A year after emerging from Chapter 11 bankruptcy, Milacron LLC is back on solid financial footing under the ownership of Avenue Capital Group LLC and will turn a profit in 2010 for the first time in nearly a decade, according to two top executives.
We're out in the marketplace letting people know that we're here and we're in great shape, said Dave Lawrence, president of worldwide plastics machinery and DME Co., Milacron's mold components business. Financially we have not been in this position in years. We've got good products. We've got good people.
Milacron has been restructured both financially and organizationally, as management moves the firm away from a geographic focus and sets up global business units.
In technology news, visitors to the upcoming K 2010 show in Dusseldorf, Germany, will get the first look at a long-term strategic plan to gradually narrow the number of model names, and instead offer a line of modular machines that are fully customized, Ã la carte style. Ferromatik Milacron GmbH, based in Malterdingen, Germany, will roll out its F-Series injection press at K. (See story below.)
Now, Dennis Smith and Lawrence differentiate between a debt-laden old Milacron and new Milacron when they describe the only remaining broad-line, U.S.-owned maker of primary plastics machinery.
The company's doing much better, said Smith, Milacron chairman, president and CEO. We have a strong balance sheet. We're generating positive cash flow and we're reinvesting it back into the business. We're reinvesting it in places that will make us a stronger supplier, and allow us to provide better solutions for our customers.
Smith and Lawrence outlined the new Milacron during an hour-long interview Sept. 1 at the company's headquarters and U.S assembly plant in Batavia.
Milacron makes injection presses, blow molding machines, extruders, structural foam machines, mold components and industrial fluids used in metal cutting. Lawrence said the company employs about 2,500 around the world. That includes more than 600 people in southwest Ohio at Batavia and a machining factory in Mount Orab.
Smith and Lawrence paint a picture of a financially sound machinery manufacturer that is gaining market share. Milacron, which used to be publicly traded, has not turned a profit since 2000. Smith said that will change this year, when Milacron will make money.
One good sign: After taking its lumps in recent years, the machinery market is growing again. The U.S. market for injection presses an important home market for Milacron collapsed in 2009, to just 1,285 units, almost 50 percent below what it was 2008, according to the Society of the Plastics Industry Inc. in Washington.
By the time 2010 is over, Lawrence thinks U.S. injection press shipments will climb back 25 percent this year, to around 1,600 units.
Smith said Milacron is seeing growth in almost all of its geographical markets. Milacron runs factories in the United States, Germany, India and China. I'm happy to report that every one of the business units inside of Milacron has been profitable for 2010, he said.
However, he said, Milacron is not releasing sales numbers.
For the U.S. economic outlook in 2011, Smith's crystal ball is not as clear. We'll finish this year solidly, well in the black, with positive cash generation. We see the first quarter beginning to fill up nicely. But we are still concerned about all the things that are going on in the world.
Helping the machinery business right now is stronger spending by manufacturing, which is leading the U.S. economic rebound. About half of Milacron's sales come from the Americas most of that is from the United States and Mexico.
Milacron has launched an advertising and marketing campaign promoting its support of American manufacturing.
Manufacturing's important to this country. And we need to bolster that. We want to be a leader in that, Lawrence said. We think there's a lot more cooperation that needs to exist by manufacturers in this country to address the issues that are in front of us.
Lawrence said growing U.S. markets include packaging, consumer products and automotive, which was one of the most beaten-down areas during the recession. The surviving automotive suppliers are stronger, he said.
We've seen a fair increase in people buying new technology, realizing that they can buy new machines that are one, more energy efficient, have a lot more technology available and are more reliable than their old machines, Lawrence said. We see technology and replacement of older units driving a considerable portion of sales.
Restructuring post-Chapter 11
Old Milacron suffered from substantial debt. They basically took their cash flow and sent it outside the company. It either went out as an interest payment, or to satisfy a liability, Smith said.
In 2004, facing a crunch-time deadline, Milacron was able to refinance $115 million in bonds that were coming due, through an investment from a Japanese bank and a Swiss natural resources group, which gained a majority ownership. Both ended up selling their shares within a few years.
But the U.S. market for plastics machinery was weakening. High oil and resin prices in 2007 and 2008 hurt sales. The automotive supplier shakeout hit injection presses and industrial blow molding machines. A plunge in home building hurt Milacron's extruder business.
The Great Recession hammered equipment sales worldwide. The credit crunch dried up alternative sources of financing.
Milacron filed for Chapter 11 reorganization March 10, 2009, listing total assets of $523.3 million and liabilities of $752 million. According to court documents, Milacron faced a severe liquidity crisis.
The company, founded in 1884 as Cincinnati Screw and Tap Co., was facing its biggest challenge.
Milacron executives had started talking to Avenue Capital Group of New York and DDJ Capital Management LLC of Waltham, Mass., and the two private firms became the preferred, or stalking horse bidders in Cincinnati bankruptcy court. They held about 93 percent of Milacron's senior secured notes. After an auction failed to generate any competing bids for all the assets, the judge in mid-2009 approved the sale to Avenue Capital and DDJ, for $175 million.
Five months after it filed for bankruptcy, Milacron emerged as a new privately held company.
It went through a very rigorous process but there was a lot of effort put into it because they recognized the longer it dragged on, the more potential damage that could be done to the company, Smith said.
Avenue Capital, the majority shareholder, later bought out DDJ and other smaller investors and today owns all of Milacron, Smith said. New York-based Avenue Capital focuses on distressed debt and undervalued securities of companies, including those in bankruptcy good companies with bad balance sheets, according to its website. The group manages assets valued at about $18.2 billion.
Private equity firms pool investment money, buy companies, hold for a period of years, then sell to pay back the investors. In the plastics machinery world, any negative perception of private equity ownership has been tempered by the proliferation of deals in recent years, for Milacron competitor Husky Injection Molding Systems Ltd. of Bolton, Ontario, and a number of other equipment makers.
Smith and Lawrence said Avenue Capital has been a supportive owner. I've dealt with a number of private equity firms over my career, Smith said. Avenue has been more supportive of [Milacron] than anybody I've ever seen. And it goes back to the way they set the company up from a capital standpoint.
New Milacron has only about 15 percent of the debt of the pre-bankruptcy company, said Smith, who led several other turnarounds before Avenue brought him in as adviser during the bankruptcy.
Milacron got rid of more than $500 million in liabilities, according to a news release issued when the company exited Chapter 11.
Milacron was very fortunate in the sense that they were purchased by Avenue, which has been a very, very conscientious and supportive equity investor, Smith said. Their goal, the same as ours, is to build the strongest possible company that we can. And we do that by satisfying our customers.
The greatly reduced level of debt comes from a loan facility from Avenue Capital. Milacron also secured a revolving credit line from two banks, but the company has not tapped into that.
The new capital structure has enabled Milacron to pump money back into the business. Smith claims that over the past 12 months, the company has invested more than four times the average annual amount of money invested over the past decade. We have a modest interest payment that has to be made, but it's a fraction of what it used to be, Smith said.
Lawrence said some companies come back from bankruptcy with a punitive financial structure, and many of them don't survive. Avenue Capital, he said, has positioned us to take the money that we do earn and put it back into the business, he said. That was a very big positive on the part of the investors. And in fact, they've made a pretty significant commitment to the company.
The investments have gone into several areas, including expanding the plant in India, buying machine tools for Mount Orab and assembly equipment for Batavia, and improving the information technology systems of the fluids business and its ServTek parts and service operations.
It's nice to share
Smith said Milacron has expertise in its various global operations thin-wall packaging and closures at Ferromatik Milacron, for example. But the geographic locations tended not to share well with other Milacron operations, resulting in duplication of efforts, he said.
That is changing. Milacron is transitioning from a geography-centric company to one based on global business segments.
We've been able to begin to utilize our talent across borders so that we can pick the best platform, the best technology to solve customer problems, Smith said. Milacron wants to present a more united face, a more expert-driven face to customers.
Now, we still have a long way to go, to really get that where we want it to be. But we've made tremendous progress over the past year, he said.
Lawrence said there will always be some differences in machinery sold to some countries and regions, such as machine guarding and electrical standards.
That said, the fundamental application of the technology, the fundamental equipment that we deal with, can be a lot more uniform, he said.
A start is the F-Series injection press debuting at K 2010.
We're not going to make one piece of equipment and have that certain piece of equipment made at only one location in the world. We think that we've got a number of manufacturing locations that we can leverage, Lawrence said.
The strategy of global business units applies for blow molding, extrusion and other Milacron machinery sectors, as well as barrels and screws, he said. It's not just injection presses.
We're going to try to share on a much more global basis, Lawrence said.
Support lessens blow
Through all the turmoil of Chapter 11, Lawrence said that customers, suppliers, and employees stuck by the company.
Loyal customers remained loyal. We had customers that would call and tell us that 'Hey, we're with you. We know it's a tough time, but we're here for you.' That was the biggest surprise to me, said Lawrence, who had never before experienced a bankruptcy.
Employees have endured a series of layoffs, but Lawrence said the company has called back about 4 percent of its workforce.
As we've opened up positions, we've offered them to people who were laid off, and they've come back, despite the fact that some of them had other jobs, Lawrence said.
We've been pretty open with them that we're judiciously bringing people back and we're confident that we can keep them working, but we're being real cautious.
Smith said Milacron's message is simple: We have a great financial situation. Things are moving exceedingly well in the right direction, and we're going to be here for the long haul.
It's a fresh start, agreed Lawrence.
I'm having a helluva lot more fun than I was a year-and-a-half ago, he said. We've got a lot of opportunity and we're moving forward.