Schweitzer-Mauduit International, Inc. 05/06/10 Investor Presentation
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Schweitzer-Mauduit International, Inc. 05/06/10 Investor Presentation

Schweitzer-Mauduit International, Inc. 05/06/10 Investor Presentation

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Schweitzer-Mauduit International, Inc. 05/06/10 Investor Presentation Schweitzer-Mauduit International, Inc. 05/06/10 Investor Presentation Presentation Transcript

  • Schweitzer-Mauduit NYSE: SWM First Quarter 2010
  • Key Investment Highlights • #1 Global position in cigarette paper and reconstituted tobacco products • Deep customer penetration and longstanding relationships with western multinational cigarette companies spanning over 50 years – Market presence in China for 16 years • Superior product portfolio featuring high value products • Regulatory backdrop driving strong growth prospects for “safer” cigarettes • Executed Asian expansion initiatives with additional opportunities on horizon • Successfully restructured manufacturing operations driving improved efficiency and profitability in higher cost regions • Seasoned management team with over 100 years of industry & manufacturing experience 2
  • Schweitzer-Mauduit Profile – Financial Highlights (Amounts in Millions, Except Per Share Amounts) 1Q10 1Q09 Net Sales $193.0 $184.1 Net Income (1) $18.6 $13.3 Net Income (2) $21.8 $13.5 Adjusted EBITDA (2) $41.7 $30.7 Cash from Operations $31.4 $11.8 Diluted Earnings per share (2) $1.19 $0.88 Total Assets $771.5 $688.2 Net Debt $(21.3) $158.4 (1) Includes restructuring and impairment (2) Excludes restructuring and impairment 3
  • Agenda Overview of Schweitzer-Mauduit Successfully Restructured Operations Reconstituted Tobacco Leaf (RTL) Low Ignition Propensity Tobacco Paper Financial Review 4
  • Corporate Overview • Founded in 1545, Schweitzer-Mauduit International’s (“SWM” or the “Company”) strategic focus has been on cigarette papers since the early 1900s • Became a public company in December 1995 through a spin-off by Kimberly-Clark Corporation • Market leadership in tobacco-related specialty paper products – Leading manufacturer of lower ignition propensity (“LIP”) cigarette paper – Sole independent pioneer of reconstituted tobacco leaf (“RTL”) products • Global Presence – Sales to 90 Countries Worldwide Operation Sites RTL Expansion Opportunities (Asia) 5
  • Management Strategy to Deliver Growth Leading Global Manufacturer of Fine Papers and Related Products for the Tobacco Industry Complete rationalization Continue to upgrade Focus on growth of base paper and expand through high value manufacturing profile operations in Asia products & technology • Finalize restructuring • Establish China paper • Expand sales of RTL activities in France and the JV as technology leader products through new U.S. by 2010 on domestic premium production capacity and brands increased market • Optimize cost structure penetration in Asia through repositioned • Develop new Philippines RTL facility manufacturing footprint • Capitalize on regulatory – Company-wide commitment • Create new China JV to requirements for high to operational excellence expand RTL capabilities growth LIP papers in the region – Shift production to lower cost regions 6
  • Substantial Market Growth Prospects Globally World Cigarette Production by Global Cigarette Consumption: Geography in 2009 • World-wide cigarette consumption estimated La t in A m er ica Ot h er 5% 4% at 6.2 trillion units Nor t h A m er ica 6% – Growing 0.5% to 1.0% annually W est er n Eu r ope Ch in a 11% • Market shifting from the West to the East 37% – Asia growing 2.5% to 3.0% annually Ea st er n Eu r ope A sia Pa cific 15% 6,000 90% 22% 80% 5,000 70% SWM Sales by Geography in 2009 1 La t in % of Production 4,000 60% A m er ica , Ot h er , 3 % Million Units 50% 7% 3,000 40% A sia /Pa cific, 1 1 % W est er n 2,000 30% Eu r ope, 20% 31 % 1,000 Ch in a , 9 % 10% 0 0% Nor t h A m er ica , 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Ea st er n Eu r ope, 29% 1 0% Production Developed Countries Production Developing Countries 1 % Developed Countries % Emerging Countries Total sales include $ 740 mm for SWM and $32 mm for its unconsolidated joint venture, CTM SWM Strategy is to Target High Growth Source: SWM management Developing Markets 7
  • Full Line of High Value Tobacco-Related Products • Performance critical to high-speed, low- cost cigarette manufacturing Tipping Plug Wrap Paper Paper – Runability – Consistency • Premium product quality drives longstanding customer relationships Cigarette – Seamless integration with leading global Paper customers’ operations Reconstituted • Technology and research and Tobacco development efforts support high-value product applications – Taste – Reduced tar, carbon monoxide and nicotine delivery – Lower ignition propensity 8
  • Full Range of Specialty Tobacco Products Product Type Commentary Reconstituted Tobacco Manufactured from tobacco by-products Leaf Used in cigarette design to provide unique brand taste Lower cost than natural tobacco Benefitting from regulatory change Lower Ignition Propensity Controls rate of cigarette combustion by slowing air flow Paper High growth due to regulatory-mandated adoption European, Australia and likely other Asian countries to adopt through 2012 Base Paper Key to provide full range of products to largest, multinational - Cigarette Paper customers - Plug Wrap More competitive environment due to declining demand in - Tipping Paper developed world - Non-tobacco products SWM restructuring activities focused on maximizing efficiency, reducing costs and shifting capacity towards growth in Asia 9
  • Leading Global Provider of Cigarette Paper & Related Products • Sole independent RTL manufacturer globally • Leading manufacturer of LIP and only producer of both proven technologies Global Positioning: Tobacco Paper 1 Julius Miguel y Key Products SWM Delfort Glatz Costas Miguely Costas (Spain) Other RTL 8% 10% SWM² Cigarette Paper (U.S.) (LIP) Julius Glatz 36% (Germany) 12% Cigarette Paper (Wood, Flax) Delfort (Austria) Plug Wrap 34% (Porous, Conventional) Tipping Paper (Base, Note: Circles to left reflect relative estimated market strength by product Finished) Source: Company filings, SWM management 1 Market share by volume, excluding China 2 Non-tobacco SWM volumes exclude production from its facilities in France (LTR and Malaucène) (% of Net <10% >50% <10% >20% Sales) 10
  • Strong Relationships with Leading Global Players • Top six customers account for approximately 80% of the global market (incl. China) – Relationships averaging over 50 years among six leading western multinational customers 2009 Global Cigarette Production (Units) SWM 2009 Sales by Customer (US $)1 Philip Morris Philip Morris International Philip Morris USA International 1 4% 3% Other 1 8% Other 3 0% 2 0% BAT Philip Morris 11% USA 11% China BAT Im perial 3 8% 1 4% 5% China 8% Japan Tobacco Im perial 9% 8% Japan Tobacco 11% Source: SWM management 1 Sales include SWM’s $740 mm and its unconsolidated joint venture, CTM’s, sales of $32 mm 11
  • Strong Intellectual Patent Protection Extensive and Expanding Patent Portfolio • 150 patents granted (80 patents pending) (1) – Covers cigarette Papers, RTL and cigar wrapper/binder products/processes Industry-Leading LIP Patent Protection • 59 patents plus 18 patents pending and 261 Independent Claims covering LIP – Patent portfolio provides first-mover advantage and significant barriers to entry – Establishes SWM as the world's leading independent producer of papers used for LIP cigarettes – Covers all major components of LIP production: smoking article, wrapper and process • Smoking article = 78 Independent Claims in 32 countries • Wrapper = 84 Independent Claims in 32 countries • Process = 99 Independent Claims in 30 countries – Patent life exclusivity expiring 2017 through 2022 12 (1) As of 12/31/09
  • Agenda Overview of Schweitzer-Mauduit Successfully Restructured Operations Reconstituted Tobacco Leaf (RTL) Low Ignition Propensity Tobacco Paper Financial Review 13
  • Significant Base Paper Turnaround Implemented SWM Restructuring Cash Costs & Benefits • Significant transformation and improvement $40 executed in base paper manufacturing profile: 37 $35 35 • Over $67 million in one-time cash costs invested – Additional $50 million of non-cash one-time costs 31 $30 • $35 million run-rate operating income benefit – $17 million realized in 2009 $25 • Base papers restored to profitability in 2009 $ Millions $20 • Restructuring implemented in France and the Americas due to excess manufacturing capacity 15.3 17 $15 – PDM (France) shutdown 3 paper machines 10.2 12 11 – Lee (U.S.) shut down facility $10 – Brazil restructured – exited coated papers 4.8 – Transferred paper production from U.S. to Brazil $5 – Malaucène (France) closing facility $0 – France – announced general staff reduction 2006 2007 2008 2009 2010e 2011e – Spotswood (U.S.) shutting down paper machine Cash Restructuring Costs Operating Profit Benefit Source: SWM management 14
  • Agenda Overview of Schweitzer-Mauduit Successfully Restructured Operations Reconstituted Tobacco Leaf (RTL) Low Ignition Propensity Tobacco Paper Financial Review 15
  • RTL Represents a Key Long-Term Growth Driver • Today SWM accounts for over 50% of global RTL production Global RTL Market Positioning (ex. China) – SWM’s expects market share to grow with Asia expansion • RTL represents 10-15% of the tobacco blend of KTG American cigarettes 7% Japan Tobacco • Global RTL demand of approximately 150K tons (ex. 11% China), growing ~ 3% per year Philip Morris SWM – 80% of RTL consumption in North America and Europe USA 53% 11% – 70K tons used in China – 150K tons by 2015 will drive long-term growth (up from zero in 2004) Reynolds – Robust growth to be driven by all of Asia 17% • Regulatory efforts to reduce tar / nicotine delivery in cigarettes drives demand – Chinese government currently working to reduce tar / nicotine levels – efforts will effectively double market Total: 150K MT • Phased into tobacco blends very slowly by cigarette manufacturers Source: SWM management 16
  • Overview of the Reconstituted Tobacco Process Key Benefits Tobacco By- Products Water • Batch process for each tobacco blend (e.g. Marlboro) • RTL adds consistency, flavor and other key attributes for cigarette manufacturers Separation • Reduced total cost for cigarette production by off-setting new tobacco cost Fibrous Soluble Portion Portion • SWM acts only as a tolling agent in the process Web formation Concentration – SWM does not take on product ownership and maintains no raw material cost risk Reconstituted tobacco Similar manufacturing process to paper products creates a uniform high quality product for customers 17
  • Significant Strategic Advantages in RTL • SWM is the sole independent RTL manufacturer globally – Limited competition from “in-house” producers drives highly attractive market share • Growth prospects better than broader cigarette paper market and exceed cigarette production growth – Attractive growth prospects for RTL in Asian markets through SWM’s planned projects in the Philippines and China – Beneficial global regulatory changes in process • Attractive margins, given RTL is essentially a tolling operation 18
  • Opportunities to Expand the RTL Franchise Globally SWM RTL Supply Outlook • Philippines project an estimated $117 140,000 million investment – Production to begin in late 2011 120,000 – Potential $65 - $70 million annual revenue 100,000 – Run-rate operating profit margins exceeding 40% – >20% project rate of return 80,000 Metric Tons • China Joint Venture an estimated $25 60,000 million equity investment – Total investment estimated at $135 - $140 million 40,000 – Two-year construction period 20,000 0 11 14 12 13 15 10 08 06 09 05 07 20 20 20 20 20 20 20 20 20 20 20 Base RT L (France) Philippines China JV¹ 19 ¹ China JV reflects 100% of venture’s projected sales volume
  • Overview of SWM’s Planned RTL Expansion in Asia • Planned Asian facility additions in the Philippines and China expected to add approximately 30,000 MT annual RTL capacity each • Anticipated two-year construction period for each facility – Philippines to finish in 2011 Philippines Facility China Joint Venture • Driven by demand from multiple leading • Driven by initiation of RTL use in Chinese customers for second source of RTL production market – robust future growth opportunity – Agreement reached with Japan Tobacco; pre-sold – Response to Chinese regulatory driven need for RTL 33% of capacity – Approximately 67% of output to supply two cigarette – Advanced discussions with second customer ongoing, companies that will be partners in the JV which would raise pre-sold capacity to ~50% • Standalone site in Yuxi, Yunnan province • Standalone site Manila-area industrial park –China’s largest tobacco region – Economic development zone • Estimated $25 million equity investment • Estimated $117 million investment needed –Total estimated investment of $135-$140 million –Financed two-thirds with local debt 20
  • Agenda Overview of Schweitzer-Mauduit Successfully Restructured Operations Reconstituted Tobacco Leaf (RTL) Low Ignition Propensity Tobacco Paper Financial Review 21
  • LIP Market a Long-Term “Game Changer” for SWM • Increasing LIP adoption driven by governmental regulation Global LIP Market Development – Only current viable technology with market (000 metric tons) acceptance 55 5 0.3 • Represents a high-margin product driven by 50 46.4 technological advantages 45 – Extensive portfolio of SWM patents and trade 40 secrets 35 LIP Volume • SWM currently produces two approved LIP 30 27 .1 products 25 – Online product developed with Philip Morris 20 17 .6 – Offline product manufactured at Newberry (U.S.) 15 facility and a third party converter 9.4 10 5.5 5 2.5 1.5 1.5 Areas of low air diffusion 0 E E E E E 08 06 09 05 07 11 14 12 13 10 20 20 20 20 20 20 20 20 20 20 Canada US Australia / Finland EU S. Africa / S. Korea Source: SWM management 22
  • Regulatory Backdrop Favors LIP: Global Adoption • North American LIP compliance requirements • Australia LIP regulation effective March now at 100% 2010, Finland in April 2010 • EU nations have initiated LIP regulatory process • South Africa, South Korea and the – Potentially 2x North American market size Philippines considering regulation – Likely effective starting in 2011 • Substantial margin improvement potential Growing Global Commitment to LIP Paper Regulation in Place Regulation Pending Source: SWM management 23
  • Agenda Overview of Schweitzer-Mauduit Successfully Restructured Operations Reconstituted Tobacco Leaf (RTL) Low Ignition Propensity Tobacco Paper Financial Review 24
  • First Quarter 2010 Financial Highlights (Amounts in Millions, Except Per Share Amounts) 1Q10 1Q09 Net Sales $193.0 $184.1 Net Income (1) $18.6 $13.3 Net Income (2) $21.8 $13.5 Adjusted EBITDA (2) $41.7 $30.7 Cash from Operations $31.4 $11.8 Diluted Earnings per share (2) $1.19 $0.88 Total Assets $771.5 $688.2 Net Debt $(21.3) $158.4 (1) Includes restructuring and impairment (2) Excludes restructuring and impairment 25
  • SWM Financial Performance Over Time (US$ in millions) $142 Adj. Operating Profit Adj. EBITDA $103 $75 $73 $58 $42 $42 $39 $34 $26 2006 2007 2008 2009 YTD 2010 2006 2007 2008 2009 YTD 2010 Adj. Earnings Per Share Free Cash Flow¹ $4.25 $33 $29 $15 $1.20 $1.19 $0.97 $5 $0.83 $(17) YTD 2010 2009 2006 2007 2008 2009 YTD 2010 2006 2007 2008 Note: Adjusted financials exclude restructuring and impairment expenses 1 Free cash flow defined as operating cash flow less capital and software spending less dividends. 26
  • Capital Structure & Liquidity Overview 2010 Cash Uses: • Dividends – $0.15 per quarter (unchanged since second quarter of 1996) • Capital spending expected to be $105 - $115 million, which includes $60 - $70 million for Philippines RTL project and $25 million for European LIP projects • Projected equity injection for China RTL JV of $13 - $20 million • Restructuring-related severance payments expected to be $35 - $40 million • Other cash needs expected to be $13 - $20 million (including capitalized software spending) (US$ in millions) Capital Structure Amount at Facility 3/31/2010 Debt Maturity Profile U.S. Revolver $-- Euro Revolver 34 French Employee Profit Sharing 10 Bank Overdraft 3 $34 Other 2 Total Debt $49 $6 $3 $2 $4 Less: cash $70 2010 2011 2012 2013 2014 Net Debt $(21) 27 Source: Company public filings, SWM management
  • Key Takeaways • Leading global full-line supplier in the tobacco-related papers industry • Strong global market position • Leading position in growing Asian markets • Focus on high value-added sectors of the market • Reputation for premium quality and service • Unique research and development expertise • History of profitability and earnings • Strong cash flow and prudent capital structure • Repositioning through restructuring for future earnings improvement • Dynamic management team with significant industry experience 28
  • Appendix / Additional Slides Appendix / Additional Slides 29
  • Regulation G Certain financial measures and comments contained in this presentation are “non-GAAP” financial measures, specifically measurements which exclude restructuring expenses. We believe that investors’ understanding is enhanced by disclosing financial measurements without restructuring expenses as a reasonable basis for comparison of our ongoing results of operations. 30
  • Reconciliations of non-GAAP Measures (US$ in millions) Adjusted Operating Profit: 2006 2007 2008 2009 YTD 2010 Operating Income 5.3 17.9 16.9 53.0 29.1 Plus: Restructuring & Impairment Expense 21.1 24.0 22.1 50.2 4.8 Adjusted Operating Profit 26.4 41.9 39.0 103.2 33.9 Adjusted EBITDA: 2006 2007 2008 2009 YTD 2010 Net income attributable to SWM $ (0.8) $ 3.4 $ 0.7 $ 35.6 $ 18.6 Plus: Interest expense 5.5 5.9 10.5 4.8 0.4 Plus: Tax provision (benefit) (4.2) 0.5 (1.9) 12.7 9.7 Plus: Depreciation & amortization 38.2 39.2 47.4 43.9 10.0 Less: Amortization of deferred revenue (5.9) (6.0) (5.8) (5.1) (1.8) Plus: Minority interest in earnings of subsidiaries 4.1 8.0 0.2 - - Plus: Restructuring & impairment expense 21.1 24.0 22.1 50.2 4.8 Adjusted EBITDA $ 58.0 $ 75.0 $ 73.2 $ 142.1 $ 41.7 Adjusted Earnings Per Share: 2006 2007 2008 2009 YTD 2010 Diluted net income per share $ (0.05) $ 0.22 $ 0.05 $ 2.20 $ 1.02 Plus: Restructuring and impairment expense per share 0.88 0.98 0.92 2.05 0.17 Adjusted net income per share $ 0.83 $ 1.20 $ 0.97 $ 4.25 $ 1.19 Free Cash Flow: 2006 2007 2008 2009 YTD 2010 Cash flow from operations 51.8 71.3 33.3 63.4 31.4 Less: Capital spending (9.6) (47.7) (35.3) (15.3) (9.9) Less: Capitalized software costs (3.8) (8.9) (6.4) (5.5) (2.7) Less: Cash dividends paid (9.4) (9.4) (9.4) (9.6) (2.7) Free Cash Flow $ 29.0 $ 5.3 $ (17.8) $ 33.0 $ 16.1 31
  • Changes in Operating Profit FY 2008 FY 2009 YTD 2010 Without Without $ Millions Restructuring As Restructuring Without As Reported As Reported Restructuring and Reported and and Impairment Impairment Impairment Prior Year $ 17.9 $ 41.9 $ 16.9 $ 39.0 $ 22.8 $ 23.1 Operating Profit Changes by Segment France (10.0) (3.4) 6.6 30.5 2.2 6.6 Brazil (6.4) (3.6) 17.1 13.9 (1.4) (1.4) United States 14.3 3.0 24.1 31.5 3.6 3.7 Corporate 1.1 1.1 (11.7) (11.7) 1.9 1.9 Operating Profit $ 16.9 $ 39.0 $ 53.0 $ 103.2 $ 29.1 $ 33.9 % Change from -5.6% -6.9% N.M. N.M. N.M. N.M. Prior Year 32
  • Profit Comparison • Operating Profit Comparison (1) 40 $1 .4 35 $0.3 $7 .9 $0.8 $1 .0 30 25 $4.8 $1 .7 $0.1 20 $33.9 15 $23.1 10 5 0 ne 9 0 e e ns s n s n m r ic -0 -1 st st t io ce io io lu ch Co ch Co gP pt au ct sla Vo ar ar du or g ry al n an M rin M lli bs M na Re Tr Se tA tu t io st ac cy & s fla Co Co uf en ix In an M rr d xe Cu m Fi on N 33 (1) Operating profit excludes restructuring and impairment expense.
  • Changes in Net Sales in Relation to EPS Currency $9 Price/Mix 10 Volume (10) $768 800 $670 $715 $658 $655 700 $566 $567 600 $501 $ Millions 500 400 300 200 $184 $193 100 0 2002 2003 2004 2005 2006 2007 2008 2009 Q 1 2010 EPS(1) $2.17 $2.28 $2.36 $1.26 $0.83 $1.20 $0.97 $4.25 $1.19 (1) Excludes restructuring and impairment 34
  • Manufacturing Cost Components – 2009 Labor 28% Other Wood Pulp 32% 8% Energy 1 3% V eg. Fiber D,T,I Chemicals 5% 8% 6% 35
  • Capital Spending EU LIP $100 Average PdM Restructuring $90 LTRI No. 3 $80 Banded Cigarette Paper $70 Philippine RTL $60 s Brazil #6 PM illion $50 M $40 $30 $20 $10 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010e 36
  • Safe Harbor Statement • This presentation may contain “forward-looking statements.” All statements that address operating performance, events or developments that we expect or anticipate will occur in the future are forward-looking statements. Caution should be taken not to place undue reliance on any such forward-looking statements because actual results may differ materially from the results suggested by these statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, forward looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and present expectations or projections. These risks and uncertainties include, but are not limited to, those described in Part I, “Item 1A. Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2009 and those described from time-to-time in our periodic and other reports filed with the Securities and Exchange Commission. 37