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8-K - 8-K - SCHULMAN A INC | shlm-201611168k.htm |
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 1
Re: SHLM
A. Schulman Investor Day
November 16, 2016
Exhibit 99.1
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 2
A number of the matters discussed in this document that are not historical or current facts deal with potential future circumstances and developments and August constitute
"forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. 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 August cause actual results, performance or achievements to differ materially from those expressed or implied in the forward-looking
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 al l of the Company's major product
markets or countries where the Company has operations;
– 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 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, joint ventures
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 global automotive market as well as other markets served;
– further adverse changes in economic or industry conditions, including global supply and demand conditions and prices for products;
– operating problems with our information systems as a result of system security failures such as viruses, cyber-attacks or other causes;
– our current debt position could adversely affect our financial health and prevent us from fulfilling our financial obligations;
– integration of acquisitions, including most recently Citadel, with our existing business, including the risk that the integration will be more costly or more time consuming
and complex or simply less effective than anticipated;
– our ability to achieve the anticipated synergies, cost savings and other benefits from the Citadel acquisition;
– substantial time devoted by management to the integration of the Citadel acquisition; and
– failure of counterparties to perform under the terms and conditions of contractual arrangements, including suppliers, customers, buyers and sellers of a business and
other third parties with which the Company contracts.
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 for the fiscal year ended August 31, 2016. 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.
Cautionary Note on Forward-Looking Statements
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 3
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
segment gross profit, SG&A expenses excluding certain items, segment operating income, operating income before
certain items, net income excluding certain items, net income per diluted share excluding certain items and adjusted
EBITDA, as discussed further in the Reconciliation of GAAP and Non-GAAP Financial Measures below. These non-
GAAP financial measures are considered relevant to aid analysis and understanding of the Company’s results and
business trends. 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
gross profit, SG&A expenses, operating income, 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.
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.
Use of Non-GAAP Financial Measures
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 4
2016 Investor Day Agenda
Opening Remarks – 3:00 p.m.
Ms. Jennifer Beeman, Vice President, Corporate Communications & Investor Relations
A. Schulman Overview
Mr. Joseph Gingo, Chairman, President and Chief Executive Officer
Global Operational Update
Mr. Gary Miller, Executive Vice President and Chief Operating Officer
Financial Strategy & Results
Mr. John Richardson, Executive Vice President and Chief Financial Officer
Panel Discussion – 4:00 p.m. (moderated by Jennifer Beeman)
Mr. Frank Roederer, Senior Vice President & General Manager, U.S. & Canada and Engineered Composites
Mr. Heinrich Lingnau, Senior Vice President & General Manager, Europe, Middle East & Africa
Mr. Gustavo Perez, Senior Vice President & General Manager, Latin America
Mr. Derek Bristow, Senior Vice President & General Manager, Asia-Pacific
Cocktail Reception – 5:00 p.m. – 6:30 p.m.
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 5
Joe Gingo
Chairman, President and Chief Executive Officer
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 6
A. Schulman Business Overview
A. Schulman, Inc. is an international supplier of high-performance and engineered
plastic compounds, engineered composites, color concentrates and size reduction
services, used in a variety of consumer, packaging, industrial and automotive
applications
BUSINESS MODEL
Engineered Plastics
Specialty Powders &
Engineered Composites
Masterbatch Solutions
Custom Performance Colors
Polymer Polymer Additives
Fiber & Reinforcements Finished
Compound
SIGNIFICANT TRANSFORMATION SINCE 2008 WITH A FOCUS ON SPECIALTY MATERIALS SOLUTIONS
Resin
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 7
Current Product Families
7
Masterbatch
Solutions
28%
Black and
white
masterbatches
Additives and
processing
aids
Engineered
Composites
8%
Highly filled
thermoset
compounds,
with glass
and/or carbon
fibers
Engineered
Plastics
36%
Thermoplastic
compounds
and resins for
injection
molding and
durable goods
Specialty
Powders
10%
Thermoplastic
powders for
rotomolding
Specialty
powders and
size reduction
services
Distribution
Services
11%
Distribution of
producer
grade
polymers and
specialties
Custom
Performance
Colors
7%
Customized
color
masterbatches
Standard color
masterbatches
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 8
Key Markets
Custom Services
Packaging Mobility
Electronics and
Electrical
Agriculture
Personal Care
and Hygiene
Sports, Leisure
and Home
Building and
Construction
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 9
Sales by Segment
% based on sales from August 31, 2016
Latin America
Engineered
Composites
Asia-Pacific
U.S and Canada
Europe, Middle East
and Africa
28%
7%
49%
8%
8%
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 10
SHLM Performance 2009 to 2016 – Market Cap
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 11
Significant Boost to
Scale And Scope
Creates Critical
Geographic Balance
Cross-Selling
Opportunities
• Expands scale in Engineered Plastics business
• Adds scope with a new growth platform in Engineered
Composites
• Significantly enhances A. Schulman’s Engineered
Plastics presence in North America
• Global Engineered Composites platform with
substantial presence in high-growth markets such as
Mexico and China, among others
• Overlap in customers, products and channels
sets the stage for revenue synergies
Strategic Rationale For Acquiring Citadel
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 12
Lucent Issue
• Discrepancies between lab data & certifications provided to customers
and UL by two Lucent plants
• $12 million of total Lucent costs incurred in FY16
• Operationally remediated
Impairment
• $401.7 million non-cash impairment charge in 4Q
• Largely due to Lucent fraud and lower outlook for oil field services
Intangibles Impairment
• Intangible impairment reduced amortization expense in 4Q
by $1.2 million, or $0.03 per share
• Will reduce amortization expense in FY17 by $4.8 million
or $0.12 cents per share
Citadel Wrap Up
COMPANY BELIEVES SELLERS ARE RESPONSIBLE FOR DAMAGES AND HAVE FILED A LAWSUIT
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 13
Reset: Citadel
Continue to integrate Citadel’s
Engineered Plastics
• Evansville consolidation continues
Continue to grow Engineered
Composites globally
• Major investment in Germany will
provide entire range of glass & carbon
fiber sheet molding compounds
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 14
Fiscal 2014 Fiscal 2016
Metric Actuals Actuals
Sales $2.4B $2.5B
Adjusted EBITDA $147.8M $228.9M
EPS $2.36 $2.08
ROIC 12.2% 11.3%
Leverage 1.6x 3.98x
Performance 2014 vs. 2016
(1) Metrics are on a non-GAAP basis
(2) Trailing Twelve Month (TTM) Non-GAAP Operating Income After Tax (30% Tax Rate Assumed) Divided by 12 Month Average Invested Capital Defined as
Current Assets Minus Cash, Less Current Liabilities, Minus Current Portion of Long Term Debt.
(2)
(1)
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 15
• Reset: business portfolio and strategic execution
• Reexamine: market intelligence and go-to-market strategy
• Refocus: customer engagement
• Restructure: streamline costs and manufacturing footprint
• Results: deliver historical performance
Regaining Momentum
DONE WITH A HEALTHY SENSE OF URGENCY
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 16
Reset: Management Changes at A. Schulman
Gary Miller - Chief Operating Officer
Frank Roederer - Senior Vice President, General Manager of U.S. and
Canada in addition to General Manager of Engineered Composites
John Richardson - Executive Vice President – Chief Financial Officer
WE WILL FOCUS, SIMPLIFY AND EXECUTE WITH A SENSE OF URGENCY
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 17
Review of A. Schulman
GOAL WAS TO VERIFY OUR MARKET INTELLIGENCE, CONDUCT DEEP ASSESSMENT OF
UNDERLYING ASSUMPTIONS AND DEFINE PATH FORWARD – NOT SELL THE COMPANY
Over the last several months, A. Schulman partnered with Citi for a comprehensive
review of the Company’s 2017 budget and long-range plan
Citi’s
Approach
Work
Performed
• Reviewed existing budget and long-range plan
• Refined views on global market trends
• Assessed sources of growth and profitability for achievability
• Met with 30 segment and business unit leaders to discuss and test
assumptions
• Assisted A. Schulman management in development of new budget /
long-range plan
• Assisted A. Schulman management in presentation of proposed budget
and long-range plan to A. Schulman’s Board
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 18
Build on What’s Right
Build on our Process and Product Technology
• Strong global brand with long customer
relationships
Focus on Cash Generation
• Strong growth in Free Cash Flow and EBITDA
Pricing Discipline
• Implemented product pricing tools
to drive improvements
Successfully Gain Market Share in Growth Regions
• LATAM and APAC
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 19
Focus Over Next Two Years
Reinvest in the Business
• New operations in Turkey & China
• Capacity expansions in APAC, LATAM & EC
Strengthen Sales
• Hiring of Chief Commercial Officer
• Adding sales and replacement of non-performing sales people
• Product technology will report to CEO
Simplify Management Structure
• Create streamlined Product Families to gain regional control
• Eliminate redundant positions
Restructure
• Continue to optimize manufacturing footprint
• Continue to consolidate back office operations
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 20
Fiscal 2017 Fiscal 2018 Fiscal 2019 Fiscal 2020 Fiscal 2021
• Reset year
• Deliver on
expectations
• Continue business plan
implementation
• Capture benefits of 2017
initiatives
• Regain growth momentum
• Continued growth under a new
management team
Excellent internal candidates for
CFO & COO
Consider internal & external
candidates for CEO
A. Schulman Outlook
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 21
Gary Miller
Executive Vice President & Chief Operating Officer
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 22
Reexamined: Global Operations
Reexamined our businesses and
functions
• Nothing off limits
• Citi assisted in the evaluation
• “Go to Market” strategy
ALL DONE WITH A HEALTHY SENSE OF URGENCY
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 23
Reexamined: Business Unit Sales Process
Hampered service and delivery
Obstructs “Strategic Global Account” coordination
New application development slow to launch
No differentiation in growth regions
BUSINESS UNIT STRUCTURE TOO COMPLEX
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 24
Reexamination: Two Major Initiatives
Simplify management
structure/processes of our
businesses and functions
Refocus and reinvigorate
sales processes
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 25
Product Families Simplified
25
Masterbatch
Solutions
28%
Engineered
Composites
8%
Engineered
Plastics
36%
Specialty
Powders
10%
Distribution
Services
11%
Custom
Performance
Colors
7%
Current
Performance Materials
47%
Custom Concentrates
and Services
45%
Engineered Composites
8%
Restructured
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 26
New Product Families Are Market Aligned
PROVIDING INNOVATIVE SOLUTIONS TO EXACTLY MEET
CUSTOMER APPLICATION REQUIREMENTS
Performance Materials Custom Concentrates
and Services
Engineered
Composites
Packaging X
Building and Construction X X X
Agriculture X X X
Personal Care & Hygiene X
Electronics & Electrical X X
Mobility X X
Custom Services X X
Sports, Leisure & Home X X X
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 27
Refocus on Sales
Accuracy / Insight Value Pricing
Drive Organic
Growth
• Improved sales
forecasting
• “Weekly Outlook”
• Foster robust customer
discussions
TARGET DATE
Fiscal 2017 Fiscal 2017 – Fiscal 2018
Key Focus
• Reinforce pricing authority
• Utilize accurate pricing data
• Enforce appropriate pricing
• Innovation
• Focus on strategic accounts
• Have right “feet on the
street” with addition of 10%
sales resources
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 28
Refocus on Sales (continued)
Reinvigorating Innovation Process
• Restructuring global innovation pipeline
• Led by CEO
Restructuring Global Strategic Account Process
• Allows efficient cross-selling
• Leverages our global footprint
Strengthen Sales
• Hiring of Chief Commercial Officer
• Upgrade Sales capability – add resources,
upgrade talent
SIGNIFICANT CHANGES TO DRIVE ORGANIC GROWTH FUNDED BY A PORTION
OF RESTRUCTURING SAVINGS
* Registered Trademarks of Companies
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 29
Refocus: Initiatives and Savings
Simplification of management
structure/processes and Sales Refocus
• Total annual pre-tax savings approximately
$5 to $6 million with partial year savings in
FY17, and full anticipated annual savings
in FY18
• Portion of these savings will be reinvested
into additional sales resources
Pursuing rationalization of 3-4
manufacturing facilities by the end of fiscal
2017
• Total annual savings potentially $3.5 million
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 30
The Path Forward
REDEFINING THE BUSINESS & THE WAY THE CUSTOMER VIEWS US RATHER
THAN THE WAY WE VIEW THE CUSTOMER
Major initiatives
• Simplify management structure/processes
• Reinvigorate sales processes
• Pursuing asset optimization
Desired outcomes
• Pivot sales organization to customer-
centric
• Nimble & agile
• Focus on Quality, Service and Delivery
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 31
John Richardson
Executive Vice President & Chief Financial Officer
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 32
Metric(1)
Fiscal 2017
Estimates
CAGR
Fiscal 2019
Estimates
Sales $2.5 - $2.6 billion 3.8% - 3.9% $2.7 - $2.8 billion
Adjusted EBITDA $225 - $230 million 6.5% - 8.3% $255 - $270 million
EPS $2.08 - $2.18 16.0% - 17.3% $2.80 - $3.00
ROIC(2) 11% - 12.5% 16.6% - 16.8% 15% - 17%
Leverage 3.5x – 3.8x (11.1%) - (15.5%) 2.5x – 3.0x
SHLM 2019 Targets
(1) Metrics are on a non-GAAP basis
(2) Trailing Twelve Month (TTM) Non-GAAP Operating Income After Tax (30% Tax Rate Assumed) Divided by 12 Month Average Invested Capital Defined as
Current Assets Minus Cash, Less Current Liabilities, Minus Current Portion of Long Term Debt.
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 33
GDP Driven
Growth from
Developed
Markets
GDP Driven
Growth from
Emerging
Markets
Restructuring
Expansion
and
Leveraging
Technology
Balanced Long-Term Growth Profile
$225 -
$230 MM
$255 -
$270 MM
2017E EBITDA 2019E EBITDA
* Metrics are on a non-GAAP basis
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 34
Cash Utilization Philosophy
A. Schulman will invest in growth, focus on paying down debt to achieve leverage
target & return capital to shareholders
Reinvest
Return Capital
to
Shareholders
• New operations in Turkey and China
• Capacity expansions in APAC and LATAM
• Sales resources
ACHIEVING OUR NET LEVERAGE TARGET WILL PROVIDE A. SCHULMAN
WITH FURTHER STRATEGIC FLEXIBILITY
• Maintain and protect current common / convertible
stock dividends
Debt Pay
down • In addition to mandatory debt pay down, intense focus on
deleveraging balance sheet
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 35
Appendix
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 36
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 37
Explanation of Adjustments
1 - Asset impairments are related to goodwill and intangible assets, and also include information technology assets, in the Company's USCAN, EC and EMEA segments. Refer to Note 4 and Note
19 of the 2016 Annual Report on Form 10-K for further discussion.
2 - Accelerated depreciation is related to restructuring plans in the Company's USCAN, LATAM and EMEA segments. Refer to Note 14 of the 2016 Annual Report on Form 10-K for further
discussion.
3 - Costs related to acquisitions and integrations primarily include third party professional, legal, IT and other expenses associated with successful and unsuccessful full or partial acquisition and
divestiture/dissolution transactions, as well as certain employee-related expenses such as travel, bonuses and post-acquisition severance separate from a formal restructuring plan.
4 - Restructuring and related costs include items such as employee severance charges, lease termination charges, curtailment gains/losses, other employee termination costs, and professional fees
related to the reorganization of the Company’s legal entity structure and facility operations. Refer to Note 16 of the 2016 Annual Report on Form 10-K for further discussion.
5 - Lucent costs primarily represent legal and investigation costs related to resolving the Lucent matter, product manufacturing costs for reworking existing Lucent inventory, obsolete Lucent inventory
reserve costs, and dedicated internal personnel costs that would have otherwise been focused on normal operations.
6 - Accelerated amortization of deferred financing costs related to the €108.6 million prepayment of the Euro Term Loan B.
7 - CEO transition costs in 2016 represent charges for deferred compensation granted to Bernard Rzepka. Costs in 2015 represent a charge for the modification and accelerated vesting upon
retirement of the outstanding equity compensation awards granted to Joseph M. Gingo in 2013 and 2014.
8 - Tax (benefits) charges represent the Company's adjustment of reported tax expense to non-GAAP tax based on the overall estimated annual non-GAAP effective tax rates.
9 - Inventory step-up costs represent the amortization of adjustments to fair value of inventory acquired for acquisition purchase accounting.
10 – Primarily relates to bridge financing fees and the write-off of deferred debt costs of $18.8 million and $1.5 million, respectively. Refer to note 5 of the 2016 Annual Report on Form 10-K for
further discussion.
11 – Represents a pre-tax net gain of $1.3 million on the early extinguishment of debt.
.
A. SCHULMAN — INVESTOR DAY NOVEMBER 16, 2016 38
Explanation of Adjustments
(1) - Other includes Foreign currency transaction (gains) losses, Other (income) expense, net, and Gain on early extinguishment of debt.
(2) - For details on Non-GAAP adjustments, refer to "Reconciliation of GAAP and Non-GAAP Financial Measures", items (1), (3) - (11) and Loss (income) from
discontinued operations. Amounts are included in Operating Income (Loss) and Loss (income) from discontinued operations. Accelerated depreciation on the
"Reconciliation of GAAP and Non-GAAP Financial Measures" has been excluded as it is already included in Depreciation and Amortization above.