Dear Fellow Shareholders:
2021 was a year of purpose and growth for SWM. In a challenging external environment, we maintained an unwavering focus on positioning the company for long-term success, while also safely meeting our day-to-day customer commitments. Our global teams never lost sight of their priorities and goals, their focus on employee safety, and of our collective growth ambitions.
Above all, SWM remained dedicated to delivering best-in-class solutions as we help customers solve their most difficult engineering challenges. While the supply chain challenges impacted our results for the year, there are many positives that point to a bright future.
Scapa Acquisition Broadens Portfolio of Products and Value-Added Services
In April we completed the acquisition of Scapa Group Plc, a UK-based innovation, design, and manufacturing solutions provider for healthcare and industrial markets. Scapa’s coating and converting technologies pair well with our robust manufacturing capabilities while expanding our already strong positions in healthcare and other industries, allowing us to deliver an expanded array of integrated solutions to a broader set of customers. Our teams have already identified and begun executing on many commercial synergy opportunities, leveraging our combined market expertise and technical capabilities to bring new and improved products to market.
With the addition of Scapa, we welcomed more than 1,000 worldwide employees to our organization. In both video and in-person meetings, I was uniformly impressed with the caliber of our new teams and encouraged by their enthusiasm for joining our organization. The acquisition and successful integration to date demonstrates both commitment and capability to execute on our strategic growth vision for the Company.
Advanced Materials & Solutions
Demand for our products was exceptional in 2021, with our end-markets demonstrating very positive fundamentals. And of course, we added Scapa, which dramatically increased the scale of the business. As we grow, our ability to leverage our technical expertise creates more opportunities to innovate and bring new solutions to our customers.
Total AMS sales including Scapa increased 71% to nearly $1 billion. Our legacy business sales grew double digits, with 20%-plus gains in filtration and transportation products. Continued demand for cleaner and purer “everything” is evident in our growth across water, liquid, and air filtration materials, and our transportation films business continues to expand as consumers across the world continue to adopt paint protection films. And the truth is that AMS could have grown even faster if not for the widely publicized strains on global manufacturing supply chains which limited some material availability. Our innovation pipeline was also strong and we have multiple new products coming to market in the year ahead. Looking forward, we see another year of strong growth in 2022.
Our paper business performed as we expected in 2021, while we made significant strides with innovative new products. Similar to AMS, our EP business navigated multiple supply chain challenges, but once again proved to our customers that they can rely on SWM’s creativity and solutions-oriented mindset to consistently deliver high-quality products and outstanding service even under strained circumstances. In terms of innovation, our Heat-not-Burn products showed significant growth as we support our customers’ global expansions, and we pioneered hemp fiber and other botanical solutions to meet emerging demand for alternative products. Product synergies with Scapa were not exclusive to our AMS business, as EP is moving aggressively to develop more environmentally friendly fiber-based solutions for various end-markets with application to Scapa products.
2021 Financial Highlights
Total sales increased 34% to $1.44 billion, above our expectations, while adjusted EBITDA of $209 million and Adjusted EPS of $3.10* was below plan as supply chain disruptions and inflationary pressures across the business pressured profitability. We have aggressively responded to these headwinds and head into 2022 much better positioned for the current cost environment. In short, we expect significantly improved financial results in 2022, with adjusted EBITDA growth projected in the 20% to 30% range, and adjusted EPS increasing to $3.50 to $3.95. While the headwinds of 2021 are not completely behind us, we want to emphasize that we are in a better position than ever before, particularly with the addition of Scapa, to deliver sustained long-term sales and profit growth and our portfolio remains in high demand.
Our Commitment to Environmental, Social, and Governance (ESG) Initiatives
ESG has always been an important topic within SWM, and we are pleased to have released our 2021 Environmental, Social, and Governance report. In this report we provided an in-depth look at the efforts our business has undertaken to address critical ESG concerns and priorities. We are proud of the efforts we make across these important topics but recognize that there is always opportunity for further action. We pledge to continue to drive improvement and transparency around our activities and will be sharing additional updates as the opportunities arise.
The report (available for viewing and download on our web site) highlights:
Telling Our Story
Finally, we have built a strong reputation as a performance materials and solutions company with a constant focus on the needs of our customers. We take pride in our ability to engineer products that fit their demanding and unique requirements. In response to our customers’ requests, over the last several years we have continued to add capabilities and have diversified our portfolio dramatically from where we stood just five years ago. So much so, that we feel there is a need to better “tell our story” and holistically convey the value we bring to our end-markets, customers, shareholders, and of course our employees.
That’s why we have recently unveiled our unifying theme, our Shared Purpose, so to speak, that unites us all and describes what drives us each day: Finding ways to improve everyday life.
Our teams engineer solutions that make the products and the world around us better. Whether it is advanced skin-friendly materials that help people heal; tapes and films that help our cars safer and last longer; components that help keep the lights on and keep people and businesses connected; or filters that clean the air we breathe and the water we drink, our products have this in common: We help ordinary materials make an extraordinary impact. We push the limits of what’s possible. We engineer the solutions that make life better.
We find ways to improve everyday life.
To our customers and shareholders, thank you for your continued confidence in SWM. To our board of directors, I also offer thanks for your constructive advice and unfailing support as we navigated the acquisition, integration, and economic conditions. While 2021 was a challenging year, I remain convinced that we have the capabilities, expertise, and passion we need to continue our growth path and exceed the expectations of all our stakeholders.
Dr. Jeffrey Kramer
Chief Executive Officer
*Adjusted EBITDA and EPS are non-GAAP measures and are reconciled to GAAP measures in the financial tables on the first page of this annual report.