greif's (gef) ceo pete watson on q4 2015 results - earnings call transcript - clear plastic corrugated sheets
Grave company (NYSE:GEF)
At 10: 00 a. m. on December 11, 2015, Griffin ETExecutivesScott Q4 2015 earnings call-
Watson, vice president of communications-
President and CEOLarry hilsheeran-
EVP and cfoanalyst Ghansham in Punjab-Robert W.
Wells Fargo stock exchange
Adam Joseph's company
Capanke capital market CO. , Ltd.
Bank of America/Merrill LynchD. A.
Howard Brightman Davis
Penn Capital Management
Similar to our situation in the previous quarter, and consistent with Greif's continued commitment to greater transparency, in addition to the 2015 earnings release in the fourth quarter, we are pleased to provide you with a copy of our conference call slides and management notes.
You are encouraged to submit questions to investors @ greif today.
Com in fourth place
A quarterly earnings conference call will be held at 10: 00 a. m. on December 11.
Management will discuss our performance of 2015 in the fourth quarter.
I'm on the third slide now.
The information provided contains forwarding-
Find statements and use certain non-
GAAP Financial indicators.
Please check the information provided on this slide.
I'm on slide 4 now.
Today's agenda includes an overview and transformation highlights, business performance, financial results and 2016 guidance for the year 2015 and throughout.
Peter Watson, president and chief executive, introduced the management speech today;
Larry hilsheeran, executive vice president and chief financial officer.
We released 2015 for the fourth time.
On Thursday, December 10, quarterly earnings were released before the opening.
Our website posted earnings release on www. greif.
Com's part of investors under earnings.
I now hand over the report to Peter Watson, CEO of grave.
Thank you, Scott.
Before we review our fourth quarter results, I would like to make a few comments.
Let me start with my vision of Greif, which is clear and simple.
In the field of industrial packaging, we are eager to be the best performing customer service company in the world.
At the heart of this vision is to deliver exceptional value to our customers.
If we serve our customers, we will succeed and we will fail if we do not.
I am confident that we will achieve this and I will ask our entire organization to be responsible for this vision.
I would like to stress that we remain fully committed to the transformation process.
This is our journey to grow and improve profitability.
I am pleased with the progress made, but I quickly admit that there is still a lot of work to be done.
Execution of the Greif Business System is an important driver.
This is our process engine for excellence.
Our success and business excellence, procurement and supply chain, and operational excellence will ultimately be measured by our growth, customer service excellence, and gross margin increase.
In order to achieve excellent customer service and improve our profitability, I personally participated in this business.
I am also very confident that we are on the right path.
We reiterate our transformation commitments outlined earlier this year to improve revenue, increase cash flow and create greater value for shareholders.
Please go to slide 5 and we will discuss the results for the fourth quarter.
We are pleased to report that our Class A earnings per share are higher than they were A year ago.
After currency conversion and divestiture adjustments, net sales were lower than the previous year.
This is the result of three things. -
Due to the reduction in steel costs, the contract reduces the sales price in certain areas of the steel drum business through the mechanism.
Second, due to discrete pricing actions taken to increase profit margins, some volume losses.
Third, weak industrial demand.
Finally, we created $0. 106 billion in free cash flow this quarter.
Please go to slide 6. In full-
We are $2 in 2015.
Net sales per share of Class A shares exceeded £ 2014, which, excluding Venezuela's influence, generated $80 million in cash.
Please go to slide 7.
Our commitment to the transformation process is firm.
We start to see the benefits from our actions. Quarterly results.
I want to emphasize two points ---
First, we have accelerated the cost reduction of SG & A ahead of time, and second, we continue to address the poorly performing business.
In the fourth quarter, we have closed the loss business of two flexible packaging businesses.
We also announced the closure of two poorly performing businesses in our AMEA rigid industrial packaging sector.
I would also like to highlight the Greif Business System in particular.
This process is critical to the success of our transformation.
The new leader in Greif Business Systems will report directly to me in my new role as CEO.
I would now like to make some summary comments on our four business units.
Our global rigid industrial packaging business is mentioned in slide 8 and slide 9.
In North America, despite sluggish industrial demand, we are beginning to see the benefits of the Greif Business System Plan in gross profit margin expansion.
Let me be clear that we have a lot to do in this industry in order to achieve our transformation goals.
In Latin America, we have encountered serious economic resistance in Brazil, which has had a negative impact on our performance in the region.
However, from our transformation in Latin America, we see improvements in working capital.
Despite the challenging monetary effect in this highly diverse region, the AMEA has achieved solid results driven by healthy volume growth. And Asia-
Despite the continued slowdown in China's manufacturing sector, considerable profits have been generated in the Pacific.
Please go to slide 10.
Good quarter for paper packaging.
Although the maintenance downtime of The Massillon container plant exceeded the cycle, the overall number was higher than the previous year.
Our core selection of corrugated cardboard feeder systems achieved a 9% sales growth in the quarteryear.
Please go to slide 11.
Our flexible product business continues to focus on the turnaround plan.
We were slightly behind our schedule, but SG & A cost cuts accelerated in the fourth quarter, with Turkey and Morocco closing down two poorly performing businesses.
Finally, in slide 12, we sold the land management business in Canada.
This concludes my prepared statement.
Now, I'm going to talk to our CFO Larry Hillmer about the balance of the presentation.
Thank you, Pete.
Turn to slide 13.
We are pleased with our progress, as Pete said, but we acknowledge that there is more to be done.
In the past quarter, our business has performed well in a challenging industrial economy.
The performance at AMEA and APAC is slightly better, partially offset by a slight difference in the predicted results of flexible packaging.
We also benefit from the implementation of tax strategies aimed at seizing the identified tax reduction opportunities.
In addition, we also benefit from the geographic mixed impact of tax revenue recognition, as well as our regular re-evaluation of potential tax liabilities.
These joint actions resulted in a year-round reduction in our GAAP tax expenditures and resulted in a significantly lower actual tax rate in the fourth quarter than planned.
This offers about $0.
Prior to the special item, our Class A adjusted earnings of £ 20 per share.
We have also benefited A lot from better variable SG & A expense management than expected and look forward to continuing to benefit in the future.
The combination of our tax strategy and SG & A cuts benefits Class A earnings per share before A special program of $0.
The fourth quarter was $76 and $2. This year is 18 years old.
In a challenging global market environment, we are satisfied with these results.
We are also encouraged by the progress we made in the $80 million free cash flow generated in 2015, excluding Venezuela.
Despite the high capital expenditure associated with our paper products investment, the cost of cash restructuring was about $23 million, and foreign exchange dragged down nearly $19 million, this was achieved.
Keep in mind that, as I mentioned on my previous phone call, we also paid $20 million in tax cash in the previous year.
Steering slide 14.
Currency fluctuations continue to affect our results.
A strong AmericaS.
The dollar continues to create top SG & A ratios and bottom line challenges.
While this is not news for any of you, the challenge is very large, especially for American companies. S.
Focus on their SG & A costs.
Given our extensive global footprint, you can see in slide 14 the negative impact of forex on our net sales in the fourth quarter and throughout the year.
Looking ahead, we expect these monetary challenges to continue in 2016.
Steering slide 15.
In addition to the currency issue just discussed, we also expect that deflation pressure will continue to drive our cost reduction of raw materials, which will affect our highest level.
Overall, the United StatesS.
Industrial production is still weak, especially in the case of excluding the automotive industry, industrial production continues to face pressure due to the strong US economy and weak global demand. S. dollar.
The recovery in Europe is still quite slow.
Industrial demand in the euro zone fell sharply in September than expected.
In addition, China's manufacturing activity has also faced resistance, recently falling to its lowest level since 2012.
On our outlook for fiscal 2016, on slide 16.
The results of our company are expected to benefit from the further implementation of our transformation efforts.
Despite the continued downturn in the global industrial economy and the continued strengthening of the US economy, we expect these benefits to be achieved. S. dollar.
There are three key factors that can help explain the difference between the actual forecast results in 2015 and the 2016 forecast results.
First, our 2015 results include $0.
As we depreciated in 2015, Venezuela will not repeat its 08 years.
Second, the benefits of the tax strategy implemented by 2015 will not be extended to the fiscal year 2016.
We expect revenue to be mixed in our vast geographic context, which will result in an increase in tax expenditures, which actually eliminates the gains we recorded in earnings per share in 2015.
Finally, it is expected that the currency will produce resistance of about $0. 08 to $0.
On 2016, 12 shares per share in Class.
With these factors in mind, we expect the Adjusted Class A income for the fiscal year 2016 to be between $2. 05 and $2. 35 per share.
This does not include profit and loss of sales of business, woodland property equipment and equipment, acquisition costs and restructuring and impairment costs. Thank you.
So I'll give it back to Scott Griffin.
Thank you, Larry.
At this point, we have concluded our comments on the 2015 performance in the fourth quarter.
On Friday, December 11, Pitt and Larry will be happy to answer your questions at the live Q & A session at 10 am eastern time.
You are welcome and encouraged to submit questions to investors @ greif in advance. com.
Thank you for listening.
Welcome to the conference call on the fourth quarter 2015 earnings report of Greif imported.
At this time, all the participants were listening. only mode. A question-and-
An answer session will be held after the official speech. [
As a reminder, the meeting is being recorded.
I am now pleased to hand over the meeting to your Mr. moderator.
Scott Griffin, vice president of communications
Thank you. you can start.
Thank you, Rob.
Good morning everyone, welcome to the Q & A section of our 2015 fourth quarter earnings call.
Yesterday, we released a slide presentation in the investor section of the website and recorded the executive management's conference call comments on our fourth quarter 2015 performance.
We thank those who took the time to submit questions for today's call.
Similar problems have been combined so that we can effectively solve as many problems as possible.
I'm now on slide 2 of the presentation we posted earlier today.
Peter Watson, president and CEO, answered your written and on-site questions this morning;
Larry Hillmer, executive vice president and chief financial officer.
Before yesterday's opening, we released a fourth-quarter earnings report of 2015, which was posted on our website greif.
Part of the investor under the conference call.
Please go to slide 3.
The Q & A session this morning will include forwarding-
Look at the report.
Actual results or results may differ materially from those expressed or implied.
Please review our submission to the Securities and Exchange Commission for more information on factors that may lead to significant differences in actual results with these forecasts or expectations.
In this Q & A session, some
GAAP financial measures can be discussed, including measures to exclude the impact of acquisition and divestiture, special items such as restructuring costs and impairment costs and acquisitions-related costs.
There is a reconciliation sheet that includes our earnings release and presentation posted on greif. com yesterday.
The format of today's call is to first answer questions sent to greif investors via email.
About our fourth quarter results
We will then start asking questions on the spot.
But before I moved to Q & A, I wanted to announce that we intend to host the specific aspects of the investor's shift for the full year of June 2016 when we first proposed.
Closer to that time, you will receive more information about this event.
Now I want to continue to discuss these issues.
The first question is for Pete Watson.
Many undisclosed investors have submitted questions about the subject.
Can you provide an update on the conversion?
Thank you, Scott.
We believe that in the process of our transformation, the basic performance of the enterprise is constantly improving.
I would just like to reiterate that we are firmly committed to this process and are pleased with the progress made in the following areas
But we still have a lot of work to do.
I would like to remind you that this is a journey and progress is not always linear.
I want to talk about a few key points today.
First of all, our SG & A cost plan had A good impact in the previous year as we accelerated our actions in many areas.
We are reshaping our business portfolio and have closed 14 factories and stripped 12 businesses since we started the process, which is an ongoing process.
We are making progress in trying to expand the gross margin of the RIPS business, but we have more work to do.
Thank you, Pete.
We have a question from Adam Joseph of kebank and Chris Manuel of Wells Fargo.
What is your guidance on free cash flow in 2016?
Larry HilsheimerAdam and Chris thank you for your question.
The shorter answer is that we expect the overall range of free cash flow in 2016 to be between 0. 12 billion and 0. 15 billion.
I'll take you through that bridge to that number soon but, let me first talk about why we think it's appropriate to evaluate 2015 free cash flow, excluding Venezuela, it also does not include about 20 million of the cash tax related to corporate sales in 2014.
With respect to Venezuela, I suspect that, if not everyone knows, it is extremely difficult to obtain cash from Venezuela, the growing geopolitical and economic difficulties facing the country have led us to reassess our balance sheet at the end of the third quarter of our business.
So, earlier in the year before the revaluation, we bought some-
As part of the asset protection strategy, national assets have accumulated a large amount of funds for years of successful operation.
This is not capital expenditure in our normal business process.
Later this year, these assets and all the other assets on our balance sheet were revalued.
In view of these facts, we believe that it is most appropriate to assess our free cash flow without considering Venezuela, which also makes it comparable to free cash flow in 2016 and beyond.
This adjustment increased our free cash flow from about 70 million to 80 million.
With respect to the payment of $20 million in cash taxes, this payment relates to the sale of the business in 2014.
We believe that the appropriate way to assess our cash flow for 2015 is to increase free cash for 2015.
There are two reasons why we believe this.
First of all, taxes involve the corporate sales gains that we exclude from the definition of free cash flow.
Therefore, it seems inconsistent to reduce operating cash flow through taxes funded by sales revenue.
Second, we paid it back in 2014, which is unwise in our cash management, and 2015 of the cash flow will not decrease.
In this context, let me build a bridge from free cash flow in 2015 to expected cash flow of 2016, please go to slide 4 on the deck we posted to our website this morning.
First, starting at 80 million in 2015.
Venezuelan cash flow, as shown on page 14 of our earnings release, as well as on page 26 of our conference call platform.
Next, plus the tax of about $20 million that we just discussed, this will not be repeated, as this provides a starting point of $100 million.
We currently expect capital expenditure to decrease by about $12 million to $37 million this year, and the cost of cash restructuring will increase by about $10 to $1 million over the $23 million we incurred in 2015.
This brings us to 0. 102 billion to 0. 136 billion.
Next, we expect operations to generate incremental cash flow of 14 million to 32 million, excluding tax and currency effects, which will bring you to the range of 0. 116 billion to 0. 168 billion.
Finally, we expect that our working capital management will have a positive impact of 4 million and a negative impact of 80 million.
So the overall range of our free cash flow is expected to be between 0. 12 billion and 0. 15 billion.
It is worth noting that our GAAP restructuring costs were approximately $40 million in 2015 and we currently expect to be between 15 million and 25 million in 2016.
Thank you, Larry.
Pete, the next question is Adam Josephine from Cairns.
He asked you what you assume about the volume of 2016, can you elaborate on it?
Pete watersenser, thank you for your question Adam.
On a macro level, we want to achieve the same industrial growth rate organically in all the key areas of these markets, let me give you an example of what this is, and therefore, in our strict industrial packaging business, we have four key terminals --
The used markets we serve include chemicals, lubricants, ag and Pharma.
These four key endings.
Globally, the industrial growth rate in the second-hand market is between 1. 2% and 2.
5%, so I want to stress that there are four key strategic growth plans that are based on our 2016 plan.
First, we have three plans for the growth of paper packaging.
Riverville factory modernization includes the growth benefits of our semi-factory for the whole year
Chemical and medium volume.
The second is our paper feeder extension in North Carolina, which will consume a large portion of Riverville's incremental volume.
The third is to increase the second [indiscernible]
In our paper feeding operation in Michigan
This will produce litho-
Purchase point use of composite corrugated board; the project was operated in January 20.
The second strategic growth plan is our continuous expansion of our IVC growth platform in EMEA, APAC and North America.
We are fleshing out our existing capabilities in our plans, which are part of a multi-year RIPS strategy that looks at more opportunities in the future.
Our new steel drum plant in Saudi Arabia is the third key strategic initiative.
This action is the strategic global client of the joint venture, and we expect the final launch in June 20, our expansion of our plastics container business in Southeast Asia is supported by several global strategic customers that will operate in 2016.
Peter, Scott Griffin. thank you.
We will be consistent with you on the volume.
Can you provide more perspective on the number of RIPS, especially the Bank of Montreal's Ketan Mamtora question, can you provide more about why the number of RIPS in 4Q North America is down 9%Pete watersenser.
Let me start with EMEA first and I will take you around the world and complete more details in North America.
Therefore, we are very satisfied with the growth of EMEA business.
4% in the region, growth is led by our steel drums and IVC products, with growth in most areas of EMEA, with special highlights in Russia, Benelux and Italy.
Specifically in Asia, the decline in industrial demand in China has had a negative impact on our steel barrel production.
We also have two big customers, shut down maintenance for most of this quarter, and we have also taken prudent pricing actions to restore profit margins, which has had a negative impact on our sales.
Although our IVC business across the region continues to grow strongly, I will comment.
In Latin America, due to the deterioration of the Brazilian industrial economy, the number of our operations has decreased, which has a negative impact on our steel drum business.
In that area, the plastic container business we serve the agricultural products market is flat.
We have seen positive growth in Argentina and Mexico.
Finally, let's comment more specifically on our sales in North America.
Our sales have indeed decreased.
A year-on-year increase of 1% but I would like to emphasize very clearly that our approach is profit growth, our quantity needs to provide value, and we are not interested in chasing quantity for quantity.
So, let me explain from three key factors what the reduction is.
First of all, we continue to take prudent pricing actions to restore our profit margins, and we are pleased that we have been constantly seeing an increase in gross margin for the business over the past four quarters.
As said earlier this year, we have consciously decided to reduce the manufacturing capacity of steel barrels by more than 20%.
These actions eliminate high costs and losses, we complete this task, and third, an important customer has extended downtime over the past four months due to unforeseen operational issues.
Peter, Scott Griffin. thank you.
Larry gives you a question, should I compare your 2015 adjusted earnings per share to 2016 adjusted earnings per share?
Let me introduce everyone to slide 5 that we posted to the site this morning and I'll take you through.
We start with 2015 diluted Class A earnings per share, which started before the $2 special item.
We deducted $0 from it.
08 per share, this is the 2015 Venezuela-related earnings per share portion, which will not be repeated due to our devaluation at the end of 2015.
Between $0 next time. 12 and $0.
S. stocks are expected to continue to strengthen. S.
The dollar is relative to other influential currencies.
Then, as I mentioned in my pre-recorded comments, we expect the prudent tax planning and revenue geography portfolio to reduce the ongoing tax benefits over 2015, ranging from $0. 12 to $0. 16 per share.
Finally, we expect our improved operating results to be available between $0. 19 and $0.
$49 per share, tax and non-taxes deducted
Therefore, we expect the net range of diluted Class A earnings per share to be 2016, attributable to Greif Inc.
$2 for special items. 05 and $2. 35 per share.
Thank you, Larry.
What tax rate are you asking, Larry?
What is the tax rate you assumed in the full year guidance for 2016? What is the comparable tax rate for 2015?
Larry HilsheimerOur expects the effective tax rate for fiscal 2016 to be within the range of 39% to 41%, depending on the geographical combination of recognized income.
In contrast, the effective tax rate for fiscal 2015 was 42. 2.
The effective tax rate for fiscal 2015 seems to be higher than our last quarter.
This is because this is the tax rate after the special project reduces GAAP income, because the project needs to provide a valuation allowance according to the accepted accounting principles, so no GAAP tax benefits are generated.
Thank you, Larry.
Larry, Adam Josephine asked about the impact of the foreign exchange surplus on our assumptions, as it relates to guidance.
Can you provide some colors?
Larry HilsheimerYes thanked Adam for his question.
We expect operating profit in 8 million to be around $12 million to $2016, which is related to the continued growth of the US economy. S.
The dollar compared to 2015.
Compared to our budget, profitability regarding product mix, location and country and customer needs may vary.
This means that the overall strength of the United States has increased by about 6%. S.
The dollar against our main basket of currencies
The complexity of our global supply chain and its impact on trading-related currencies make it very difficult to predict the monetary impact.
Our forecast is based on comprehensive data from bank analysts, which we believe is a fair representation of our expected currency change for fiscal 2016.
Thank you, Larry. Scott grifino.
The next question for Larry is that we have a question for Adam Josephine from KeyBanc.
Can you talk about leverage and share what range you are satisfied?
Thanks to Adam for all the questions.
We appreciate it.
Our 10/31 contracted debt ratio is about 3. 2 to 1.
While we are currently satisfied with this proportion, as we know it is driven by high restructuring costs and documented impairments, we do not expect to see these impairments again in the effort to complete the transformation plan.
We are still committed to achieving the target ratio in the range of 2 to 2. 5 to 1.
Our debt levels are still well below the levels of 2014 per cent in 2013 and each year.
We do expect normal cyclical growth in our ratio at the end of the first quarter, but we are not worried about our ratio or about paying dividends.
The realization of our 2016 budget is expected to bring us to an end in 2016 at a debt ratio of less than 3 to 1.
Thank you, Larry.
Ghansham Punjabi of Baird wrote a short note yesterday asking for a better understanding of our standardized SG & as a threshold for the percentage of sales you can add more here
This is a good question, of course, thanks Ghansham.
First of all, let me state that we are very pleased with our progress in reducing SG & A in 2015, which reduced by $80 million, by about half, favorable aspects of currency exchange rate movements.
We also reduced SG & A related to divestiture by about $19 million and reduced other SG & A costs associated with layoffs, travel and entertainment by $21 million, cost management actions and focus efforts to reduce professional fees and other SG & A costs.
These deductions add to the offset compensation and benefits costs incurred this year.
For 2016, we expect an additional savings of 26 million to 30 million, or 21 million to 23 million, which is related to our assumption of further strengthening the United States. S.
The net decrease in the United States dollar was 10 million to 14 million, and it is expected that wages and benefits will increase by about 5 million to 7 million, which will offset this decrease.
As far as standardizing SG & a is concerned, as a percentage of sales, we are still working on the transformation objectives that we outlined in our second quarter call, provided that the underlying assumptions we made at that time.
Thank you, Larry.
Pete and I are moving to you.
We have an issue with undisclosed investors.
Can you share more details about your Canadian woodland sales? What is your sales plan for 2016?
Thank you, Pete watersenser.
Let me talk about the woodland sale in Canada.
Sales in Canada, therefore, are a development property that will require significant capital and the payback period will be extended.
So we think we are more attractive to other uses of capital and we decided to strip the property.
To comment on these sales plans in our land management business, we do have three types of business revenue.
The first is timber sales.
Although timber sales are affected by fluctuations, our plan and goal is to maintain a consistent balance between timber harvesting and planning based on market and weather conditions.
The second category of income is land sales.
We have been taking the opportunistic approach based on market conditions to create the largest incremental profit opportunities for our business.
Finally, our consulting service.
This is a smaller but growing sector in our land management.
We expect higher growth in this area.
Finally, we do not have specific plans to sell any strategic part of our portfolio at this time.
Thank you, Pete.
We will come back to you with Adam Josephine's question.
He asked what trends you have experienced on paper, do you think the price will be stable or the current decline will continue?
Thank you, Adam.
My comment is that the paper and packaging business has been very similar since our third quarter conference call, and this is indeed a key market trend.
So what I want to do is make more comments about what we are doing and the activities we are trying to control in the current space.
As you know, our business focus is to execute our growth and cost reduction strategy at Riverville plant based on our semi-factory modernization project
Chemical media machine.
We started to see benefits and cut energy costs by about 9%.
Our proof of product quality and proof of product productivity is very obvious.
As you know, the price of OCC has been falling slowly recently, which is the main input cost of our factory system.
In our paper delivery business, we have expanded the capacity of the paper delivery business at lucchoice, North Carolina, and are starting to achieve these benefits.
In the three months representing our fourth quarter, the industry's ripple shipments grew slightly, about 1%.
As a result of our increased capacity, we experienced a 9% increase over the same period.
We continue to focus on our Triple Wall business, litho-
Laminated products and coated products.
Also, I would like to refer to your last part of the quarter in terms of pricing, and I expect to see a more stable environment and pricing in our fiscal 2016.
Thanks, Scott Griffin. Pete.
Rob, we're going to go to the scene and ask questions, so I'm going to give it to you. Please. Question-and-
Thank you. [
Our first question is Ghansham Punjabi and Robert W. Baird.
Please continue with your question.
Ghansham PunjabiFirst is on leave this quarter, specifically, I think you are the first quarter of fiscal year 016, if any impact you see from the customer going to stock is just taking into account the fragile end market you sell, what about chemicals and oil, and so on?
Pete Watson. I'm Pete.
We usually see some strict industrial packaging going out of stock in the fourth quarter, and we don't see anything different from the past.
It was a pleasure to hear the news.
Then, in terms of the growth plan that you seem to be making considerable progress, you seem to have a momentum of 2016, but this is related to the overall growth of potential markets in 016.
Pete, how should we consider regions globally, and how should we specifically predict the growth of sales for graves --over-year?
Pete wattenness, so let me start by talking about all over the world that we're involved in, and that's a big issue because there's definitely some confusion in some of these areas.
As a result, the economy in the Asia-Pacific region, especially China, has experienced a sustained decline or slowdown.
Clearly, Brazil is likely to be the most dramatic change in the economy in the past few months, especially in terms of industrial demand.
Then you will see that the industrial manufacturing economy in EMEA and North America is generally slow.
But back to your question about growth, I really commented on some-
With regard to an earlier question, we expect that with the growth of industrial demand in these key end-use markets in which we are involved, this will range from 1% to 3%, depending on which region of the world.
But I think we are most excited and happy about the strategic growth plan that we are driving, and as I mentioned, there are four of them, which we expect to bring most of our growth to 2016.
Ghansham punjabiok is just the last one for me and Larry.
Larry, if you deduct low raw material costs from your pass, how should we look at the benefits of 2015?
I turned it over. Thanks so much.
Larry HilsheimerYes, whether we benefit from the ever-decreasing cost of materials depends largely on the rate of change you may remember, earlier in the last fiscal year, we ended up having a negative impact when steel costs fell sharply on the US index. S.
We ended up getting higher costs through our sales channels.
We expect that the reduction in raw material costs will not bring significant benefits, most of which are adjusted in the market pricing mechanism and have declined in our contract delivery.
Therefore, I will not expect the lower price of raw materials to be of great benefit to us.
The next question is Chris Manuel from Wells Fargo.
Please continue with your question.
A couple of questions Chris ManuelA gave you let me start with one of Pete's.
Look, your time in this role is relatively short now, but can you share with us any different ideas or things you want to do, I mean we have--
How to deal with the strategic thinking of some enterprises, such as some things may have any changes to the transformation plan, I mean, we know that this is not subtle because you are a business model, so there used to be great but safe options to see in the past, but we see that this is gone, and I think in the prepared comments you mentioned something different that you want to focus on the company, but can you talk and share with us other people?
Thank you for your question, Chris.
So as you said, I 've only been in this role for more than 30 days, new roles in the company and how I position the company. I would like to talk about three points of focus, which I did mention in my prepared statement, which is a very customer-focused company, our vision is to be the highest performing customer service company in the industrial packaging field, which is also one of the three key strategic priorities around this, the first center is to develop our staff into a high-performance team.
Second, how can we re-create value in meeting customer needs, which is closely related to the security choices that you have not changed, and security choices are a sign and value proposition that we bring to our customers, it won't change, but I want to make sure that what we do is a highly focused company that creates value for our customers and meets their needs, I believe in how you have the opportunity to grow our business and win the market.
The last key strategic priority is related to our transformation performance, and to make it clear that I am personally very committed to achieving the goals set during our transformation.
We attach great importance to the execution of the Greif Business System in tangible results, and I would like to emphasize that I think in our future success, two key components are how we strengthen and optimize our business portfolio around the world, what we are doing.
Finally, we need to develop a profitable growth path, and we will develop a strategy that emphasizes future development, but I would like to stress again --
It is clear that our entire organization is fully focused on achieving the goal of our transformation, and we are committed to doing that as an organization.
This is helpful and then my second question is more specific flexibility business.
In 2014 of the past year or so, I was looking at this road a bit. you guys made about 2 pounds.
1 million adjusted this year and it looks like you lost about 24 million and I think in your transformation report the business we started from 17 years will be the exact number that I forgot, but what kind of road do you have in a high single digit of a security deposit, and when ---
I'm sure that some range of results are embedded in your guidance area, but on the way forward, when does the business start to break even, can you say a little about what color the rhythm is?
Pete Watson yes, of course, so the answer to this question is really similar to what we're trying to do in a wider context, so, what I want to do is talk very quickly about what the process is and how we see our business, and I will talk specifically about FPS.
Therefore, the answer is the same as the portfolio analysis and overview process that we are involved in, involving how we address poorly performing business and loss operations.
So what we do is develop and implement the improvement plan, we do the review, we have the phase gate milestone to determine our progress and then make the decision for the future, again, this is the exact same decision-making process that all of our businesses use.
Specific to the FPS of this quarter, we are certainly disappointed with the results. we are a little behind what we said at the end of this quarter to break even. we have just finished, which is the first stage gate.
I would like to point out that while we are a little behind, the business is starting to generate positive cash flow and as a break-even EBITDA base before special projects, which is an improvement.
We are encouraged by the team's commitment to achieving our project or the goals we absolutely acknowledge as we have more work to do.
As you know, we have a plan that we talked about on previous calls and we have a three-
The first phase of the annual plan on the expected earnings path is to achieve profitability and stop losses, we are on this path and we will continue to actively manage the business to this point.
As we talked about in the portfolio process, we will make observations and decisions in the phase gate analysis, do what we can to improve the business, and I would also like to say that our joint venture partners are very
Working closely with us to make it a successful business is the way we move forward.
Chris Manuel this is helpful, but if I can fine-tune a piece, I mean, I did remember the break-even milestone that came up this quarter before, and we haven't done it completely, but at some point this year, do you expect this quarter to be the second quarter of your first fiscal quarter? --
As we can see
See the milestones of their success in the business? Pete watersenser.
We expect breakeven operating rates for the first quarter, and some of the reasons we think this is, so we closed two major loss-making operations in Morocco and Turkey in the first quarter.
They are very close.
We spent some money on an event, which caused some disadvantages in our fourth quarter.
We have also accelerated our SG & A program, so our cost structure is lower, and from here on we are actively working to restore profit margins through careful pricing actions, I think you see this in our chart where the volume is down, the profit margin or the price is up, so that's why we believe at the end of the first quarter, we will see three key factors in their arrival at the stage gate.
The next question comes from Gabriel and Justin Bergner of the company.
Please continue with your question.
Justin BergnerA here are a few simple questions, when you look forward to 2016, are you looking forward to operational improvements in each of your departments in 2016 as part of your 16-year EPS guide, is it also part of the operational improvement of the bridge? Pete WatsonYes. We are Justin.
OK, Justin Berg. that's great.
So, based on your current view of the world, should we see that the adjusted portion of the profit per segment is flat or rising next year?
Pete Watson, that's right.
OK, Justin Berg. that's great.
The second question is, can we expect more disposal in the course of fiscal 16, or is the process completed? Pete WatsonYes.
So we announced in the fourth quarter that we will close two factories, one in Norway and one in the UK.
We have such a portfolio optimization process that we constantly review our business and our goal is to solve these problems and improve them.
But as we move forward based on some of the economic challenges we may see in some regions, there may be some consolidation.
I don't rule this out, Justin.
Double spell HilsheimerYes.
We continue to sell small business units in the market, which are in progress.
Justin BergnerAnd finally, in addition to the expected cash restructuring outflow for 16 years, as part of your cash flow Bridge.
In terms of restructuring costs and their impact on gaap eps, what numbers should we consider?
Double spell HilsheimerYes.
Justin, we expect to reach $20 million to $30 million in 2016.
As part of the portfolio review process we went through, Pete mentioned that this could change, but I don't expect it to change at the moment.
But that's exactly what we're looking forward.
The next question is from Adam Josephson and KeyBanc.
Please continue with your question.
Adam Joseph is just a question about your adjusted numbers, and it is clear that in 15 years, your Adjusted EBITDA is 393 of the unadjusted free cash flow 70.
Therefore, the proportion of your adjusted EBITDA converted into free cash flow is less than 20%.
How relevant do you think your adjusted figures are, considering the gap between EBITDA and free cash flow, do you think it is worth continuing to report the adjusted figures?
I do think the adjusted numbers have something to do with overtime, Adam.
Obviously, we do not expect any restructuring in any sense after next year, and obviously we hope that we will not suffer as much damage as we have done in the past few years, so I believe that the adjusted income is relevant and meaningful and will flow in line with the growth of our free cash.
Justin berneet, one of your expectations for the price of container engineering, I think you have said that you expect your price to stabilize in this fiscal year.
Is there any special reason?
If you look at all new capacity or additional capacity, it's more at the end of 2016 as our fiscal year ends in October.
Adam, I am sure you will have a more stable environment, which is one person's point of view.
Go back to Larry, right on FX, forgive me if you have reported this already.
But what exactly are your foreign exchange assumptions for fiscal 16?
Larry HilsheimerAdam is not realistic to walk a line. by-
Due to the transformation of our supply chain, we are considered to be working overtime, so what we are doing is trying to create a composite index, explain what we balance in this year's budget our overall business
That's why I say 6% against a basket of currencies we run.
Adam Joseph send, can you go back to the dollar index you compared? We should compare your guidance to the dollar index.
Can you please, is there a way we can track FX and compare it to what you assume in 205 to 235?
Larry HilsheimerWell what I'm trying to explain is that if you measure our composite interest rate with an index in 2015, it's down 6% overall this year.
Adam Joseph Sonoma is the last one for me. The $0. 19 to $0.
In the operational improvements you have been guiding for 16 years, I know you said the restructuring would be reduced by 20 million.
Can you talk about other specific moving parts including SG & A charges, volume and anything else in $0? 19 to $0. 49?
First of all, because it is an unadjusted restructuring change that will not ultimately affect this.
But let me try to give you a breakdown of the elements about operating margins and this kind of stuff.
So, between 15 million and 25 million of operating profit, from SG & A's point of view, Adam, we're going to range from about 25 to 35.
Adam Joseph, 25 to 35 years old . . . . . . Larry similwan, million.
Except for Adam Josephine, 25 . . . . . . Outside of Larry hilsimeyes, if you go back to the answer I gave earlier on SG & an article, let me go back to that Adam
Adam, of course.
We-Larry himesso. -
As I said earlier, SG & A is expected to save between 26 million and 30 million.
So is Adam Joseph and everyone else. -
Okay, the rest . . . . . . [
Larry HilsheimerAnd is just part of the gross profit margin adam JosephsonAnd volume, is there a volume effect there?
Larry HilsheimerThat plays a role in gross margin and you can go back to Pete's answer about our sales expectations around the world.
Adam Joseph Sund just wanted to ask the question of this volume again.
I think you 've solved it twice, but what exactly are your overall expectations for fiscal 16?
Pete Watson Yes, Chris, because we have such a wide . . . . . .
Pete Watson sorry Adam because when you launch a product on a global scale, the gap between our products is so big that it's really not--
It's hard to measure, so what we do is look at each region based on a particular region, or each region based on each particular region.
So it's not practical how we look at the business to aggregate it into a number.
Larry HilsheimerYes and Adam just give a specific example where you will enter the water bottle and the volume of the water bottle will fluctuate a lot, and if you look at our filling business it's all over the place.
Pete Watson is sorry to give a directional answer on paper packaging as this is a much easier to see problem so due to expansion our unit will grow much higher than the industry
Compared to the expansion of our Riverville medium-sized plant, our paper delivery business and plant volume in North Carolina will increase by 43,000 tons.
Thanks Adam Joseph, so just clarify, $0. 19 to $0.
Since I know that the interests of a few people can make things a bit distorted, how much is EBIT?
Larry HilsheimerAdam I mean, we didn't take the path of EBITDA guidance, so I gave it to you from SG & A and gross profit.
I think you can go back to those numbers, but I don't have them in front of me.
The next question is George stapos from Bank of America/Merrill Lynch.
Please continue with your question.
Alex WongIt is actually Alex Wong sitting next to George.
Thanks for all the details.
The first question on SG &.
Larry, I think you mentioned 10 million to 14 million of the expected savings outside of forex, which I think is better than Apple --to-
In the comments before fiscal 15, Apple was about 21, so does that mean a slowdown in momentum, or should we think about this in a different way?
So, where exactly should we see this in?
Pete Watson we have accelerated SG & A's efforts, as we discussed on every call in the second and third quarters.
So we do. -
We have accomplished most of our overall goals in 15 years.
So when you see the 16-year increment, yes, it does look like the speed is slowing down, but it's clear that the things we accelerate also have the benefit of carry-over.
In addition, we do anticipate that as we further implement the ERP system, as we have pointed out in the past, we should fully implement the ERP system on a global scale to the level we have discussed before.
In the early 18 years, we will again be able to focus more on our shared service centers and incur additional costs.
When we approach the timeline of our speed target in our 17-year commitment.
So we're still on the road to achieving SG & a, which is the level of savings we discussed in the second quarter, but, yes, SG & a incremental savings are slowing down from 15 years.
Alex wong is very grateful for the color.
The second question, if we look into the cracks in depth, several mobile key issues you have announced the closure of several o0f factories in EMEA, and I am sure you mentioned the start-ups in Saudi Arabia and some independent pricing actions.
So when we look forward to 16 years, can you help us? Should we expect a more visible pick-up in the second half? -
You mentioned that you want the profit in the market segment to be flat or up, so if you can help us think about the progress of this issue?
Thank you, alex. I'm Pete.
So all the plans and actions are taken in the transformation process you pointed out and what we would like to see is incremental improvements in the business quarter --to-quarter.
Alex WongAnd finally went back to sales in North America, and you talked about some factors that could hinder pricing action, maybe one-off, downtime for your major customers, do you expect this to last until 16 years, how short are these factors?
Pete watersenso's review of the customer has extended the downtime and this has started to be resolved, so this is-time event.
I think most of the decentralized pricing activities have been completed.
But what I'm going to tell you through the transformation process is not only the RIPS, but also all of our businesses, which will continue to be part of our DNA, we will continue to evaluate our profitability in certain accounts and certain product lines, and we will continue to highlight these accounts and product lines to ensure that we get the maximum value of the services we provide to our customers.
The next question comes from Steve bogey and D. A. Davidson.
Please continue with your question.
Steve chercover can you please remind you of the level of integration on the packing board?
So Steve our integration is in the range of 80, 80% lower.
Steve ChercoverAnd you said you are buying linerboard so I think you are paying less for Virgin linerboard in more medium or biased situations
Pete Watson we traded all the original cardboard that was traded on the index published on the pulp and paper.
Steve ChercoverAnd then saw that storage became a bit problematic in the North American oil industry as production exceeded demand.
Whether this will have an impact on your refined product or if production is ultimately cut, it's a negative impact ---
How do they balance?
Pete Watson is certain, and the change in demand for the business certainly has an impact on our sales in North America, especially in the Gulf Coast.
Steve chercoverok and my last question, this is a long oneterm question.
So I mean, in the last loop, when I first started overwriting Greif, you have effectively re-
You have won the right to grow, and now you spend money to shrink.
So I just want to know, will you be more careful when all this is resolved in the next cycle, when you grow up?
Pete Watson this is a good question, you are exactly right, like anything you learn from what you do well, learn from where you might not do well, I think you have a good explanation of what we will do in the future.
The next question comes from Chris Manuel of Wells Fargo.
Please continue with your question.
It's a hard question to answer when you're sitting here today, but it looks like your two biggest customers are, and I think two of them are your biggest customers considering getting married.
So, in this case, how can you use your great business tools to be successful, or what impact might it have on you, and so on?
Maybe you 've done a lot of work right now to rationalize and move the footprint in order to get closer to your customers.
Maybe when your customers put their own footprints together they end up walking around and how do you see it all?
This is a great question, Chris.
This morning, I attended a conference call with our leaders and major customer sellers around the world to discuss this exact issue, which looks certain to happen.
I think it is possible for these three companies to change again after the merger of these three companies, so our focus and they are our two big customers, our job is to create the greatest value for these people and to position us as valuable to their packaging needs, and I think when we see how this landscape changes, we need to keep ourselves as a supplier of choice, as a safe choice, and to meet their needs as they have in the past, we just need to have more enthusiasm for the future which will be a fun watch.
Chris Manuel OK, I mean, you didn't disclose 10% clients when you're sitting on the RIPS business right now, I guess if those two come together, even if they end up breaking up, they may also need this threshold.
But if they only come as a customer, will this threshold be reached?
Pete watsoni does not believe that I would not comment on this if I knew the answer, and I apologize.
Chris Manuel, no problem.
Some of the other projects, Larry, book and cash tax rates, it is clear that, given the previous withdrawal or payment of tax factors, there were very few last year, whether these companies were closer to coming together after 16 years, in the long run, most companies have tax rates over the age of 30, especially under the age of 30, considering that the global diversity portfolio of most companies is a bit similar to yours, so how about--
You did some tax planning last year, how should we predict changes in tax rates?
Larry HilsheimerYes, this is a good question, Chris, I do expect these two rates to be closer next year as we have talked about it and we don't expect any damage.
Obviously we expect an increase in bookings and a decrease in restructuring costs, however, the biggest factor affecting this difference for us is when you have a valuation allowance, we have to book for GAAP's purpose, which is basically not likely to be generated at least under the guidance of GAAP that you are able to use the loss, which is why the difference is caused.
If we have successfully implemented our transformation plan, then what is interesting next is that, you will eventually release valuation allowances that actually reduce your GAAP tax rate in the opposite cases that we have experienced in our history, a bit artificial.
Therefore, we may still end up with an imbalance between the two projects, but in fact, from an income perspective, the two projects look more favorable.
In the long run, when you look at these changes, what you are trying to do is to develop tax strategies that allow you to delay taxation, and not many allow you to completely avoid them from a permanently different perspective, so these two rates should eventually be closer to each other on an ongoing basis.
Sorry if this is clear, but the short answer to your question is, yes.
It will get closer and closer in 16 years, and there will be fewer and fewer overtime work.
Chris ManuelI thinks you gave us a book number for 16 years . . . . . . Larry Hilsheimer39 to 41.
Chris ManuelWhat do you expect your cash portion to be there this year?
Chris, Larry HilsheimerI really hasn't seen it.
I'm sorry I didn't give you an answer.
Okay, Chris Manuel, I'll follow up.
The last two relatively quick questions, Larry, in your cash flow investment section, you have $44 million, and it looks like you're financing someone there, can you give me more colors?
Larry HilsheimerYes, our securitization agency in Europe, its structure allows us to withdraw only our important parts and return all the cash to them, so ultimately because we're trying to use it in a way that reduces our cost of using it, especially in Europe when we don't need cash.
Chris ManuelAll is right, so maybe dealing with this in a different way, what does this have to do with working capital, so, I have to look back at this model, I don't know what it has to do with the working capital part of this year, but, is this related . . . . . . Larry hillimer is related through our operating working capital Chris, which has no impact and is not part of accounts receivable, accounts payable or inventory.
So securitization is still going through something different.
OK, the last question is, I'm looking at the number track you just reported in Asia, down 11% to 12%.
Maybe you can help us out with what's going on at Pete's? Will this change, or is it a temporary thing, or is there something you have?
Pete Watson, no, mainly our two big customers have extended downtime for most of this quarter, which is a temporary move for us, I would also like to tell you that China's industrial economy is definitely slowing down, which has had some impact on our steel drum business.
But in that area, there was some good growth in IBCs, and we started ---
We will see improvements in our plastic bucket business there.
Chris manuelok, so it may still be a flat level for 16 years and may improve slightly
What is the digital type?
This is correct.
The next question is Howard Brightman from the capital of Pennsylvania.
Please continue with your question.
Howard Silverman asked a simple question about your balance sheet, your 6 questions.
75 notes for 17 years will expire in about a year, any thoughts on refinancing and how will this affect your balance sheet and leverage?
Larry HilsheimerYes we are right, it will expire in 17 years and we obviously continue to focus on our plans.
To Saudi Arabia, we have no problem at all.
We will analyze this alternative as the most appropriate form for us and we will not change our balance sheet from a debt perspective.
I would like to thank everyone in Rob who manages the queue.
This is the end of the speech.
Playback of the problem-and-
Later today, we will provide an answer session on greif's website. com.
Thank you for your attention and participation. Thank you.
This is the end of today's conference call.
Thank you for your participation.
At this point, you may disconnect the line.