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By Daniel Rohr, CFA | 11-09-2010 10:47 AM

Nalco: We Can Double Our Growth Rate

Nalco's push into developing markets and M&A aspirations should allow it to achieve 6%-8% growth according to Global Marketing President Rich Bendure.

Daniel Rohr: Hi. I am Dan Rohr, Morningstar Analyst on the Basic Materials team at our 2010 Stocks Forum, and joining me today is Rich Bendure from Nalco. Rich is the Global Marketing President for Water and Process Services.

Rich, thank you much for joining us today.

Rich Bendure: Thanks for having me, Dan.

Rohr: So, let's jump right into the questions. Nalco's management team has expressed a relatively aggressive long-term real growth target of 6% to 8%. Ambitious I might say given the general uncertainty in the economy today, and relative to Nalco's historical sales performance. Would you care to break down for us what sources of growth Nalco sees?

Bendure: Historically, we've grown at about a 3% to 4% organic growth rate as you mentioned, excluding currency and acquisitions. We're right now targeting to double that growth rate to 6% to 8% by the end of 2011 timeframe. The way we're going to do that is really into a couple of key areas. One is our BRIC-plus strategy and for us BRIC-plus is more than industrial growth, because these countries have low water capability, low availability of water, and so for us there is sort of a multi-play on the BRIC strategy, the BRIC theme. We get the benefit of both the industrial growth as well as the water scarcity itself contributing to even higher growth rates.

We've also turned around our European, Western European theater which had been a problem for us a couple years ago, now into a growth mode by consolidating some backend activities and relocating our headquarters Q1 of next year.

We've got a great theme on some technology deployments, both on the water platform, the water automation that we have, as well as some of our technologies like enhanced oil recovery, and also in the paper segment for OxiPRO and PARETO technologies.

Beyond those themes, we've also got some bolt-on M&A aspirations that because of our channel, because of our 7,000 sales engineers in the field, we've got a really great leverage around incremental technology or geography placed to have synergy around bolt-on M&A. So if you add all that up based on our historical or the underlying market growth rate of 3% to 4%, we're very confident that we can run that 6% to 8% growth that we talked about.

Rohr: You mentioned the BRIC-plus strategy, it seems every company we speak with here at the Stocks Forum is really excited about the opportunity in emerging markets. I guess the risk being that if everyone's going after an attractive bet, folks crowding the bet can render it unattractive and less profitable than it might have looked a priori.

What are you guys seeing as far as profit margins in China, in Eastern Europe relative to what you guys generate in your more established markets here in the U.S. and in Western Europe?

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