Q4 2020 Silgan Holdings Inc Earnings Call
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Thank you for joining the Silicon holdings fourth quarter and full year 2020 earnings results Conference call.
This call is being recorded at this time I'd like to turn the call over to Kim Ulmer, Vice President Finance and Treasurer. Please go ahead.
Joining me from the company today, I have Tony Allott, Chairman and CEO, Adam Greenlee, President and CEO, Bob Lewis EVP and CFO.
Before we begin the call today, we would like to make it clear that certain statements made today on this conference call maybe forward looking statements.
These forward looking statements are made based upon management's expectations and beliefs concerning future events impacting the company and therefore involve a number of uncertainties and risks, including but not limited to those described in the company's annual report on form 10-K for 2019 and other filings with the SEC. Therefore, the actual results of operations.
He is on condition to the company could differ materially from those expressed or implied in the forward looking statements.
With that I'll turn it over to Charlie Thank.
Thank you Tim and welcome everyone to Silicon is 2020 year end conference call.
With 2020 in our rear view it with high hopes of putting challenges of 2020 behind us I want to thank the entire still contain.
Pointed out a few of the 2020 highlights and provide a brief preview of our 2021 outlook.
Bob will then review the financial performance for the full year of fourth quarter I provide more detail around the 2020 outlook afterwards as usual Bob Adam I would be pleased to take any questions that you have.
Let me start by expressing our gratitude deep respect for the entire silicon team, who rose to the challenges. During these unprecedented times to meet the expanding needs of our customers supplying essential products to our vulnerable communities throughout this pandemic our employees have repeatedly demonstrated their strength.
Commitment on the power of our performance based culture as they did everything possible to ensure we met these unprecedented demands.
As a result, we were able to achieve several milestones in 2020 and are well positioned for further growth in 2021.
As covered on our press release 2020 was an exceptional year for the company some of the highlights included.
We achieved record financial performance across the board, including revenue, which increased to $4 9 billion with strong volumes experienced throughout the year.
Adjusted net income per diluted share of $3 six was up 42% versus the prior year.
Free cash flow of $383 5 million or $3 44, SaaS occur diluted share we're at record levels.
We obtained our target leverage ratio just seven months post the recent acquisition.
Additionally, the company to take advantage of future cash deployment opportunities.
And we increased our cash dividend for the 16th consecutive year.
While achieving these performance metrics. We also invested in several important growth initiatives, including completing the acquisition and integration of the dispensing operations Albea Group Inc.
Initiate a commercial supply for a major pet food customer expansion in eastern Europe.
Managing several significant new business wins in the plastic container business, which are expected to generate further growth in 2021 on beyond it.
Initiating several capacity expansion projects for dispensing triggers and pumps to support significant customer growth anticipated in health and hygiene product offerings.
On meeting customers increased need for local production.
Simply put our business franchises have never been stronger our employees never more resolute.
On our confidence in the future never more resolved.
Therefore, as Bob will discuss in more detail, we're providing full year guidance for adjusted earnings per diluted share in the range of $3 30.
The $3 45.
The midpoint of this range represents a 10, 3% increase over 2020.
We also expect free cash flow to again be approximately $380 million with that I'll turn it over to Bob. Thank.
Thank you Tony good morning, everyone as.
Tony highlighted volumes remained strong throughout 2020, as we benefited from more at home consumption.
Kind of more stringent personal hygiene habit and several strategic investments in new business flow.
While overcoming the challenges of keeping our workforce safe and integrating a newly acquired business.
As a result from 2020, we delivered adjusted earnings per diluted share of $3.06 and we delivered free cash flow of $383 5 million significantly better than the prior year, a 271 7 million.
On a consolidated basis net sales for the year were $4 billion $920 million, an increase of $432 million or nine 6% over the prior year.
This increase was the result of higher net sales across each of our businesses. We converted these sales to net income for the year on $308 7 million or $2 77 per diluted share as compared to 2019 net income of $193 8 million or $1 74 per diluted share in 2000.
<unk> adjusted earnings per diluted share included adjustments that increased earnings per diluted share by <unk> 29 for.
Rationalization charges costs attributable to announced acquisitions and the purchase accounting write up of inventory on the loss on early extinguishment of debt in 2019 adjusted earnings per diluted share included adjustments that increased earnings per diluted share by 42 cents for restructuring charges costs attributable to announced.
Acquisitions and loss on early extinguishment of debt as a result, adjusted net income per diluted share was $3 six from 2020 up 42% versus $2 16 in the prior year.
Net interest expense before loss on early extinguishment of debt decreased $1 9 million to $103 8 million, primarily due to the lower weighted average interest rates, partially offset by higher average outstanding borrowings primarily related to the recent acquisitions and additional revolving loans outstanding in the early part of <unk>.
2020, as we held cash to guard against potential credit market disruptions and the early day of the COVID-19 pandemic.
In addition, we incurred a loss on early extinguishment of debt of one $5 million on $1 7 million in 2020 in 2019, respectively.
Our effective tax rate was 24, 2% at 23, 1% in 2000 22019, respectively.
The rate for 2019 was favorably impacted by the resolution of a prior year tax audits and the timing of certain tax deductions.
All year capital expenditures totaled $224 2 million in 2020 versus $230 1 million in 2019.
Additionally, we paid a quarterly dividend of <unk> 12 per share in December the total cash cost of the dividend was $13 2 million for.
For the full year, we returned $53 $6 million to shareholders in the form of dividends and in addition, during the year, we repurchased stock in the amount of $35 $9 million.
I will now provide some specifics regarding the individual financial performance of each of our businesses. The metal container business reported net sales of $2 billion $560 million up $84 8 million versus the prior year.
The increase was primarily due to higher unit volumes of approximately 14% and favorable foreign currency translation of approximately $4 million.
Partially offset by the pass through of lower raw material costs.
Renewed shift towards smaller metal packages sold any impact from the renewal of certain significant customer contracts at the end of 2019.
The increase in unit volume was particularly was principally due to higher demand in at home consumption.
Segment income in the metal container business was $246 6 million, an increase of $86 6 million versus the prior year.
This increase was primarily attributable to higher unit volumes $39 $5 million of lower rationalization charges strong operating performance and higher pension income. These increases were partially offset by the impact from the renewal of certain significant customer contracts at the end of 2019 and a shift towards <unk>.
Metal packages sold.
Rationalization charges totaled $9 9 million and $49 4 million in 2020 in 2019, respectively.
The 2019 rationalization charges were largely a result of the shutdown of two manufacturing facilities and the withdrawal from the central States pension plan.
Net sales on the closures business were $1 70 $710 million in 2020 on increase of $306 8 million versus the prior year.
The increase was primarily the result of higher unit volumes of approximately 8% and a more favorable mix of products sold partially offset by the pass through of lower raw material costs and unfavorable foreign currency translation of approximately $4 million.
Unit volumes increased principally as a result of the inclusion of the two recent acquisitions and increased demand for consumer hygiene health and personal care and food and beverage products. These volume gains were partially offset by weaker demand for certain beauty and fragrance progress products.
Segment income in the closures business for 2020 improved $50 9 million to $224 4 million, primarily due to higher unit volumes, including from acquisitions completed in 2020, a more favorable mix of products sold strong operating performance and higher pension income, partially offset by the negative impact.
On a $3 $5 million charge for the purchase accounting write up of inventory as a result of the acquisitions completed during the year.
Net sales in the plastic container business increased $40 4 million to 651 5 million in 2020, principally due to higher volumes of approximately 11%, partially offset by the pass through of lower raw material costs are low.
Less favorable mix of products sold and unfavorable foreign currency translation of approximately $1 million.
Net income increased $38 9 million to 87 8 million for the year largely attributable to higher volumes strong operating performance lower manufacturing.
Cost and higher pension income, partially offset by the unfavorable impact from $3 $2 million charge for a noncommercial legal dispute relating to prior periods on the unfavorable impact from the lagged pass through to customers of higher resin costs.
As we look at the fourth quarter, the fourth quarter, we reported earnings per diluted share of <unk> 54, as compared to <unk> 31 in the prior year earnings per diluted.
<unk> share was increased by <unk> in 2020 and by <unk> in 2019, resulting in adjusted earnings per diluted share of <unk> 60.
In the fourth quarter of 2020 versus <unk> 38 in the same period a year ago net.
Net sales for the quarter were $1 billion $230 million up $178 $3 million versus the prior year, driven primarily by higher volumes in each of the businesses.
More favorable mix of products sold and closures and favorable foreign currency translation of approximately $10 million. These increases were partly offset by the pass through of lower raw material costs and a continued shift towards smaller metal packages sold in the metal containers business the increase.
<unk> volumes were principally due to the inclusion of the acquired businesses and continued high demand for food consumer health hygiene and personal care products.
Interest income interest before interest and income taxes for the fourth quarter of 2020 increased by $33 6 million to $105 million, primarily due to higher volumes and strong operating performance across all businesses.
Higher pension income a more favorable mix of products sold in the closures on plastic businesses and higher costs in 2019 attributable to announced acquisitions. These gains were partially offset by a continued shift towards smaller metal packages sold in the metal container business the impact from the renewal of certain customer contracts at the end of 2019.
<unk>.
The unfavorable impact from the lagged pass through to customers of higher resin cost in the plastic container and closure businesses and higher rationalization charges in 2020.
Interest expense for the fourth quarter 2020 increased $3 4 million to $26 8 million as a result of higher average outstanding borrowings largely due to the acquisitions completed in June partially offset by lower weighted average interest rates the effective tax rate for the fourth quarter of 2020 was $23 two as compared to <unk>.
Seven 5 million from 2019.
Turning now to our outlook for 2021, our estimate of adjusted earnings per diluted share for 2021, and it's a range of $3 30.
The $3 45 day.
The midpoint, representing a 10, 3% increase over our record adjusted earnings per share of $3 six for.
For the full year of 2020.
Reflected in our estimate for 2021 are the following segment income in the metal container business is forecasted to benefit from anticipated higher volumes continued manufacturing improvements and higher pension income.
The closures business is expected to benefit from anticipated higher volumes, including the full year benefit from the acquisition some back half recovery in the beauty and fragrance markets and new business gains as well as improved manufacturing efficiencies and higher pension income.
We're expecting the plastic container business to benefit from anticipated volume gains and manufacturing efficiencies and higher pension income.
In addition, we expect interest expense to increase versus 2020, largely as a result of higher average outstanding borrowings as a result of the June 2020 acquisition, partially offset by lower average interest rates.
We currently expect our tax rate to be approximately 25% as compared to the effective rate of 24, 2%. In 2020. This estimate does not contemplate the effect of any tax law changes that may arise during the year.
Also we expect capital expenditures in 2021 to be approximately $230 million up slightly from 2020 as we have a full year of the dispensing business acquired from El debt and we find certain customer growth projects.
We're also providing a first quarter 2021 estimate of adjusted earnings in the range of 65 to 75 per diluted share.
Mid point of this range represents a 23% increase over 57.
In the first quarter of 2020 these.
These estimates exclude rationalization charges costs attributable to announced acquisitions and losses on early extinguishment of debt.
Based on our current outlook for 2021, we expect free cash flow to be pretty stable and are providing an estimate of approximately $380 million as earnings growth is largely offset by slightly higher capex and less cash generated from working capital.
That concludes our prepared comments before I turn it over I would like to remind everyone to limit their time to one question and one follow up as time permits we'll take additional questions from the queue with that I'll now turn it over to Madison to provide directions for the Q&A session.
Thank you.
If you would like to ask a question. Please signal by pressing star one on your telephone keypad.
We're using a speaker phone. Please make sure you may function is turned off to allow your signal from care equipment.
Press Star one to ask a question. We can go ahead and take our first question from Adam Josephson with Keybanc.
Thanks, Good morning, everyone and congrats.
Good morning, everyone and congrats on another very good quarter.
Thanks, Bob.
Bob.
Maybe trying to ask about pension first but if memory serves you were thinking that tend to be a $10 million to $15 million drag in.
In 'twenty one on your last call and now you're expecting higher pension income in 'twenty. One. So can you just talk about how much.
Swing and expectations, you've had from the last call and what drove that.
Yes, well.
It's all directly related to what happened in the equity markets are in the markets broadly.
In the final throes of the year. So at the time of our last call. Obviously, the market was not performing very well.
Returns on.
On the portfolio of pension assets were not that great.
<unk> seen a really nice recovery, so that that has really swung us.
Including a degradation in the discount rate, which quite frankly hurts us.
Net of that is we saw it move from what we expect it to be.
A pension headwind of about $10 million or so to being a benefit and pension to be.
Neighborhood of $10 million.
Got it.
And then can you be any more specific about your volume expectations in 'twenty. One I believe you said you expect your food can volume to be up even on the exceptionally difficult comp I know you said, you expect plastics volumes to be up closures.
Catch what your organic volume expectations were for closures per ton was it can you just provide as much details you can about what rate of volume growth organically you are expecting in 'twenty, one and why.
Sure Hey, Adam it's Adam.
Thanks for the comments on question.
Maybe just starting with our metal food can business to start with for 'twenty. One we talked a lot on the last call just about the run rate of the business and the run rate of the volumes. We are experiencing so as we head into the year.
We're essentially.
Running at full capacity in Q2, Q3 and Q4.
And.
The pandemic didn't really impact our metal food can business until very late in Q1 and certainly in Q2. So we talked about the shoulders of the year that that's where our capacity exists and that's absolutely. The case as we look at 'twenty. One. So the good news is we came out of the year with great momentum in Q4 with our <unk>.
Net highest unit volume quarter of the year and our orders are fully loaded for Q1. So we know as we sit here today that our Q1 volume is going to look a lot like our Q4 volume mix might shift a little bit, but the absolute volume is going to be up pretty significantly versus 2020.
And then that will carry over the course of a year ago, We've got a tough comp in Q2, So just as a reminder.
Some of that.
Pandemic buying did occur in early part of Q2, we were able to liquidate quite a bit of our inventory. So while we were running and selling whatever it was that we were actually manufacturing. We also sold out the inventory so.
And then maybe moving into Q3 and the metal can business.
We talked a lot about the pack.
Pat was not really able to respond in a large way our customers weren't able to respond on large way to the increased demands of.
The pandemic so well.
Well, we don't have final numbers yet for pack volumes, we do know and we work with our customers very closely on this we know that Theyre planning.
On a sizable increase to their pack volumes in the U S. We know theyre going to contract additional acreage in the U S and they're expecting a really good path for the year. So I think those items altogether. Adam is what gives us a lot of confidence in our metal container business that will we will see continued strength.
Over the course of the year.
And then maybe now just move to closures.
The first thing about closures as obviously, we have the acquisitions in 2020, we had seven months of those.
We'll have a full 12 months.
In 2021, when you talk about the fragrance business, specifically with all day.
We're expecting a recovery on something like half of the detriment that we experienced in 2020 and when you think about that.
On our last call. We said we were seeing some positive signs, but didn't want to get too far apart on ourselves we were down in the fragrance business call. It 30% in Q2 and Q3.
And we did start to see improvement in Q4, so our orders are a little bit stronger in Q1 as well. So we feel really good about the <unk> business and the fit with Silicon and then maybe moving back a step to our legacy dispensing systems business, we saw another 15% growth.
In Q4 in the legacy business excluding Albania.
The business continues to perform at an exceptionally high level.
That's been very consistent through the back half of 2020.
We're expecting that to be consistent through 2021 as well one other item.
It didn't talk that much about in our closures business was our our kind of hospital plastic closures for sports strength and ready to drink teas, we did see nice growth in 2020.
We're up high high single digits in that business again, and Thats going to continue again next year, maybe not quite at the same rate, but we're expecting and if our traditional growth rate.
For our heartfelt plastic segment.
And then maybe moving to plastics to finish off the conversation.
We continue to execute and win in the markets that we're serving in our plastics business are our performance has been exceptional we're being rewarded with new business wins.
Our team has done a great job of meeting those unique needs of our customers on.
When you just look at the annualized <unk> of the business wins that we commercialized in 2020 and the new business wins that we have coming on in 2021 with some additional growth in our core markets. We feel really good about our plastics business too so very long answer Adam I apologize, but.
Theres a lot to it.
And we feel really good about where we're going in 'twenty, one and beyond.
Thanks, a lot on we will get back in the queue.
Okay on that Scott I wanted to ask a question. Thank you framed your question.
Move yourself from the queue by pressing Star Kim We'll go ahead and take our next question from Mike Willoughby with bank of Montreal.
Please go ahead.
Thanks, Good morning, everyone.
I have a portfolio question, you've made a number of moves.
And secondly to expand closures and dispensers in recent years on this has shrunk the amount of your business. It's in metal food cans, just help us understand how you would think about potentially clinical on the portfolio back toward food cans over time.
Sure Mark.
So first of all what you said is true.
We certainly have invested a lot in last couple of years in the dispensing systems side of our business, particularly on closures.
In fact, if you look this year the metric we watch the most of the EBITDA business in fact, essentially the closure business was the same EBITDA as our can business this year.
And based on everything Adam just took you through our expectation right now is that that closures will be a bigger business that boot camps to us next year.
So I think that is a telling difference that might lead you to think that that means that we're moving away from food cans and anyway. That's not the case, what we've been doing for a long time. It was taking high cash generation and deploying it in areas, where we think we can get really good high cash returns for our shareholders that has happened to be more on the dispensing area and were glad it has been.
It's been great, but as we look at the portfolio as I said, we really never feel like we've been in a spot where all of our franchises are strong as they are right now.
<unk> has done a wonderful job of showing themselves to the market in a trying time and they are being rewarded as Adam just said in contracts et cetera. The dispensing systems business already was known to be a premier supplier of that market and they prove it again and so they are being rewarded and we said in our press release, we are making investments there too.
Expand capacity to meet this increased demand. So we see a lot of growth opportunities on both of those two sides, which again are the bigger part of what silicon is today, but with that said, we also have always like food cans, we know that the market sort of struggles with the organic growth in food cans, we don't and Im taking away whats happened this last year, but to us.
It's been strong cash flow good opportunity, yes, given our share in the markets. We are in acquisition has been a little bit tougher to find but it's been a great business for us in terms of generating cash and opportunities going forward and that's how we think about it.
As we go forward.
I think we would say any one of those areas in rigid packaging high cash return fit our portfolio thoughts going forward.
Okay, if I could just kind of from.
Follow on on the point.
Is it possible.
For you to continue to grow revenues and earnings in Fujian reported that their shift toward smaller lower priced cans over time.
Absolutely in fact, that's what we've been talking about for a couple of years is that it's a good question. Our feeling was all along that we were going to look at a growth curve for our can business because.
The markets that we were in in a substantial way had been growing so we'll take pet food or protein as examples we've got meaningful share in those they've become a much bigger part of our overall <unk> portfolio and they've been growing steadily. So we never thought we were going to see a change in direction of growth. We just knew that the mix.
Our portfolio is getting more and more to growth can market. So we do view there as being growth opportunity in our can business.
First on secondly, now we got to kind of come back to Covid. So thats. The historic landfills now we've had COVID-19 and as Adam just went through.
What has happened is not just about pantry stuffing et cetera of course that they're on yes, that's going to set a tough comp for Q2, but what's happened. Since then is continued strong demand for can people are using cans right now that weren't using them before they are being exposed to them. They are realizing that the food is good that is many of our sales.
Now this is more sustainable we're helping and our customers are helping to send that message. So I think on top of what you just said about the mix of our portfolio more to areas that have growth. You also have sort of a new dynamic of people rethinking their view of boot camp and so all of that sits here and it's part of why we like.
Likely to campus before and we like it a lot now.
Okay fair enough I'll turn it over.
Alright, Thanks Mark.
All right. We'll go ahead and take our next question from Gabe <unk> with Wells Fargo Securities.
Please go ahead.
Tony Bob Adam Good morning.
Hello.
Hey, guys good morning.
I have a question that was.
On the inflation side, and that's something that's probably a little bit more pronounced.
On the was where all Sam we spoke in October and I guess, maybe if you can give us a look at it from two different angles. One is kind of on the raw material front, you guys had called out.
Meanwhile, Q1 headwind and kind of assume that's mostly centered in the plastics business, but just on.
How the pass through mechanisms if you can remind us how those working on.
So what are you anticipating maybe for the full year in terms of walls on the web.
And then even on the tin plate steel.
And then from the other input costs.
I know that you had some pretty efficient pass through mechanisms for.
Free coatings labor et cetera.
How will the price costs may shake out by segment.
He gave us Adam.
You are right maybe I'll just end with your last comment we do have very good pass through mechanisms for literally all of those inflationary items that you talked about particularly in the food can business. So maybe to start with with steel for a moment, we are expecting kind of high single digit to low double digit increase.
On our steel costs for the year.
Again, as a reminder, as a direct pass through to our customers of that inflation. So.
That's an item for the food can but not so much for four so again.
You think about coding systems and freight and some of the other consumable items that we experienced in our steel business again, I'd say from the most part that inflation does get passed through to our customers.
It depends upon the contract in the language of the specific contract, but for the most part those items get pass through switching back to our kind of our plastics business and our closures business that are a little more resin based we did call out that we had a slightly unfavorable.
Resin impact in Q4, and it is expected to be and unfavorable impact in Q1, given the recent announcements of.
Increases to our primary resins so.
Our pass through mechanisms for resin again, it varies a little bit by business. I think you can think of it broadly as.
They are index based with kind of either IHS or where our CDI and those are going to be on anywhere from 30 to 45 day lag.
Maybe a 60 day lag depending upon the agreement so.
Those costs are all pass through to the market and the issue that we have in Q4 and Q1 is when you have a significant spike in revenue costly we experienced in Q4, and then again here in Q1.
It just takes time to get those those cost pass through to the market.
Yes, the only add I would make to that is everything I've said is spot on.
He didn't mean it this way of let's just be clear that just just because we have half of our customers doesn't mean, it's not a problem for a customer. So we fight tooth and nail to avoid this inflation. So would advocate who has got the net answer of that but I just want to make it clear that passing through to customers. It doesn't help our customers trying to keep this inflation down as much as we possibly can as what's important for our cash.
Thank you.
And then I guess my next question you gave us a lot of detail on the volume from I'm, just curious specifically on metal food. If you have any insight in terms of customer inventories.
Look at the balance sheet and it doesn't look like inventories were up about that much.
Which would kind of coincide with what you said in terms of a lot of what you were making those being sold through.
And so maybe to the extent debt.
Production this year may in fact need to be flow.
On a core kind of pull out just to maintain and then maybe replenish low inventories and their customers, especially with the increased cost savings et cetera.
Does that imply that volumes will be up in fact from metal food away from that what you're budgeting or how do we think about it.
Yes, it's a great question so.
As we sit here today, we are seeing we're expecting a slight increase in our volume with year over year in 'twenty one.
And I think Youre right, we do not see.
Fly chain replenishment right now inventory.
What we do know is we spent a lot of time with our customers trying to understand what's going on at the consumer level. They are spending a lot of time trying to understand what's going on with the consumer level, we have new consumer structured Kansas, Tony just said.
And what we've seen that we're a year into a global pandemic, we don't believe and our customers don't believe that those cans are sitting in someone's pantry. So those new consumers are actually using food can and we've seen an increase our customers specifically has seen an increase in the repurchase rate of those new consumers. So all of that is part of what gives us.
Confidence for 2021, and then I think you hit the right point at the end of your question Gabe.
Another item that gives us confidence as debt.
Not planning for an inventory replenishment to really occur in 2021.
But if it does we're still going to have to make basically the same number of cans. So whether those can't get sold through to a consumer or replenish inventory somewhere in the supply chain that's got to happen.
Leased in late 'twenty, one or beyond because we think the consumer is using the can at a much higher frequency today than they were a year ago.
Thank you.
Alright, we can go ahead and take our next question from Salvator Tiano with Seaport Global. Please go ahead.
Yes, Hi from me, Adam Bob and congratulations on a great quarter.
So firstly.
I wanted to touch base again, it'll be done the food can volumes and see what you know.
What are your expectations after 2021 it seems.
Youre, saying its not really a risk.
We've spoken about Youre seeing on Q4, or what you expect from 'twenty to 'twenty. One so is it safe to assume that as we look past throughout the year you can leave your volumes can remain flattish on then we can return to kind of the.
Regular level that you were presenting to your slides on some growth in pet food, perhaps sub GDP or some declines from other markets is that how we should think for 2022 and afterwards.
Sure again, it's a great question and I think I would say we're in early days of 2021, so it's a little odd for us to be talking about volumes out in 'twenty, two but I think you've got it right.
We think that at some point the supply chain does have to be replenished with inventory and thats, our inventory our customers inventory retail inventory, where distribution warehouse et cetera. So we're not expecting that to really happen in 'twenty. One so if if there were a slight.
Pull back from the consumer and maybe we always say that the restaurant really is our biggest competition in food cans and if restaurant comps start going up in the consumer may be pulled back a bit from the Cannes Theres, a significant amount of inventory that still needs to be rebuilt here to replenish the system and I would look at 2022 again, it's early we'll see what <unk>.
Happens, but I would say that's probably the earliest that that would really happen with our outlook today.
Okay perfect.
And then elbit on kept on location.
You didn't you didn't make it very clear you're you're moving them out with acquisitions, Firstly I wanted to understand a little bit what are your limitations with.
The leverage what would be your kind of lead me people moving up any acquisitions and obviously if you think you can do something in the first half of 2021, given the seasonal working capital and then if you can just talk a bit about the pros and cons, so if M&A versus buybacks, especially with the free cash flow yield of the spoke up around 9% right now.
Yes. Good good question Sal This is Bob.
Theres really no change in strategy here, we have.
Long been disciplined about thinking about our balance sheet and kind of a two and a half to three five times at year end net debt to EBITDA leverage.
We're kind of right at the top end of that as we exited the year.
Having spent a lot of time and very efficiently integrated the acquisitions that we did in 2020.
So feeling pretty good about the bandwidth of the of the broader organization to take on another opportunity.
Look I think.
We've never been shy about saying our M&A strategy is very disciplined returns matter industrial logic matters. So it's all about finding opportunities that fit into rigid packaging for consumer goods that earn the right kind of returns so.
They present themselves and we'd be very happy to take advantage. If they don't then look we've got some room to be patient here and perhaps delever a bit.
We have not typically done large share repurchases unless we were at the lower end of that leverage.
During periods, where the market may get dislocated around the valuation would we take advantage of that sure.
But I think our discipline on our patients here is how we've created a lot of value over time, and I don't think we're necessarily going to change that.
Alright, Thank you very much.
We'll take our next question from Anthony Pettinari with Citi.
Please go ahead.
Hi, good morning.
Good morning.
With the expectation to grow volumes over a very strong 2020 can you talk a little bit about your footprint in metal containers are you basically running full out or do you need to debottleneck on maybe add capacity in any categories. Given the mix shift we just talked about.
And then just on that expectation for volume growth and food cans, you talked about the change in consumer behavior is it fair to say youre seeing sort of investments made by large customers that are reflecting that either in filling lines or new brands or other investments I'm. Just wondering if you can give any color. There are tweaks that you can.
Sure maybe I'll start with the second one first.
Our customers.
They have really been focused on getting full utilization out of the assets that they have to meet the unique needs of the.
Consumers and canned goods at this point so.
I think we're starting to have some of those conversations but really right now it's been more focused on utilizing the capacity that's available.
In the market.
Today so.
And then I think when you come back to our footprint of silicon.
Obviously, we had announced our footprint optimization program in 2019, and we've obviously put that on a pause now.
As we sit here today, our capacity is pretty well in line with our customers filling capacity so.
So we are experiencing some out of orbit freight and those kinds of things and it's a little bit of upset to our manufacturing system, but we've done a great job of getting cans, where they need to be for our customers to fill and get to the market. So I don't think theres anything that we would change per se in the short term about R. R.
Footprints or want to add capacity at this point, but we're working very closely with our customers understanding what their forward looks are as well.
Think about their products.
Okay. Okay, that's very helpful.
And then just switching gears can you talk a little bit about the pathway to recovery for beauty in 2021, just in terms of when that business first Scott hit the percentage, maybe that youre selling to North America versus Europe versus Asia are you seeing any signs of improvement in any region.
On the ability that you have into demand in.
In that in that market.
Sure Good question.
So maybe let's just focus on fragrance, specifically and say.
With travel restrictions that were put in place relatively early in the year of 2020 that did have a significant impact on our fragrance business again at the time.
Most of our customers.
<unk> products going through retail outlets and.
A good portion of that was in travel retail others were in shopping malls et cetera, so with the with the Lockdowns that we've experienced around the world. It had that's really been the driving force in the weakness of our fragrance products as we look around the world the markets that it got impacted most severely I think I'd start in Europe first.
Although by North America.
What gives us a positive view on this is what happened in South America, particularly in Brazil, the largest market in South America, we saw a very rapid recovery in our fragrance market in Brazil as they reopen their economy is travel is starting to see.
It will occur again so.
We feel like we've seen progress in South America, we've seen progress on Asia, and then again as I said so much on.
Our fragrance products a year ago went through some sort of on premise retail channel. We spent a lot of time with our customers on fragrance talking about ways to reach their consumers and moving to more of an E commerce platform new ideas with samplers.
Direct to consumers. So we've seen a nice uptick in the E Commerce channel for fragrance as well and then finally, what I would tell you again I said it a few minutes ago debt.
At the height of the pandemic.
Our fragrance vol.
Volumes were down something in the 30% range in and Q3, we saw a little bit of improvement to that we saw improvements of that again in Q4, and we feel pretty good debt.
There is going to be a recovery in 2021 were pushing net towards the back half of the year and as we said earlier, we're expecting roughly half of all kind of a detriment we experienced in 2020 to recover for 'twenty one.
Okay. That's very helpful I'll turn it over.
Okay.
Alright, but you can take our next question from George Staphos with Bank of America.
Please go ahead. Thanks.
Thanks, Hi, everyone. Good morning, congratulations on the year everybody.
I guess my first question I want to come back to.
Metal food and I realize you've already covered this ground a little bit but from our trade research I mean, what we're hearing is customers are really trying to refill the pipeline, perhaps they cant because there isn't an availability of capacity, but we are hearing on New York kind of refill is her way.
Are you that you could somehow index, what your shipments might look like this year relative to consumption I know, it's a hard question, but just wanted to get some qualitative on that and to what degree your customers or are planning on increasing play.
Plantings, maybe there's another proxy for pipeline refill relative consumption and then I had a nitty gritty question on earnings Thanks, guys.
George So.
First of all you're right that it is impossible really to answer that question, but we can give you sort of the qualitative on it.
I think our customers are hoping to rebuild because they have been running absolutely bare shelves.
Inefficiently, and so I think without a doubt they would like to refill we are not assuming they're going to be able to do that we are assuming that the market. The pull from the market will be strong enough that it will.
There won't be significant refill in 2021, and that's our that's how we built the thing.
So we will see what Adam has said is that for sure. We are hearing that the plantings the contracts for land et cetera are up so when you talk to the fruit and vegetable market. For example, the sense is that there there is the desire to pack more whether that is too.
Restock or to sell it is probably yet to be determined they'll probably thinking its restart I think what we know is that there just wasn't enough product last year that would have been greater sales of our customers had there been more product. So it's almost impossible to answer what will the market take when you have more out there. So again, our assumptions that will get consumed.
That will go into 2022 with.
There's still a need to rebuild I think the point animated which I think is a really important one is the reason we're as optimistic as we are about 2021 is even if thats wrong and the markets arent quite as robust as ever at better than Youll get that rebuild that's sort of our view is that there's sort of two ways to get there this year and as the year develops we will know more about what we're thinking for 2022.
Okay, and Tony if I could ask a follow on to that and then my second question just could you quantify what the effect of the new volume in Europe. I think you said Eastern Europe is in terms of your overall volume outlook for metal food for 'twenty. One and then my other question just in terms of the earnings outlook for this year.
I appreciate that you talked about.
The benefit you'll get from pension I noticed that inventory was flat <unk> versus <unk>.
Not always but typically it is down.
Is there any strategic purchasing there that might give you some inventory gains that we should just have in the back from mine from modeling purposes for 2021, and then also if you could help us just what's the outlook on depreciation for 'twenty. One recognizing there are lots of things that go into an FX et cetera against that debt we can bridge.
From a free cash flow to earnings thanks, guys and good luck in the quarter.
Yeah, Thanks, Alex so on the.
I think on the European but we want to do is convey to you that we are seeing global customer expansion and taking advantage of that with our European business. I don't think traditionally we have given that kind of level of detail of a particular customers gains on that so I think we'll stay away from that is important on that it's a whole new production sell worth mentioning.
Fair enough.
Yeah, George on the inventory line I think what may be skewing. Your what Youre seeing is you got to remember that you've got incremental inventory from yafei of business. In this fourth quarter that you didn't have in the prior year. So youre on.
Hey, Bob usually inventories decline, so that's why as comparing <unk> versus <unk>.
Actually I don't I think that was true last year can we get from inventory reduction Q4 would normally not be it's actually not a very predictable year in that regard.
Sorry predictable quarter, it kind of depends what we're getting ready for the year before that so if there was if there was ever a volatile quarter on inventory movement into Q4.
Okay, but it sounds like there's not much in the way of inventory gains for next year. So that's nothing we should really worry about.
That's.
Yes, that's correct yes.
Okay, guys. Thanks, I'll turn it over.
Okay, we'll take our next question from Erin <unk> with RBC.
Go ahead.
Great. Thanks, Good morning, congratulations on the great performance.
I guess first off I wanted to ask about.
On the margin.
Margin performance, a nice a dropdown of the sales gain into the incremental margin side.
Obviously, that's going to be.
<unk> by the pass through.
Raw materials in 'twenty, one and so you know percent margins will likely come down but.
Could you just maybe just give us an outlook on them.
Maybe the temp costs that you gained in 'twenty and how much of that is maybe coming back in 'twenty. One and then maybe also freight if those would impact your incremental margins. Thanks.
Well, there's a lot to that question. So if you look at 2020 margins were really good for a couple of years right. You had a heavy increase in volume and a system that really couldnt be expanded cost wise for that.
They filled it up you also as Adam said on this when you guys. When you're looking at Q2 I warn you again, particularly for our can business, it's a tough comp in Q2 right because.
Q2 was if there was a pantry stuff in my language that happened in mostly in Q2 as the rest of it is more change of behavior. So we are going to cycle that on the can business side, but also as we said in that quarter. We basically demand is so high across the board and we had inventory in that quarter. So we kind of we got the benefit of running all out and liquidating inventory and so.
That's sort of a unique thing that happened in 2020 that we can't replicate 2021. So I think what we're here, saying to you is we see really good growth opportunities in our business kind of across the board. We've invested in those wrap up growth opportunities at returns that we think are really good we're not necessarily saying that the absolute margin rate is going to be recurring into next year, you're going to get.
The growth in some cases that rate may come down some because of the reasons I just said, but in any case, we see it as being very good return on the capital being spent.
Okay. Thanks, and then maybe if you could just address the freight in the temp costs and then my other question was.
Have you seen I.
I know that M&A isn't necessarily our focus right now and maybe deleveraging is more important but have you have you seen a rise in valuations for certain businesses and.
Is there any is there any situation, where you would consider getting larger in metal container.
Obviously in North America may be difficult, but is there any situation, where you would consider getting larger metal container elsewhere in the world.
So maybe just to quickly hit the first part of the question back to freight costs and other temporary cost in 2020, I think we talked a little bit about freight costs on our last call that <unk>.
Great availability was a little bit of a challenge, particularly around the holidays in Q4, and 2020 that really has persisted into the first part of the year. So freight costs are up again as Tony said, we finally crazy to make sure we get the lowest absolute cost on our free because it does.
Get pass through to our customers from the most part.
Temporary costs.
I'm going to say COVID-19 related costs.
We did have COVID-19 related expenses in 2020, we've essentially assumed the same level of COVID-19 related expenses in 'twenty, one so it'll be flat year over year and really just not much to think about it in my opinion from that perspective, Ken on the cash.
There's sort of two things you asked there first of all to be clear our priority has always been acquisition first we think that that's where we create the most value.
We look back on kind of value created and including even this year, even though all day is underperforming.
Feel really good about shareholder value created through acquisition. So that I think you kind of compare that to debt reduction I think we still put the priority to acquisition net debt reduction could be sort of a temporary place where you put it. It's more if you do returned to shareholders, that's a little bit more permanent decision.
But by the way Youll notice in the fourth quarter, we did buy back shares. So we also do view that as we've always do this sort of a balance and multiple strength, we pulled to create value for shareholders. So but to your main point, we still see acquisitions really interesting we see values.
As Bob said that the opportunities are out there.
So we continue to look and think about that.
You're asking specifically about food cans and would we do anything on food cans that we would never first we'll talk about any specific.
Opportunities et cetera, what I would say on food cans, we kind of said before which is we like the food can business. We think it's got great free cash flow characteristics. They are steady markets.
Wonderful dump out sustainable argument out there is you got product that is packed that peak of freshness never needs any more energy after its pack to protect it for years of time.
It is.
The most recycled package in the world.
It's got a great argument against today's concern for the environment.
So we think it's a really good product now we understand.
Quite clearly you guys have made it really clear equity market struggles a little bit with growth characteristics of the business. So we understand that and that's certainly something that we pay attention to as well to us free cash flow, which we then deploy to get growth.
For the business in the future is to us actually the better answer I might pause here and say that we have had a 10, 6% compounded increase in our EPS over the last decade, even though were slow boring steady can business.
But in any case, we do understand that that organic growth matters, and so we think about that as well and with all that.
Would say that any one of our businesses meets the criteria right now of being an interesting franchise to build upon I wouldn't exclude any of them and there is always with us price is going to matter and the free cash flow, we can get them is going to matter.
Okay. Thanks, a lot.
Thanks, Ron.
We will take our next question from Ghansham Panjabi with Baird.
Go ahead.
Hey, guys. Good morning, I guess going back to the cost side and just given the inflation on raw material costs across the board.
How should we think about that impact on working capital I mean, clearly you sold out of inventory last year and costs are rising et cetera is that going to be a negative draw as it relates to working capital and then related to that for some of the larger contracts within metal food do you have to cycle through any sort of CPI.
Index from last year that may be deflationary relative to inflation this year.
Yeah, So gautam I'll take the working capital one here.
Yes. So no question, we benefited from some liquidation of working capital in 2020, obviously that won't recur right. So so youre not going to get that same benefit going into next year, which is in large part why we're sort.
Pointing to very stable or similar free cash flow on a year over year basis.
I would expect that theres, probably a little pressure from inflation two two on on working capital, but all of that is in the context of being built into the forecast that we've got out there.
And then Ghansham on your question for kind of index pass throughs.
For later on maybe other items those are all embedded in our numbers. So if there is a disconnect between what's actually happening happening in the market with inflation was a deflationary pass through that's all embedded in our outlook going forward.
Got it and then if I could on the foodservice side of your metal food can exposure just talked to you could take us through the sort of the trend line for volumes.
I assume that just given the disruption associated with Covid. There was some initial destocking et cetera, where are we on inventories in that channel have you started to see any sort of improvement as we cycle into 2021, and just remind us how big foodservice specifically is from metal food. Thanks.
Yeah. Good question. So when you think about our foodservice business and now we're going about our big number 10 cans primarily.
For the Tomatoes market.
We saw a significant slowdown.
And really starting in Q2 and certainly in Q3 for that product.
Not expecting any significant recovery of our volumes until we get to the pack season really probably in Q3 of this year. So the cadence.
You won't hear much of our conversation around number 10 can really until we get to the pack volume.
Later in the year and then as a percentage of the total.
I'm just trying to.
Do the math.
A very small percentage of the total, but they're very valuable cans. So from a mix standpoint. It does it does have a mix impact when youre talking about.
The revenue line for the overall business.
Got it thanks, so much Adam.
We will take our next question is from Kyle White with Deutsche Bank.
Please go ahead.
Hey, good morning, hope everyone's doing well I wanted to go back to all day.
In regards to student fragrance on you touched on this a little bit but im curious do you need to see a recovery here in duty free retail to really drive meaningful improvement in the volume or can you get a recovery from other retail channels like digital what you're talking about a little bit and I'm curious as well what are the implications does a higher E. Commerce hub for you any kind of mix impact on margin.
On taxes that retail channel shifts.
Sure Good question.
As we think about it no we don't need retail recovery.
To achieve what we are planning for 2021 with the with our expectation for the fragrance market. So.
I think what's really interesting is that that would likely be upside too.
Two.
We talked about digital efforts in E commerce that actually might be a benefit to silicon and I think one great example for you would be the sampler packages that our customers are now sending out into there for the market to their consumers that have four or five small samples on different fragrances.
Is that you purchase and then you can pick which one you like you spend it back in and they send you a full bottle. So actually there is some chance to ecommerce platform may increase our overall volume in the fragrance business were again very early days to that we're seeing some traction from benefit but.
If you think about those small samplers that is a smaller dispensing system.
Fragrance sprayers and what's on the full bottle.
Going to sell multiples of those versus the one item for a full bottle fragrance. So.
Early days, we will see what happens but.
We don't need a full travel on a retail recovery to achieve what we put forward in our fragrance.
As we sit here.
Got it and then a question on the guidance you expanded the typical EPS range by about five.
I assume it due to all the kind of uncertainty around the pandemic here, but I wanted to ask and see if there's anything particular driving that decision.
I'm just curious of closures on plastic containers. It becomes a larger portion of the business does that mean, you have kind of less predictability.
Relative to what the food can provide in terms of certainty for our earnings going forward.
No I think it's just what you said its really theres just so many moving parts what are coming off of a pandemic at some point you get when we're.
So theres a lot of unknown here, it's a little bit wider.
Guidance makes sense to us.
I figured as much alright, well good luck on the year.
Thank you.
We'll take our next question from Jeff Zekauskas with J P. Morgan.
Please go ahead.
Thanks very much.
The terms of trade with your food can customers improving given.
Increasing tightness in the market on the strength of your volumes.
Yes, so just as a reminder.
Bulk of our food can business under long term contract the kind of the historical story is still going on the deal with our customers et cetera.
Consistency predictability et cetera, so that our customers get that we get the benefit of that so the answer is no and I would not necessarily expect that if a new piece of business came up perhaps that would be obviously you'd have to say I don't have the capacity I need to do something but short of that I wouldn't expect any kind of wholesale change we're under <unk>.
On track then we honor our contracts.
And in the third and fourth quarter of 2021 can you grow your can volumes given that you operated full out in the <unk>.
Third and fourth quarter of 2020.
So I think Jeff as you look at Q3 that was pretty well fully utilized and thats, our largest quarter from a volume standpoint, because of the pack related items. So there is some channel as we've talked it in Q1 and Q4, that's where our existing capacity.
We're available capacity actually exists. So there is not much but if it's going to happen, it's going to be Q1 and Q4.
Okay, great. Thank you so much.
Okay, we'll take our next.
Next question from Daniel Rizzo with Jefferies.
Please go ahead.
Thank you for taking my call.
How should we think about the rush leases rationalization costs as well as working capital in 2021% as compared to 2020.
Sure I'll take the working capital one so we benefited obviously you saw.
Nice improvement in the free cash flow versus what we were originally guiding to that was largely because of the liquidation of working capital was a big a big slug, it out and particularly as cash receipts came in very quickly in the back half of the year.
So that clearly won't repeat or we're not expecting it to repeat right now.
So that's just on it on the surface year over year, that's a little bit of a headwind.
And then given some of the inflation that we talked about in raws, we could see a little bit of a detriment there, but overall very comfortable with where the working capital is likely to be relative to our peers.
$380 million guide for free cash flow next year.
And then over to rationalization cost as we sit here today again, we've got a relentless focus on getting cost out of our manufacturing system, but I would just telling you given all the conversations today on our plans for 2021, we don't have any rationalization projects that we are looking to implement right now in 2021.
When you put a pause on the footprint optimization in the metal container business back that we announced in 2019.
But again that is still on pause and we are continuing to evaluate the needs of the capacity versus our customer requirements.
Alright. Thank you I appreciate the color and then just one other question then.
You mentioned M&A and how.
Look I was just wondering is there an upper limit on debt level when youre looking at potential acquisitions I mean for the company given your free cash flow generation I would think it would be relatively high.
Yeah look we have.
We've long been disciplined around that two five to three five times range, we ventured outside of it on a on a couple of occasions more recently in 17 and again in 'twenty one when we did the two dispensing acquisition.
I'll remind you they were relatively large acquisitions at $900 million right. So that gives you some order of magnitude in each of those took us into the kind of low to mid force at the point of acquisition with a pathway to getting back into that that corridor range pretty quickly in a test case, where there.
Inside of seven months, so I don't I don't know that we have a lot of appetite to go significantly beyond that but.
But obviously, depending upon the opportunity that exist, we would have to consider it if the returns were there.
Thank you very much.
We'll take our next question again from Adam Josephson with Keybanc.
Please go ahead.
Thanks, everyone for taking my follow ups, Tony or Adam can you just talk about the differences as you see them between the U S on European.
Food can markets in terms of growth and return profiles given that youre on both markets, albeit much smaller in Europe than in the states.
Well I can try a little on that I think our businesses are quite different our European business is in eastern focused entrepreneurial small plant.
In our North American businesses force with a leading customers highly efficient system et cetera. So they are different.
We certainly have higher margins et cetera on our U S business as a result of that and Thats true from the day, we on Europe I think growth is.
So food cans have a higher penetration rate in Europe than they do in the U S is more used to package in Europe.
And so.
Therefore minimal more stable the American consume over last couple of decades has been more and more eating at restaurants as a percentage and so there were other competing factors that happened more in the U S. The change and for that very reason the U S had a much bigger change when COVID-19 came along because there were all these other alternatives and some of those evaporated.
So I think <unk> seen more growth around COVID-19 in the North American market than in Europe, I think <unk> generally have seen a somewhat steadier.
What used to be historic core Camden zone bench.
<unk> for example, a little steadier throughout Europe in that side.
I think the U S has a couple of growth areas that have been really impactful like pet food as an example protein that has been a little stronger in the U S. So it's different markets et cetera, but theyre not wildly different.
Different results that come from that if you had a similar kind of business in Europe to archive business in North America.
Perfect I appreciate that Tony on on ESG, and you mentioned the favorable favorable.
Recyclability profile the steel food can.
Which is.
But when I talk to investors about Phil again on the topic of ESG it's on.
Often you don't disclose an update on your website and you don't have a sustainability report and you perhaps don't market yourselves.
ESG friendly to nearly the same degree as do some of your competitors I'm. Just wondering how you think about that issue. How do you think its effect on your valuation on your perception among investors.
Great question, I think I agree with what you said.
We fought truth would win and actually being a better solution was what matter I think slowly we're learning that those that tells a better story at one in this game thus far.
We absolutely believe our answer is as good or better than anybody's out there.
And I think we have been too quiet about that so we will do a sustainable ESG report sustainability report specifically on that.
And so we like everyone. We will get net game I, just think what's not like everyone's we have a much better and stronger message once we do on getting that game.
I appreciate that.
Just one last one on resin can you talk about what your annual resin buy is and how much of that is polypropylene versus polyethylene versus TEP and precisely what earnings drag you're expecting in <unk> as a result of what we've seen in polypropylene and polyethylene and PDT for that matter.
Sure Adam.
I'm not going to give you specific numbers, but I would say our single largest resin type we buy as polyethylene.
And then we've got polypropylene second and.
Third.
For our business and we've got a variety of other resins and niche resins that we purchased for the business. So.
I think as we then forward into our guidance for Q1.
Resolute has seen the most volatility is polypropylene.
Followed by polyethylene.
Polypropylene in all three of our kind of resin based businesses and polyethylene is also used in all three of our resin based businesses. So.
I don't know what more I can provide beyond that it's just.
Yes.
We'll deal with the inflation as it comes in we've got mechanisms to negotiate that and work that through with our customers in a timely fashion and unfortunately in Q1, it's a negative for the lag effect for our business.
Sure. Thanks, so much and best of luck on them.
For Tiana.
Please go ahead.
Yes, hi.
Follow ups firstly.
Last quarter, you were talking about the decline of EBITDA, meaning that probably you would see zero EPS accretion. This year just wanted to confirm.
If the other direction subtracted there any earnings per share in 2020.
Yes, as we said on the last earnings call, we were not expecting much on one of the.
Pleasant upside to our guidance was the two cents of accretion that we got with the <unk> business in Q4. So it was <unk> <unk> accretive in the quarter.
Okay, perfect and then second.
Okay.
Excuse me.
Uh huh.
The other one is.
I guess I guess I don't know would you consider issuing spoke accidently for an acquisition that would be a little bit larger than usual.
Yes, I looked at we've talked about this on on other calls as well. It's obviously, our most expensive cost of capital. So we kind of covered that.
We've never done an acquisition, where we've included equity to be fair. We've contemplated one back in 2011 I guess it was.
So look I guess I would say, we would never straight up say no.
But it would have to be pretty compelling and viewed as valuable and the transaction, otherwise why particularly given where.
Debt capacity on interest rates are today, why we would give away got expensive cost of capital.
Perfect. Thank you very much.
Yeah.
Alright, well take our next question comes from George Staphos. Please go ahead.
Hi, guys. Thanks for taking the follow on Lake sorry for a wall or piece type of question.
Right.
Okay.
Well no it's really more of a complement I mean again plastics has done a phenomenal job over the last whatever number of years of getting the margins back to levels.
Debt, we typically would have associated with specialty packaging margin. So kudos to you and your entire team.
And we know that the company has worked on realigning capacity, adding new investments, perhaps most importantly, the service model.
<unk> gained new customers.
If we go back whatever it is.
115 years ago, the business had changed radically silicon was it was a really good.
High performing use a different term plastic packaging company.
New entrants and so on change the business model such as how to do all of that what gives you. The most confidence that the new plastics, where silicon that's my phrasing that yours is.
There's more.
Has a bigger moat around that business and the long term profit performance and trajectory. Thanks, guys on and now I mean, a good luck in the quarter see you later, great. Thanks, George and thank you for the complement it youre right that on.
The plastics team has done a phenomenal job with the business.
It's truly is more than what you see and this goes to answer your question and I. Appreciate that you caught it exactly which is the service model to use your word, but really the focus on customers and needs of customers and just a relentless pursuit to take care of what the customer absolutely has to have.
<unk> is really a hallmark now of that business, we think the hallmark of silicon, but I would say I have to honestly say right now that team probably.
Agenda as much as probably any of our teams and so that is that is the moat.
We don't particularly have unique technology, we don't particularly have.
<unk> unique assets running our products, what we have is a really good.
Capability to meet the needs of our customers, who are launching lots of products and they need it to be right and on time and I've been as tough as anybody in those five years youre, referring to are saying, we werent there before.
We work day franchise business and so I think it's incumbent on me now to say I. Absolutely think we are a franchise business I think we are selling above everyone else in that and that's the moat. Now Youre question is slightly broader than that if you ever and a leader of anything sit back on your laurels and think now you've got a moat and you're good you're going to get.
So we got to keep working on we've got to keep silent on finding ways of new thing the new markets.
<unk> capabilities in new ways to impress our customers over and over again and that's the message to all of our teams is thats what it takes so.
Yeah, we're not here to tell you we've got it now and it's done and it's locked down but we are here to say that we think the moat is around service.
Capability to customers is not easy to create build.
And so.
We right now.
Customer contracts are coming in volume coming in all the evidence says that something has changed.
Thank you very much Tony.
Thanks Ross.
Okay. It appears there are no further questions I'd like to turn the conference back to Tony Allott for any additional or closing remarks.
Great. Thank you and thank you all for the time today, and we look forward to talking about our first quarter of 2021 late in April. Thank you.
This concludes today's call. Thank you for your participation you may now disconnect.
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