Synergies for the Win: Mativ CEO on the Power of a Manufacturing Merger
The paper industry has been in a tough place for decades, with the shift to digitized communication and dwindling natural resources. To survive and thrive, companies have had to be especially innovative and financially nimble—constantly on the lookout for new markets to enter, partnerships to forge and ways to optimize resources.
Two historic specialty paper companies, Neenah Inc. (founded 1873) and SMW Intl. (dates back to 1545 in France), became the latest to join forces, forming a new company, Mativ Holdings, last year. The companies have met before: they were both owned by Kimberly-Clark for many years, until the early 1990s.
The Alpharetta, Georgia-based Mativ manufactures specialty materials, critical components and engineered solutions in industries including healthcare, filtration and sustainable packaging. It’s a melding of expertise : Neenah’s strengths were high-end packaging, stationary and labels. SWM’s specialties included tobacco papers, films for healthcare and industry, industrial netting and adhesives.
Julie Schertell is the CEO leading the combined companies into their next chapter. Formerly CEO of Neenah Inc., she led the companies’ merger in July and now oversees 7,500 employees, approximately $3 billion annually in combined revenue and 48 manufacturing facilities on four continents.
Schertell’s entire 30+ year career has been in the paper industry. After graduating with a master’s in finance from the University of Georgia, she started out as a cost analyst at Georgia Pacific and found her calling in manufacturing. “I loved the practical application—being able to see and touch what we were making and then understand how it impacted people,” she says.
Schertell has spent time in almost every leadership corner of the paper business. She worked at Georgia-Pacific in a variety of roles, including vice president of supply chain and vice president of sales and marketing. She moved to Neenah in 2008 to lead its Fine Paper and Packing division, then was promoted to COO and, in the early days of COVID, became CEO.
Schertell talked with IndustryWeek about opportunities with the merger, the labor shortage, materials costs, recovering from a cybersecurity incident and more.
IndustryWeek: What are the advantages of the merger?
Julie Schertell: Both companies have very similar complementary technologies and assets. And material science know-how, but we didn't compete directly. We’ve improved our scale, our synergies and our strategic logic in the markets that both companies were competing in.
Both of these companies were spun off many, many years ago from Kimberly-Clark. So there’s common parenting that occurred. We competed in similar markets, make similar products. So the cultures were very similar.
Where do you see opportunity going forward?
I see it in filtration—the macro trends for cleaner air and water and the rapid increase in water scarcity around the world. Couple that with an increased focus on air filtration due to the pandemic. We provide the highest efficacy in filtration, so the most purified version or premium end of the filtration markets.
Our commitment to innovation in filtration is extremely strong. We have a state-of-the-art R&D center in our German facility and partner very closely with our customers in transportation filtration and air, water and life-science filtration.
The other area is protected solutions. We see continuing growth and adoption rates for paint protection, coating alternatives that provide unique characteristics that might mean greater durability, breathability strength, water resistance, flame retardancy. Those unique characteristics continue to grow in need and our ability to practice sustainable solutions with the thinnest coat weight possible is a key part of how we're successful in that area.
How are you addressing labor shortages?
When we talk about labor and some of that loosening up with some of the contraction demand that we're hearing about seeing in Q1, we're really not yet seeing the labor market start to loosen yet. So we're still very much actively hiring, working on retention and upskilling our existing operating force.
I think we're missing out on a large part of the population, particularly from a gender standpoint, and we have the opportunity to attract those applicants, but we need to meet their needs. We need to ensure that they have more flexibility to meet their needs. Some of our practices within our plants and how we're doing scheduling and planning and hiring is a big part of that. Even small steps like creating flexible work schedules in our operating plants. We need to attract more women and more people of color into our operations.
It's really easy to do it for salaried, white-collar workers. Less easy when we get into operations. We have teams that have done a great job of thinking through different operations’ opportunities. So some of our sites will have static schedules and some will have rotating schedules. Some will have a combination of both depending on the needs of the employees, so they have the flexibility to choose how they're going to manage their schedule.
We're working on job-sharing opportunities in our operations. So maybe we have folks that are able to come into for four or five hours in the afternoon, but they need to be home for childcare and other things in the evening—they have the opportunity to split some of those shifts and do some job-sharing. It's going to be up to us to continue to drive flexibility and agility to get the greatest operating talent.
Do you expect that labor will loosen up in the next few months? And what are you doing to retain existing employees?
I think over time, if there's more contraction in the environment, we'll likely start to see that. We're really focused on getting the right folks in the door, skilled folks, at our sites and then ensuring we have proper training and accelerated training opportunities and mentoring opportunities for them.
We’re upskilling operators at a much quicker pace than we have in the past. And I would say that's been over the last few years. That learning curve has just had to condense and our ability to train in different ways to provide the right level of mentorship and supervision and to automate where it makes sense is a big part of ensuring that we can meet our customers’ demand.
Do you see your manufacturing footprint changing with shifts in the market?
Both companies historically, before the merger, have a history of managing our assets in a manner that provides you know that low-cost solutions to customers. So with 48 sites and a number of assets, I'm sure over time we will continue to find opportunities to optimize that footprint.
That said, we’ve committed to $65 million that does not have any footprint consolidation. It's really driven by cost reductions in our existing footprint. Half of that synergy value is SG&A (selling, general and administrative expenses) and a just the redundancies of two publicly traded companies coming together.
The other half of it is really driven by procurement and having greater buying power and alternatives. We buy a lot of same materials from the same suppliers or different suppliers and then we buy slightly different materials across that portfolio, so there's a real opportunity for our buying optimization. So footprint is always going to be an opportunity for us, but it's not the primary opportunity right now in front of us.
Do you see like your combined purchasing power with the merger already having an impact? Or is that like on down the line?
It’s having an impact really quickly. Just our ability to bring two companies together. When you look at the terms that each company has with common suppliers, you're naturally going to take that step for better terms, that better pricing, and so just that alone is a quick hit from a synergy standpoint and our procurement synergies. We basically said we exited the year at about $20 million in a synergy pace and that we will deliver $25 million in synergies to the bottom line this year—and that is heavily driven by our buying and procurement synergies.
How have materials costs affected Mativ?
We are seeing some input prices start to contract, but others not. So our view is inflation is going to remain an issue in 2023. So for example, we are seeing reductions in some of our more commodity like chemical like polypropylene. And we're also seeing transportation costs coming down and I would say trending towards pre pandemic levels. But we're not seeing any deflation and most of our specialty chemicals for our fiber, which are both large inputs for us.
Energy prices are starting to come down from the peak of late last year but still higher than I would say you know, mid-term equilibrium price ranges. And we've hedged a lot of our energy prices, particularly in Europe for 2023 to drive distance and less volatility in our process, so it's a mixed bag for us right now we're seeing some of the more commodity like supplies starting to loosen a bit. We're not seeing that in more specialty chemicals or cleaning fibers that we use.
The other thing I'd add on this topic is you know is there is a silver lining in the current macro environment and a little bit of slowing down of demand that we're seeing right now. It would be a right-sizing of our supply chain. Mativ, like many manufacturers, has been impacted by this out of bounds supply chain for I'd say the past two years, and oftentimes we've been unable to procure the needed chemicals and materials to meet demand, while at the same time you know, experiencing record levels of inflation.
So as we see that supply chain loosened a bit. It’s giving us the opportunity to right size inventories for our customers and to more appropriate order backlogs and lead time to to improve our delivery times to our customer. I would expect as we see a little bit of contraction, if we see a little bit of loosening and inflation, that those things will continue to benefit our supply chain in 2023.
Right after the merger, you had a cybersecurity incident. What were your learnings from that?
A cyber event happened three days after the merger was closed, so very quickly. And it did not infiltrate all of our sites but it did infiltrate a number of our sites. We had a crisis management plan in place and so we a playbook pull out and follow and run. But there were a lot of unknowns.
I think the key is ensuring that we all have the right safety mechanisms in place so that if there is a cyber event, it doesn't spread and it doesn't spread broadly and quickly and it doesn't penetrate personal information so that we have employee information at risk. We were able to contain the spread of it and recover fairly quickly. Our team did a great job of putting manual processes in place where we needed to so that we weren't significantly impacting our customers. It did cost us about $5 or $6 million from a P&L impact in the third quarter, but it could have been much worse if we weren't as nimble and agile as we were and if we didn't have a playbook.
Where were your processes affected?
Being able to print labels for shipping and managing an ERP system that was not activated in some of our sites. Inventory management, procurement management site management to get orders out the door, order management to get orders into a system. A lot of that went manual for a couple of weeks in some of our sites. It slowed us down a bit but didn't stop our operations.
Is there anything else you’d like to share about your outlook for Mativ?
I feel confident in our future and in our abilities. We have diverse portfolio of consumable filtration, paint protection applications, release liner applications. We would classify about 60% of our portfolio as recession resilient, which is really important in this environment.
About 75% of our portfolio is in markets that are growing at 5% or more, so I love that organic growth opportunity. We have the ability to lean into that. We compete in the premium ends in most of our markets, meaning we have pricing power, and we have qualification requirements, because we provide innovative engineering solutions, so we're not easy to replicate and we have a strong supply chain globally. And our assets are very agile and flexible. That’s extremely important to customers today, to have that local supply chain. So I really feel like we're focused on controlling our own destiny and have a lot of controllable actions that give me confidence.
We have upside from those cost, synergies and revenue synergies, like cross selling customers products. We have a strong commercial excellence process. We've been very disciplined in our pricing actions. We have a strong operational excellence process. We have ongoing lean improvements and opportunities across all of our plants and a strong pipeline with our customers.
So the amount of controllable actions that we have, I think is really important and important to manufacturers in general as we work to control our own destiny in an environment that's been somewhat volatile.
