F+L Webcast Episode 44 - Matt Joyce on innovating for a sustainable future at HF Sinclair Lubricants

Great, and Vicki, thanks so much for having me. It's a pleasure to be here. I'm Matt Joyce. I have been with HF Sinclair as the Corporate Senior Vice President and President of our Lubricants and Specialties business for the past couple of years. But as you know, Vicki, I've been in the industry for 30 years now. The majority of that time was spent with the Lubrizol Corporation in a number of different roles in sales and marketing, with experiences and expatriate assignments in Tokyo looking after North Asia, and out of London, and then running our global sales and marketing team globally for a number of years. Joined HF Sinclair a couple of years back, and it has been a real pleasure to be here as we're putting together a really exciting business in the lubricants and especially fluids areas.

Yeah, sure. So some of you may recall, it was actually the H and the F stands for Holly Frontier, and the businesses have been putting together over the past 30 years a number of different refinery assets around primarily around the US. Then in 2019, we started to diversify and look at lubricants businesses that allowed for us to take part in a broader and more diverse area beyond fuels refining. So we were able to put together the Petro-Canada lubricant business, the Red Giant Oil which is one of the largest lubricant companies for serving the rail industry, Sonneborn Specialties businesses which is petrolatums, white oils, waxes, and then our Holly Frontier Specialties which is process oils primarily out of the Mississauga refinery and the Tulsa refineries.

Well, we like to think that we have both. We do like the specialty side of the business. Our Lubes and Specialties business is really broken into three areas: we divide into base oils, into our Specialties group, and then our finished products group. In our Specialties area, that's really primarily driven by our Sonneborn product offerings and our HF Holly Frontier Specialties products. And then our base oils are those Group II and Group III and III+ from our Moga facility outside of Toronto. If you look at that, we do ship quite a lot of product and we try to maximize those margins where we can, but of course it's depending on the end uses that we're serving. We're really pleased to have the diversity of customers that we do in these different end uses that we currently do business with, from pharmaceutical companies to personal care companies, consumer product companies, home care, industrial, all the way through to the big mining customers and fleet operators, as well as our OEM customers and other major oil companies who use our products from a base oil perspective as well.

Oh, well, if we're looking at the finished lubricants, but let's just start with the finished Lubes and the base oils which kind of go hand in hand with one another. Obviously we're just seeing more and more of the technology developing. We're seeing more and more drive towards efficiencies, fuel economy, higher performance, tighter limits, more integration with OEMs. I see that a lot of the decisions in my mind are made earlier in the development cycle, and we're seeing OEM with a heck of a lot more influence on what actually comes to bear in those marketplaces. On the specialty side, of course, we have a diverse and different group of customers. For us, the pharmaceutical industry is becoming more and more strict with their requirements, which we love because our products are the highest quality in the marketplace. And the personal care markets, things that go into shampoos and makeup and hair care products that we supply, those are becoming - there's a bigger drive for sustainable solutions there. So it's about how do we make sure that we can do the most efficient, environmentally sensitive, and sustainable solutions on both sides of the business. We're bearing that in mind, and I'd say that's if I were looking at those 20-25 years that have passed, that's probably the single largest driver of where I see the big difference on where we're spending time, energy, and efforts to pivot for the future and ensure that our business is sustainable for the long term.

Yeah, I think that for us, a big part of our solution has not only been the production of materials that are hydrocarbon-based technologies, but also looking at other renewable solutions and how do you formulate so that you can bring the best solution to your customer and your end user.

Yeah, so the first part of that question was with regards to the EU specifically. I think if I look at a macro trend right now, the EU is not getting any easier to do business in for industries like ours or for that matter any industrialized industry. I think that as an industry interest, we have to make sure that we do our utmost to represent the benefits that our technology provides to end users and markets that we serve. But unfortunately, I think there's just a lot of political pressure in many of these countries in which we do business. But having said that, do we formulate and do we look at the business on a collective basis and on a global basis? Yes, we do. There's still a significant volume of business that uses our technology around the world and that continues to evolve, particularly in some of these emerging markets in Southeast Asia, India, Africa, and others where we supply products from our European and US production sites for our Specialties business as well as from our finished products slate as well. So there is opportunity, and the opportunity is just going to become more challenging. You're going to have to be focused on those right areas, those right end users who appreciate the value you can deliver, and you have to be really compelling and probably very engaged. What we found is very engaged with the customer themselves to help in that earlier development cycle that I talked about so that you can be a part of that solution right up front, coming out of the box.

Yeah, Asia has been a good market for us. We have some established, very well-established businesses that we supply. I'd say on a holistic basis, it's still not as large as Europe, Middle East, Africa, India, and North America. But it represents anywhere from 10 to 20% of our business, depending on the end uses that we're talking about.

Good question, Vicki. I think from our perspective, we're really proud of the portfolio that we have where we have end users who are dependent on our products to keep their businesses running. Our focus and our heritage of business has actually had a fairly small exposure from a finished products perspective to the automotive PCMO side of things. We have a lot of off-highway, construction, mining, food grade, compressor, industrial-type businesses. On the base oils, of course, you're always going to have an exposure to passenger car motor oils, but from a material difference in volumetric results, we haven't seen any significant volumetric decline as of yet from an EV perspective based on our customers where we tend to supply our products and the customer channels that they take it to. We do see if we had a larger exposure in the European market, which we elected to actually not pursue an active PCMO strategy in the EU given the fragmented nature of the business and also the continuing pressure and transition to EV, we would likely have expected to see something more significant slowdown. But for our business in the portfolio and the makeup that we have today, it's been fairly healthy.

I would actually say Canada is the most important market for HF Sinclair lubricants because Petro-Canada has such a heritage there and a linier there. What I'd say is that the US is our greatest opportunity for growth. Folks who are competing against our team in the US will have come to appreciate that over the past many years. Like FNL Asia, we have a big anniversary that we celebrated this past year. We celebrated 25 years in the US, Petro-Canada did, and it has become our growth engine. It's been right at our doorstep all these years, and the team that we've assembled there keeps getting stronger and stronger and goes from strength to strength. It's just super exciting to see where they have gotten focused on where we can win certain end-use markets that we're playing in. We're competing against all the usual suspects, but what we've committed to, and it's something that I'm really proud of and it's one of the reasons I came here, we're doubling down on the lubricants business. I can't say that about all of our competition. A lot of folks are kind of ratcheting back and downsizing their organizations. That has provided us some terrific talent and opportunity to attract talent who recognize that we're growing, that we're invested, and that we're committed to the business and growing it not only in the US, which is our big growth engine, but also rest of world. So super excited about what it holds for us.

Well, it's again, I just go back to one: if I look at the growth drivers, it's all about being operationally excellent. You can't be a good, profitable, sustainable business unless you are doing the right thing internally in keeping your supply chain, your operations, your manufacturing in a good place. The second piece is focus on core, regional growth that end uses that respect the value that we can deliver and where they appreciate the formulations and the technology that we bring to the market using base oils, using our additive partners, and bringing great solutions to our customer. And then the third piece of it is transformational technology: how and if can we introduce transformational technology that will actually help us elevate and take our business to a different level. Some of those examples, you may have seen we introduced our immersion cooling technology called Innovate, which was a tremendous effort on the team's part to bring that out into the market serving the digital mining and the data center markets. We've had really good uptake with that. We've seen some terrific technology developed in our process oils area, and we've just introduced TDAE, which is a much needed ingredient that we're one of two producers in the US now, and that's going into the tire industry and the construction industry. We've had other activities, and you touched on it earlier Vicki, that's around renewables and bringing forward some of those thoughts around renewable technologies, most recently with our Sanatura Natural Products which is an all plant-based petrolatum that would replace some of the hydrocarbon-based technologies we formulated so that some of these consumer companies like Procter & Gamble and Johnson & Johnson and others can take advantage of an all-natural solution. We just continue to evolve, and we're now also taking a much greater effort to lay down intellectual property, and that hadn't been done here for a long, long time. So we've taken painstaking efforts to get some new and different technology introduced and looking at filings as well. So it's a compilation of all those, and of course it's underpinned by great people.

Yeah, that's right.

Well, what I'd say is when you start with a small base, growth is a much more achievable goal, right? So we're still the little guy on the block, and I'm okay with that. I like to out-punch my weight. Anybody who knows me knows I'm fairly aggressive when it comes to getting things done. But further to that Vicki, I think again I'll just go back to the fact that we're taking some of the blueprint of our success, whether it's in stationary gas engine oils, mining, food grade lubricants, compressor lubricants, process oils, white oils, and we're applying that blueprint into our US game plan. We have one of the most storied brands in the Petro-Canada brand in the mining industry. There is no one larger than us in Canada in the biggest mines in the world, and we do it really well. So how can you take some of those lessons and apply them in the US? And then the other part of it is HF Sinclair is a refining company at its heart. The big bulk of the business is a $35 billion company, only $3 billion of it is the Lubes business that I look after. The other $32 billion is a fuels business. So how do we use our fuel partners to go out and tell our story, how do we leverage their relationships, how do we go in and cross sell? So it's those types of pieces. Further to it, just like we were talking about sustainable solutions on the lube side, our fuels folks are one of the largest producers of renewable diesel in North America, and we were one of the early adopters. So how do we take that story of renewable diesel into some of our big opportunities together and make it a partnership approach to our customers?

The continuing European dilemma and slowdown where we have a lot of just demand has been dampened. You can feel it across many of the industries in which we play. And then finally is the slow and continued recovery, I call it a recovery and transition, in China. We're still seeing coming out of COVID many of the changes that the government made and the electrification there. It's not so much something that we feel directly because our Asian business is a fairly small part of our portfolio, but it's the fact that there are so many other places that people were putting finished products or base oils and those are now being diverted to different markets, which is upsetting a lot of the balance in those markets. So we're seeing certain parts of the market going longer than we would have anticipated. But the beauty is our plant and our team are doing a great job of forecasting, talking to our customers, making sure we have the right products at the right time and the right amount. When you do that, you can stay ahead of some of these challenges and headwinds.

No. From a finished perspective and a specialties perspective, we supply from North America, and we also have distribution in Asia that we use to get our products delivered to our customers.

Yeah, of course. What you do is, when you have good long-term trusted partners who have distribution and warehousing and terminaling in region, you tend to have the ability to kind of see your way through any of those supply chain disruptions. But again, right now what we have seen is the supply chain on both additives as well as base oils are back to what I'd say is historical norms.

Well, first of all Vicki, you're very kind to say that. How fortunate are we first of all to work in an industry where you actually like the people you work with and even compete against? I'm blessed to have been in this business. But it's relationships like ours. I've known you for 20 plus years, and it's always been friendly and always supportive. When I look around, one, I'm really fortunate to have had the teams and the talent around me. I will be honest, and this is no joke, I'm never the smartest person in the room and I know that. You have to stay humble and you have to be able to attract great people to work with you, because those great talented people make the difference. You can see an immediate impact. I've already seen that in the past two years here at HF Sinclair. We have some of the most talented folks in the industry, and we've been able to bring in just a handful more of incredibly talented folks. You put that all together, and you've got a wonderful stew, if you will. But if I look at it, stay humble, be a servant leader. Don't be too impressed with yourself, even if things go pretty well. They can go pretty poorly just as quickly, and you have to be on your toes. The other part is work hard and lead from the front. If you do that, people will trust and believe in you. The other piece is I find that a big part of what I've had to do over the years is continue to spell out where the North Star is, because when you help people understand where the North Star is located, it's a heck of a lot easier to follow when they know where they're going with you. If you can provide them a clear strategy, a clear direction as to where you're going, people tend to be very happy to follow. And it goes without saying, but I wouldn't have gotten to where I am without my partner in life. My wife has been incredibly supportive to allow us to move around to Europe and Asia and bounce around this great world. Without her, I wouldn't be here.

Ah, boy. I want it to be relevant. I want it to be a solution provider going beyond products. I want it to also be sustainable, not only sustainably profitable but have a sustainable aspect to it where we're helping to bring and introduce new and innovative technology that allows the carbon impact to be reduced. And I want to see those customers that we hold in such high regard really continue to value us as a partner and a supplier.

I will look forward to it. And congratulations on your 30 years, Vicki. That's not to be taken lightly. I know the team is going to have a beautiful event in Bali. I just wish you the best of luck and congratulations on your anniversary as well.

You're very welcome. Take care, have a great day. Bye bye.