Q4 2019 Earnings Call
Thank you for standing by and welcome to the Oh, our glass fourth quarter and full year 2019 earnings conference call.
At this time, all participants are in listen only mode.
After the speakers presentation, there will be a question and answer session to ask the question you want me to press Star one on your telephone.
Please be advised that todays conference is being recorded.
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I would now like turn the conference over to your Speaker today, Mr., Chris Mandeville, Vice President of Investor Relations. Thank you. Please go ahead Sir.
Thank you Vincent and welcome everyone to the alike last year end and fourth quarter earnings call. Our discussion today will be led by Andres Lopez, our CEO and John Hardrick. Our CFO today will provide key business developments and provide a review and outlook of our financial results. Following prepared remarks, we'll post acute.
In a session.
Isn't station materials for this earnings call are available in the company's website at <unk>, Oh, Dashonte Dot Com. Please review the safe Harbor comments and disclosure of our use of non-GAAP financial measures included in those materials somebody financials were presenting today relate to non-GAAP measures such as adjusted earnings adjusted free cash flow.
Segment operating profit net debt, which exclude certain items that management considers not representative of ongoing operation.
A reconciliation of GAAP to non-GAAP items can be found in our earnings press release and in the appendix. This presentation I'd now like to turn the call over to Andres.
Thanks, Chris Good morning. Thank you for your interest you know I glass.
Well I made solid progress improving its operating performance over the course little bit second half of 2019, despite a very challenging to start to a year.
Why do face with these challenges the company continues to execute this Friday.
These include it taking a number of both the structural actions would change well ice business fundamentals.
We will discuss shortly this includes efforts to optimize our business portfolio in capitala structure, including critical efforts to address our legacy asbestos liability.
Likewise, we initiated a number of important don't erroneous hit the upstream grew apart business performance.
<unk> on the long term, we continued to advance maxima and create a new obviousness moment for glass.
We are confident that these efforts will improve our business performance and cash flows in 2020 and beyond.
Turning to somebody pays on to slide three.
Last night, we reported fourth quarter 2019 earnings so 50 cents per chair for.
For the full year earnings where do you all are some 24 cents and why generated $133 million so adjusted free cash flow.
Earnings were at the high end of our most recent guidance range and adjusted free cash flow exceeded our expectations.
Fourth quarter segment profit was down modestly from the prior year I was flat with 2018, when excluding the impact of foreign currency in a few temporary items.
Operationally the benefit of higher net pricing on sales volumes offset elevating operating cost linked to the violence. It's linked to a plant capacity court fan and it's implemented earlier this past quarter.
As I said, a moment ago, we ended the year on a positive note with good momentum heading into 2020.
At a high level, we expect 2020, adjusted EPS would range between $2.10 into all arts and 25 cents.
Operationally, you say, 3% to 10% improvement adjusted for the impact will be best teachers and temporary items.
We expect cash flow will significantly improve following actions to address our legacy as best supposedly are really.
Why 2019 free cash flow was slightly negative we aspect, we generated $300 million or more FY 2020.
Turning to slide four I will expand on my previous comments on big Bold actions, we're taking would change our business fundamentals.
First.
We are improving our structural.
We are expanding an attractive in growing markets supported by long term contracts with a strategic customers and we are exiting areas that are not core doors Friday.
We are very pleased we didn't write off I now like you see it's going on recent expansion efforts in South America.
Both of these efforts increase our presence in the premium beer segment.
As part of our tactical divestiture program, we monetized Howard soda ash JP at an attractive television.
Likewise, our strategic portfolio review is underway, which includes we view up on turnip beep support our I was throwing you'll see on businesses.
Recent refinancing efforts have improve our liquidity and financial flexibility.
He put thousandth waiting we will continue to expand our business in attractive markets some segments.
This includes the first brownfield expansion in Europe.
Past 20 years and is starting to fit for news at our JV with CVI early in the year.
Likewise, we will advance our tactical and strategic portfolio review.
Yes, we view includes several aspects so far business and we expect to half year resolution on AMC like meat 2020.
In late December we completed our corporate modernization initiative, that's supported the chapter 11 filing of bad luck in January.
Steady motion efforts to finally, we sold our legacy asbestos liability.
Overall, we are laser focused on improving our cash flow generation and we're using that.
After our challenges last year, we are highly focused on starting around operating performance.
Ultimately, we did see improving trends seem to like half of 2019, and we have momentum heading into 2020.
Consistent with seasonal trends of our business, we generated strong cash flow into second half of the year supporting nearly $1 billion sub debt reduction by year end.
Following recent challenges.
Seem to mix changes you know a handful of glancing North American Euro I'm happy to report is our focus factories have exceeded a marked improvement in recent months.
We expect these headwinds we debate over the next few quarters.
We have also eat through your street corner surrounding these ships to further boost performance, which I will these causing a moment.
Differently, we have taken actions in the fourth quarter, two chill down capacity in North America to align capacity with demand.
In 2020 execution of our turnaround initiatives will be critical to improve performance along with ongoing airports in the footprint in North America.
Finally, our aim is to write what gives you an ice class. These means to addressing the historic fund strange that be last house phase and leveraging Keith range like sustainability.
These actions to create new growth opportunities.
Maxima represent the future of glass manufacturer.
The technology to enable dramatic dramatic reductions in coffee, telling fancy, the improving speak to market and significantly enhanced actually really.
We have achieved all key milestones at already Newfield pilot plant and we are expanding might come up to a second location in Germany, we should be operational near the end of 2020.
Oh it all we are taking a non bertolt bold actions as we build on our recent momentum to change Weiss business fundamentals.
Turning to slide five at me roughly 2019 was not the year, we expected as organic sales volumes were down an operating costs were elevated.
In response, we initiated our turnaround initiatives to directly addresses. These challenges. He thought we are targeting $35 million to $50 million of net benefits 2020 from these actions.
As we are currently ramping up activity that run rate savings exiting this year will exceed these net benefit amount.
Over the three years, we expect the needs hit the if you will generate 100, I'm $50 million or more of net benefit.
Revenue and makes optimization you start first in Egypt.
We are taking a holistic approach to growing the top line.
I've already has caused the sponsoring initiatives to grow our business. You know these soon we expect to drive higher priced any broke makes you select markets and categories building on the success, we have achieved in the past two years in Europe.
Why do we have seen good what else can start the markets. We have also experienced base erosion in some pockets of our business.
We've enhanced focus we intend to mitigate these pressure points. These focused on supplies to customer payment terms, we charted essentially 40 improved cash flow generation.
Finally, we are commercializing a suite of new innovative product offerings that can serve a changing market landscape, particularly in North America.
[noise] factory performance is our next the new ship you've built on thought of system cost approach over the past few years.
You know the issuance to targeting cost improvements, we are improving operating performance and efficiency across the network.
Yes, we've seen without focus back to the effort in the back half of 2019.
Greater intervention and enablement at the plant level can have a we can meaningfully impact on operating performance. This initiative expansion depth concept across our network, we take peer set of priorities Bert plant supported by global resources like.
Likewise, we are evaluating our plant portfolio, and we'll be making footprint adjustments to keep supplied match with longer term demands range, primarily in North America.
Cost transformation is our third the news.
Supported by a venture we are implementing a ciro based approach to reuse as DNA and evolve our operating the structural inline with our current a strike.
We are confident that these three knees hips will help tone around the lies performance in 2020 and beyond.
When you slice Stakes, we have depicted age is starting to review apart organic sales volume trends.
The top right you will see all iden network volumes that have exhibited is stable to improving live events over the past five years, including 2019.
Legacy volumes, which include Oh, I consolidated operations have been flat to modestly though.
Recognizing this challenge we have seen intentionally we have been intentionally building our positioning key strategic JV is focused on is attractive markets in Mexico in Central America.
Each of our regions face their unique market trains, we tell you towards strategies Europe was able to grow with the marketing earlier periods on feel they became capacity constraint in 2018.
As such the region quite successfully focus on mix optimization towards segment profits.
Our brownfield expansion should we have slower growth in 2020.
The Americas network has posted consistent volume improvement aided by a spansion you noticed strategic gay bees, and a strong growth in Latin America.
However, the Americas legacy train has been under pressure.
These reflects the net effect of a strong growth in Latin America, which has been more than offset by a significant decline in beer across North America.
To put this into perspective, North America year decline about 14% in 2019 and now represent just 9% helpful I sort of legacy volume.
We have other asked these head on by is stopping to par in assisting before quarter on a thought on the five furnaces since 2015.
Likewise, we have closed our report or report pushed 17 machine lights over the past several years Oh. It all these actions have effectively reduce our north American beer capacity like 35%.
We stand ready to take further actions as conditions warrant it.
As I touched on earlier, we are focused on introducing new product innovations for the changing market needs in North America.
As we discussed key elements of our Asia Pacific region are on the strategic review.
This advance to his lifesaving, where I will outline our expectations for future volumes in summary, we anticipate 2020 thought I'd say, it's volume will be flat to up 2%, including way off an island expansion initiatives.
This chart illustrates the sales volume trends by key geographies for 2019, and our outlook into any 20.
For comparative purposes, we have provided market forecast or euro money thought afforded those geographies as you can see we expect our sales volume will be a stable or growing across nearly all geographies, an outperformance should be in line with market trends.
Oh, It all North America I suspect it to eat down mid single digits and is the only market, we expect to be below the prior year driven by a double digit decline in beer.
In some geographies, we expect to output of foreign market trends supported by capacity is sponsoring the needs of fees and quarter by new supply agreements.
Increasingly hard customers see the a strategic value in working with Hawaii as well as the strong brand building and sustainable attributes that last offers.
Now I would like to turn the call over to John will address the a specific financials and outlook.
Thank you I understand good morning by now I'm sure you've all seen our financial details in the materials posted last night. So I will focus on the key points of our recent performance in 2020 outlook.
As we announced fourth quarter adjusted EPS was 50 cents, which was at the high end of our guidance range of 45 to 50 cents.
As illustrated on the chart total segment operating profit was $200 million.
While profits were down from 211 million in 2018 results were in line with the prior year. After excluding temporary items that benefited 2018, but did not repeat in 2019, such as the resolution of indirect tax matters in Brazil.
Overall, our average selling prices improve strongly outpacing cost inflation and added 21 million to segment operating profit.
Volume and mix contributed $1 million to profit, which is the net effect of the benefit from the waiver for now and the impact of slightly lower organic volumes.
Higher net price and volume offset higher operating costs driven by market related downtime in the U.S., Mexico in China that impact results by $13 million.
Looking below the operating line or tax rate was around 30%, which was up significantly from 15% last year and a more normalized rate of around 25%.
The higher rate reflects changes in regional earnings mix.
Overall, our operating performance was inline with the prior year well results were impacted by temporary items in a higher tax rate.
Moving to slide nine let me share a little color on regional performance during the quarter.
In the Americas segment profit was $115 million, which was down $12 million from the prior year as elevated operating costs more than offset the benefit of higher net price and sales volumes.
Shipments were up 3.5% due to new wave of for now while organic volumes were flat.
South America continued its trend of strong growth. However, Mexico was down low single digits due to macroeconomic conditions in North America was down mid single digits on continued lower beer demand.
While the region made good progress addressing up operating mix complexity higher costs, mostly pertained to market related downtime.
Europe's operating profit was $69 million up $13 million, despite headwinds from FX and temporary items.
Our earnings reflected strong price realization in conjunction with the regions mix improvement strategy.
Volumes were down nearly 2%, but this is mostly a comparison issue due to customer pre buying in late 2018 ahead of an S&P conversion in January of 2019.
In Asia Pacific segment profit was $16 million, which was down from $28 million in the prior year.
Prices were down slightly a mid moderate cost inflation in the region.
Shipments were up there with but there was significant market related downtime in China to rebalance supply.
Moving to slide 10, let me recap or 2019 performance for the year, Oh I reported adjusted earnings of $2.24 towards the top end of our guidance range. Likewise, adjusted free cash flow was $133 million, which was solidly better than our outlook of approximately $100 million.
As illustrated on the chart our results were down from $2.72 in 2018 importantly, non operational items represented a 49 cents headwind, which was greater than the overall decline in EPS.
This includes FX temporary items in a higher tax rate.
Looking at business performance the benefit of higher price was more than offset by slightly lower sales volume and elevated operating costs.
Our operating cost impact results by 25 cents, which is made up of three factors that are each about equal weight.
Mission in costs.
Operating complexity and market related downtime.
These factors were more than offset by corporate cost control efforts lower management incentive expense and other items as illustrated on the chart.
Looking at cash flows the company generated $133 million of adjusted free cash flow in 2019, as I mentioned this exceeded our guidance of $100 million.
We achieved this higher result, despite reducing air factoring by 10% or $61 million as we rebalanced our liquidity position.
By comparison factoring was a source of cash in 2018.
Working capital was an overall headwind to cash flow. This past year, yet results were better than we anticipated as we sharpened our focus on working capital management and the second half of the year.
We view 2019 as an aberration as how would you shortly we expect significantly improved cash flows in 2020.
Let me spend a moment discussing capital allocation I'm now on slide 11.
Our priorities remain the same we intend to improve our balance sheet fund our strategy and return value to shareholders with that said debt reduction remains our top priority driven by operating cash flow and proceeds from divestitures.
As illustrated on the chart seasonality plays a big role in the timing of cash flow generation.
First part of the year is the use of cash in the second half is a strong source.
As you can see the company generated over $900 million of adjusted free cash flow during the second half of the year.
Strong cash flow as well as the proceeds from divestitures enables about $1 billion of debt reduction in the second half of 2019.
Net debt ended the year at $5 billion, which was favorable to our guidance.
As Andreas discussed earlier, we continue to advance our tactical Divesture program and strategic portfolio review efforts.
Well, we intend to fund our strategy 2020, strategic Capex will be directed to advancing magma while acquisitions remain de prioritized.
Finally, returning value to our shareholders is essential in addition to initiating a dividend in 2019 $400 million is available on our share repurchase authorization. However, this will be deemphasize until leveraged approach is three times or to potentially offset the impact of divestiture dilution.
Moving to slide 12, I will share more details on a specialists first let me put this in context, especially this related liabilities have profoundly impacted away over the past 10 years cash payments have consumed about 40% of adjusted free cash flow.
While we are committed to honoring our responsibility. This cash drain has materially hindered the company's ability to invest in the business.
With pad next chapter 11 filing definitive action has been taken to establish a final certain in equitable resolution legacy specialists related liabilities.
Building on the material shared January six let me provide some further information.
First the chapter 11 court proceedings are progressing as expected.
Second in conjunction with our annual review process, we did update our year end 2019, especially this related liability. The estimate now stands at $486 million and we expect this will remain fixed until there was a final court and termination.
Third paddock was deconsolidated after the January filing for modeling purposes. The deconsolidation appendix cash will be reflected in the investing section of the cash flow statement.
Finally, all especially this related settlement payments are suspended pending the outcome of the chapter 11 proceedings 2020 will be the first year in decades that all of the company's free cash flow is available to fund value for the company and its shareholders.
As I mentioned debt reduction remains or tap capital allocation priorities.
Shifting gears, let me touch base on our 2020 outlook as depicted on slide 13 and 14.
Overall, we expect 2020 adjusted earnings will be between $2.10 and 2025 cents per share in full year free cash flow should be approximately $300 million or greater.
While our earnings outlook is at or slightly below our 2019 results. We do face about 20 cents of known headwinds, including temporary items and foregone earnings from sold assets absent. These items, we expect base earnings will improve about 3% to 10%.
Earnings will be the benefit from continued favorable net price sales volumes that are flat to up 2% and improved operating cost.
Shipments will benefit about 1% from a full year of underway, but for now and Gore inorganic volumes should be plus or minus 1%.
While we still see some residual effect of mix complexity and commissioning costs. The benefits from the turnaround addition to initiatives will more than offset these ongoing costs.
Non operating items include lower interest expense, given recent refinancing as well as higher corporate costs to support magma advancement and resetting of management incentives.
Shifting to cash flows overall, we expect free cash flow of approximately $300 million or greater it's important to note that starting in 2020 are gotten our guidance will include free cash flow and not adjusted free cash flow since assessed as payments have been suspended.
This represents a significant improvement from the prior year as illustrated on the chart.
Higher cash flow reflects no assessed as payments and lower capex, which should be in the range of $350 million to $375 million working capital. We will remain a use of cash given the ongoing shift in regional and customer mix that affects accounts receivable levels. However, it will be less of a drag representing a benefit of 75.
Million dollars or more on a year over year basis overall, we expect better core earnings and significantly improved cash flow generation additional regional details are in the next page.
Let me conclude on slide 15, with our perspective on first quarter. Overall, we expect first quarter adjusted earnings will be in the range of 40 to 45 cents per share.
While this is down from 51 cents in the prior year results should be inline with last year adjusting for divestitures and temporary items, such as the Italian energy credit.
We expect higher prices will more than offset cost inflation and volume should be flat to up 2% supported by the way but for now.
Elevated operating costs will continue through the first quarter, but moderate thereafter, as we absorbed some market related downtime and our furnace maintenance activity is skewed to the first half of the year.
We will also incur some commissioning costs as you're on court ahead of the second quarter startup with that said these elevated costs will be partially offset by continued improvement in addressing mixed complexity in the initial benefits from turnaround initiatives.
As we all know the Corona virus outbreak could potentially affect economic activity.
Fortunately our plant in southern China is currently operating without issue. However, this is a fluid situation, which could impact or outlook as events unfold.
In summary, the first quarter results will be muted by temporary items and elevated operating costs, but we are setting the stage for improved results in subsequent periods.
Now I'd like to turn the call back to honors to make a few closing remarks.
Thank you John Let me conclude today's discussion by by reiterating that both is structural actions, we're taking to change our business fundamentals.
First we are optimizing our structure.
This includes ensuring we have the right business portfolio Fortive all the markets.
After a fueled recent of concedes seems to gear to increase exposure to attractive growing markets. We are now focused on divesting assets that are not core to our strategy.
Proceeds from divestitures alone, we decisive actions to address legacy liabilities will improve our balance sheet Hill.
All of these actions are well underway.
Second we are focused on floating around our business performance executing our turnaround initiatives is a top priority in 2020.
Total, we expect $35 million to $50 million of net benefits will be achieved this year, we don't run rate totaling $150 million or more but we unlocked in coming years.
Continuing on favorable secular VR trends in North America, we expect continued footprint adjustments as well as introduction of innovative new products success will be measured by generating higher free cash flows redeployed for dead we auction.
Third we intend to revolutionize less and maximize will be a game changer in our business.
Capital with important translate sustainability glass is well position for future growth.
Thank you for your interesting like last we will now welcome your questions.
Yes.
Thank you Vincent we're now ready for questions.
As a reminder to ask a question we need to press Taiwan on your telephone.
My question, Chris It sounds.
Ready on the session, we will wear allowing participant did have one question only please standby, while we composite can a roster.
First question comes from the line of.
Ghansham Punjabi from Baird. Your line is now open.
Hey, guys. Good morning, how are Ya.
Good morning mentioned good.
Hey, Andreas you know again as you consider further north American capacity optimization I guess, how are you preparing for the an inevitable increase in manufacturing complexity related to some of the production struggles you've had a post previous closures in North America and then second.
On the Capex of 350 to 375 million that would be the lowest levels since 2014, and after 2014 Capex stepped up quite a bit just trying to get a sense as to whether the capex, you're citing for 2020 is sustainable going forward. Thanks.
Well. Thank you have the with regards to complexity, we've been working alone in the last few years seen putting together and things like lower manufacturing fundamentals, we have in place a.
His thunder work assisting four factories, which we are deploying we have.
About 30 factories at this point in time implemented. So we are very quickly increasing that number of factories that hiding place we are deploying resources globally.
We are increasing VC really deal for foreign lands, we improve reporting that we improved the the a accountability indices thing we have better going on so at all so we feel that after having days should we had last year, we've been able to bring together all the things that we developed over the last few years, we'll be able to.
Better.
So stain and improved performance in factories that is that our disposed to complexity now over the last up to three years, we on boarded up a large.
Volume within North America of the words mix to be able to have said beer, we have slowed down the on boarding lately. So we gave the factories the chance to improve too. So at this point in time, we feel very comfortable we have that rights systemic plays we have the right resources, we are deploying them to the largest opportunity.
These and we should be able to sustain operations going forward, even though complexity, we continue to increase because of the changes in the end markets. When he cup comps to the Capex I think the most important thing to watch the is the asset is stability and as it is stability has improved over the last few years, we more money towards these very close.
Obviously, and we feel comfortable for the 2020 period.
This is the right level of cash to be deployed two assets and into maintenance site and we will evaluate as we get closer to 20 to 2021, they needs of Capex for that particular to you.
I would add here I got from is that in our system. We spent about $300 million a year on maintenance related capital and we will continue to do that this year to obsolete. So that the reduction we would see on a year over year basis as I mentioned before is more in the strategic capital side, So thats $50 million to $75 million of strategic capital.
And most of that as we said as magma and wrapping up some some projects we were doing such as year in court and other things and important to note is going forward you know as magma evolves.
We would look for potentially deployment of that down the road and we've we do expect that to be at lower capital intensity than legacy legacy assets and furnaces.
Your next question comes from the line of George Staphos from Bank of America. Your line is now open.
Hi, everyone. Good morning, Thanks for all the details and actually really appreciate some of the reconciliation table that you had in terms of bridging to 20.
In the quarter. So thank you for that.
Yeah, I want to piggy back a little bit off of condoms question, we've all been covering the company for.
A long time and you know there always are these episodic plans to improve operations performance volume.
I mean, I think you touched on a little bit, but what one or two things Andreas tangibly make you confident about the fact that this turnaround program will actually lead to sustained improved performance as opposed to.
Two years, we'll have to true it up again.
What one or two things tangibly make you positive on volumes for all why which have never been.
Yes, I mean that can be growth has never been able to be sustained for the company Thats, maybe the biggest issue for the company.
And what we think about that transformation and the buckets, how do the three contribute both too.
Twentys numbers and then over the rest of the 150 million program. Thank you.
Okay. So the when I when I look at complexity. Okay. We had these who we had last year.
As I mentioned before we've been developing.
Seven tools on several approaches to our reduction process that we're now the flowing across more factories to be able to be able to you'll be complexity better.
Let me ask me competency that progress, we're making we didn't fact seen.
Quite a good progress in what we called the focus factories, which are the ones direct impact impacted by complexity, So that's going quite well.
We have the right system, we have the right people in the right roles.
We have the right reporting system in the company a REIT analytics that right accountability. So I feel comfortable were making good progress and I think we're going to be able to alert or not commitments for 2020 in that regard.
When he comes to Banyu again, 2019 will had quite a few issues many of them.
On Charlie It's just you if you. So we saw the away are you in Europe. We saw this low down of lining France up in exports to China slowdown in Mexico in ABTS, we soy slow down in the U.S. into in a base growth to now when we look at this year that are pretty.
Assignable things that we occupancy or in as we look at the hours.
Volume performance for the year that already inorganic volumes, peaking and there are organic volumes inorganic decently well find out which is not now going to have a full year organic we have.
Decreased up so say seem Brazil, because now we're enjoying the capacity we added last year, we out we have increased volume stewing.
Colombia.
We're seeing incremental volume in Mexico, Mexico is exporting 2020 to various countries in America and in Europe and studies supporting our volumes.
And we are having the incremental capacity in France, which is going to kick off in the second quarter. So that should give us incremental volume tool and why more items that were factoring in is the incremental line, but ultra line that we put in place in Europe being there in the last quarter. It over the years. So now we're going enjoyed that capacity to.
Move forward.
Hi, I can build on that and on the back half of that question. George I mean, just just to piggyback on what Andreas was saying I mean on the volume side.
When we invest in growth.
In capacity constrained markets like we did in Brazil, and Colombia this year.
We see that solid growth coming through double digit growth in some cases.
However, it's when we don't have the capacity for growth that that is when we hit head rooms in that regard and then there's exposure to some other markets that are more pressured so going forward, having you know the ability to keep on top of that and ideally down the road with Magnum and to do that less capital intensity will allow us to be able to fund growth.
Both in keep ahead of that curve as opposed to behind it.
And then on the the transformation to three buckets to put them in a level of financial priority for 2020. The factory profitability is probably the largest of those three buckets is really building on the TSC work that we've already been doing but also a lot more intensity at a profitability at the plant level.
The cost transformation that is probably the next largest bucket, but it will take a little bit time to ramp up because those are newer initiatives that are ticking off and then the revenue optimization side is the third bucket and that has more to do with more price and mix management and ultimately trying to work the volume.
Pipeline that we've been building over a period of time overt overtime that will continue to progress. We're I think the cost transformation elements will start to pick up steam as on a relative basis to the whole population.
Next question comes from the line of Brian Maguire from Goldman Sachs. Your line is open.
Good morning, guys.
Well I wanted to get somewhere deep more details on the cash flow guidance.
And also kind of related to that the $150 million a turnaround and proven that wasn't clear. It's 150 was EBITDA EBIT number or.
Free cash flow numbers wondering if there are some.
Maybe one time working capital benefits included in that but but on a cash flows.
Yes, it seems like the working capital will be a big use of cash again in 2020, I think about 100 million dollar use of cash it sounds like of us down 75 year over year.
Wondering if there's also some onetime restructuring cash costs in there that.
May go away or arm I don't know if maybe they recur again 21, but.
Just getting a sense as like that free cash flow guide if there are some.
Unique onetime items in there for 2020 thanks.
Sure sure I'll, let me, let me build that idle, but further but on the first point on the 150 minute million dollars a turnaround that is targeting EBIT and so it's not mixing and matching EBITDA free cash flow or anything that is an EBIT number.
And so on the on the free cash flow and if I I believe on page 13 is where we had the full year guidance.
We work off of where we started in 19 and then we have kind of a sub totaled there of $95 million, which includes the adjustment for things discrete items, Tata soda ash divestiture as well as the patent.
So building off of that obviously you know you can model in your own view of operating performance, but we would expect some some level of EBIT improvement.
Capex if at 350 to 375 is something like a 50 to 75 million dollar year on year improvement to cash.
Working capital as we mentioned before is going to be $75 million were higher you are right working capital was a use of cash this last year it will be less of a use of cash.
Importantly, what I would say is that factoring was historically a source of cash as factoring was increasing we elected to reduce factoring this year to rebalance our liquidity position. So so there was actually a 61 million dollar hit to working capital so to speak in our numbers this year.
So then moving down the levers dividends, we do expect will be higher say $20 million to $30 million more some dividends and our joint ventures were suspended in last year too because of building out of of.
Furnaces and things like that we did a lot of refinancing this last year will so interest.
The data from expense standpoint, but also say $30 million to $40 million on the acts on the cash side, giving especially the timing of payments now on the flip side, we expect cash taxes to be up a little bit higher $10 million to $20 million will have about another $15 million higher pension contributions and there are a number of other things that are say 30 million dollar.
As in total a you know how much we spend on returnable pilots things like that that that will also flip over little bit in the next year. So hopefully that gives you a little bit of color on on some of the details behind free cash flow movement in the next year.
Last question you had was on restructuring we spent a little over $50 million of restructuring in 2019. This model assumes that that remains flat and that takes care of what we said as we would anticipate footprint activities as well as ongoing other restructuring activities within the business.
Next question comes from the line as Debbie Jones from the with Deutsche Bank Your line open.
Hi, Good morning, I wanted to focus on I'd seven summit.
I would highlight that you mentioned and very specifically I can you talk about what you're seeing in Europe. That's the point.
<unk> growth rate isn't market is expecting and I'm listening for you. It's contracted volume from the line extension on that show in that side, and then and right for Asia Pacific.
Just remind us what kind of holding back the Australian is even market.
And then just kind of the disconnect between your 2020 outlet and low single digit growth in the market, which is a bit higher thank you.
Yeah, when we look at Europe, we are expecting a softening demand in this region.
And we're expecting that volumes to be flat to up 100 basis points be respected too we are quite a strong because we are going to enjoy the new capacity. We have a long term agreements in place for that capacity. So that is going to keep gaining the Q2 wind is spec.
Good to be a slightly positive for the year. They mounting wine of wind you need to all these various strong.
Frank France. He is a little soft third buddies stealing a very good level of the amount important to watch closely if there is any changing 30, so we the United States going forward because that might imply changes in France, but at this point in time, we're very comfortable these will be a a big normal year for France and the experienced the most.
And in Europe expected to grow around mid single digit so that is going to support our volumes. So what do you know we have a additional capacity for Europe, which we're going to enjoy now and demand remains very solid or were there. When we look at a pack up the amount of these around glad about flat for everyone will Dave Yoda, focusing which we are.
Including Australia, New Zealand there.
Pretty much flat.
China, which has growth potential obviously has been impacted by the economy and now we have the Corona wireless studies kind of slowing down activity or there too. So we won't be able to enjoyed that growth at this point in time, Indonesia. They had some growth.
All together that we are expecting that will have.
From flat to slightly up volume seen a pocket going for.
Your next question comes from the line of Mark will be from bank of Montreal lines Dolphin.
Good morning, Andreas good morning.
Yes, I wondered if you could just give us a little color on what we might expect in terms of just downtime in 2020, and then maybe if you could talk about kind of the retrenchment in both North America, and whether there's anything further to come in China.
Okay. So.
We're we're expecting a normal hearing downtime, we're seeing a little bit obey heavier than normal quarter.
This time in Q1, when he comes to us at repairs Buddies, Justin just timing, we think the year, but for the full year to expected to be the same.
When he comes to capacity in the United States, we already to be actions, we needed to take the capacity to needed to be down is down already. So we are balance obvious point time, but as we said in the opening remarks, we're going out watch this closely if something warrants a change will move forward or would that change, but everything we have a disappointing.
It wasn't terms will be formation sellers were balanced for the year.
When it comes to.
China, We just got to watch closely what's emerging over there and see what that implies.
As you know many businesses that have been shutting down because of big are now items.
In our case, our businesses operating but.
We need to again money towards that very close.
The only thing I would add on on the downtime on the front end of the comments is that you know we have a you know we kept different types of rebuild activities major rebuild activities, where every 10 to 15 years. We replaced furnace and then we also have these minor repairs that periodically go in and extend the life of the furnaces. The schedule. This year of those major furnace rebuild.
It is very ratable over the course of the or is the minor rebuilds that are a little bit front end loaded in the year and that's why we're seeing a little bit of expense during the first quarter.
Your next question comes from the line of keep Haiti from Wells Fargo Securities. Your line is now open.
Good morning, gentlemen.
I'll try to attack the capacity question from a different angle you mentioned in the prepared remarks and the presentation. You closed about five facilities. Since 2015, I think that somewhat coincides with the number of furnaces have an open up and your joint venture down in Mexico.
So I was curious if you can give us maybe a sense for.
What the net capacity adjustment has been within your legacy system.
And I mean, where utilization is today and if we continue to see kind of beer decline I think when again in your prepared remarks, maybe upper single digits.
That would imply in 2020 and 2021.
So the well debt capacity that is being shutdown or are these period of time all relates to a local demand.
In the United States.
The if they share of the various tier to solve they'd be or categories. Obviously has changed over time, they've got it already has moved towards premium.
Premium.
Made up of several brands Corona is very very important brand that there so.
That has an influencing that total demanding the United States when it comes to the JV with CVI, we already build the for foreigners as the fifth Farnesene is going to going to operation in early this year and with that that's the pace of these all we have plant now there is no direct connection and right now between that flow.
Our news and the capacity once we think the United States. So.
Total portfolio as we are balanced right now Oh, we're going to have the last farnesene going into operation in Mexico for CVI, and we'll continue watching very closely capacity here and if something changes beyond what we have reflected which is the fastest declined rate. We've seen so far is what is reflected in our predictions right. Now then we will.
It could change, but we don't expect any of that at this point.
Just to give you a ascensus sensitivity here is for example, if there would be another follow on 10% to the decline in North American beer that represents about one large furnace a volume just as far as sensitivity of.
The degree of activity.
If you need to ask a question for a follow up you mean press Tawanda again to getting fair question.
Your next question comes from the line of Anthony Pettinari from Citi. Your line is open.
Hi, good morning.
Morning fault. Good morning, I had a follow up question on complexity I think on the last call. You you talked about a 10 to 12 cents hit from complexity issues for full year 19, a tencent hit from startup costs. Just wondering if you could talk about the extent to which you expect those costs to drag into 2020.
How much of a hit you anticipate then being or how much of it.
So in other places.
Yeah, I can touch base on that is out you know with where things. The entity ended the year. We wish we had profiled and one of our charts at 25 cents EPS hit four operating costs for the full year of which about one third of it each was around complexity commissioning costs and end market related downtime. So.
That number ended up being a little.
Little trimmed down from that that previous estimate there now keep in mind that we were also during the turnaround initiatives does that are looking to address this so.
I understand that turnaround initiatives or something like $35 million to $50 million.
But we're also going to have some of this residual complexity and other commissioning costs through we probably thinks that the net improvement in net operating cost line understanding those moving parts is probably 10 to 15 cents so to speak on a net net basis.
That means that we get the turnaround benefits and then you have some of that residual effect of complexity still there and some residual commissioning costs was your in court. So hopefully that provides a little bit of context.
Yes.
And then comes from the line of my quite head from Barclays. Your line is now open.
Thanks. Good morning, guys. Just a quick just a quick question on divestiture program I believe you're targeting call. It 405 to 500 million in the soda Ash sale gives you about 200 million. So I guess for the remaining 250 million or so as you are targeting can you just give us a rough updated timeframe of when you would expect to exit.
Good on that and we expected to be another one to two sizable announcements like soda ash or are we talking five or six smaller things left.
I'll address that so you're right. So the so we have something like $2 million to $300 million left from that program. When we originally initiated that program, which was at our Investor day over a year ago. We said it was a three year program of which we were going to get $200 million in the first year, we have a number of irons in the fire I'm, probably the largest oil.
Drill one did represent soda ash transaction, although there are few more in there that are ups of size, it's going to be a combination of non core elements kind of like that soda ash transaction as a good example, but there's also a number of.
Property sales that are that are underway right now in fact, we have a number them better that are getting a inked up as we speak.
That are going to probably be spattered across the time horizon I do think we'll we'll probably make good progress here in 2020, but I don't want to commit to a specific dollar amount because in the two effects that negotiating position of the company. So again good progress this year a number of different items in the hopper right now.
Your next question comes from the line as Adam Josephson from Keybanc. Your line is how open.
Andress, John Good morning, and thanks for taking my question.
John just a couple on on cash flow. So im assuming you your asset sales goes you expect over the balance of the year and given your earnings for cash or cash flow for forecast. What do you expect your net leverage to end the year at so is it for at year end 19, what are you expecting roughly at year end 20 and just.
On a related topic, you talked about your reducing you're factoring a 19.
To rebalance your liquidity and I'm not sure what exactly you mean by that obviously factoring mean stat. So maybe you didn't want to increase your dad I'm not sure but can you just kind of unplanned English talk about why you reduce your factoring last year and after is addressing the other question about net leverage thank you very much.
Yeah sure. So first on on the net leverage so with whats laid out here in the outlook, which does not have any divestitures and at that brings the leverage down to around 3.8 times versus 4.0 with the end of 2020.
Obviously anything that is incremental to that as far as divestitures will continue to bring that down and obviously our longer term goal is to bring it down to three times leverage through the combination of these divestitures as well as operating cash flows. Obviously, so so we think that we'll end the year, if we're able to execute these divestitures in the strategic reviews.
As we've been talking about with with making more progress obviously than that in that 3.8 number but I don't want to give a specific dollar amount to that so let me touch base on liquidity. So as you may recall around mid 2019, we renegotiated our bank credit agreement that increased our line of credit.
You know from 1 billion to one and a half billion dollars and then we also were taking a look at other things that were out there.
And factoring was one of them. So factoring at the end to 2018 was it was around $600 million or in excess of 50% of total receivables and so taking a look at how you know what is the total liquidity do on lines as well as you know uncommitted lines of credit for example, as as a factoring represents.
You know we wanted to rebalance that off and we ended the year in 2019, making about 10% reduction or around 40% of receivables being being factored I'm. So it's really just kind of balancing that off.
Also keeping in mind that on factoring it's all in many ways the lowest cost of debt that we have and financing for the company, but we also want to make sure that we don't find ourselves fight factoring in higher cost markets that that obviously increase the interest cost of the business I think where we landed right. Now is is a pretty good place.
For for balancing that off.
Next question comes on the line of Iron Viswanathan from RBC capital markets. Your line is now open.
Great. Thanks, good morning.
Another question I guess on the longer term cash flow outlook I'm, when you think about that 300 million or better and.
Capex I mean looking out a couple of years.
You know, how do you expect capex and cash flow to trend.
And would you consider 2020 kind of the the inflection point to continued free cash flow growth. Thanks.
Yeah, I would say that it will be in intentionally meant to be a in inflection year to growth.
So as we look at the operating leverage to the business in that we use that we spent a fair amount on talking about the turnaround initiatives things like that so so that's an important component of improving the operating performance of the business. You know the you know the capital levels. You know we this again this $300 million on the maintenance related.
It's five offense is one piece of the pie ultimately, we will probably need to put some more capital into strategic growth, but as we go even longer term in the future as I talked about before is magnet comes online that becomes at a lower capital intensity not only for the maintenance side of the house, but also to be able to do do.
More on the strategic side at lower capital intensity.
So obviously as we look to reduce debt interest payments and things like that will also go down.
You know the working capital management practices that we've been talking about and focused on that should should should yield yield through Dawson.
I think we have time for one last follow up Vincent.
Next question comes from the line of George Staphos from Bank of America lines, Allison Hi, guys. Thank you so much for taking the follow on really quickly can you update us on what the next steps before the Paddick process. Our thank you and good luck in the quarter.
Yeah, Yeah, George as you can imagine right now there's you know it's that the processes started it's proceeding as expected that the initial motions and Andy if the formation of the credit or community activities.
I think what we're going to go into is a period of a lot of administrative activities at that require set up and things like that so there's probably not a lot that we can update for the time being although it's following as we would expect and obviously, we intend to be constructive through the process as we've noted.
All right guys. Thank you I would like to note that thank you for participating analyze call today, our first quarter conference call is scheduled for April 29, 2020, and it's always an exciting data choose glass. Thank you.
This concludes today's conference call you may now disconnect.
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