CEO Letter to Shareholders 2020
Excellent Bottom Line Performance in 2020 despite the Pandemic
I am proud of how our Albany employees rose to the challenges of 2020. Our financial results, safety focus, and operational performance were remarkable, considering the headwinds we faced from the pandemic. We adapted and executed well. Our culture of innovation and operational excellence was fundamental to this success. While revenues were down nearly 15% overall, both segments achieved record levels of profitability. In 2020, MC’s Adjusted EBITDA margin was 37.6%, up 170 basis points over 2019. Our Albany Engineered Composites (AEC) Segment also executed well, reaching 26.1% Adjusted EBITDA margin, up 360 basis points compared to 2019, despite the slowdown in airline travel and commercial aerospace production. As a company, we generated nearly $100 million of free cash flow (cash from operating activities, less capital expenditures), and ended the year with a strong balance sheet that enables investment in our plans for future growth.
Employee Safety First
When the COVID-19 pandemic started in early 2020, we took immediate action to ensure the health and safety of our employees. Learning early from our operations in China, we shared best practices globally, set up a centralized communications and decision-making structure—a Covid-19 Task Force—and immediately began reconfiguring our operations around the world. We adapted and improved as we went, redesigning work areas, using digital tools, working from home where possible, and exploiting our global footprint to shift production. Throughout the year, we constantly worked to improve safety and keep employees healthy. Employees told us they felt safe coming to work at Albany and appreciated our focus on their safety, health, and well-being. We ended the year with the best safety performance in the history of the company.
Our employees stepped up and demonstrated their resilience and commitment to doing a great job for customers. We delivered high quality products, on-time, and continuously improved our operations. Despite the socialdistancing restrictions of the pandemic, we completed over 100 Kaizen events, led by virtual teams using video links, mobile cameras, and digital white boards. We drove productivity improvements and re-adjusted our factories and supply chain to changing customer demand. We doubled down on employee training and development. We rolled out many on-line training and career development programs that people could complete while working from home, including project management, Lean Manufacturing, Six Sigma, and leadership development courses.
A Legacy of Innovation & Technology Continues into the Future
Albany International is an engineered materials company with a proud 125-year history of innovation. We are the world leader in consumable belts used in the rigorous process of papermaking because of our product technology and breadth, materials engineering, and technical service expertise. Our engineers are constantly applying new materials to help paper makers advance the state of the art. We are known in the paper industry as a preferred partner for the most demanding technical solutions.
An example is our development of new belts for the growing and technically demanding tissue market. These belts are leading the industry because they enable our customers to produce tissue and towels that are soft, fluffy, highly absorbent and of the highest quality—attributes the consumer rewards. Our customers also recognize the superior value our advanced belts can deliver in the papermaking process by reducing energy consumption and improving paper machine efficiencies—all beneficial in a world increasingly focused on the environment and sustainability.
In Engineered Composites, we are developing a breadth of capability to be the next-generation supplier of advanced composite materials. This ranges from 3D Woven Composites currently used on LEAP engine fan blades and fan cases with our partner Safran, to automated fiber placement composite wing skins for the F-35 joint strike fighter with Lockheed Martin, to complex components on the Sikorsky CH-53K helicopter. In 2020, we continued to develop applications for the “Wing of Tomorrow” program with Airbus Industries. While the payoff from this program is longer-term, it is imperative that we have a seat at the table to be part of the creation and design of the next generation of aircraft.
For the future, we are investing more in R&D projects with new customers and new platforms using advanced materials such as our 3D Woven Composites on a range of exciting applications including unmanned, hypersonic, and electric vehicles. Our goal is to diversify and grow our customer base and broaden our material science capabilities.
Promising Outlook for 2021 and Favorable Trends Beyond
As the world moves toward a more sustainable future, aircraft will be lighter and paper machines will require less energy and run more efficiently. Composites will replace heavier metal components, and renewable paper will replace plastic. These are good trends for Albany. It is exciting that we develop advanced materials that contribute to sustainable improvements in efficiency and benefit our environment. While 2021 will be another challenging year for commercial air transport, as it grinds through the “destocking” of excess inventory in the supply chain, the longer-term is promising. The commercial recovery in aerospace will begin with narrow body aircraft as domestic travel picks up first, to be followed later by international travel that employs more wide-body aircraft. We benefit from this trend as LEAP engines, with our 3D Woven Composite fan blades and fan cases, power the sweet spot of the narrow body segment—the Airbus A320neo and Boeing 737 MAX aircraft. In addition, we are working hard to diversify our customer base in both commercial and military segments and to apply advanced composites to new applications. We are building a reputation in aerospace as a company that does a great job for customers and brings new and innovative materials to the design table.
We are excited about our Machine Clothing business outlook, in both the near-term and long-term. Our bookings were strong at the end of 2020 and coming into 2021, perhaps signaling a recovery. And while publication grades were hit hard during the pandemic, the growth in tissue, packaging, pulp, and engineered fabrics is promising and looks to benefit from the global economic recovery. As we come out of this global pandemic-caused recession, we are well positioned as the global leader in Machine Clothing.
Finally, I would like to express my gratitude to our employees who persevered through a challenging 2020. I could not be more impressed; they helped one another to contribute to a safe working environment, supportive community, and continued to do a great job for customers.
With warm regards,
President and Chief Executive Officer Albany International Corp.
March 31, 2021