Rock solid growth Featured

12:00pm EDT January 31, 2006
At first glance, AMCOL International Corp. might look like just another minerals company.

It specializes primarily in bentonite, a rock composed of absorbent clay minerals, which is used heavily by the metal foundry industry.

Rocks and minerals usually equal “commodity” and the flat growth that goes with it. But not at AMCOL. At AMCOL, you hear lots of talk about innovation, new product development, global markets and enhancing value.

If you took out the product references in the company’s communications, you’d think you were reading about a high-tech company in Silicon Valley, not the Arlington Heights-based AMCOL. And that’s just the way Larry Washow, the company’s president and CEO, likes it.

The way he sees it, rocks are just the fuel to throw into the fires of innovation.

“We look at ourselves as a technology company,” says Washow. “We start off with minerals, which is at the core of what we’ve done for 80 years, but what we do with them is unique. We focus on new products and technologies and enhancing what is out there. In our industry, that is pretty unique, and it is what enables us to grow and provide better values for our customers and creative solutions for problems that are out there.”

So what seems like a company where the goal should be to sell one more truckload today than yesterday is instead a company where the goal is to find one more solution to a market problem using the company’s core products.

By applying innovative thinking to a basic product and the markets it can be used in, Washow has seen steady growth since taking over as CEO of the $450 million company in 2000.

“We continue to evolve into new and better products in areas where our competitors either can’t or won’t do,” says Washow. “A lot of the way to do that is patenting a unique or novel process. I’ve lost track of the number of patents we have out there, but to me, the number of patents you have is an indication of how different you are than a guy just selling minerals.”

Creating innovation
Innovation costs money. Whether you are talking about coming up with new applications for existing products or inventing entirely new ones, a commitment to funding is vital.

Washow says AMCOL will spend between $5 million and $6 million on research and development this year, and he expects that number to climb in the future. And not only do you have to pay for innovation, you have to pay for the unavoidable failures that come with experimenting with new ideas.

“There are some elements of R&D where we will look back and say, ‘That was pretty silly and it didn’t work,’ but so what? A couple of things did work. You have to recognize there will be some failures, but I don’t think we have ever had any where we didn’t come away with something.”

The bulk of what AMCOL does in innovation is enhancing products it already has by finding new ways to manipulate the base minerals or simply finding new markets to apply its processes to.

For example, the company’s single largest market is the metal casting industry. Bentonite is used as a binder that holds the silica sand together that makes the molds. In terms of application, the market has not changed much in the last 100 years.

“Our knowledge of the market, current foundry techniques and advanced practices to better reduce scrap or make better molds is state-of-the-art,” says Washow. “We are not going to replace something that has been in use for more than 100 years, but our guys in the field might ask about doing something to help a customer get a better finish on a casting or improving a binder performance in an application. A lot of what we do is enhancing products.”

In some cases, it’s just a matter of searching the market for new opportunities for what you already have. AMCOL had been working on different bentonite materials used in waterproofing applications for years. Some years ago, the company realized it could use the same basic ideas to create liners for landfills.

“What started off as an interesting application and some creative technology is now seven plants making materials for markets all over the world,” says Washow. “It’s not just for landfills anymore but lots of other environmental operations.”

In other cases, you have to look for acquisition opportunities that will give you entry into a new market. AMCOL bought a company in the United Kingdom about three-and-a-half years ago that uses bentonite primarily in detergents.

“It was a market we had never gotten into,” says Washow. “They had a good business base and reputation in Europe and good technology. We bought the company, added some technical capability in terms of some scientists, some product improvements and development work.

“In that case, we didn’t invent an original idea, but not having been in the market, we thought the best approach would be to find a player already there. We were able to take advantage of their learning, add our own learnings, and today, we have a nice business. In the next couple years, it will be a nice global business that started from a reasonable but modest U.K. starting point.”

AMCOL gets most of its direction for new products directly from market needs, but the innovative thinking stretches outside the boundaries you would expect a minerals-based company to have.

For example, the company has been testing nano bentonites that demonstrate anti-viral properties.

“We speculated that with the nature of viruses, there could be a situation where bentonite in the right environment could grab and arrest the virus,” says Washow. “It turns out this was the case. This came about from someone thinking about the issues of AIDS and avian flu. Is there anything we can do with our material that might have an application in a critically important market?

“It’s an illustration where we got really creative and how we get new applications in high technology. You won’t see this reflected in our sales numbers today or tomorrow, but it’s a good example of where we’re pretty excited about spending money today on applications or products that won’t generate results for several years. I really don’t think you’ll find our competitors trying to follow us.”

The ideas for these innovative applications typically come directly from the people in the field. Washow says he relies on AMCOL’s technically trained employees to generate new ideas.

“It’s one of those things where we have experienced people in sales and marketing who are technically trained and who can go out there with a good base of knowledge of what types of things might be interesting and come back with ideas of problems we can solve,” says Washow. “They’ll say, ‘We have an opportunity to do something here, but we don’t have a product. Can we help create a product to solve a problem?’ A lot of questions come back that way.”

Washow says that AMCOL’s long-standing culture of innovation and risk tolerance encourages people to continually offer ideas for new products or solutions.

“We don’t have a formula,” he says. “There is not a way to write it down and say, ‘This is where ideas come from.’ It’s frustrating, because we get a lot of great ideas, but we always want more. You can’t force people to be creative, yet we’re very fortunate that we have smart people with very smart ideas who are observant and can recognize opportunities.”

When ideas for new products are generated, most get filtered at a low level in the company. The market group will typically determine with the lab whether it is technically feasible to produce the product without any formal involvement from corporate.

“There is a process that if there is some significant opportunity that requires a lot of research and commitment to resources in terms of time or people, or requires a global involvement from people, then that opportunity will get more corporate involvement to keep the plan moving,” says Washow. “But most ideas are really handled among the sales groups, operations and the R&D group.”

Innovative markets
AMCOL has 50 facilities in 16 countries in Asia, Australia, Europe and North America. Part of this global strategy is just making sure there is a local presence to supply AMCOL products to a local market. But it also plays into fueling innovation and finding new markets and applications for existing products.

“The needs in Poland are different than the needs in China, yet when you look at creating products, there are applications in the U.S. that can be served with those same products as well,” says Washow.

With much of its business in metal casting, Washow needs to make sure AMCOL is located in markets where that industry is growing if he wants AMCOL to grow with it.

“The metal casting market (in the United States) is probably not shrinking, but growth would at best be a GDP-type of thing,” says Washow. “In China, the growth is more dynamic. The foundry market there is bigger than in the U.S. The opportunity there is huge.”

If AMCOL isn’t in growth markets, it won’t be able to maximize opportunities to generate the solutions customers need.

Washow is also trying to balance the company’s ideas between industrial and consumer applications. The acquisition of the U.K.-based detergent company was one way it is diversifying, and future acquisitions will help the company reach the 50-50 mix Washow would like to see.

“The consumer market is less cyclical in the overall economic cycles than some of the industrial areas we are in,” says Washow. “Certainly when we look at acquisitions, ideally, we would like to find things that will allow us to continue to expand our consumer portfolio.”

Innovation is applied with the same fervor on the consumer side as it is on the industrial side. For example, AMCOL has a strong presence in the cat litter market. And even something as mundane as cat litter has had innovation applied to it.

“We interestingly invented scoopable or clumpable cat litter,” says Washow. “It’s 100 percent bentonite. It hadn’t been used at all before the late ’80s in cat litter. Now it’s a substantial part of the whole category.”

Not limiting himself or his employees to traditional thinking has led to continued growth for AMCOL. Net sales increased from $305 million to $459 million between 2002 and 2004, and diluted earnings per share from continuing operations increased from 43 cents to $1.03 in that same time period. Net sales were $401 million through the first three quarters of 2005 compared to $348 million in the prior-year period.

Growth fueled by innovative thinking is nothing new for Washow, a 28-year veteran of the company, who along the way spent a decade running a chemical business for AMCOL that was started from scratch.

“It had nothing to do with minerals,” says Washow. “We were making polymers to enhance bentonite performance and our people figured out that there should be something more they could do with the technology and it turns out there was. We spent some time and money and created a unique process to make super absorbent polymers. We built that from zero to $250 million in sales before we sold it to BASF a few years ago.

“It’s that sort of creativity and innovation that I grew up with here. That is the expectation, to sort of jump out of the box. If you look at when we got into super absorbent polymers, there was no logical reason to do that, except that we thought we could do it. I think you will see more and more of that type of thinking as we move forward. We’ll try some things. They won’t all be successful, but it’s not a problem to step out of our mainstream business and try some new things, because we’ve proven in the past it can be a positive result for the company and the shareholders.”

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