Driving Global Procurement Excellence in an M&A Environment. Gary A. Miller Vice President, Global Supply Chain and CPO September 13, 2011

Transcription

1 Driving Global Procurement Excellence in an M&A Environment Gary A. Miller Vice President, Global Supply Chain and CPO September 13, 2011

2 Safe Harbor Cautionary Note on Forward-Looking Statements A number of the matters discussed in this document that are not historical or current facts deal with potential future circumstances and developments and may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of Forward-looking statements can be identified by the fact that they do not relate strictly to historic or current facts and relate to future events and expectations. Forward-looking statements contain such words as anticipate, estimate, expect, project, intend, plan, believe, and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. Forward-looking statements are based on management s current expectations and include known and unknown risks, uncertainties and other factors, many of which management is unable to predict or control, that may cause actual results, performance or achievements to differ materially from those expressed or implied in the forwardlooking statements. Important factors that could cause actual results to differ materially from those suggested by these forward-looking statements, and that could adversely affect the Company s future financial performance, include, but are not limited to, the following: worldwide and regional economic, business and political conditions, including continuing economic uncertainties in some or all of the Company s major product markets; the effectiveness of the Company s efforts to improve operating margins through sales growth, price increases, productivity gains, and improved purchasing techniques; competitive factors, including intense price competition; fluctuations in the value of currencies in major areas where the Company operates; volatility of prices and availability of the supply of energy and raw materials that are critical to the manufacture of the Company s products, particularly plastic resins derived from oil and natural gas; changes in customer demand and requirements; effectiveness of the Company to achieve the level of cost savings, productivity improvements, growth and other benefits anticipated from acquisitions and restructuring initiatives; escalation in the cost of providing employee health care; uncertainties regarding the resolution of pending and future litigation and other claims; the performance of the North American auto market; and further adverse changes in economic or industry conditions, including global supply and demand conditions and prices for products. The risks and uncertainties identified above are not the only risks the Company faces. Additional risk factors that could affect the Company s performance are set forth in the Company s Annual Report on Form 10-K. In addition, risks and uncertainties not presently known to the Company or that it believes to be immaterial also may adversely affect the Company. Should any known or unknown risks or uncertainties develop into actual events, or underlying assumptions prove inaccurate, these developments could have material adverse effects on the Company s business, financial condition and results of operations. This document contains time-sensitive information that reflects management s best analysis only as of the date of this document. The Company does not undertake an obligation to publicly update or revise any forward-looking statements to reflect new events, information or circumstances, or otherwise. Further information concerning issues that could materially affect financial performance related to forward-looking statements can be found in the Company s periodic filings with the Securities and Exchange Commission. 2

3 Use of Non-GAAP Financial Measures This presentation includes certain financial information determined by methods other than in accordance with accounting principles generally accepted in the United States ( GAAP ). These non-gaap financial measures include: net income excluding certain items, net income per diluted share excluding certain items and EBITDA excluding certain items, as well as certain non-gaap supplemental segment comparison financial information reflecting the operations of A. Schulman, Inc. (the Company ) as if it owned ICO, Inc. ( ICO ) at the beginning first quarter of However, non-gaap measures are not in accordance with, nor are they a substitute for, GAAP measures, and tables included in this release reconcile each non-gaap financial measure with the most directly comparable GAAP financial measure. The most directly comparable GAAP financial measures for these purposes are income from continuing operation before taxes, net income and net income per diluted share. The Company's non-gaap financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures, and should be read only in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP. The Company uses these non-gaap financial measures to monitor and evaluate Company performance and believes that they are useful to investors for financial analysis, particularly with respect to understanding the significance of the ICO acquisition in the third quarter of fiscal However, the non-gaap supplemental financial information is not necessarily indicative of what the combined financial results would have actually been had the ICO acquisition taken place as of September 1, 2009, since such financial information does not reflect any cost savings, operating synergies, tax synergies or revenue enhancements, and includes certain estimated additional depreciation amounts and estimates for amortization of the intangibles recorded as part of the purchase price allocation. While the Company believes that these non-gaap financial measures provide useful supplemental information to investors, there are very significant limitations associated with their use. These non-gaap financial measures are not prepared in accordance with GAAP, may not be reported by all of the Company's competitors and may not be directly comparable to similarly titled measures of the Company's competitors due to potential differences in the exact method of calculation. The Company compensates for these limitations by using these non-gaap financial measures as supplements to GAAP financial measures and by reviewing the reconciliations of the non-gaap financial measures to their most comparable GAAP financial measures. 3

4 A. Schulman, Inc. Overview A. Schulman, Inc. ( ASI ) founded in 1928, global presence since the mid-1950s International supplier of designed and engineered compounds, color concentrates, resins, and size reduction services, which are used in a variety of consumer, packaging, industrial, and automotive applications Corporate headquarters in Akron, Ohio; NASDAQ: SHLM 33 manufacturing facilities: 18 in EMEA and Asia Pacific 15 in the Americas Approximately 2,900 employees 1,900 EMEA and Asia Pacific 1,000 in the Americas 4

5 Four Primary Markets Served Masterbatch (2.5% typical growth rate) End product made up of a percentage of ASI s compounded resins Film and packaging, for food and wrapping, masterbatches for colors and properties such as fade resistance Leveraging technical capabilities in high-value applications with key investments Industry-leading portfolio of additives, color, blacks and whites Specialty Powders (4.0% typical growth rate) Compounded resins for rotationally-molded products, such as gas and water tanks, kayaks, playground slides, and other large applications Leverage technical ability and service, design and new product development from both the Masterbatch and Engineered Plastics business units Broad product portfolio of base resins, custom colors, and proprietary cross-linked polyethylene formulations Engineered Plastics (2.0% typical growth rate) End product made up of 100% of ASI s compounded resin Compounded products for durable goods, appliances, toys Selective automotive applications Build on existing relationships through enhanced technical capabilities and superior speed Distribution Services (3.0% typical growth rate) Support three manufacturing businesses Distribute large producers bulk commodity resins Increase ASI purchasing power to improve availability and cost of base resins Capitalizing on global polyolefin producers shift to distribution 5

6 ASI Region and Business Mix Sales FY11Q2 SHLM FY11Q2 SHLM 7% 23% 19% 40% 17% 70% 24% Americas EMEA Asia Masterbatch Specialty Powders Engineered Plastics Distribution 6

7 ASI s Strategy Be the #1 Global Manufacturer Masterbatch Specialty Powders Engineered Plastics Favored consolidator in highly fragmented market Judicious acquisitions to speed entry into underserved markets and geographic extension Focus on new, higher margin products/applications Be the #1 Global Manufacturer In North America, maintain a balanced position between low-cost and technology leadership with focused R&D In Europe and Asia, further our technology leadership in high-value compounds Judicious acquisitions to speed entry into underserved markets and geographic extension Be the #1 Niche Player Globally Lever our successful German model Reduce North American auto capacity and focus on most profitable lines of business Continue development of sustainable Green products Support Distribution Use our distribution channels to leverage our Masterbatch, Specialty Powders and Engineered Plastics lines of business Leverage centralized purchasing power to improve availability and cost of base resins Capture new sources of polymers from the low price feedstock countries 7

8 Our Regional Strategies EMEA Maintain leadership position in Europe with value-added products and continued innovation; explore opportunities in Middle East Americas Continue unrelenting focus on growing profits and leveraging successful European model in U.S.; maintain our position in Mexico and grow Latin America Asia Pacific Capitalize on capacity of high-growth Asian region by importing proven global technologies/services; grow our MB/EP presence in Australia 8

9 ASI s Growth Opportunities: Acquisitions Defined acquisition strategy in place Strong balance sheet allows ASI to execute on acquisitions Any acquisition will align with ASI s goal to strengthen its position in masterbatch, niche engineered plastics or specialty powders Will allow for expansion into new high-growth, high-margin markets or applications Experienced management team to close deals and drive integration Defined acquisition criteria Value accretive with synergies (relative to ASI multiple) Sensitive to market multiples GIVEN ENVIABLE BALANCE SHEET, ASI VIEWED AS CONSOLIDATOR IN FRAGMENTED MARKETS 9

10 Four Key Profit Drivers New Products» Create higher-margin product portfolio» Support volume but primary focus on increased profitability Continuous Improvements Purchasing Savings/Smart Pricing» Optimize footprint» SG&A leverage Realize synergies from ICO, McCann and Mash acquisitions Limit growth of SG&A, especially in developed markets Admin optimization» Continued leverage of global volume base» Seek opportunities for alternate sourcing from Middle East and Asia» Align pricing strategies with purchasing strategies Slow and Steady Volume Improvement» Gradual market recoveries over time» Organic growth» Geographic growth ACQUISITIONS WILL ALSO PLAY KEY ROLE IN FUTURE GROWTH! 10

11 The Landscape ASI s M&A activities created significant challenges however, other challenges needed to be addressed first: Atomized Purchasing No Global Aggregation No Global Procurement Communication/Sharing This was the focus of our activities in 2008 & 2009 The M&A strategy created larger challenges in procurement Data acquisition Systems Database Cultural Differences Local vs. Global Little focus on aggregation or indirect spend 11

12 The Landscape (cont.) Global recession [downturn] in 2008 created a collapse [shortening] in the global supply chain Time Environment Actions/Outcome Demand Collapse Focus on Cost/Working Capital Improvements No Revenue Growth Plants, Products, Customer Rationalized Maintained Reduce Inventory Selectivity in Products, Customers Business Improved After Rationalization Resisted Capacity Additions Price Escalation, Poor Delivery Performance Suppliers and Customers also Reduced Inventory Improving Business Suppliers Requiring Commitments Revenue Growth o Forecast Accuracy Pricing Power Increased Selectivity of Customers Continued Reduced Working Capital Focus Companies who execute along every step of the supply chain are rewarded 12

13 Where we are going Sales and Operations Planning Procurement 13

14 Sales and Operations Planning - Issues Early 2008 Working Capital Comparisons vs. Peer Group Unfavorable High Inventory Levels Measured in Days Disaggregated Buckets of Inventory Attacked disposition of bad Inventory Brute Force Approach Went from 120 to 60 days and generated $200mm in Cash 14

15 Sales and Operations Planning Continuous Improvement Brute Force approach revealed two key findings Issue was quality of inventory not quantity No S&OP process Strong consensus to develop a global S&OP process Must be global Engaged Fraunhofer Institute Studied as is regionally Developed to be as a global PROCESS Currently implementing Regional organizations staffing Executing Structure follows strategy Global indicators 15

16 Procurement More than 70% of revenue in materials, goods, equipment, and services Global purchasing matrix organization Embedded in BU Substitutions emphasized New source development Asia Similar materials size/aggregation Developing supplier scorecard next focus Global metrics/indicators Global supplier meeting First-Ever Global Supplier Meeting Hosted Sept. 27,

17 SIMILAR GLOBAL PRODUCTS A G G R E G A T E Globally Sourced Regionally Sourced Locally Sourced 17

18 Procurement Guiding Principles ETHICS Implement our global procurement activities with the highest level of moral, ethical and legal conduct. OPEN Encourage an open procurement process which encourages any supplier who believes they can provide value added products, equipment or services to ASI. COMMUNICATE group. Communicate, discuss and share any and all information globally so that all ASI can achieve maximum benefit from the efforts of any person or URGENCY energetic Operate our procurement process with a sense of urgency that the success of the company depends on our doing our jobs in a timely, proactive and way BECAUSE IT DOES!!! RELENTLESS PURSUIT Relentlessly pursue opportunities to manage price down and working capital reductions. ACCOUNTABILITY Be accountable for the goals established in global procurement. 18

19 M&A strategy created larger challenges in procurement which Elemica helps address Increase Capacity to Focus on Indirect Spend Projects Consolidation of M&A to existing contracts New projects include aggregated volume Key stakeholder involvement in projects Maintain Guiding Principles and a TCO Approach Sourcing Process Expertise for Project Execution and Analysis Collaborative approach to RFx Strategy Manage the execution of RFx Strategy Detailed Analysis of Proposals Summary of Results Capabilities and Category Experience Category market overview Spend profile, data collection, analysis, validation Identification of quality, service and other non-pricing requirements Supplier engagement and enrichment as needed Support Final Negotiation, Contracting, and Award Process 19

20 Advantages & Results with Elemica Capacity Increase Additional resources w/o fixed cost (variablized workforce) More projects in the same time frame (velocity) Execute projects in parallel Capability Improvement Shared sourcing process expertise Depth in category experience Market & industry knowledge Cost Reduction Focus on improved T&C s Leverage aggregated spend between locations New strategies for lowering total cost vs. price alone Example Projects - Unify contracts, reduce supplier base, strengthen quality and service agreements, and share best practices: Corrugated Packaging Wooden Pallets Cellular Service Small Package Freight Copiers & Printers Office Supplies Average > 10% Savings 20

21 Our goal is. Valued by our Suppliers Chosen by our Customers Bench Marked by our Competitors 21

22 Appendix

23 FYQ2 Financial Highlights Reported net income for Q2 FY 2011 was: $7.1 million or $0.23 per diluted share vs. a loss of $6.8 million or $0.26 per diluted share in Q2 of FY 2010 Excluding certain one-time charges and acquisition-related items*, net income for Q2 FY 2011 was: $12.1 million or $0.39 per diluted share vs. $3.2 million or $0.12 per diluted share in Q2 of FY 2010 Overall gross profit per pound for Q2 FY 2011 was: 13.4 cents vs cents in last year s Q2. Had the Company owned ICO at the beginning of fiscal 2010, gross profit per pound would have been flat Cash was $96 million at 2/28/11; net debt position of $102.4 million; approximately $276.3 million of untapped credit lines Days of working capital were 72 as of 2/28/11 vs. 61 at the end of FY 2010 (August 31) * Please see the end of this presentation for the reconciliations of GAAP versus non-gaap financial measures. 23

24 Non-GAAP to GAAP Reconciliation Q2 FY2011 A. SCHULMAN, INC. Reconciliation of GAAP and Non-GAAP Financial Measures Unaudited (In thousands, except per share data) Three Months ended February 28, 2011 As Reported Asset Write-downs Costs Related to Acquisitions Restructuring Related Inventory Step-up Tax Benefits (Charges) Before Certain Items Net sales $ 508,343 $ - $ - $ - $ - $ - $ 508,343 Cost of sales 441, (162) - 441,569 Selling, general and administrative expenses 49,430 - (314) ,116 Interest expense, net 1, ,451 Foreign currency transaction (gains) losses Other (income) expense (433) (433) Asset impairment 1,800 (1,800) Restructuring expense 3, (3,385) ,031 (1,800) (314) (3,385) (162) - 492,370 Income from continuing operations before taxes 10,312 1, , ,973 Provision for U.S. and foreign income taxes 3, ,704 Income from continuing operations 7,279 1, , ,269 Income (loss) from discontinued operations, net of tax of $ Net income 7,279 1, , ,269 Noncontrolling interests (138) (138) Net income attributable to A. Schulman, Inc. $ 7,141 $ 1,800 $ 314 $ 2,772 $ 104 $ - $ 12,131 Diluted EPS $ 0.23 $ 0.39 Weighted-average number of shares outstanding -diluted 31,181 31,181 24

25 Non-GAAP to GAAP Reconciliation Q2 FY2010 A. SCHULMAN, INC. Reconciliation of GAAP and Non-GAAP Financial Measures Unaudited (In thousands, except per share data) Three Months ended February 28, 2010 As Reported Asset Write-downs Costs Related to Acquisitions Restructuring Related Inventory Step-up Tax Benefits (Charges) Before Certain Items Net sales $ 331,023 $ - $ - $ - $ - $ - $ 331,023 Cost of sales 279, ,686 Selling, general and administrative expenses 48,764 - (1,421) ,343 Interest expense, net Foreign currency transaction (gains) losses (180) (180) Other (income) expense (659) (659) Asset impairment 5,281 (5,281) Restructuring expense 1, (1,218) ,048 (5,281) (1,421) (1,218) ,128 Income (loss) from continuing operations before taxes (4,025) 5,281 1,421 1, ,895 Provision for U.S. and foreign income taxes 2, (2,252) 771 Income (loss) from continuing operations (6,819) 5,187 1,421 1,083-2,252 3,124 Income (loss) from discontinued operations, net of tax of $ Net income (loss) (6,807) 5,187 1,421 1,083-2,252 3,136 Noncontrolling interests Net income (loss) attributable to A. Schulman, Inc. $ (6,775) $ 5,187 $ 1,421 $ 1,083 $ - $ 2,252 $ 3,168 Diluted EPS $ (0.26) $ 0.12 Weighted-average number of shares outstanding -diluted 25,916 25,916 25

26 Non-GAAP to GAAP Reconciliation Q2 FY2011 A. SCHULMAN, INC. Reconciliation of GAAP and Non-GAAP Financial Measures Unaudited (In thousands, except per share data) Six Months ended February 28, 2011 As Reported Asset Write-downs Costs Related to Acquisitions Restructuring Related Inventory Step-up Tax Benefits (Charges) Before Certain Items Net sales $ 1,003,726 $ - $ - $ - $ - $ - $ 1,003,726 Cost of sales 868, (283) - 867,830 Selling, general and administrative expenses 102,335 - (1,195) ,140 Interest expense, net 2, ,536 Foreign currency transaction (gains) losses 1, ,338 Other (income) expense (437) (437) Asset impairment 1,800 (1,800) Restructuring expense 3, (3,936) ,621 (1,800) (1,195) (3,936) (283) - 972,407 Income from continuing operations before taxes 24,105 1,800 1,195 3, ,319 Provision for U.S. and foreign income taxes 7, ,343 Income from continuing operations 16,655 1,800 1,195 3, (65) 22,976 Income (loss) from discontinued operations, net of tax of $ Net income 16,655 1,800 1,195 3, (65) 22,976 Noncontrolling interests (271) (271) Net income attributable to A. Schulman, Inc. $ 16,384 $ 1,800 $ 1,195 $ 3,207 $ 184 $ (65) $ 22,705 Diluted EPS $ 0.52 $ 0.73 Weighted-average number of shares outstanding -diluted 31,245 31,245 26

27 Non-GAAP to GAAP Reconciliation Q2 FY2010 A. SCHULMAN, INC. Reconciliation of GAAP and Non-GAAP Financial Measures Unaudited (In thousands, except per share data) Six Months ended February 28, 2010 As Reported Asset Write-downs Costs Related to Acquisitions Restructuring Related Inventory Step-up Tax Benefits (Charges) Before Certain Items Net sales $ 693,883 $ - $ - $ - $ - $ - $ 693,883 Cost of sales 579,389 (69) ,320 Selling, general and administrative expenses 89,515 - (3,687) ,828 Interest expense, net 1, ,739 Foreign currency transaction (gains) losses (77) (77) Other (income) expense (1,886) (1,886) Asset impairment 5,331 (5,331) Restructuring expense 1, (1,647) ,658 (5,400) (3,687) (1,647) ,924 Income from continuing operations before taxes 18,225 5,400 3,687 1, ,959 Provision for U.S. and foreign income taxes 7, (2,252) 6,034 Income from continuing operations 10,319 5,285 3,687 1,382-2,252 22,925 Income (loss) from discontinued operations, net of tax of $ Net income 10,328 5,285 3,687 1,382-2,252 22,934 Noncontrolling interests (70) (70) Net income attributable to A. Schulman, Inc. $ 10,258 $ 5,285 $ 3,687 $ 1,382 $ - $ 2,252 $ 22,864 Diluted EPS $ 0.39 $ 0.87 Weighted-average number of shares outstanding -diluted 26,346 26,346 27

28 Non-GAAP to GAAP Reconciliation Q2 FY2011 A. SCHULMAN, INC. Reconciliation of GAAP and Non-GAAP Financial Measures EBITDA Excluding Certain Items Reconciliation Unaudited (In thousands) Three Months Ended Six Months Ended February 28, February 28, Income (loss) from continuing operations before taxes $ 10,312 $ (4,025) $ 24,105 $ 18,225 Adjustments (pretax): Depreciation and amortization 10,049 5,531 19,703 11,209 Interest expense, net 1, ,536 1,739 Asset write-downs 1,800 5,281 1,800 5,400 Costs related to acquisitions 314 1,421 1,195 3,687 Restructuring related 3,385 1,218 3,936 1,647 Inventory step-up EBITDA excluding certain items $ 27,473 $ 10,364 $ 53,558 $ 41,907 28

29 Non-GAAP Supplemental Segment Comparison A. SCHULMAN, INC. NON-GAAP SUPPLEMENTAL SEGMENT COMPARISON INFORMATION Unaudited (In Millions) Three Months ended November 30, 2009 EMEA Americas APAC Corporate Consolidated Pounds sold to unaffiliated customers Net sales to unaffiliated customers $ $ $ 33.3 $ - $ Gross profit before certain items $ 56.1 $ 15.9 $ 4.1 $ - $ 76.1 Segment operating income (loss) before certain items $ 27.0 $ 4.6 $ 1.0 $ - $ 32.7 Corporate and other (6.3) (6.3) Income (loss) from continuing operations before certain non-segment related items $ 27.0 $ 4.6 $ 1.0 $ (6.3) $ 26.4 Three Months ended February 28, 2010 EMEA Americas APAC Corporate Consolidated Pounds sold to unaffiliated customers Net sales to unaffiliated customers $ $ $ 29.1 $ - $ Gross profit before certain items $ 45.6 $ 13.8 $ 3.5 $ - $ 62.9 Segment operating income (loss) before certain items $ 9.7 $ 2.2 $ 0.5 $ - $ 12.4 Corporate and other (7.4) (7.4) Income (loss) from continuing operations before certain non-segment related items $ 9.7 $ 2.2 $ 0.5 $ (7.4) $ 5.0 Note: The results above include ICO as if the Company had owned ICO at the beginning of fiscal year The results exclude certain one-time charges and acquisition related items discussed above and include a consistent estimated amount of purchasing accounting-related depreciation and amortization expense for each period. Numbers may not add up due to rounding. 29