prior-year period.

Cash and cash equivalents were $29.9 million and bank debt was $117.7 million, as of December 31, 2017, compared with $45.8 million and $126.4 million, respectively, as of December 31, 2016.

Total backlog at December 31, 2017 was $168.9 million as compared with $197.0 million on December 31, 2016 and $153.9 million as of September 30, 2017.

Bookings were $91.4 million for the 4^th quarter of 2017, compared with $77.7 million in the prior-year period and $71.0 in the 3^rd quarter of 2017. Bookings were $333.6 million for the year of 2017 as compared with $402.8 million for the prior-year period.

Revenue in the year of 2017 was $345.1 million, down 17.2 percent from $417.0 million in the prior-year period.

Operating income was $8.0 million for the year 2017, compared with an operating loss of $25.6 million in the prior-year period. Non-GAAP operating income was $28.3 million for the year 2017, compared with $52.7 million in the prior-year period.

Net loss was $3.0 million for the year 2017, compared with a net loss of $38.2 million in the prior-year period. Non-GAAP net income was $9.5 million for the year 2017, compared with $33.5 million in the prior-year period.

Net loss per diluted share was $0.09 for the year 2017, compared with net loss per diluted share of $1.12 in the prior-year period. Non-GAAP net income per diluted share was $0.27 for the year 2017, compared with $0.99 for the prior-year period.

Guodian is Now the Largest FGD and SCR Supplier

Wang Dawei 王大卫 Senior Manager – Oversea Beijing Guodian Longyuan Environmental – gave us the latest totals on their FGD and SCR projects.

They now have 220 GW of FGD and 140 GW of SCR. In his correspondence with Wang, Bob McIlvaine reflected on the strange path of FGD over the years.

“I was President of Environeering in 1968 when my company designed and built the first limestone FGD scrubber and with our partner, Combustion Engineering, installed the system at Union Electric Merrimac Station. Here we are 40 years later and Combustion Engineering no longer exists (GE) nor does Environeering (Babcock) and Guodian is now the leading supplier of FGD. Who could have predicted this at that time?”

Here are some GDTE International projects:

• Turkey ErenEnerji Zetes Phase Three 2×660-MW power plant adopts limestone-gypsum wet FGD technology. The FGD system is designed and put into operation by GDTE.

• Sri Lanka Puttalam Lakvijaya 3×300-MW coal-fired power plant is the largest power plant in Sri Lanka, and is EPC constructed by CMEC. The whole FGD system is designed by GDTE.

• Philippines Mariveles 2×300-MW coal-fired power plant, owned by GNPower, executed by China National Electric Engineering Co. (CNEEC). GDTE designed Seawater FGD for two units.

• Hong Kong Lamma power plant Unit 2, 4 and 5 FGD EPC project was the first EPC contract out of mainland China. The project was put into operation in April 2010. FGD efficiency reaches 95 percent.

The company has a complete set of core technologies for catalyst production, engineering application, recycling and regeneration that are equal or superior to the imported products in activity of denitrification, oxidation rate of sulfur dioxide, recovery rate of regenerated activity and other indices. So it is in a good position to provide continuing service to the purchasers of its DeNOx systems

It offers a variety of FGD designs including the limestone–gypsum, amine, ammonia, and seawater systems.

The company is one of the first enterprises engaged in research, development and application of bag filters for thermal power plants in China. The bag filter is especially designed for treatment of flue gas from boilers in the thermal power plants, which is featured as large filtering area, good effect of ash removal, low ash handing frequency, high efficiency of dust removal, lower energy consumption and little maintenance, and successfully applied to dust removal of boilers in several large-size coal-fired power plants.

Wet Precipitators — GDTE has successfully developed a new type of wet electrostatic precipitator [WESP]. Based on the dedusting and demisting principles of flue gas cooling and condensation, flat-plate WESP and mechanical demister, this equipment is able to effectively handle PM_2.5 ultrafine dust, heavy metal and organic combined pollutants of coal-fired power plants.

Shenhu and Guodian have merged to create the world’s largest supplier of coal as well as the world’s largest operator of coal-fired power plants.

Lydall Reports Improved Sales and Margins in the 4^th Quarter 2017 and Sales for of $700 million

Net sales increased by $33.8 million, or 23.5 percent, to $178.0 million, compared to $144.2 million in the 4^th quarter of 2016. The Technical Nonwovens ("TNW") segment reported increased net sales of $25.6 million, including $14.2 million from the December 31, 2016, acquisition of Gutsche. TNW’s organic sales growth was 21.4 percent, led by advanced materials sales in North America, as well as, increased demand for industrial filtration products, particularly in China and Europe. The Thermal/Acoustical Metals ("T/A Metals") segment realized organic sales growth of 10.6 percent led by international operations. The Performance Materials ("PM") segment reported organic sales growth of 8.8 percent, primarily due to improved filtration demand in the fluid power market. The Thermal/Acoustical Fibers ("T/A Fibers") segment reported 0.8 percent organic growth as increased volume of 3.6 percent was partially offset by lower customer pricing. Foreign currency translation increased net sales by $4.7 million, or 3.3 percent, in the 4^th quarter of 2017.4t

Gross margin and adjusted gross margin were 22.1 percent and 22.2 percent, respectively, essentially flat with the 4^th quarter of 2016. Improved performance in the TNW segment was primarily offset by the T/A Fibers segment. The TNW segment reported improved gross margin from the inclusion of the acquired Gutsche business as well as from lower raw material and overhead expenses at the other TNW segment operations, while the T/A Fibers segment negatively impacted consolidated gross margin due to reduced customer pricing on certain parts. The PM and T/A Metals segments had only a marginal impact on consolidated gross margin comparisons. In the T/A Metals segment, improved manufacturing productivity was partially offset by increased commodity prices and lower customer pricing.

Operating margin was 8.7 percent, up 360 basis points from the 4^th quarter of 2016, while adjusted operating margin improved 90 basis points to 9.3 percent. Adjusted operating margin in the 4^th quarter of 2017 included the add-back of $1.0 million of expenses, including $0.5 million from the T/A Metals and T/A Fibers consolidation. Adjusted operating margin in the 4^th quarter $4.9 million of expenses, including $3.5 million, or 240 basis points, from the German Cartel settlement and $1.1 million, or 70 basis points, of strategic initiative expenses from acquisitions. The overall improvement in operating margin quarter-on-quarter was driven by lower selling, product development and administrative expenses as a percentage of sales of 370 basis points, or approximately 100 basis points on an adjusted basis, due to managed spending coupled with sales growth.

The company's low effective tax rate of 5.3 percent in the 4^th quarter of 2017 was the result of the U.S. Tax Cuts and Jobs Act of 2017 that became law on December 22, 2017. The company recorded a provisional net tax benefit of $3.7 million primarily from the revaluation of its net deferred tax liabilities at December 31, 2017 from a tax rate of 35 percent to 21 percent.  Going forward, the company expects its ordinary effective tax rate in 2018 to be in the range of 19 percent to 21 percent, based on its current evaluation of the tax law change.

Net income was $13.8 million, or $0.80 per diluted share, compared to $4.4 million, or $0.26 per diluted share in the 4^th quarter of 2016. Adjusted earnings per share were $0.67, compared to $0.52 per share in the 4^th quarter of 2016.

For the full year 2017 Net sales were $698.4 million compared to $566.9 million in 2016, including net sales of $87.3 million contributed by acquisitions. Organic sales growth was 7.2 percent, with above market growth in all segments, led by TNW segment organic growth of 16.5 percent. Gross margin was 23.3 percent, a reduction of 110 basis points and adjusted gross margin was 23.6 percent, a decline of 120 basis points from 2016. Operating margin was 9.4 percent and adjusted operating margin was 10.1 percent compared to operating margin of 9.7 percent and adjusted operating margin of 11.3 percent in 2016. Earnings per share in 2017 were $2.85, compared to $2.16 per share in 2016.  Adjusted earnings per share were $2.80 compared to $2.61 in 2016, an increase of 7.3 percent.

Nederman has Strong First Quarter and Makes Progress in IIoT and Remote O&M

The 3M fitrete pressure sensor and blue tooth wireless app is discussed as an example of the future in this newsletter. Nederman is already moving forward with IIoT bolstered by two acquisitions and various digital initiatives

The 1^st quarter 2018 was a good quarter for Nederman. Incoming orders increased organically by 3.7 percent and profitability was strengthened to an operating margin of 7.7 percent (6.4), which bodes well for the rest of the year EMEA saw weak positive organic development in incoming orders and sales during the quarter, with a significant improvement in profitability.

In APAC, the positive development from 2017 continued. Both incoming orders and sales achieved double-digit growth, and profitability was strengthened significantly, compared to the equivalent quarter of 2017. The sustained improvement in profitability is very satisfactory and the company is now working to gradually establish profitability at the level of Nederman's financial goals.

In the U.S, the market is still affected by uncertainty concerning political decisions, resulting in low project sales. Canada's incoming orders were at the level of the equivalent quarter of 2017, while both Brazil and Mexico achieved considerably stronger performance than in the equivalent quarter of 2017.

In 2017 the company established Nederman Insight, in order to develop our customer offering within digital and connected services. The acquisition of Norwegian NEO Monitors was an important stage of this journey and at the beginning of the second quarter we took a further step with the acquisition of the American Auburn FilterSense. This acquisition expands Nederman's expertise to also include effective handling and measurement of dust and other particles, by way of modern solutions, intelligent systems and filter leak detection software.”

•  Incoming order in the 1^st quarter amounted to SEK 781.7 million (731.1), which organically is an increase of 3. percent compared with the same period last year.

• Net sales amounted to SEK 785.8 million (760.6), which organically is an increase of 1.2 percent compared with the same period last year.

• Operating profit was SEK 60.4 million (48.8), giving an operating margin of 7.7 percent (6.4).

• Net profit was SEK 3.,8 million (31.9).

• Earnings per share were SEK 3.15 kr (2.73).

Auburn FilterSense LLC holds several decades of experience and application knowledge from more than 75,000 units and installations sold, bringing technology and support to help customers worldwide reduce emissions and improve operations. The company manufactures continuous particulate monitors incorporating triboelectric and charge induction particulate sensing technologies, intelligent controls, including real-time diagnostics and software for filter leak detectors, for process control, maintenance planning, regulatory compliance and increased production efficiency.  

The acquisition price on a cash and debt free basis, amounting to approximately US$5.75 million, will be paid on completion of the acquisition which was expected to be in early April 2018, with a potential maximum earn-out payment of US$2.5 million based on profitability for 2018 and 2019, and is funded by a combination of cash and existing bank facilities.

Auburn FilterSense LLC, with approximately 30 employees, had a turnover in 2017 of US$6.2 million. The acquired business has an EBITDA margin in line with that of the Nederman Group and is expected to have a positive impact on earnings per share from the date of acquisition completion.

Auburn FilterSense LLC will be part of Nederman’s Insight organization. The Auburn FilterSense LLC brand and team will continue to operate as before and the solutions will become an integrated part of the Nederman Insight application and digital ecosystem, building on connectivity and Internet of Things.

“We are delighted to welcome Auburn FilterSense LLC to our Insight organization and to becoming part of our digital ambitions and plans,” says Aage Snorgaard, Senior Vice President, Head of Division Nederman Insight.

“There is an excellent strategic fit between Nederman and Auburn FilterSense. We see strong complementary value in combining Nederman’s solutions, global presence and customer base and aftermarket services with the technology and advanced capabilities of Auburn FilterSense. With this acquisition, Nederman becomes an even stronger partner for our customers,” says President and CEO, Sven Kristensson.

NEO Monitors is a global pioneer in laser-based solutions for measuring gases and dust across all industries. The company has secured a leading position in all generations of laser-based measurement technologies and has the largest installed base of TDLS analyzers (Tunable Diode Laser Spectrometry), with more than 11,000 instruments installed in over 40 countries. The company’s expertise and engineering capabilities allows for more than 100 different configurations tailored to customer needs, helping global industries to achieve better processes control, decreased operational costs and increased efficiency.

The acquisition price amounts to approximately NOK 402 million on a cash and debt free basis, funded by a combination of cash and existing bank facilities. NEO Monitors AS, with approximately 40 employees, had a turnover in 2016 of NOK 108 million. The acquired business has an EBITDA margin in excess of the Nederman Group and is expected to have a positive impact on earnings per share from the date of acquisition completion.

NEO Monitors will be part of Nederman’s Digital Solutions organization. The NEO Monitor brand and team will continue to operate as before and the solutions will become an integrated part of the Nederman Insight application and digital ecosystem that builds on connectivity and Internet of Things.

Back to Gold Dust Newsletter No. 480 Table of Contents