Q4 2019 Earnings Call

Greetings, everyone and welcome to the Ball Corporation fourth quarter earnings call. During the presentation. All participants will be in listen only mode. Afterwards, we'll have a question and answer session at that time. If you have a question. Please press. The one followed by the four on your telephone and if at any time, we need to reach an operator, Please press star zero.

Reminder of this call is being recorded today Thursday.

Have you ever 60 Twentytwenty. It is now my pleasure to turn the conference over to John Hayes CEO. Please go ahead.

Thank you Milton and good morning, everyone. This has been Corporation's conference call regarding the company's full year in fourth quarter 2019 results.

Information provided during this call will contain forward looking statements actually.

Results or outcomes may differ materially from those that maybe expressed or implied some factors that could cause the company. It's could cause results were outcomes to differ in the company's latest 10-K, and another company SEC filings as well as company news releases, if you don't already have or fourth quarter earnings release, it's available on our website.

Say that ball dot com.

Information regarding the use of non-GAAP financial measures May also be found in the notes section of todays earnings release.

The release also includes a table summarizing business consolidation and other activities as well as a reconciliation of comparable operating earnings and diluted earnings per share calculations.

Joining me on the call today, or Scott Morrison, Senior Vice President and Chief Financial Officer, and Dan Fischer Senior Vice President and Chief operating Officer Global beverage I'll provide some introductory remarks Dan's will that Dan will discuss the global beverage packaging performance Scott will discuss key financial metrics and then we'll finish up with some.

Comments on our aerosol and aerospace business as well as our outlook for the company.

2019 finished strong note with fourth quarter comparable operating earnings up 14%.

Diluted earnings per share up, 29% and stronger than expected free cash flow.

In contrast, TV dollars generated.

On average invested capital were down slightly year over year as the significant growth capital recently deployed has not yet generated expected returns due to its infancy, we fully expect to generate meaningfully higher EPA dollars in 2020 and beyond as multiple growth projects come online and we wish we respond to.

Skip multiyear growth in global beverage cans.

And as aerospace executes on their sizable backlog.

Over the past year global beverage volumes were up 5%, our aerospace contracted backlog increased 14%. We completed the sale of 204 performing businesses we launched.

Our new aluminum cups business, our full year comparable diluted earnings per share increased 15% and we returned over $1.1 billion to shareholders.

As we reflect on 2019 in the 42 month integration plan and financial goals laid out following our mid 2016 acquisition of Wrexham.

Im proud of our team their ability to achieve more than 300 million and synergies and how well they positioned our business to return significant value to all of our stakeholders over the near and long term back in 2016, when we completed the transaction we laid out a 42 months targets to achieve $2 billion in comparable EBITDA.

EBITDA in $1 billion of in free cash flow by year end 2019.

After taking into account the sale of our steel food can steal aerosol businesses and the sale of our China beverage can assets, which combined represented approximately 110 million in anticipated 2019, EBITDA and spending one.

100 million more in Capex versus the original plan. Our actual 2019 results are within 50 million of each financial goals. In addition to these strong results. We received 800 million in cash for the underperforming businesses, we sold which was used to further strengthen the balance sheet and return value to shareholders.

The 42 month journey Didnt happen exactly as it division in 2016, our team learned where we needed to improve operational and organizationally how to lever leverage.

Thanks to ensure aluminum packaging is the most sustainable in the supply chain and create opportunity for us.

Return focus.

As to exit underperforming businesses, though difficult are always the right thing to do and most impressively. Our team now has navigated a vasey of external global political and market changers to deliver for shareholders as we embark upon our 140 years and business and celebrate the 10th anniversary of.

Drive for 10 vision, where we have already achieved our goals of doubling earnings per share doubling free cash flow and doubling EPA dollars over the decade. Our company has never been stronger we know who we are we know where we're going and we know what's important and.

And global aluminum beverage cans, we are leveraging the once in a.

Lifetime opportunity from a sustainability market leadership perspective, and remain focused on operational excellence and an improved customer experience in aerospace we continue to grow without losing sight of the successful execution of our existing and future contracted backlog.

In global aluminum aerosol, we continue to.

Focus on innovation sustainability operational excellence in geographic expansion.

And as a corporation. We are excited we're excited to expand our newly launched aluminum cups business guided by a defined go to market strategy is our new commercial production capacity comes on stream, we're excited to maintain our CFO.

Culture, EPA and ownership mindset and sustainability leadership, while fostering an inclusive work environment and developing our next generation of leaders in skilled trade professionals were excited to invest in growth opportunities across all of our business is more of what you'll hear from today and we're excited to continue to onboard a.

Condra of new ball people across our entire organization, ensuring that we preserve the all with the new the values of our past with the ideas for tomorrow and the can do spirit that is elevated ball over 140 years.

The year 2020 is shaping up to be quite strong with each business growing operating earnings as.

Summers consumers retailers and venue seek out our aluminum beverage packaging portfolio, our focus will be on amplifying our products sustainability benefits operational excellence, improving customer service and executing on the various projects in commercial opportunities we have in front of us across the globe. We are actively investing.

In new aluminum packaging production to serve increasing demand for aluminum cans bottles and cups, Dan and Scott will discuss these opportunities in the size of capital spending now key highlights for the fourth quarter include 9% specialty can growth today specialty cans represent over 43% our mix on a global.

Basis as anticipated.

Our overall global volume growth in the quarter was up low single digits, given very tight supply conditions in North America, particularly for specialty cans and tough year over year comps in Europe, We're fourth quarter 2008 volumes were up over 10%.

We closed on the remaining.

So the sale of our China business Cat beverage can business and received the cash proceeds from the sale, which closed on the sale of Argentina steel aerosol business.

Aluminum, our new aluminum Cup recently impaired and iconic venues such as the NFL Super Bowl as well as the waste management Phoenix open it.

We continue to expand into many major league in collegiate sports as well as music venues followed by online in retail channels in 2021.

In summary, while we had some short term operational challenges and scrap headwinds in our North American business. During 2019, we believe the scrap headwinds are behind us and our plan.

Issuances are improving every day, Dan will go into that more.

We will continue to execute our long term strategy of increasing TV dollars in earnings over time through higher revenues above our cost growth driving more mix shift to specialty containers growing new innovative aluminum packaging products like the cup.

And expanding aerospace all with the return of value to our shareholders mindset. Thank you to all the people who work here Paul for your passion year grid dedication and hard work and with that I'll turn it over to Dan.

Thanks, John.

Let me start with a few key points to set the stage for 2020 and beyond.

Our.

Market thesis of 4% to 6% volume growth over at least the next five years continues to hold through.

The Stillwater shift to cans is accelerating as Kim as conversations intensified in each of our major regions and we'll push demand growth to the higher into the range. If the overall supply chain can move at the.

The rate the in consumer is demanding.

In North America, the new customer contracts took effect on January one and additional contracts will renew in the coming years, and we will focus on getting paid for complexity, while also improving our own operational efficiencies and ability to manage growth.

In the first.

Half of 2020, North American volume growth will be muted until new capacity comes online during the second half of the year.

Global capacity expansions are on track and our team is focused on hiring and training to ensure successful ramp ups.

Given the expectation of high multiyear growth discussions.

Is on securing additional aluminum supply are progressing.

The ball aluminum Cup is generating significant opportunities with the new customer base and we are investing approximately 20 million NPL costs in 2020 to enable the go to market strategy.

We're looking forward to commercial.

Cups coming out of our new Rome, Georgia Cups facility in the fourth quarter of 2020.

We will initiate even more efforts to tell the aluminum sustainability story not only as it relates to the infinitely recyclable nature of the package, but the superior Seo to footprint as well.

This will further.

Position ball as the partner of choice and inform the regulatory landscape going forward.

Across our global operations, our team continues to manage tremendous growth complexity and incredibly tight supply demand conditions.

As we prepare for the acceleration of products converting from PC to.

We are well positioned and agile in our Europe, and South American businesses and extremely focused on improving operational efficiencies customer satisfaction and managing growth across our North American plant network.

As our North American operations gained some breathing room, we'll be able to.

Turning to historical operational leverage on incremental sales.

Moving to the individual segments.

Walls, North American segment volumes were up 2% in the fourth quarter and 4% for the full year with specialty cans growing 5% in the fourth quarter and 9% for the full year.

During 2019, the North American business underperformed relative to our expectations operationally.

The underperformance largely emanated from good year and their reliance on the other supply points nearby.

The Domino effect of operational pressures across our system was compounded by the tremendous.

Demand in the southwest supply orbit.

In response to our underperformance in our US operations, we made significant changes to the management team.

We have confidence as we transition into 2020 based on the seasoned leaders in growth mindset being brought to our day to day focus.

When the line additions at.

Listing facilities in Georgia, and Texas startup in the second half of 2020, and our Goodyear facility, which is now running at 75% efficiency gains even more momentum. This will certainly alleviate stress on the rest of the plant network.

As previously announced we will also construct to.

Two new specialty beverage can plants in Glendale, Arizona and in the northeast US both of which will initially have to can lines.

Glendale is anticipated to come online in the first quarter of 2021 and the northeast facility after that.

Combined the previously mentioned line and plant additions will produce.

6 billion incremental units.

With the aluminum scrap headwinds behind us the progress being made at Goodyear and surrounding transplants.

Previously negotiated contracts Favourably resetting.

I fully expect strong earnings momentum across North America in 2020 and beyond.

Turning to our South American segment, our volumes were up 3% in the fourth quarter and 8% for the full year.

Year over year quarterly earnings were up due to volume growth offset somewhat by customer mix, our new plant and pairwise started up on track and we are poised to add additional capacity in.

Zille as growth warrants.

Operating earnings are expected to improve year over year, as Paraguay gains efficiencies customers pursue more specialty cans and more favorable approach to customer mix enhances results.

European beverage earnings were up 9% in 2019.

And due to volume growth and improved operational performance. Despite 16 million of unfavorable operating earnings translation impact during the year.

Volumes were flat in the fourth quarter, largely due to tough comps and year end positioning between customers and retailers for the year volumes were up.

5% in Europe.

We are leveraging our continental Europe network to add lines to existing facilities in preparation for our customers growth. Following the installation of additional can filling lines and to support normal market growth across continental Europe in Russia.

More to come as we move through the year.

As we mentioned.

And in today's earnings release and following the recent decision to close our Dubai office, the company's existing facilities in Cairo, Egypt, and the Nyssa, Turkey will be consolidated into the existing beverage packaging Europe segment, starting in first quarter 2020.

Given that the vast majority of the legacy EMEA business is.

Associated with these two plants it should be relatively easy to understand the changes in this segment going forward.

As I mentioned last quarter, we will be prioritizing capital and resources for the best long term outcomes. Following the Dubai office closure and the slowdown of our business in Saudi Arabia, we're shifting.

The management responsibilities of origin in Turkey, Turkey as plants to our European team in the UK.

And the remaining Indian and Saudi facilities will continue to be reported in other non reportable going forward along with cups.

In summary, global beverage can demand momentum continues in the.

Regions, where we operate.

Going forward I see north and Central America is three to five year forward volume growth CAGR and the range of 4% to 6%.

South America's three to five year forward volume growth CAGR in the range of 5% to 8%.

In Europe, three to five year forward growth CAGR in.

The range of 3% to 6%.

Our teams are actively hiring to support our anticipated growth.

Thank you again to all of our teams around the globe. Our time is now.

With that I'll turn it over to Scott.

Thanks, Dan comparable fourth quarter 2019 diluted earnings per share were 71 cents.

Full year was $2.53 versus 55 cents in 2020 cents, respectively in 2018.

Details are provided in the notes section of todays earnings release and additional information was provided in our 10-K.

Fourth quarter comparable diluted earnings per share reflects solid global.

Understand shipments strong aerospace performance lower share count lower effective tax rate and lower corporate costs offset by the sale of our U.S fuel food and aerosol businesses sale of our Chinese assets Youre Euro earnings translation headwinds and higher interest expense. In addition, global.

Beverage revenues for the fourth quarter were down 4% pass through of lower costs aluminum roughly $80 million year over year impact from the fourth quarter sale of our Chinese beverage can assets.

Net debt and the year right on target at $6 billion. The company completed a successful euro bond issuance in November of 2019.

Which resulted in favorable rate and a larger than typical cash balance at year end.

January 2020.

We redeemed the 3.5% informed three 8% 2020 senior notes both balance sheet is healthy debt has been termed out at low rates and we maintain ample opportunity and flexibility to service growth.

And shareholder value return needs.

29 team, we generated 950 million of free cash flow after spending $250 million maintenance Capex and an additional 350 million in growth Capex. We also funded 216 million into our pension plans, which was 125 million higher than our original plan.

And generated more than $200 million from working capital.

We completed net share repurchases of $945 million and paid $182 million as dividends returning in excess of $1.1 billion to shareholders.

In the quarter interest expense was a little higher due to the carrying costs of the eurobond placement at year end.

And corporate undistributed finished the year slightly lower than expected at 54 million.

As we look to 2020 here are some key metrics to keep in mind.

Our full year effective tax rate on comparable earnings will be in the range of 20%.

Full year interest expense will be in the range of $280 million in full year.

Corporate undistributed will be in the range of $70 million as we provide for higher benefits and incentives in 2020.

Our 2020 cash from operations will continue to be strong we will be investing in working capital to support our drilling businesses and $550 million of growth Capex during the year, we anticipate for year 2020.

Capex in the range of 800 mill million dollars, resulting in free cash flow of approximately $600 million given the growth in operating earnings in our strong cash flow. We also plan to returned nearly $1 billion to shareholders in 2020.

Like always we will invest capital with an eye on returns as our balance sheet.

Actively and consistently repurchase stock unpaid dividends for the benefit of our long term shareholders with that I'll turn it back to you John Great. Thanks, Scott in our aluminum aerosol business global volumes were down in the quarter and were up slightly in 2019 European volume softness and operational performance dampened full year segment earnings we.

Initiated action plans to improve operational performance in our facilities and believe the volume shortfall at the end of the year will not carry over into 2020, we recently launched our new Infinity bottle. This refillable re closable and infinitely recyclable aluminum bottle can provide a sustainable solution for shampoos lotions and other.

Personal care products as they shift from small to medium sized plastic containers at hotels and on store shelves. In addition, we continue to see operations to broaden our global footprint through bolt on M&A, we look forward to improving the business performance in 2020 and beyond.

In 2019, our aerospace business reported.

The 4% revenue and operating earnings growth on very solid contract performance, our year end backlog increased 14% and our head count in 2019 increased by over 1000 employees.

Executing on our backlog and providing our employees exciting work and enhance infrastructure for office space testing and.

Factoring or the areas of focus in 2020.

Looking forward. The programs recently won are vital to the intelligence reconnaissance and surveillance as well as the climate change in weather predicted prediction needs of our country with the recent budget agreement between Congress and the White House some of the ambiguity round contract startup has.

Been de risked the business should be able to grow operating earnings in excess of 15% per year over the next several years given the scale and type of contracted backlog recently won.

In addition, there even greater future program opportunities that we're pursuing that would position us even further into the future our long.

Term prospects have never been brighter while is uniquely positioned to lead and invest in sustainable growth in global aluminum packaging and aerospace while delivering significant value to our shareholders. We look forward to driving our business to deliver long term diluted earnings per share growth of at least 10% to 15% per year and achieve our.

Hey, dollar growth goals of 4% to 8% per year on larger invested capital base, we will continue to responsibly invest both internally and externally enable new products improve our existing businesses position in training talents effectively while maintaining our culture and aviate discipline and always we will.

Do what is best for all our employees our communities and our strong shareholders long term success.

And with that and Aladdin, we're ready for questions.

And thank you very much ladies and gentlemen, if you'd like to register a question. Please press the one for when your telephone keypad, you will hear it three Tom prompts us to acknowledge your request for your question has.

Answered you'd like to withdraw you May press, one three once again, ladies and gentlemen for questions. Please press. The one followed by the four one moment. Please with the first question.

Our first question comes from the line of Anthony Pettinari with Citi. Please go ahead.

Hi, good morning.

Good morning.

You indicated last year.

That in North American Bev you could get I think 30 million in inefficiencies rolling off and then 40 million in scrap recovery. This year is that still accurate the sold out conditions in specialty cans kind of continuing into the second half of the year and then in terms of the cadence in terms of quarters for inefficiencies to roll off and then.

Or scrap it did do all those contracts just reset on Jan one or any kind of color you could give there on the on the timing.

Sure Yes. The numbers you start with are still Directionally correct in terms of the scrap is largely offset that starts.

Really January one so that that will benefit us that's already started about us. So you see a nice.

First quarter the manufacturing efficiencies, we continue as Dan mentioned, we continue to get better and those will get better as we move through the year and the startup costs really we had very little startup costs in the fourth quarter in North America now as we as we start to get closer to the startup of the new plants that were talking about some of the new lines in the second.

Half of the year, we'll have some startup costs related to that but all of that in total we put all that together earnings in that business kind of low to mid teens.

Okay. That's very helpful. And then just shifting to Europe, and there's a lot of move.

I meant loaded low to mid season, a percentage basis to be clear.

Got it.

Got it.

And then just shifting to Europe, I mean, there's a lot of moving pieces with the retail positioning you called out and Egypt in Turkey being added to this segment and you've had some startup costs.

Possible to kind of size the sort of run rate earnings power of Europe, right now or how we should think about the segment in 2020 I'd just be can give any more.

Tail on those those kind of movies years, So Europe should be up low teens without the benefit of the EMEA businesses and if you look at the EMEA businesses in the profitability there. The vast majority of the profitability came from the two plants that were removing from.

From the EMEA business into you into Europe, So Turkey, Egypt.

There was very low profitability for the other business that will go to the other segments.

And so if you think of moving the EMEA profitability into into Europe on top of those look low teens improvement that we expected operating earnings that should give your numbers.

Just a little more color on that it's very similar.

Adding margins on a percent of sales basis. That's been included in the business. So.

Well, we'll still be thinking of kind of the the normal flow through.

There shouldn't be regional mix implications in other words going forward, if we get the growth you should see traditional or historical flow through.

Got it Thats perfect I'll turn it over.

Okay.

And our next question comes from line of Neel Kumar with Morgan Stanley. Please go ahead.

Great. Thanks for taking my question.

In terms of the 4% to 6% volume growth is that both because this figure are for the overall.

Hey, just give us some more insight on what do we need to seems supply chain to get to the high end.

And you also mentioned day comment about Stillwater conversions.

What kind of impact you, specifically I think that can have on growth and piece update us on those conversations you've been having.

Yes first the first question relative.

So to the 4% to 6% that is relative to the markets that we operate in today.

And Thats, what we believe when we're looking at the next five to seven years I think I indicated in the scrip five years, we're doing a seven year plan.

So anything outside of five years would be really difficult for us to comment right now in terms of.

Yes, and some of the conversations we're having with retailers and customers and then your second question is.

The most difficult to answer and around Stillwater.

I will tell you the conversations that we're having.

The growth is nice up the low base.

In both Europe.

And in North America, but we're also having much different conversations even in South America as we speak and we're talking to some of the larger brands.

I expect to see.

Some of this showing up on retail shelves and all the regions were add but in terms of what price point, that's out the velocity of the turnover.

There is and what it means in terms of aggregation of volume within the next three to five years that is a.

That's a difficult one for us to to answer the conversations are certainly far more robust today than they were this time of year ago.

I look forward to giving you more updates through that through the quarters as we see more of these products show up on retail.

Sales and we have a little bit more data at our disposal.

Okay. That's helpful. And then you talked about a focus on improving operational excellence in 2020 Amin sort of your new capacity expansions in North America can you talk about what you plan to do differently to ensure smooth ramp up and maybe a voice in those HCV had recently the.

Last lines Goodyear optically as it relates to workforce training.

Sure, we I mean, we're definitely spending a lot or.

Spending a lot more time, we're hiring earlier for the new startups, and we're training and a lot more detail.

We're also combining the mix of folks that are going into these new.

Facilities and or the new lines are going to be a combination of X external hires and then repositioning folks from other plants. So I think thats going to give us a little bit more security as to.

The ability for folks to run the way, we need to run with the amount of complexity, we have in our businesses.

And fundamentally.

I think the leadership team that we have now in place is.

It's best in class and they're doing a lot of a really solid fundamental.

Things to get us.

Basically focused on kind of what we need to do in delivering to our customers I do think getting good year.

Running and securing that orbit of.

Seven to eight plants being impacted will.

That will certainly help us and then the last thing that I had no John's talked about.

In previous calls.

That you can't under value is.

With that were not only stepping into.

Better economics and de risking some of these scrap issues in these new contracts, we have much tighter order fences and thats going to allow us to operate.

With a much clearer path one week out two weeks out in all of that is going to have as much of an impact candidly as some of the training and some.

Of the focused efforts are going to be.

Great that's helpful color.

Our next question is from Ghansham Punjabi Baird. Please go ahead.

Hey, guys good morning.

Good morning.

Hey.

We just go back to Europe for a minute just give us some more color as to why volumes were flat for you I mean, you've mentioned a tough comp from year ago, but.

But I think the industry was still up at a healthy rate.

But there are specific customer mix that impact impacted you and then second.

It looks like carloads were looking at potentially looking at sell surged in the European market given that its.

Small relative to boom, we are seeing here in the us.

Can you just touch on capacity utilization in the industry in Europe, just broadly speaking.

Yes, so I think the first the first comment relative to our growth compared to the region. Yes. The region was up we did make some conscious decisions in terms of our customer portfolio.

Walk from some business in the southeast Europe region.

So that did contribute to that but we really like the short and medium term opportunities that will be stepping in to replenish that volume.

So we should see growth trajectory kind of second third fourth quarter.

Getting closer to probably market trends in Europe for us.

The utilization in the entire European market I know for US we're in the 95% to 97% utilization range, we're making some incremental investments de bottlenecking, where we can.

But we're certainly running incredibly tight right now.

I would think that the market in general.

Is in that 93% to 95% range.

There is still there are still pockets of volume.

It's not near as tight as we're seeing in Brazil, and or North America, but certainly 93% to 95%. We would historically have said that is a.

Tight market in a full market. We're just operating in a in a much tighter supply demand intensity level right now in most of our regions because of the growth profile.

Carlsberg.

Selsor market will.

It's probably not just Carlsberg I would expect expect these cells or market to.

Transition into Europe of course, I was over in Europe, two weeks ago, and nobody knows what the heck a selsor is.

So it'll be interesting to see how that transition manifest, but I would expect after some of the key players in North America get their installed base and their supply chain built out to take advantage of what they think the right.

The real longer term opportunities for Selzer's, they will all focus their attention on that marketplace.

Okay. That's really helpful and then last quarter, Dan I apologize if I. If you believe you talked about this but you said that you would leverage Q4 to basically we build inventory levels in North America for 2020, just give you operations a bit.

Breathing room can you just update us on how successful you are with that initiative and also can you just comment on backlogs at current specific to North America, and how you kind of managing production for next year, just given the surge in demand. Thanks, so much.

Sure.

I think we largely accomplished what we wanted to in terms of inventory build of course.

Whether or not we built the right things that'll be dependent on the end consumer and what they draw.

I think for North American next year, we've got a number of projects a couple of them pretty significant that are going to show up and give us more capacity in Q2 in Q3, those are really what we need to come off in order to kind of maintain.

The the requisite delivery levels, we need to our customers and kind of eliminates some of the disruption we saw in the previous years type market conch I'm out. This is John I'll, just I'll just put an exclamation point on what just stand set because we have these lines starting up in the second half of this year. So over the first half of this year, we're going to get some incremental.

Capacity, but it's in the range of a half a billion or so it's really in the third and fourth quarter. Each that's when we're going to get another half a billion additional each quarter and so it is going to continue to be tight we've said that it's going to be tight for the first half of this year, but then as we move through I think this new investment as well as.

Getting more efficient on that orbit that Dan talked about Thats, when you really start to see it.

Okay.

And next question comes from George Staphos Bank of America, Let's go ahead.

Hi, everyone. Good morning, Thanks for the details and congratulations on 20 on team's progress.

Hey, I wonder if maybe piggy back on.

Gotcha question on Europe, so given what looks to be.

And ultimately in improving supply demand balance as the market should continue to grow.

Are there are reasons why you wouldn't see Europe over time evolving into.

What you see in North America in South America from.

Supply demand standpoint, and some of the ancillary benefit you get from a commercial standpoint and innovation standpoint.

Yes, let me let me take that the short answer is yes, and just again to provide more color about what Dan said is.

We are operating and we at least our.

Type investment I can't comment on anyone else, but we are we're faced with the decision whether we would contract under a longer term basis, some business for choose to walk away from if we chose to walk away from up because we have belief in the growth of the market and we are given that were already tight that we think we can fill up that capacity in the very short term so I wouldn't read into the.

Fourth quarter volume much at all and what we're trying to do on a global basis is the same things you have heard us talk about for the last three years or so which is leveraging the footprint, we have focusing on specialty and be able to deliver to our customers on the right economic terms anything they need wherever.

Whenever that's our goal and we we believe although.

We got we now need to execute in show up what we believe we were in a good place in North America, and we believe with a little bit of time, we've now gotten our footprint in place in Europe that we feel pretty good about it and now we're deploying that strategy.

With that we believe we've been successful North America into the European marketplace.

Thanks, John.

I wanted to try to to the extent possible.

Par some of the capacity and growth figures that you put out either in the formal comments today or in the press release.

So.

On the one hand, you talked about I think 8 billion units of capacity going in through 2021, and then I think I heard earlier on the call something around 6 billion units in terms of can in terms of cans plant excuse me and the lines going in.

Did I hear that connect that correctly and would that suggest.

Yes that.

Much of the majority in that and that gap, where that delta would be aluminum cops and if thats true how is that tracking relative to what your expectation would have been say three and six months ago.

The.

No. Good question. This 6 billion was North America.

Rick.

Okay, and so that delta between eight six is not cups.

Less it more up more of the capacity is going into south American some incremental in Europe. So I'd say almost all of the eight.

Close to the all of the eight is can capacity.

Okay and.

Further George that's what that's what we've announced as well and we've told the world. As you go forward. We're monitoring was very closely so we could continue to that it could become larger as opportunities present themselves.

Relate Italy within that 800 million of Capex I assume their projects that you haven't announced yet that.

Possibly could come to fruition would that be fair.

Most really that 800 million as everything that we've announced publicly so far okay.

Guys My last couple and I'll turn it over quickly one on free cash flow performance was.

Very strong at least bye.

By your standards, even what went so well for you on working capital, where there was a real nice swing what was so negative and other free cash flow. There was a fairly large I think was over hundred million dollars swings there year on year, what was beyond behind that and then back to the growth and I'll leave it here in that 8 billion is there way to.

To parse what you think is related to plastic conversion. Thank you guys and good luck in the quarter.

So on the working capital really our operations in our GBS operations that are just a tremendous job of collecting everything we have probably the lowest past dues, we've ever had in our history that ended the year.

So really just great work on that front, great work on the aerospace receivables as well so is really across the businesses, how well we perform.

And the big negative in the other would be incremental pension funding that we did in excess of the expense. That's the vast majority of that number George.

Thank you and your your question on parsing out the.

The incremental investment in the capacity installation as it relates to sustainability.

Im not a rocket scientist, but how we're looking at it is historically, we've grown at 2% to 3%. We think we're doubling that so probably 50% maybe even as Mitch more is probably related directly to what we believe is sustainability yes.

George its order a question as you know we try and track this as best we can and the best data point I. We can give you is in North America three years ago, a third of all new products coming out we're in cans today at 70%, that's a meaningfully meaningful jump in so I think new brands as they think about launching their.

Bridges, they think about the difficulty of starting a brand number one the difficulty getting product placement number two and then do they want to go into the headwind called the sand type plastic.

Gene So I do think although that's the best anecdotal facts, we can give you any.

Anything else suspect speculative.

Understood. Thanks, Thanks for all the information guys. Good luck in the quarter. Thanks.

Thanks questions from Tyler Langton with JP Morgan. Please go ahead.

Thank you Scott I think just help us bridge I guess the.

I understand coupons little bit better of the 2020 free cash flow guidance I think you said.

Free cash of 600 million and then.

Maybe capex of 800, but just if youve any more details on pension funding or.

Cash taxes interest expense it sort of how to think about the components of that number.

Sure So pension funding we got to.

Have a pretty big swing year over year, which will be a benefit of about 120.

$5 million from 19 to 20 less funding into our plans in 20.

Working capital.

Our growing businesses, we need to invest on the working capital. So a good starting point for that number probably 150 million use through investment in working capital.

Taxes cash taxes really will change the heck of a lot.

Those are kind of the big.

Components through.

I don't I know it's.

Looking at the 2021, so allows the way, but I guess.

Just with the sort the capacity that you plan to need Youve a sense in terms of how capex the working capital plus.

Just sort of relative to 2020.

Yes, I think.

As opposed to a couple years ago. We had said five to 600 million was a good longer term, but it's going to definitely be higher than that and it could be.

The range of what we're going to spend in 20 also in 21, we're seeing a lot of growth opportunities.

I think we're at the earliest stages of a lot of the sustainability growth that we're saying these are going into cans. So I think it'll be at an elevated level. We're really in a growth mode. This business for a long time wasn't undergrowth, both and so I think we're happy to use to both internally and externally of looking at our company differently than we have in the past.

And we've got great opportunities in front of us I'm really excited about the growth and the investments that we furthered our mix, yes, and Thats. What Scott just described is based on conversations and detailed discussions with our customers Dan had mentioned a lot on the on the Stillwater side, but it's in every single category.

Gory I can think of right now, we're having pro can discussions with our customers and what that means in terms of content.

Contractual commitment commitments et cetera.

Great. Thanks, and then just final question.

In terms of the volume growth is I guess, it seems like a lot other agents or first half.

This year is going to be a little bit weaker can you kind of I guess any direction on sort of how the cadence of volume growth should look as sort of the capacity comes online throughout the year.

Good in in North American Europe, your comment as direct you should see kind of more of a second half lifting capacity comes online and in South America should be pretty.

Heady growth throughout the year, because we did we did an awful lot last year got paired why up and running did some investments in Chile and Argentina. So.

We're doing some of those efforts now in north and Central America, and in Europe, and so ongoing you'll see greater growth rates in the second half of the year in Europe, and North America and then.

Building on that in 2021.

Great. Thanks much.

Next question, some Adam Josephson with Keybanc. Please go ahead.

Good morning, everyone. Thanks for taking my questions I appreciate it.

Scott just a couple more on the free cash flow if I heard you right you're expecting.

Working capital swing of about 400, because it was a source of to 36 and a drag in 19 and.

Drag of 150 this year just to be clear on the 236 was there any increase in factoring in that number are you anticipating any particular change in factoring and then.

By the end of 20 in terms of the working capital dry to you're expecting do you think your working capital will be at a stable level thereafter.

In terms of factory nothing different than what we had originally built into our plan so that really the outperformance in the working capital.

Had to do with way better collections at the.

Ended the year and some things we did an aerospace even on collections. So it wasn't there was less about factoring that was about other real performance improvements.

Terms are going forward, if our business continues to grow like is in the cups remember, we're going to wrap the cups business. It will start producing at the end of 20, but really start really ramping at 21. So.

So I could see more growth in more investment needed in the working capital to support the growth in our businesses.

I just I know, it's on the pension Scott so it'll be a source of 125, how how funded our your plans at this point and do you expect to have to make contributions.

As.

2020.

Well, we'll have to make yes, we have active plant. So we'll continue to make contributions but.

We had extra cash flow very strong cash flow and Thats why we funded an incremental amount of the plans in that team will fund about 90 million into the plans in 2020.

So were pretty good shape from openings.

Well.

Okay, and just one on back to the European conversion situation for second can you just kind of elaborate on how many customers and forgive me if I Miss how many stillwater customers in Europe, you're talking about down in terms of.

Adding capacity for an end roughly how many cancer those conversions.

Based on what you're talking about for 20 and beyond.

Yes, I don't I don't have the numbers off the top my head I would say that.

Stillwater will be a bigger impact in North America moving forward than Europe.

Yes, it's too difficult to quantify because were.

Talking with the biggest brands in startup brands and everything in between.

I think just when you look at the overall absolute amount of Stillwater, the consumption trends in a year in the United States are probably greater than they are in Europe.

Got it thank you.

[music].

Our next question is from Brian Maguire Goldman Sachs. Please go ahead.

Hi, good morning, guys.

Dan Thanks for the comments on the three to five year growth CAGR is by region. Just add this is kind of been asked a little bit already but just to be clear on that you're not expecting or you don't need to see material picked up in this.

Trend towards plastics substitution to hit those you think that's that's just relying on kind of continuing existing markets and existing trends, you're seeing and anything you got from Stillwater would be great into those numbers.

Exactly yes, I know, what we're talking about Stillwater, I mean, even in our 4% to 6% we're talking about the premiumization in.

In the that we're not talking about the full 500 billion single serve plastic water bottles around the world. It's the very high end to that.

Yes, we're not seeing significant conversions on the base brands, we don't need that just referencing John's caveat that we're looking at its just the new product launches are disproportionately.

And then the cans and that is accelerating our growth trends.

So we look forward to the base brands shifting but thats not incorporated and kind of our growth assumptions at this point.

Okay, Great I, just wanted to come back to the aluminum couple little bit I think you said.

Spend then it sounds like $20 million.

Of Opex investments in 2020 to supported if that did I hear that right and is that.

Mostly marketing and promotional spending R&D or can you kind of just give a little bit more color details on where those costs are kind of our.

Yes, I'd say, 30% of it is what you just characterized and then even in that we've got to.

We've got a higher somewhere in the neighborhood of 100 120 folks to run our facility. So you've got some of the investment costs.

Pre spin and training that's also in that number but just to give you sense as we sit here right now we've already hired marketing and new business folks for not only the arena side of the business, but also the go to market in terms of.

So those are the types of carrying costs opex that we're talking about.

Okay last one from me just the the reclassification of the facility than in Turkey in Egypt.

Yes that makes sense given that the.

Size and scale of what's going on in the Middle East.

Do you think there will be.

Opex for cost cutting opportunities from that and or opportunities to maybe move that volume.

Yes mix it up by moving it into other regions from there.

Yes. This is John.

They are on one hand, yes on the other had no what we've actually closed at the by office, but remember the last three years, we significantly down.

Alan size that so theres nothing material the Saudi market as we sit here right now is not a very healthy market.

And that's probably a little not necessarily headwind relative to 2019, but there really isn't.

We don't see any upside to that whereas you compared to what we've seen over the last couple of years in Turkey in Egypt, Theres, probably some.

Additional upside to that but in the Grand scheme of things. This was not a cost cutting play. This is an ability to focus on what's important.

Okay. Thanks very much.

Next question is from Mark Wilde with BMO capital markets. Please go ahead.

Good morning.

More.

Dan I wonder.

Maybe you could start off I had always understood the south American beverage can market to be almost completely a beer market and it it sounds like you're seeing other beverages move into cans down there could you just give us a sense of sort of how big that.

Non beer segment is right now what you think that trajectory is.

That's a great question I mean, its overwhelmingly a beer market, we anticipate it to be overwhelmingly a beer market going forward at least in the next three to five years.

There are pockets of opportunity.

But a lot of are a lot of our growth opportunity even in South America is it's actually more beer more than.

Anything and that's because its transitioning out of returnable glass or one way glass.

The other side of the business I do think Stillwater will be an opportunity I mean, we're seeing pockets energy drinks are probably going to be a bigger growth area in an area of focus.

For all of the large global players.

It's a big juice market, we've got some filling.

Challenges there, but working on some technologies that may open up those markets, but I think going forward, 80% of that market's beer and there's still a lot of can penetration can growth available to us.

If.

Something really opens up like Stillwater, I think we're poised with our system to take advantage of that but how we're looking at that market is continued strong growth in beer continued substrate penetration by cans into returnable glass and that trajectory looks pretty healthy for.

The next three to five years.

Okay, and then you made some comments about kind of additional can sheet capacity in North America can you just put a little more color around that.

Yes, I think we've commented on this off and on probably over the last 18 months and.

One of the things that we've spent a lot of time the folks on this call our.

Stimulating a base a supply base in North America, not only to de risk us from.

The ongoing or the volatility in tariffs et cetera, with all the excess capacity of kanshi being in China.

But stepping into growth and making sure we have a much more agile and nimble.

Supply chain in North America, those conversations are starting to.

Really take a very positive.

Form and I would say that.

Whereas a lot of the rolling mills and the can sheet providers were.

Seeing a lot of.

It's on the automotive side, that's still there for them, but suddenly can sheets looking a heck of a lot more attractive at a nice growth rate and I think theres more.

Profitability in this when they really look at it intentionally.

And and so I feel comfortable that over the next 18 to 24 months, we'll start to see.

Some investments, maybe not significant but enough to kind of manage the the assurity supply for more more cans and more PGT substrate shift into cans.

And then last one for me you just you mentioned being a more proactive on the sort of carbon footprint argument.

And one of the big beverage companies Ceos that an interview in the fourth quarter and he was really making the case for plastics again on the carbon footprint basis I wondered if you could just provide us with your perspective on that whole issue.

Yes. This is John let me kind of jump into that I know over the next coming.

Recent months, you're going to be reading about some in independent third party Lcs that actually show the exact opposite it is true that if down an LCD basis, if you're using 100% Virgin aluminum in it that the carbon footprint is higher but the reality is over 70% of all aluminum cans produced in the world.

Today, 70% of that aluminum as recycled content. When you look at the facts and you put that and it is lower than PT lower than glass and lower than cartons full stop because of the infinitely recyclable nature of it.

We as an industry over the last 20 years have not done a good.

Of articulating this is clear lease we should and I think over the coming weeks months in years, you're going to hear a lot more because I think the world is inundated with with facts that aren't base in reality and when you base the facts and reality the can will stand up and we will be better than.

Any other beverage package on a CEO to perspective.

Okay ill turn it over thanks John.

[music].

Next question is from Mike Light head with Barclays. Please go ahead.

Thanks, Good morning, guys.

I guess just start.

First.

Industry question kind of similar to one of Georges questions, but I was just wondering if you had any sense of how much of the industry volume growth. You think is being driven by new categories are offerings by the beverage companies versus just purely like for like.

Packaging substrate, Jeff I know, it's been inexact science, but any color.

You think you have would be great.

Sure I think we probably parse this out amongst the regions because they're all a little different I'd say.

The growth rates in Europe of 5% versus historically, 3% that lift is almost 100%.

Sustainability.

We will be driven lease we believe we can't point to any specific KBR, but when we look at Stillwater growth in some of the other products moving out of.

Their existing substrate into cans that feels.

That feels like real inertia and sustainability in North America.

The doubling.

We have our growth rate is probably comprised of two things one its sustainability and has a lot to do with Johns indicated and what we've said here, which a third of all new product introductions three years ago were.

In cans and today, it's running at a 70% clip the other thing that's happened in north.

Eric is.

Spike Selzer's went into cans and so that was a big help for us over the last couple of years I would expect that growth to continue at similar rates for the next couple of years, but at some point that will meet or off.

And there will be left with new products being introduced and hopefully those are going to win.

In chances are we are going to get the winners in cans, and then sustainability, especially in the Stillwater area that will be almost a 100% that category. We can look at that and say that is substrate shift in South America then.

We havent seen sustainability as strongly as we've seen it and north central.

And in Europe, but what we are seeing is.

Returnable glass and one way glass.

In the beer space in particular shifting into cans some of that is.

New product introductions are using.

100% malt.

And the transition out of corn based beers, we've seen that the premiumization in there is one way packaging in one way can packaging.

So that is it that's new product introductions in returnable glass shift continues in a big way.

In Brazil, Chile and Argentina.

Got it that.

Is really helpful. And then just so that could want to question on the aerospace business in an area that seen tremendous growth. The past couple of years for you guys and you expect it to continue growing double digits going forward. So I guess are you seeing any bandwidth constraints on the businesses growth I mean, I know, you're mostly cost plus on your contract base, but I just mean logistically being.

Able to handle a business thats grown this fast.

That impeding the growth rate at all.

No I don't think so our management team has a terrific job I mean, when you think about bandwidth issues I think people in facilities and we've been spending a fair amount. If you come out here to Colorado, you'll see the growth that you've seen in our various three campuses.

These campuses from us facilities point of view and the amount of.

New manufacturing capability engineering capability and just.

Quite frankly office space that is one of the reasons why our corporate headquarters is a temporary office right now because we moved out to the aerospace could accommodate the growth there.

I think on the people side, we've been growing we've been hiring 1000 people year for the last couple of years and we've done a tremendous job of making sure that we're hiring the right people that were bringing them on from day, one six months in two years and making sure that they have the appropriate training and as we.

Before this is critical because we're still expecting to hire another thousand this year.

With that probably premature to describe anything but we've been able to create a very well oiled machine in the aerospace business for Onboarding, our people and quite frankly, some of the conversations Dan was talking about in terms of beverage can we've had our HR.

Our folks talking with our aerospace folks to make sure that theres less learns going across the organization. So when I think a bandwidth issues I think of facilities and people and we've been doing a very good job. Our management team has been doing a very good job on both of those.

Great. Thank you.

You're welcome.

Our next question is our ruined the this one us on RBC capital markets. Please go ahead.

Great. Thanks, Good morning, just wondering.

Question subtypes and this and.

Other segment, how are you guys looking at that both on a quarterly basis and for the full year.

The moving up the EMEA business and.

Maybe that that situation with aerosol how should we think about the.

Contribution from that segment. Thanks.

Yes, it's going to be pretty small obviously, if you take out.

And move to Turkey, and Egypt plants and their profitability into Europe, there's not much profitability left in the other.

And then think about we're going to be spending money on cups will show up there as well.

I'm sorry.

Yes, and the other segment.

So it's going to be relatively consistent throughout the year, but at a lower level.

Okay, Great and then I guess.

Yes, I'm just curious.

Food, obviously, it's been sold and you.

I mentioned that anymore, but.

Anything that that would check off I guess.

Here thanks.

No. This is John we have a minority interest in that and so as we go forward. We think we've partnered.

With the right folks we think that industry is in need of of consolidation rationalization that was our thesis all along and we brought a partner and to help us think through that it's premature to talk about anything that could happen in that business.

But so it's playing out as we expected it to and there's not.

Any real news to report.

And then just lastly.

Theres been a number of projects and beverage and in North America, that's been announced.

Theres, probably a couple more that are coming in the next couple of months I guess I'll just bring up the question again around capacity.

Are you guys. It all worried about returns here.

That potential over supply or do you think.

That's not really a concern at this point. Thanks, it's not a concern at this point in fact, the concern is making sure we have enough cans to supply the overall market and the reality is there are there is going to be new capacity, we don't know anything other than what we're doing we're aware of that announcement by that independent down in Florida that.

Actually it most of its going into the Caribbean market, but the market is growing at a rate very fast and so we're just trying to keep our proportional share and grow with that market and try and win in the places that we can win relative to our skill sets, but theres going to be more capacity coming on and that's actually.

Good thing because that means that can is growing and as Dan said.

Our viewpoint isn't a two or three year view point. This is a long term point of view.

Thanks.

And our next question some Debbie Jones with Deutsche Bank. Please go ahead.

Hi, Thanks for taking my question.

I.

I wanted to ask are there any broader themes that you're seeing when you talk to your customers about the type of can that they want whether it be antennas and new category growth.

Or shifts to sustainability and what does that mean for the way you ramp up capacity and is there any technology that you are working on.

That you think would be additive.

Good question, Debbie I'd say.

On the.

In the area of Stillwater in particular that is going to I could see a big a big play for 12 ounce standard cans, depending on what retail channel and what price point, where these.

Sit.

I would say the predominant can right now our can conversations everywhere in the world are your 12 sleek and your 16 ounce can.

Different variants to those.

We are looking at a number of different innovations and different marketplaces, one though.

I don't see a uniform exchange through all of the regions, but.

As John said this and I think we believe this too if we're making 40 can sizes in North America today in the next five years, we'd love to make an 80, we think we can do that better than anybody else that it will give the customers choice that will give the retailers and our customers an.

Entity.

To improve their margins and so those are the conversations we're having across the board.

There will be more opportunities to give you a little bit more color, but.

Some of the bigger customers were talking to market tiers and brand managers for categories and flavor profiles, we haven't had.

Conversations for decades, and those are going to open up.

All sorts of innovative conversations and different can sizes and formats et cetera. So.

12 standards still going to have a place it's still a growing pack size because of the sustainability mix, but I think overwhelmingly specialty.

We'll continue to take the new product introductions, the new category expansions and the new the new launches those will all come in specialty containers.

Okay. Thanks, and then and then my second question is there a point at which you know with the sort of 46% growth I think you point to keep in the next couple of years under their.

Which you can kind of shift into just adding lines at these various facilities to kind of fill back growth is that what you're modeling towards or do you expect it is just going to be continuation basin. Your current footprint.

The new Greenfield facility.

Great question I think.

Depending on the size.

The market and where the orbit is that work that we're building we are absolutely trying to create more modular incremental thinking off of an anchor investment.

So we would like to be able to take two line can plants, two three and four thats a heck of a lot easier to two then to stand up to line can plants, but.

It will.

Will depend on where where the region is kept the customer the category all of that will dictate probably size and scale to some extent yen Debbie if you will go back by region. What we've tried to do is fill out the as best we can the existing bricks and mortar and I think about when we acquired the South American business. It was a series of one.

Nine facilities, and we've rationalized and consolidate that to a point invested in that with very little new bricks and mortar same thing we've done in Europe and even here in US we are reaching a point, where we are having to invest more greenfield because there is no space in those facilities, but to Dan's point, we're designing those greenfields so they're.

A much more modularizing, we can scale them at a rate much faster going forward, but I think our existing historical footprint is at the end of the day largely filled out from a breakfast within the bricks and mortar that exists.

Okay. Thanks, that's helpful I'll turn over.

And our next question and I do apologize in advance feminist pronounce the last name Gabriel hide from Wells Fargo Securities. Please go ahead.

Thanks for squeezing me here at the end guys appreciate it.

Dan and John you guys mentioned Stillwater, a couple of times, so I'm focused on that a little bit.

Can you share with some of the conversations that you are having.

From customers and are they starting from a point of differentiation and premiumization or is it starting from a single and I'm sort of thinking about the comments that mark made about what we're seeing in terms of other organizations supporting.

In recycling technology and infrastructure to continue to have a multi format approach to go to market strategy. So just trying to understand that.

So I would say start with the retailer and back into the customer and that will dictate whether it's a premium discussion or it's a.

SG type of discussion so.

And where we're involved in those conversations at present for us the easiest transition is into the premium side of the water I mean, it opens up the doors to innovation Theres, a higher profit pool there.

And Thats, where the customers are starting.

Now what theyre getting pushed by greenpeace's in target these days and there's there's an awful lot of focus.

By the two big retailers at least in North America, and even in Europe on how quickly they can address some of the plastic that.

In their Isles, but will the conversations we're having right now we're starting.

With premium.

And if it transitions into other you're going to have to address supply chain cost in filling and all of that in a big way and.

I think the pressure will come from the retailers onto our customers and we're certainly.

And.

Position, where we can help them with those.

Yes, the only thing I'd add is that from a customer perspective, what we're seeing is a wide variety of new startups that are taking advantage of the gap that exists right now so they're starting in water and theyre going only can so.

That's that's.

And then.

John or Scott can you put into context for us the comment about.

Getting back to.

15% earnings growth.

Our long term basis is that something that can be.

And then your sites for 2020, specifically or is that more should we think about it.

Over the next couple of years, well I won't say getting back to because we never had to get back to we've always been in fact were 15% last year. What we're saying is historically we've had two full two measurable focuses that much our incentive compensation is tied to the first as EPA dollar growth and you can look at our long term incentive plans and see that the.

Target is for the upside as a percent where do we try and drive to that the second over the long term as long as I've been a ball Corporation, we've talked about our growth goals of to at least 10% to 15% per year and we think if we execute in 2020, we could be at the high end or beyond that that.

Range, but it's time to execute right now.

Thank you.

Millennium, If we'll take one more question on wrapping up.

We do have a follow up from Adam Josephson with Keybanc. Please glass.

Thanks, So much for taking my follow ups, Dan forgive me if I missed this when you when you talked.

About Europe.

Being up low double digits percentage wise before the inclusion of the plants that you are moving can you just repeat what you said about what that you expect that the total impact to be growth wise.

Are you the double digit comment I think came from Scott on the earnings how.

I'm, sorry, just about moving the Egypt in Turkey plants into euro yet.

So I said Europe would be up low teens yana percentage on a percentage basis, and then you'd have to add in the profitability from Turkey, Egypt, which was largely what showed up in EMEA before into those numbers.

Okay.

I'll go look and just remind myself what that was and then South America.

Scott you commented would be up as well.

Forgive me if I missed this did you quantify that as you did have the other segments. So South America will be up kind of mid to upper single digits percentage wise.

Thank you operating earnings basis. Thank you.

Okay Mill and those are other questions. We have I'll turn the call back over to you Sir.

Okay. Thank you very much mill Latin. Thank you all for participating we look forward to us starting the year strong in 2020, everyone have a good one.

And ladies and gentlemen that concludes our.

Lets call for today, we thank you for your participation everyone have a great rest of your day you may disconnect your line.

[music].