Mativ Holdings, Inc.

Thank you, Lori. Good morning.

I'm Scott Humphrey, Corporate Treasury Director at SWM. Thank you for joining us to discuss SWM's third quarter 2012 earnings results.

On today's call, Frédéric will share some high-level comments about our third quarter performance and priorities. Jeff will then take you through a more detailed review of our financial results and guidance.

We will then take your questions.

Before we begin, I would like to remind you that the comments included in today's conference call constitute forward-looking statements. Actual results may differ materially from the results suggested by these comments for a number of reasons, which are discussed in more detail in the company's Securities and Exchange Commission filings, including our annual report on Form 10-K.

Certain financial measures discussed during this call exclude restructuring expenses and valuation allowances and are, therefore, non-GAAP financial measures.

I will now turn the call over to Frédéric.

Thank you, Scott, and good morning, everyone. Late yesterday, we released our third quarter earnings, and I will talk about that in the next several slides.

As shown on Slide 4, we had solid third quarter earnings and performance, which underscored our sustained business momentum. As expected, we experienced growth in EU LIP sales versus levels seen in the first half of the year, and we expect this to continue during the remainder of 2012, in line with our original projections of full year customer commitments.

RTL sales volumes were also up compared to the third quarter 2011 partially due to timing of some customer shipments, which moved from second quarter to third quarter, as well as continued growth in the business. Adjusted earnings per share from continuing operations, which now is like the 2-for-1 stock split executed during the quarter, finished the quarter at $0.95, a 23% increase over third quarter 2011, reflecting SWM's focus on growing our higher-value LIP and RTL franchises, as well as the impact of our share repurchase programs.

Finally, our cash generation was very strong compared to the third quarter last year on stronger earnings. We also completed the $50 million share repurchase program that was launched earlier in the year, and Jeff will provide more details on this.

During the past 2 years, we have completed stock repurchase programs aggregating $155 million, and as a result of the 2-for-1 stock split, we have effectively doubled our dividend payout. We continually evaluate the most judicious use of our free cash flow, maintaining an appropriate balance between continued investments in key growth areas and returning cash to our shareholders.

In this regard, we will attempt to provide more insight behind our continually evolving plans during future calls.

Moving to operational trends on Slide 5. RTL volumes increased by 19% over the prior year quarter, reflecting timing of selected customer orders, as well as continued year-over-year volume growth.

In that regard, we now expect full-year 2012 RTL volumes to increase in the mid-single digits over 2011 levels.

Paper segment volumes, including CTM, our Chinese joint venture, increased by 2% over the prior year quarter, a reversal of the decline we saw in the second quarter of 2012. As expected, EU LIP demand in the third quarter was better sequentially versus the second quarter of 2012, and we expect fourth quarter volume to continue strengthening as our customers complete their full-year commitments.

CTM volumes, as expected, are recovering from the weak start of the year. We also saw an increase in nontobacco paper during the quarter versus the prior year quarter.

Operational performance and productivity improvements continue to be a key focus for us, led by our Lean Six Sigma initiatives, which have continued to more than offset the negative impacts from inflationary cost increases. Currency volatility negatively impacted us versus the third quarter 2011 as weakening of the euro and Polish zloty against the U.S.

dollar continued to negatively impact earnings in the quarter.

Slide 6 summarizes our key business objectives. Our objectives and priorities remain clear.

Our continued focus on execution is vital to our success, and this is why we remain on track to achieve our total year earnings guidance despite the weaker euro during the third quarter. Our guidance, adjusted for the stock split and accretion from our fully executed $50 million repurchase program, remains at $3.63 adjusted earnings per share, a non-GAAP metric, and is dependent on the euro staying at current levels for the remainder of the fourth quarter of 2012.

In connection with the potential for future growth of our high-value products, we are looking forward to the World Health Organization Conference of Parties meeting in Korea during November. We expect recommendations from this convention on tobacco control to favor expansion of LIP standards worldwide, and we may gain insight as to the timing of potential new markets for our LIP franchise.

In addition, during the third quarter, SWM obtained a license from the Chinese government to import our wrapper and binder products for smaller cigars into the Chinese markets. Although it will take time to develop customer demand for this product, it is an exciting expansion into a potentially large new market.

As we continue to focus on extracting growth and profitability from our higher-value products, we also continue to evaluate other potential growth opportunities. 2012 is the first full year where we have reaped the benefits of both the U.S.

and EU LIP market conversions. These achievements, combined with major cost structure improvements implemented during the past several years in our core paper business, are expected to result in the fourth consecutive year of record earnings for our company.

In this regard, we expect to maintain our focus on investing in key growth opportunities to sustain a path of continuous earnings improvements for our shareholders.

I will now turn the call over to Jeff to discuss our financial results in more detail.

Thank you, Frédéric. Moving to Slide 8, net sales adjusted for constant currency increased a strong 6.4% for the quarter on both higher LIP and RTL volumes.

This is our sixth consecutive quarter of year-over-year sales growth.

Now turning to Slide 9, reconstituted tobacco sales volumes were up 19% compared to the prior year partially due to timing issues, which moved sales from the second quarter to the third quarter. RTL volumes are now up 9% for the first 9 months of the year.

Overall, paper segment volumes, including volumes from CTM, our joint venture in China, increased by 2% versus the third quarter of 2011. Volumes at CTM increased 23% versus the second quarter of 2012, which reflects the expected second-half improvement in volume we discussed last quarter.

Total SWM volumes, including China, were up over 8% in the quarter versus the prior year quarter.

On Slide 10, year-to-date operating profit increased $35.6 million or 38% from the first 9 months of 2011 due to a $29.4 million benefit of favorable volume and product mix combined with $8.4 million in royalty income. The lack of startup costs for EU LIP as well as other cost-of-sales improvements offset higher nonmanufacturing expenses, inflation and currency translation effects.

Year-to-date pulp costs have been essentially the same as the first 3 quarters of 2011 as lower softwood kraft prices have been offset by higher hardwood prices. Pulp prices are projected to remain fairly stable over the final months of 2012.

Our adjusted operating margin for the first 9 months of 2012 rose to 21.4%, up 580 basis points from the first 9 months of 2011.

Slide 11 shows the strength of SWM's third quarter adjusted operating profit by business segment. Despite the impact of a weaker euro and Polish zloty, overall operating profit was up 34% over the prior year quarter.

Excluding the impact of prior-period royalty payments received in the fourth quarter of 2011, this is a record high quarter for SWM operating profit. Significant operating profit improvements were noted in both segments of our business this quarter, with RTL up 18% and paper up 38%.

These strong results were driven by higher volume and increased LIP royalty income.

Our third quarter 2012 adjusted earnings per share, as shown on Slide 12, increased 19% over the third quarter of 2011 and was also up $0.13 sequentially from the second quarter of 2012. We completed our $50 million share buyback authorization during the third quarter.

In total, we purchased approximately 1,480,000 shares, split-adjusted, at an average price of $33.78 a share. The impact of our 2012 share repurchase program was $0.04 per share on third quarter results, bringing the total year-to-date benefit to $0.08.

Moving to Slide 13. Despite the unfavorable impacts from currency, our adjusted EBIT improved by 37% or $12.7 million from the third quarter of 2011 due to the onset of EU LIP regulation in late 2011, increased RTL volume and effective margin optimization programs.

Adjusted EBITDA from continuing operations totaled $56.5 million for the third quarter of 2012, which is up from $44.4 million in the third quarter of 2011. Our trailing 12 months of adjusted EBITDA is now $227 million.

Turning to Slide 14. SWM net debt decreased by $37 million during the third quarter of 2012 and is down $20.9 million from the end of 2011 despite $50 million of share repurchases and equity investments into CTS, our joint venture in China.

We expect net debt to continue to decline in the fourth quarter as cash requirements, including dividend payments, will be more than offset by strong generation of cash from operations. Total debt was 25.5% of capital, and SWM's net debt to adjusted EBITDA ratio remains low at 0.21 as of September 30, 2012.

Now moving to Slide 15. For 2012, we reiterate our expectation for cash usages to be considerably below 2000 levels.

Capital spending was $20.4 million during the 9 months of 2012, well below the $51.9 million incurred during the first 9 months of 2011. The 2011 capital spending included $30.8 million toward construction of the RTL facility in the Philippines to a mothball state and $9.2 million toward completion of the LIP printing facility in Poland.

For the full year of 2012, we expect capital spending of approximately $25 million to $30 million. We continue to expect other uses of cash, including funding the China RTL joint venture and the increased dividend payout of between $40 million and $45 million.

Return on invested capital in 2012, as shown on Slide 16, increased to 23.6%, well above SWM's cost of capital and above prior-year levels, primarily due to increased net income in 2012 compared to 2011. ROIC is expected to remain strong in 2012 due to the earnings gains from EU LIP on relatively stable levels of invested capital.

That concludes our remarks. Lori, please open the line for questions.

I want to start with the nice cash build we saw, and if you could comment on additional potential uses of cash. Are there acquisition opportunities out there?

And what would be criteria for acquisitions, if you could you just help me with that?

Sure. Well, I think as you know, our focus has been on extracting growth and value from our value-adding products like LIP and RTL.

And I think the primary focus of the company is to continue to do just that. We have a healthy portfolio of high-value-added products with good future potential, and the priority in terms of use of cash is going to be to maximize their performance, so RTL, LIP, China being the, let's say, the flagship initiatives.

Now on the other hand, the reality is that demand for conventional tobacco papers in Western markets continues to decline, which ultimately will put pressure on the capacity utilization of our existing production assets in both regions. So over the past few years, we have been exploring ways to apply our core technologies to markets outside of the tobacco industry, and we have now dedicated teams in place pursuing several avenues to stimulate organic growth in the field of engineered film [ph] papers and/or reconstitution of nontobacco fibers.

At the same time, if we felt there was an opportunity to acquire a business that complemented this new product areas that we are exploring or possibly expand into new opportunities in an adjacent market, we certainly would give it serious consideration, but that has not been the primary driver so far. And I would say there's nothing really material to discuss at this point.

And what about restarting a share repurchase program?

I think this is an option, obviously, that we have considered and acted upon over the past 2 years and remains, certainly, a vehicle of use of cash strategic for us and achieving what we consider as important to balance use of our cash flows between returning cash to shareholders and reinvesting in our business. So it's one of several avenues, and I would say at this stage, we have no announcement to make.

And it's only something that we know we will want to clarify in future calls.

Great. In terms of declining conventional cigarette volumes and softness, particularly in cigarette sales in Europe, how should we think about RTL volume for '13?

As you rightfully pointed, there's probably been more softness in cigarette consumption in Europe as it relates, for example, to North America than historically. I think for us, because of the LIP events, we have been able to gain share and certainly pull some good volume number.

It's not absolute growth but at least a good resilience of our business on the paper side. On recon, to your question, I mean, 2012 is turning out to be a great year for us with very solid volume growth.

We are still working with our customers in terms of their actual forecast for 2013, so it's too early for me to really give you with great precision an outlook for '13. But everything looks, so far, that 2013 will be another solid year for RTL.

We are making progress on investment in China, and therefore -- so that means we are building a pipeline of new demand in the Chinese market, which we are serving currently out of our French facility, and with a view that, as we saw this facility in China in the first half of 2014, that will create capacity availability out of France to continue to grow our business outside of China.

Great. And then in the Q, you talked about actions to address the imbalance of supply and demand or capacity.

Can you give us any more detail? Is that something we should expect an announcement about over the next year?

Well, I think it's something I've been doing for, I would say, at least -- as far as I've been associated with SWM, so since 2006. We're constantly looking at how to optimize our manufacturing footprint and also rebalance our capacity to demand, and demand is growing in Asia.

It's declining, at least in terms of secular trends, in the Western market. I think -- so we are constantly doing that.

The adjustments are smaller sizes than we have made in the past, but we remain vigilant in terms of optimizing the use of our capacity and also looking at some imbalance in supply in some regions that put a lot of pressure on pricing. I'm talking about conventional paper products and what makes the best sense for us.

And that's something we'll continue to do as we move forward as part of the game of being in the cigarette paper industry.

And then finally, congratulations on obtaining your license to import wrappers and cigars paper in China. Is that something that should benefit results in 2013?

Not in a material way. I think the small cigar segment in China is very small at the moment, but looking at the demographics, looking also at the leading styles, we believe there is a great potential.

And we have been qualifying some of our products with key customers, with other license going through just the research and development qualification process. And so basically, we see that as an avenue but nothing that necessarily will materially affect the earnings of the corporation in '13 but definitely over the next 3 to 5 years.

Wrapper and binder has historically been a very successful and very high-value product for us, and we expect to expand it to China, which in itself is quite exciting.

Just I think historically -- or these past 2, 3 years, you had kind of given more guidance for the future year on this call. And I understand there are a lot of moving parts, but I guess on RTL and then also on just the core paper business, I mean, I thought the belief or the goal internally in the company was, even with the assumption that volumes worldwide were be flat to down, you could at least maintain the profit level just as you found efficiencies.

Is that a fair way to kind of look at 2013, that at least we can have flat-to-slightly-up profit levels on the current business?

Well, Bill, I mean, I can tell you as a corporation, we're not looking at it that way because, at least, it's not even the bare minimum of what is acceptable. But I think to your point, I mean, the kind of growth through expansion of the LIP markets that we have seen in the last 3, 4 years is going to slow down or is slowing down.

Now again, I pointed to this conference that is coming in a few weeks where the working group around tobacco limitations is getting together, and they have a specific agenda as it relates to LIP. And as we have guided over the past year or 2, this could be a triggering event for some countries to communicate around adoption of LIP, and even if the adoption date is effective in '14, it could be an effect on 2013 sales in terms of getting ready and inventory build.

So probably -- there is no big nugget of growth on LIP that is firm for 2013, but we are still going through the learning curve in terms of efficiencies, gaining some traction. We are working very hard to expand marginally our market share both in North America and Europe.

We have South Africa that came along during the course of this year, smaller territories without kind of a neighboring EU but are adopting voluntarily those same regulations. So there is incremental growth, and clearly, in terms of earnings, we continue to expect to generate earning gains year-on-year.

Now this is only -- at this stage, I cannot speak with clarity as to whether there will be the same level of year-on-year gains that we have seen in the past 2 to 3 years. But we are not looking at 2013 as being a down year.

We still have a lot of momentum in both on the commercial side and in industrial and running operational excellence program to continue to drive our earnings.

Okay. And then just -- I mean, I guess as I look at 2013, any way to quantify -- I've forgotten kind of what the startup expenses were both for LIP in Europe as well as kind of the legal costs, which I like to think are slowly going away?

I mean, certainly, the legal costs have gotten lower since we got through some of the activity with the ITC. But the question is, will there be other things that come up in 2013?

We just don't know at this point. So we're literally in that process right now of developing our budgets and our plans for 2013, so we'll look to provide some more color on that in future calls like we have in the past, but it's just really too soon at this point to give anything specific there.

Okay. And then, Frédéric, just one last one on -- just kind of as we go into the World Health Organization, I mean, how should we be looking at that?

I mean, in terms of announcements coming out there and what that actually means, will we see -- Russia says we're onboard, and that immediately means that within a 12- to 18-month period, things should go live? Or how quickly can we gauge what that really means?

Honestly, I don't know for sure what the outcome of this event will be. I think clearly, what we see based on some of the primary work papers, there is going to be a big push to standardize what LIP compliance means, so in terms of standards of compliance.

And so a large number of companies will likely adopt or support the idea that the standards for LIP compliance that are in place in North America and Europe will become kind of global standards. Now whether individual countries will, beyond that, just also proactively announce a date for them to comply with LIP regulation is unknown.

Now clearly, there is a number of countries, we mentioned them in the past, that continue to work on the idea of adopting LIP regulation in their jurisdictions. Whether they will take the opportunity of the highlights being placed on this World Health Organization Conference of Parties to make announcements during those -- that week or in the latter -- post the conference, we don't know.

My view is that clearly, in 2014, '15, we should see an expansion of the LIP market based on the amount of activity that we see. We don't know which country would make announcements, and we don't know if these adoption dates would be such that they may possibly impact 2013.

That's why we expect to have much greater clarity when we get to the February earnings call, and likely, that's when we'll provide the next update.

A couple of questions. First, any incremental changes in the competitive landscape for LIP in either the U.S.

and Europe to talk to? And any update on existing litigation here in the U.S.?

Okay. In terms of major changes to the competitive landscape on the LIP front in North America and Europe, I would say the answer is no.

I think our results year-to-date speak for the fact that we continue to hold a very solid share, looking also at the stream of royalty income. I mean, our view is that the combination of what we sell directly and what we sell through license agreements constitute the majority of the addressable markets and nothing that we can say that this will be about to change.

Now that in itself also ties to your second question. We decided not to appeal the decision of the ITC, International Trade Commission, in the U.S.

based on the fact that today, we really don't have any -- we don't see Glatz having made or making inroads on the U.S. market, and we see ourselves having a very large and retaining a very large share of the North American market.

Things that we have, in fact, done since the inception of that market. In fact, I would say over the last year or 2, we have gained share in North America as both litigations were progressing.

Okay, that's good to hear. And then in Europe, what is your current market share in LIP?

And just longer term, as you get a better feel for who also is in that market right now competing with you outside of yourself and Delfor, what do you see as your long-term share potential in Europe LIP?

I think now the dust is starting to settle in terms of the effect of the inventory build and then some the end deals that took place. Clearly, we are tracking along our projections, which were to sell an estimated 40%, 40%-plus of the EU markets.

We are there. Difficult to give more precision than 40%-plus.

And in terms of what we see from the royalty incomes and combining with our own share, we are definitely north of 80% of the addressable market in the EU served either directly or through license agreements.

Got it. That's helpful.

And just two last questions and I'll turn it over. If you look at just this CTM paper volume relative to the entire paper volume that you have globally, can you give us a sense of what percentage of the total volume right now is in China on the traditional paper side?

Yes, I think we -- I could say it is between 15% and 20% of our capacity and production, if you want, for paper products is in China. Now we are still selling to China even tobacco papers from Europe.

But from an installed capacity and production output point of view, it's on its way to 20%.

Okay. And just last question on the balance sheet.

It's in great shape. Longer term, what do you guys believe the efficient leverage ratios are for the company?

Well, I mean, as we've always said, our position was we wanted to pay down the debt with the cash that's being generated, balance it out against what we're returning to shareholders through the buyback programs. And as Frédéric indicated, we'll continue to look at the appropriate balance in terms of future uses of cash flow along those same lines, but we'll work to provide some additional insight on that in future calls for next year.

Thank you, Lori. Thank you very much for attending the call.

We certainly appreciate your interest in the company. Jeff, Scott and I will be in our offices today, and if you have any further questions, please give us a call.

Have a nice day. Thank you.