An Interview with Siemens Water Technologies CEO Chuck Gordon

PennWell had an opportunity to speak with the new president and CEO of Siemens Water Technologies, Charles Gordon, on Feb. 21 as he was preparing to move from Houston to Warrendale, Pennsylvania, USA, where Siemens AG's water unit has its headquarters. A 20-year veteran of the company, Gordon took over the reigns of Siemens Water Technologies as of Feb. 1 from Roger Radke who nearly doubled its sales since USFilter's acquisition from Veolia in 2004...

PennWell's Carlos David Mogollon, editor of Industrial WaterWorld and Water & Wastewater International, had an opportunity to speak with the new president and CEO of Siemens Water Technologies, Charles Gordon, on Feb. 21 as he was preparing to move from Houston to Warrendale, Pennsylvania, USA, where Siemens AG's water unit has its headquarters.

Born in 1957 in Deadwood, South Dakota, Gordon is married with three children -- two sons, ages 10 and 12 and a daughter, age 17. A 20-year veteran of the company, he took over the reigns of Siemens Water Technologies as of Feb. 1 from Roger Radke who nearly doubled its sales since USFilter's acquisition from Veolia in 2004. A short profile on Gordon appears in the February-March 2008 issue of WWI ("Not So Tough Times in Deadwood") and March-April 2008 issue of Industrial WaterWorld ("Siemens Water Technologies' Gordon Grabs Spotlight ").

For more on the challenges and opportunities facing Gordon, read on:

PennWell: Why don't we start by you giving us a brief introduction to yourself? You just took over as president and chief executive officer of Siemens Water Technologies. Let us know a little bit about you, if you would.

Gordon: By way of a little background, I have an M.B.A. from Wake Forest University. I went to work for BFGoodrich in the mid-'80s. I was part of a team that worked at Goodrich that acquired Arrowhead Water in 1988. And, as part of that acquisition, I moved over to Arrowhead and became director of marketing -- so my tenure in the water business is about 20 years. I had various functions with Arrowhead; but, in the end -- from 1992 to 1995, I ran the southern region of the business at that time. We were providing industrial services. We had a mobile service. We did build-own-operates. We did service contracts, that kind of work. Arrowhead was sold to USFilter in 1995, and I stayed with the company rather than with BFGoodrich. I ended up being the regional manager for USFilter for the southern region. From 1995 to 1999, USFilter was growing dramatically. We were rolling up the business, and I was part of that with a whole series of acquisitions that we did in the Southern U.S. I was responsible for acquiring about 17 businesses in that time, while USFilter probably acquired about a couple hundred. In 1999, USFilter was sold to Vivendi and we nationalized our service organization. I became the vice president of our service organization.

PennWell: A "service organization" being largely industrial?

Gordon: Yes, all industrial. It was services and products. And, when I left that job in 2006, that was about a $500 million business. We have a branch network in the U.S. with about 70 branches. It puts us within about 100 miles of 90% of the U.S. population. So, it's a very robust service network that we do industrial services for out of the U.S. It continues to be a critical asset for the company. In 2006, I flipped over when Frank Firsching left the company and became vice president of our systems business and ran that for two years until I was named CEO. So, I have a long tenure in the water business. Most of it's been on the service side, with the exception of the last couple of years, but a long tenure with USFilter and now Siemens Water Technologies.

PennWell: Tell me as you come into this position, what are some of your goals?

Gordon: First of all, Roger Radke did a very nice job positioning this business and we're going to continue with a lot of the programs that Roger put into place. We have a couple real key strategic elements that we've been focused on over the last couple of years. If you take a look at our business under Veolia, we were constrained -- not completely, but mostly constrained -- to North America. Globalizing the business continues to be a major emphasis for us. If you look at our business today, a little over one third of it is outside of the U.S. I would expect over the next three years that percentage will continue to improve dramatically, because it's gone from about 10% of the business being outside the U.S. to today over a third being outside the U.S. I would expect that to continue just because of all the infrastructure projects going on in places like China, India, Southeast Asia, the Middle East...

PennWell: At what point are you registering the 10%? That goes back to when?

Gordon: When Siemens acquired USFilter from Veolia in 2004, about 10% of the business was outside the U.S. We're well over a third today and we would expect that to continue to grow rapidly.

PennWell: Refresh me real quickly, if you would. Roger was CEO for how long?

Gordon: Roger was CEO of the business for three and a half years.

PennWell: So over that time he was able to add 20% to the non-U.S. sales of Siemens Water Technologies?

Gordon: He tripled the international side -- and, actually, it was a little bit more than that.

PennWell: Are there market segments within that as you look to grow the international side of the business that seem more appealing than others?

Gordon: Sure. I want to back up a bit, though, first to underscore something. The international business was 10% of a $1.1 billion business in 2004. It was over 30% of a $2 billion business in 2007.You can do the numbers there, but actually the business grew by a factor of seven. The percentage didn't grow by that much, but the overall business was growing rapidly at the same time.

PennWell: That gives a little bit better picture of it.

Gordon: Okay, do you mind repeating your earlier question?

PennWell: Are there market segments that you see as more attractive going forward as you look at growth prospects?

Gordon: Sure. For geographical markets, those that are growing dramatically continue to be China, Southeast Asia, India and there's a tremendous amount of money being spent in the Middle East. All of those are rapidly growing markets that need the infrastructure solutions that we provide. When you look at Europe and North America, the markets are growing. We've got a great position. We're going to maintain that position, but they're not growing at near the rate that the developing world's growing at. And we're very fortunate as part of Siemens because it has a strong presence in about 190 countries around the world, so it allows us to have a very large global footprint that we can leverage off of. What we've done is decide that we're going to focus and build up hubs of competency in various geographic regions around the world. What we've done is we've made a significant investment in China, which tends to be a standalone business that supports China itself. We have a hub concept where we've made a very significant investment in Singapore. We support Southeast Asia and India out of that Singapore hub.

PennWell: You're one of several companies that have put major R&D facilities in Singapore, as I recall.

Gordon: Exactly, and I'll come back to that in a minute. But we've also put together -- we're putting the finishing touches on a similar hub in the Middle East. We'll end up with one in Europe and one also in Brazil. What we do with the hubs is they're really engineering centers, which allows us to propose and support projects locally -- something we think is critical to really developing the business. When we look at the world from a geographic market perspective. Those are the markets that we've focused on. When we take a look at what drives those markets, whether it's industrial or municipal, we want to play in products and solutions that have high value-add capability. What that typically means is we're looking for opportunities where the customers want to buy on a lifecycle basis. There's parts of the world where people don't buy that way. They just buy on upfront capital. We look for opportunities where we can provide value-add, which typically means the project is being evaluated on lifecycle costs. And what we look for are drivers for the business. Certainly, water reuse is a huge portion of where we're focusing our effort. It's energy minimization. As you're probably well aware, particularly on the municipal side of the business, these municipal water plants are huge consumers of energy. We look at biosolids reduction. When you think about the growing population, particularly in Asia, biosolids management is a huge problem in that part of the world. We've got products like Cannibal, like... some of our drying processes...

PennWell: Centramax, Centrapac, etc.

Gordon: Right. So we look at biosolids management, we look at minimizing footprints for plants -- that's another driver -- and we certainly are very involved in waste-to-energy applications. What we're trying to do is be able to provide a set of value-added solutions to those portions of the market.

PennWell: Correct me if I'm wrong, but it seems as if over the last two to three years, the concern that's been going on in the rest of the world after the Kyoto Accords on environmental, global warming and climate change issues has kind of started to come together to transform the business pretty much along the lines you just mentioned. In the U.S., though, things didn't really take off until about the time of the IPPC report release in February 2007.

Gordon: I don't think there's any doubt about it. In the U.S. and abroad, those are the market drivers. For a company like Siemens Water Technologies, that makes a significant investment in R&D, it presents real opportunities for us because I think we can drive value-added innovation for the marketplace.

PennWell: Whether it's on more efficient pumps, biosolids reduction, minimizing water use and maximizing water reuse...

Gordon: It's all of the above. It's making the plants as efficient as they can be. It may be capturing methane gas off of anaerobic digestion systems to be reused in a waste-to-energy recovery process. It's biosolids reduction and how you do that in the most efficient way from a carbon footprint perspective. It's all of those things and more.

PennWell: One of Siemens' focuses in that area has often been mobile systems and temporary systems. How does that play into some of these goals, not just internationally, but domestically as well?

Gordon: When you think of our mobile business, a portion of our service business is mobile. And where we see the opportunity and the way that business fits into the overall industrial offer is that there's a lot of times that plants either have turnarounds or they're starting up and the water treatment facility for whatever reason isn't ready. What we can do is mobilize and provide clarification through demineralization on mobile trailers which allows plants to have easy access to cooling water and boiler feed water typically -- and process water. It's more on the water side than wastewater side, but the value from a customer perspective is we can mobilize those very quickly and be onsite very quickly to keep the plant operational when they're maybe going through a turnaround of their existing water plant or maybe while they're starting up their permanent plant. And, in some cases, with the mobile systems we can provide as good of economics with a mobile system as they can get with a permanent system and we actually end up onsite for a significant amount of time. Now, there's a tremendous amount of new oil & gas and petrochemical construction going on in the Middle East -- and we're just in the process of starting up our mobile business in the Middle East. It will be stationed in Saudi Arabia, but it will service the whole Gulf region.

PennWell: This is the Middle East hub you were referring to?

Gordon: That's part of the Middle East hub, correct.

PennWell: Okay.

Gordon: So, I guess the mobiles I look at as being a bit more of a service for our customers and they provide a lot of value-added benefits for them. It really doesn't play into some of the other things we just talked about as far as environmental initiatives.

PennWell: Let me make a couple points I want to get your comment on. One is that a couple years ago we were hearing that everybody was doing all they could just to keep up with what all was going on in the oil & gas industry, not just the Middle East but also oil sands in Canada or exploration anywhere really because what didn't used to be economical to exploit earlier suddenly became more attractive with sustained high fuel prices. Two, the low dollar value and the impact that that's had on the market -- in particular, some were saying early last fall that they were expecting it to create additional manufacturing opportunities in the U.S. which creates additional market opportunities in water and wastewater treatment, naturally. And then, three, the current economic situation is somewhat in flux; therefore, it would seem -- correct me if I'm wrong -- that if you're anticipating a potential gear-up in business but you're not quite sure where the economy is going, that might create additional opportunities for mobile water treatment until you know whether that's going to be a more solid contract or product line while all this plays out. Do you want to comment on any of those?

Gordon: I'll comment on as many as I can. If I forget one, remind me. To start, you're absolutely right on the mobiles. If a plant expansion of a makeup water system is required to keep up with a new product line or demand from a facility -- in this kind of economic climate, a lot of times retrofits or expansions are postponed because of the uncertainty of the economy. In those cases, mobiles are a great alternative; you're absolutely right on that. The other thing I would say about our oil & gas business is we have a pretty nice upstream and downstream offer and we continue to get hit hard -- I don't want to say we're sold out because we're not, but we're very, very busy. And we see no slowdown in that sector of the market.

PennWell: Where geographically do you see the high points on that?

Gordon: There's a lot going on in China. There's obviously a lot of business in the Middle East. There's a lot in Southeast Asia and in Brazil. The business in China is more related to the end-users of the energy are there. Other places are places that produce oil and it's very busy. The price of oil is still at an all-time high by historical standards. And the demand is probably down just a little bit with the economic slowdown that we've had, but we've seen absolutely no slowdown in the curtailment of projects. As far as the overall economy goes, we're optimistic. When we think about the challenges in the U.S. economy, certainly banking and housing are a problem. We all understand that, but we think the weak dollar helps the competitiveness of our customers and we continue to see good opportunities in the U.S. It's certainly not growing at the rate of Asia and isn't going to, but we see a growing market. We're cautiously optimistic in the U.S.

PennWell: Are there other market segments we should discuss? We've talked a lot about oil & gas. For Industrial WaterWorld, some target markets also include power generation, chemical processing, pulp & paper, food & beverage, as well as high purity markets like pharmaceuticals and microelectronics.

Gordon: We service most of the markets you just mentioned. Obviously, the oil & gas market over the last few years has been extremely hot, but we have a wonderful pharmaceutical business. We do a lot of food business. We do semiconductor business. We have a very nice position in the chemical processing industry. We're involved in all of those and, as you go around the world and you're in different locations, the markets sort of vary depending on where you are. Southeast Asia is a big food market, a big semiconductor market and some oil & gas. Now, when you get to the Middle East, it's largely municipal and oil & gas, with power in all of those places also, obviously. We have good solutions for all those markets and we participate heavily in every one of the markets you just mentioned.

PennWell: Are there markets for you that you may see a specific slowdown or where you see challenges in the coming year or so? The thing that comes to mind first, I should say, is municipal and the reaction of elected officials that are dealing with public monies and tax shortfalls.

Gordon: I think we're all looking at the U.S. municipal market very carefully. To date, we haven't seen a slowdown. We haven't seen an impact. But, I think depending on how the economy goes in the U.S. and how tax receipts go, I would expect a lag impact if those start to decline. From our perspective, that's sort of a six to 12 month lag because there's a lot of funded projects in the pipeline. We haven't seen anything yet, but we're watching it very carefully. Our municipal business overseas is obviously very robust and we see a lot of opportunities in the Middle East and China where they're building a lot of infrastructure. We haven't seen anything there at all.

PennWell: Has there been anything as far as reverberation as far as the sub-prime mortgage market and how that seems to be affecting other markets like bonds or reinsurance issues?

Gordon: We haven't seen that.

PennWell: Are you anticipating anything?

Gordon: I'm not anticipating where we're going to see anything with bonds and that part of the financial market. I don't anticipate that's going to be a problem. Where we could feel it is we have a wonderful American municipal market and, obviously, if tax revenues go down and cities make modifications and changes to the infrastructure they have planned, that's where the impact of the sub-prime market will be. I don't think it will affect our ability to bond.

PennWell: How do you look at the competitive market now and other players in the water and wastewater industry? What are areas where you see some pressure coming from other market players and how does Siemens look to adjust on that?

Gordon: I think there's a lot of competition in the water reuse space. There's no doubt about that. I think ourselves and GE have a very nice position with membranes. A tremendous amount of the new plants going in globally are membrane based. And there's going to be a real technology fight, I think, over the next five years as membrane development continues. The challenge with membranes is to make them durable with high flux rates, great filtration and low energy cost. And then the cleaning mechanism that you have and what kind of lifecycle costs you can provide for your customers. It's going to be a technology play. We're just getting into the technology. There's a lot of capacity for the technology to improve. And I think that's going to be a real interesting market to watch develop. It's growing double digits, so there's nice growth for the businesses. The challenge for all of us as competitors is how do we technically differentiate ourselves. You mentioned our R&D focus, and that's one of the things we gained from Siemens. We have invested heavily in R&D. We purposely moved our R&D to Singapore because we wanted a better global perspective on the water business, and particularly we wanted to have an Asian focus and make sure we understood that. We've invested heavily in Singapore, we're going to continue to do that, and one of our prime areas for investment is membrane technology.

PennWell: Are there some areas where you're looking at potential acquisitions? Are there some technologies you see filling out the Siemens portfolio a little better?

Gordon: There are two different answers. We continue to look at acquisitions all the time. We monitor a lot of companies that we think would help us either with technology or global footprint. Those tend to be the two criteria that we have. The challenge, as you're well aware of, are the multiples right now are extremely high and the business has to be a good investment for us. So, we're extremely interested in acquisitions. We're going to continue to do that, but we're going to be selective. That's because, at the end of the day, it's an investment and we need to get a return on it. And I think that, as I take a look at the next two or three years, acquisitions are going to be important to us in terms of what they can provide either to get us started in a geographic area or enhance our position geographically or as a portfolio add. But, to be honest with you, I don't think that will be at the center of our growth story.

PennWell: The most recent acquisitions that I can recall were in UV, ozone and alternative treatment technologies when a spate of companies were purchased several months to a year or so ago.

Gordon: And if you look at multiples on a lot of those companies, they were very high multiples. When you talk about technology gaps that we have, we feel pretty good about our portfolio right now. We probably have one of the broadest technology portfolios in the industry. One of the areas that's talked about is desalination, and we don't play in the desalination arena with an overall solution. We see that as a market that will continue to grow, but there are really two issues from our perspective. The first is it's highly competitive. I don't see a lot of people making a lot of money in that space and, so, we are investing looking at some disruptive technologies that would change the game. Short of that, what we see as a better alternative from an economic standpoint is water reuse. We continue to see water reuse as being able to provide a municipality or an industry a better set of economics than desalination. Sometimes there's no alternative but desalination. But if reuse is an option, typically, it provides a better set of economics for the customer.

PennWell: And on the industrial side, you get into zero liquid discharge which goes toward water and waste minimization...

Gordon: I think zero liquid discharge certainly is out there. What we see is that plants want to reuse their water because it's the right thing to do and it minimizes their cost potentially. We don't see a lot of zero. Zero is tough. That last 5% gets pretty expensive, so the real question is, if you've got a good set of economics for the first 95% of your water and you're reusing that and you have a small waste stream that's treated and acceptable for discharge. What we see is a lot of customers end up at that place. Zero is expensive. That last 5% tends to be a very energy and capital intensive part of the process.

PennWell: And, lastly, what thoughts would you like to share with our readers in closing?

Gordon: At Siemens, we continue to be very excited about the opportunities that are open for the business. Our challenge, as a company, is to continue to grow internationally and continue to provide enough value-added benefits for the customers such that the business is attractive and our solutions and products are attractive to both us and our customers.

PennWell: Okay, that sounds great. Thanks so much for your time.

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Siemens Water Technologies
181 Thorn Hill Road
Warrendale, PA 15086 USA
Tel: 800-525-0658 or 724-772-0044
Fax: 724-772-1360
Web: www.siemens.com/water

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Also see:
-- "Siemens Water Technologies names new president, CEO"

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