This year the American based company Chart Industries Inc, celebrates 20 years in business. During this period the company has experienced dramatic swings in fortune, different ownership and made several major acquisitions.
Today, Chart is enjoying strong growth in its established businesses around the world and with the changing regional demand for industrial gases and the dramatic swing to liquefied natural gas (LNG) use; gasworld took this opportunity to interview the Senior Management team within Chart to understand the drivers for future prosperity
Art and Charlie Holmes founded Chart in 1986 in the process of acquiring ALTEC, a leading heat exchange technology company, from the Trane Company. Through the late 1980s and early 90s the duo made a number of other acquisitions, including that of Process Engineering in 1990, Process Systems in 1991 and IMI-Marston in 1998.Background
Shortly after making the company\\$quot;s largest acquisition to date (MVE, $200 million in sales) in 1999, the company was significantly affected by the industrial downturn at the time following the impact of the Asian currency crisis. According to Chart\\$quot;s CEO, Sam Thomas, the company was financially squeezed up until 2001.
\\$quot;We had low activity levels across all of our markets; hydrocarbons, natural gas and industrial gas. As a result, a group of private equity firms, including Oaktree Capital, stepped in at the end of 2002 and bought the majority share of Chart. They made the decision that the most effective way to restructure the company was to take it through a \\$quot;Chapter 11\\$quot; bankruptcy during 2003, which allowed the company to repackage it\\$quot;s debt. \\$quot;Ironically, just when the pre-packaged bankruptcy was completed, very strong growth started in the US, Central and Eastern Europe and in Asia, particularly in China.\\$quot;
20 years of Chart Industries Inc.///Focus on the Cryogenic Sector
While the company\\$quot;s cryogenic storage and end-user products are widely used in industrial gas applications, Chart is very much focused on the production-end, where its cryogenic processes are extensively used in the processing of hydrocarbon gases.
Thomas continued: \\$quot;For Chart a significant driver of growth through the 90s was the rapid expansion of industrial gas production, when relatively little development was going on in the natural gas sector.\\$quot;
\\$quot;However, since 2004 we have seen a high percentage of large capital projects in natural gas processing, LNG liquefaction and ethylene production. Over the next three to five years, natural gas processing investments are expected to be very strong. We also see a strong demand over the next ten to fifteen years in the alternative fuel energy field, for Gas to Liquids (GTL) and Coal to Liquids (CTL) processing plus Integrated Gas Combined Cycle (IGCC) power generation; all of which require significant quantities of traditional industrial gases, particularly oxygen.\\$quot;No Exit from US Manufacturing
Chart is organised into three core business divisions; Energy and Chemicals, Distribution and Storage and Biomedical.
The Energy and Chemicals Division, designs and manufactures equipment and components, undertakes process optimisation, builds cold boxes for both industrial gas companies and in the Natural Gas sector.
Distribution and Storage is focused on the storage and transportation equipment needed to serve the cryogenic liquids markets \\$quot;“ including liquefied natural gas.
The third division, Biomedical, focuses on specialized applications for Distribution and Storage technology, where specific market knowledge and channelling is vital in order to deliver products to customers, according to Thomas. Chart is focused in two particular areas: respiratory therapy for oxygen and cryogenic storage and distribution of biological materials. \\$quot;We are the only major equipment company that covers the complete cryogenic supply chain\\$quot;.
\\$quot;Looking over the whole portfolio of products, Chart has two key regions outside of the US, that it operates in, Asia and Europe. Both regions are mainly operating within the field of distribution and storage but the Presidents of these regions also provide professional management co-ordination for all of Chart\\$quot;s business portfolio in the regions.\\$quot;
Asia itself is a rapidly growing market and more and more competition moves in that direction. Businesses have to be able to match or better those costs in order to survive.
\\$quot;Our focus has been following our customers and the uses of our products to those areas where there\\$quot;s more attractive growth. We are enjoying strong growth in both Central and Eastern Europe as well as in Asia as a result of investments we have made to develop not only our manufacturing capabilities but also sales and marketing competences.\\$quot;
\\$quot;Significant investments in new facilities and people have also been important to us in these regions, where we have been able to introduce many existing products\\$quot;.
\\$quot;We see Asia as a very attractive area for us to put in manufacturing and full service facilities that supply those markets that we think will have an above average growth rate for a number of years to come.\\$quot;
According to Thomas it is difficult to predict what kind of impact moving to Asia has on the US manufacturing base.
Thomas explained: \\$quot;As a result of restructuring the company in 2002 \\$quot;“ 2004, we have a very effective low cost manufacturing facility in the US. One change for the company was that the US manufacturing base was providing a significant amount of products for export. That export component will most likely diminish over the next few years\\$quot;.
\\$quot;But at the same time, there will be an ongoing significant need for manufacturing in the US market and we are very well positioned to continue to provide that\\$quot;.
\\$quot;As we improve our capability in both Central Europe and China, there are opportunities for us to further lower and control the manufacturing cost in the US by bringing components in from the rest of the world. Due to the size of the market and the service level required to serve the North American and the Western European market, we don\\$quot;t see an exit from manufacturing in those markets.\\$quot;Understanding the Research Industry is key to Biomedical Growth
Chart Industries delivers its 200th Orca system
According to the BioMedical division\\$quot;s president, Steve Shaw, Chart is the only complete service provider, which enables the company to provide unique solutions to the end-user market.
\\$quot;We provide a total solution for customers related to the cryogenic chain, all the way from air separation plants through the distribution process and to the delivery of the cryogenic fluid for biological or medical purposes. This is unique and separates us from our competitors.\\$quot;
Thomas continues. \\$quot;We set up the BioMedical division as a separate division, so we have a group of focused sales, marketing and product development guys who spend a great deal of time understanding the end-user requirements and tailor the products to meet their specific needs.\\$quot;
\\$quot;Generally, the value of the contents within the biological storage freezers is high, in some cases we are talking about hundreds of thousands of dollars or someone\\$quot;s lifetime research career; reliability and confidence are the key features of this product range. Being able to provide a complete solution is down to the fact that we work with the end-users to make sure we give them security regardless of what happens, whether it\\$quot;s a natural disaster or normal hiccups in the supply chain. Because of the security built into our system those stored biological materials won\\$quot;t be jeopardised.\\$quot;
A major driver to growth in biomedical products is in stem cell research and in tissue embedded into biotechnology markets as well as the clinical research market.
Shaw added: \\$quot;There is an understanding of the end-user applications as to how it applies and by providing this complete solution, we see growth that is significant for many years.\\$quot;
Another driver is the demand from the work undertaken in the breaking down of the Human Genome and the vast amount of stored cellular material required to understand and deliver the appropriate therapy whether it is biologically derived therapies to cure or control viral, bacteria or genetically transmitted diseases.
The BioMedical sector is also growing due to the high demand for liquid oxygen homecare units, in Europe, the US and Japan. The US market is more diverse when it comes to Homecare provision whereas the major gas companies dominate the European and Japanese markets. However, all markets are showing high growth. Studies have shown that mobility of a patient that has been diagnosed with COPD is restricted due to larger home units and heavy cylinders so the introduction of a small portable liquid oxygen device extends the patients quality of life and ability to leave the home for extended periods. \\$quot;With portable oxygen devices you are able to get out and continue to live the life one lead prior to the disease\\$quot; says Shaw.Bulk storage
Europe has recently moved into using 300-bar cylinders but so far this hasn\\$quot;t altered Chart\\$quot;s business from a cryogenic liquid cylinder standpoint. According to Chart\\$quot;s European president, Gerd Kirchgassner, a 300-bar cylinder improves the quantity of gas stored and distributed compared to a 137-200 bar cylinder but is still constrained by the additional weight of the cylinder.
Kirchgassner, explained further: \\$quot;Gas companies have started to understand about transporting liquid, instead of metal. Chart\\$quot;s MicroBulk system, for example, is attracting interest from the gas companies and has several advantages over 300-bar cylinders. When investing in cylinders, gas companies have to spend a significant amount of money not only on the cylinder but also on new filling systems that in the end only add 50 per cent to the cylinder capacity.\\$quot;
\\$quot;More and more gas companies are now looking into MicroBulk alternative, of which advantages to the end-users are significant. Perma-Cyls offer, for example, larger storage capacity, reduced danger of contamination and no more exchange of cylinders, which removes the risks involved in cylinder handling.\\$quot;
Europe as a whole is seen as a great opportunity by the entire Chart senior management team. High-pressure cylinders heavily dominate the package gas market but there are plenty of growth opportunities, particularly in MicroBulk. Thomas says that even Western Europe is still undeveloped in terms of MicroBulk.
\\$quot;However, looking forward over the next ten years the highest rate of growth is in China and we are gearing up to support that.\\$quot;
Chart Asia\\$quot;s president Eric Rottier says issues related to quality (production of liquid cylinders and bio-storage vessels) still dominate the Chinese customer base. \\$quot;Chinese customers and, in particular, the major gas producers still prefer Chart\\$quot;s products for its quality and performance compared to the local competitors\\$quot;.
\\$quot;And if you are at an equipment trade show you will notice a real \\$quot;˜me too\\$quot;- attitude among the local competitors, following the internationals like Chart and trying to mimic their product technology\\$quot;.
Thomas added: \\$quot;We certainly understand that a number of Chinese competitors exist but we are determined that we will be the best local Chinese manufacturer because we bring our experience from around the world, both in new end-user application and manufacturing technology to beat off local Chinese manufacturers. We have no illusion that it\\$quot;s an easy market to dominate, we are going to have to work hard.\\$quot;
When it comes to improvements in cryogenic storage technology, Chart continues to research and develop its offering. \\$quot;We have been deepening our offering in terms of flow and pressure capability. Our focus has been on developing specific application solutions including laser cutting where there\\$quot;s a demand for high pressure nitrogen supply,\\$quot; says Tom Carey, president of Distribution and Storage.
\\$quot;Across a broad set of product lines, we have engineered the most advanced cryogenic storage equipment in the world and actively assist our customers in deploying system solutions profitably into a wide range of end use applications. Much of our product development occurs in the USA,, but we are increasingly successful in transferring this technology to our facilities in Europe and Asia. An essential part of our mission is assisting our customer around the world in maximizing cryogenic system solutions. We provide extensive sales and marketing support in both bulk gas and packaged gas applications.\\$quot;
However, Chart has had to address a familiar story in recent times \\$quot;“ higher steel and energy costs. Certainly higher steel costs over the course of 2004 and 2005 forced Chart to raise prices worldwide. According to Carey it has been a painful process for the company as well as its customers.
\\$quot;We have had a number of price increases that we had to share with the market place, but we are committed to making mode change to the Chart cryogenic alternative the most cost effective application choice. We monitor customer-purchasing trends closely and have noted some interesting shifts during his period of rising costs.\\$quot;
\\$quot;All customers are focusing on the total cost to serve and there is a growing recognition that distribution costs are the key driver in many end use applications. As a result, customers are moving towards larger storage container sizes, to reduce distribution costs and provide a cushion in the event of supply disruptions. This trend towards larger containment is true in both liquid cylinder and bulk storage tank markets\\$quot;.
\\$quot;MicroBulk, represents a mode change to fill on site service for both high pressure and transportable liquid cylinder accounts. Both the gas supplier and the end user benefit from this emerging technology. MicroBulk has also been proven to be very cost effective in servicing traditional small bulk accounts.\\$quot;Energy and Chemical
Energy and Chemicals, where Charts\\$quot; business originated, has always been identified as a separate division. The business is based on cold process engineering, including designing cryogenic processes for handling natural gas, other hydrocarbon processing, industrial gas production and air separation plants at low temperatures.
Thomas stated, \\$quot;over the last three years we have correctly identified that while there was a low level of investment in industrial air separation plants there were significant levels of investment in cryogenic processes for natural gas\\$quot;.
\\$quot;The whole area of natural gas processing was primarily a North America up until the late 90s but now in order to reduce CO2 levels, lower total global emissions and utilize low cost remote natural gas those processes are increasingly being used globally. We are taking the process that we developed in the late 80s and early 90s in North America and selling around the world.\\$quot;
\\$quot;It\\$quot;s a very exciting time for that business and we are very well positioned to get significant business as the global natural gas infrastructure is being built out.\\$quot;Quality and Cost Drives the Future
Quality and cost are the two current and future main issues for Chart\\$quot;s management team to focus on and the company has teams in place to ensure processes and designs continue to improve.
Thomas adds: \\$quot;We look at quality and cost as being managed globally. We have senior managers in place supported by staff that is experienced and comfortable dealing with business globally as well as understanding a particular local market.\\$quot;
\\$quot;People need to know the company well to serve those parts of the market that are growing. We are bringing our capabilities from manufacturing particularly in the US but also in Czech Republic to China. We continue to follow our customers and make sure that we can supply them locally with cost effective solutions.\\$quot;
According to Thomas, Chart will also continue focusing on developing more sophisticated solutions in its well-established markets like North America and Western Europe. He also believes that there are tremendous opportunities to introduce these solutions in markets such as Eastern Europe, Russia and Asia.
\\$quot;In terms of stages of development we think we have a very bright future for the use of our cryogenic and liquid storage solution to markets like China, Central and Eastern Europe. We believe the natural progression from compressed gas distribution to liquid gas distribution will progress at a faster pace than it has in both North America and Western Europe.
\\$quot;We believe Chart has particular engineering, process and manufacturing competencies in the areas of cryogenics and heat transfer technology\\$quot;.
\\$quot;In terms of growing our business, whether it\\$quot;s organically or by acquisition, we try to stay within our areas of competence. Regionally we are looking to grow our business in established markets by offering differentiated high value solutions that lower the cost and improve profitability of our customers. We will also continue to develop our capabilities to offer our existing product range into those markets where industrial infrastructure for natural and industrial gas is growing rapidly.\\$quot;