sealed air management discusses q4 2012 results - earnings call transcript

by:Yucai     2019-12-13
Sealed Air (NYSE:SEE)
Q4 2012 earnings call at 11: 00 a. m. on February 19, 2013, ETExecutivesBill Thomas Jerome. Peribere -
Carol P. , president, chief operating officer and director ·Lowe -
Chief Financial Officer and Senior Vice President George L. Staphos -
Bank of America Merrill Lynch, Research DepartmentRobert W. Baird & Co.
Phil M. , Research Department. Gresh -
Research Department, JPMorgan Chase
Anthony petelli, Barclays Capital Research-
Adam J. , Citigroup research. Josephson -
Capanke capital market CO. , Ltd.
Research Department
Jefferies & Company, Inc.
Good Morning, everyone. welcome to The Sealed Air conference to discuss the company\'s 2012 performance in the fourth quarter.
The phone is being recorded.
Jerome A chaired the conference call today.
Peribere, president and chief operating officer; and Carol P.
Lowe, senior vice president and chief financial officer.
They will answer questions after the management has prepared their opinions. [
Operation instructions]
Now, I would like to transfer this call to Bill Thomas, assistant treasurer and interim director of investor relations.
Sir, please continue. Thomas.
Thank you all. good morning, everyone.
Before we start our conference call today, I would like to point out that we have provided a slide to help guide our discussion today.
This demo can be found on today\'s webcast, or it can be downloaded from our IR site in sealedair. com.
I would like to remind you that at this conference call, management\'s outlook or forecast for the future is moving forward --
These statements are made entirely on the basis of the information we have now.
We encourage you to review the information in the section entitled \"forwarding\"
Look for reports in our earnings release, this applies to this call.
In addition, we may perform differently in the future due to multiple factors.
We have recently listed many of these factors in the annual report in table 10
K, updated by our quarterly report on Form 10
Q, you can find it on our website. com.
We also discussed financial measures that are not in line with the United States. S. GAAP.
You may find important information about our use of these measures and their reconciliation with the United States. S.
We listed the GAAP in the earnings report.
Finally, we used formal results for certain indicators related to the year to help compare our performance with the historical combination indicators of Sealed Air and diverter.
The results of these forms can be supplemented on our website.
Please note that we will close our call by noon today and close the Q & A by 11: 55. m.
Now I\'m transferring the call to Jerome Perry Bell. Jerome? Jerome A.
Thank you, Bill.
Good Morning, everyone.
I would like to ask you to note that I have to travel to France for personal reasons, which is not planned.
So I got a call from France and Carol and her team were by the river in New Jersey.
So when we answer your question in the Q & A section on the phone, we ask you to wait patiently.
I would also like to point out that Bill Hickey, chief executive of Sealed Air for the past 13 years, will retire in March 1.
On behalf of all the staff of Sealed Air, I would like to personally thank Bill for his 33 years of work with sealed air.
Start now, on slide 2 of our presentation.
Today is the first time we have publicly reported on our new business unit structure.
This change corresponds to how we manage our business and is direct--
In the integration of diversity
We have submitted 8-
K, it will provide you with information on which businesses are merged into our new reporting department.
Our catering department accounts for about 49% of total sales;
Establishment and laundry, 28%;
And protective packaging, 21%.
In addition, our zones are grouped to correspond to the way we view the zones internally.
Our region is North America, which accounts for 39% of our sales; Europe, 33%;
Latin America, 11%;
Asia, the Middle East, Africa and Turkey, 10%, which, as I said just now, are an integral part of these regions;
Japan, Australia and New Zealand make up 7% of our sales.
We finished 2012 for $7.
Revenue is 65 billion and developing regions account for 24% of our net sales.
Continue Slide 3 of our presentation.
I am pleased to report that our Adjusted EBITDA grew by 17% this quarter compared to the previous year.
All of our departments have been through a year. over-
Adjusted annual improvements for EBITDA and margin.
This improvement has been achieved in the face of continuing challenges in Europe, particularly in southern Europe.
Sales in Europe fell 4% this quarter, down nearly 1% from the dollar.
The French stock market fell 13%, while in fact 5% did not include--
Related to foreign exchange, Germany fell 3%, but this is caused by unfavorable currencies.
Let me also give you some flavor of the southern European challenge: Italy fell 7% and foreign exchange-related fell 6%;
Spain fell 11% and foreign exchange fell 5%;
Portugal fell 21% per cent, down 5% per cent in relation to foreign exchange;
The Greek currency fell 11% to 5%.
We also noticed a higher level of going.
In the second half of this quarter, many of our North American customers are stocking up.
Fortunately, this trend has not continued and sales in January have supported our development.
Stocking observation. Tight put-
Supply in North America also continues to pose challenges that are partially offset by sustained growth in developing markets, particularly in Latin America, and we have achieved sustained sales growth of $ 13%, AMAT achieved sustained sales growth of $ 9%.
More importantly, these regions bring us not just growth, but profit growth.
We completed sales in Diversey Japan in November and accelerated the progress of net debt reduction with a net income of $0. 313 billion.
Our net debt fell by $0. 48 billion this quarter.
Our Slide 4 summarizes our year. over-
Annual and continuous performance compared to 2012.
We continue to gain positive momentum in some key indicators.
We are achieving net sales growth through geographic expansion, developing new and expanded customer relationships and showing our customers the power of sustainability, value proposition, and I will discuss this later.
We continue to recognize cost synergies.
This quarter, we benefited from the cost synergies of $35 million, with a total cost synergies of more than $100 million throughout the year.
These synergies are due to a mix of layoffs, eliminating redundant costs, factory consolidation, and purchasing and logistics savings.
In addition, we have launched a series of initiatives that affect pricing structures and policies across all of our sectors that will gain momentum as we move forward in 2013.
Although demand increased in the fourth quarter compared with the third quarter, adjusted EBITDA and profit margins continued to decline.
We had about $10 million in SAR expenses in the fourth quarter.
We also take on bigger advertising and promotional expenses, which are seasonally higher in the fourth quarter, and European expenses tend to be lower in the third quarter because it is a heavy holiday.
Now let\'s go to slide 5.
This slide reflects how we cover 62 regions.
The national footprint continues to provide us with leading influence and greater internal growth opportunities compared to our peers, and we sell to 175 countries.
Our growth in Latin America and AMAT is very strong, which helps offset some of the weaknesses in Europe, Japan, Australia and New Zealand.
Steering slide 6.
Catering sales growth 2.
$ 4% remains unchanged on the basis of 5.
6% organic growth and 1 of health solutions.
7% of food packaging and food solutions.
In the region, we have a double
Digital growth in AMAT and Latin America, our established footprint and strong market position in Brazil allow us to benefit from the rise in beef production in the country.
Supply at the same time-
Protein supply in North America has had a negative impact on our yearover-
Our performance continues to exceed the growth rate of the industry.
In the fourth quarter, sales of our North American fresh red meat packaging products increased by about 2%, while North American beef supply decreased by nearly 5%.
The gain is partially offset by 0.
Due to the pricing pressure in Europe and the impact of contract pricing in North America, the price mix is reduced by 7%, which brings us some-
Lagging behind some growth in raw material costs in our pricing.
EBITDA increased by 10 after adjustment.
4%, and a margin of 15.
6%, contrast 14. 3% in Q4 2011.
Adjusted EBITDA profits benefit from higher volumes, cost synergies, cost controls, and multiple
Annual network optimization plan for traditional Sealed Air.
I would like to comment on some of our new product sales in the catering sector over the past year.
In 2012, we achieved commercial sales of more than a dozen products in many regions.
Many of our innovations are driven by customer and consumer demand for more convenient features on the package, such as our grip and tear function on the bag, easy open/re-include our new FoldLOK bag system and ovenable Materials on rolling stock.
The products we are most excited about are grip and tear bags.
This barrier bag is designed to provide convenient functions for opening the vacuum package.
This product is usually used--for in-the-
Extended shelf life is conducive to bag sales of products.
In most cases, the easy-to-open feature is accompanied by printed instructions for product promotional cooking.
One of the biggest drivers of our food and beverage business is the global demand for food safety and security.
For example, we eat more food outside, and more food and ingredients come from all over the world.
Our freshness Plus film, combined with our vertical bag packaging plan, can not only maintain food safety during long-distance transportation of food, but also extend the shelf life and maintain the integrity of the ingredients.
Our vertical bag packaging plan has nearly tripled. digit rate.
When you combine these projects with Diversey\'s sustainable health solutions such as in-place cleaning and PET bottle track cleaning, we bring a very compelling value proposition to our customers, extend the shelf life and protect the brand of products. On to Slide 7.
The I & L department has the largest exposure to Europe in any of our departments, with almost half of the I & L sales coming from that part of the world.
Clearly, the economic situation in Europe, especially in southern Europe, is offsetting the good news we have heard elsewhere in the world.
Consumer brand sales fell 31% in the first quarter and 21% in southern Europe.
Machine sales in Europe have fallen. 3%, but 17.
1% south of Europe
Overall net sales increased by 2.
4% on the basis of the unchanged US dollar, to 0.
7% higher volume and 1.
The price mix rose by 6%, but the reported price was flat due to unfavorable currency translation.
In Latin America, sales grew more significantly, with new customers in Brazil, Mexico and AMAT, especially in China and India.
Driven by major consumer brands, North America\'s 11-year performance in the fourth quarter was very strong, making overall comparisons difficult throughout the year.
Still, North America has some new businesses in healthcare, which we \'ve won from some of our bigger competitors.
At this point, I am very pleased to announce today that we have reached an agreement in principle, with thousands of hotels, one of the largest hotel chains in the world, it is the world\'s designated provider of health solutions.
Most of the hotel rooms for this new customer are in the United States. S.
This agreement demonstrates our commitment to the growing global hospitality industry and our flexibility to meet customer needs anywhere in the world.
Most importantly, I believe it demonstrates the power of our sustainability value proposition, providing solutions that, among other things, improve the operational efficiency of consumers and reduce waste.
This is clearly just one of the many examples of our potential in this company and shows how sustainability becomes a huge competitive advantage when you are able to demonstrate cost and performance on a sustainable basis.
Finally, let\'s talk about the protective packaging section on slide 8.
Sales increased by 1.
5% on the basis of a higher fixed dollar amount, partially offset by a lower price combination and an unfavorable currency conversion.
Volume growth of 4.
8%, and expanded the market position and strength of e-commerce
Commercial applications, strong performance in the holiday shopping season, resulting in 4.
North America grew 4%.
Products of our packaging system, such as filling
Inflatable void filling and inflatable bubble buffering and mail solutions are perfect for fast-growing emails
Third Party Logistics applications.
We have also introduced new products such as Opti shrink film, a micro-layer technology that enables higher performance films.
This product reduces the total cost for our customers and improves the environmental footprint.
We have encountered quantitative challenges, especially in Australia and New Zealand, mainly due to the impact of the strong Australian dollar on exports in the region and the decline in Chinese demand.
Competitive price pressures have also had a negative impact on the protective packaging performance in the fourth quarter, as many of our competitors have not taken action to recover the increase in raw material costs.
We are taking action to recover the increase in material costs, and all sealed airlines understand that the increase in not paying for those costs is unacceptable.
Now, I\'m going to transfer the call to our CFO, Carol Lowe, to discuss the financial results for the fourth quarter in more detail and highlight our outlook for 2013. Carol? Carol P.
Thank you, Jerome. good morning, everyone.
Before we review the remaining slides in the earnings call presentation, I would like to point out that we will provide a quarterly summary of 2012 net sales and adjusted EBITDA based on our new breakdown structure.
This information will be available on our website this weekend.
If you follow our presentation, slide 9 summarizes the EBITDA performance we have adjusted after merging. Q4 year-over-
The adjusted EBITDA of the annual unchanged US dollar increased by 17% in the volume increase of US $51 million, which contributed US $17 million to the adjusted EBITDA, with a cost synergy of 35 millionThese year-over-
The favorable impact of the year was partially offset by the negative price cost distribution of $11 million, higher operating costs and high cost additional resource investment
Developing regions.
While we achieved volume growth and good monetary impact in the fourth quarter compared to 2012 in the third quarter, our adjusted EBITDA and related margin declined slightly in a row.
Jerome noted that as our company\'s share price rose in the fourth quarter, the additional SARs cost in the fourth quarter was $10 million.
Additional sales and marketing costs for the fourth quarter were also around $10 million.
I would like to point out an increase of $10 million from the third quarter to the fourth quarter.
I would also like to point out that the fourth quarter and full year benefit from the reduction in our core effective tax rates.
Adjusted earnings per share for the full year of 2012 are about $0. 04.
Some year-end deals cut the core tax rate, which will also reduce our core effective tax rate this year.
Turn to slide 10.
You will notice that cash flow is still strong in the fourth quarter.
Adjusted free cash flow for continued operations for the quarter was $0. 266 billion and $0. 405 billion for the full year.
Adjusted free cash flow for the full year of 2011 was $0. 318 billion.
The decrease in net working capital was the main source of cash for the quarter, and the decrease in inventory was approximately $0. 125 billion, partially offset by the decrease in accounts payable.
Improvements in working capital stem from targeted plans to reduce the normal seasonal pattern of inventory and accounts receivable.
As our inventory decreases, the balance of accounts payable decreases in the current quarter.
Working capital is the use of cash for the whole year, with a slight increase in accounts receivable and a decrease in accounts payable exceeding a decrease in inventory of $41 million. Foreign-
Exchange translation had a negative impact on 2012\'s full-year performance of $14 million.
As part of our focus on improving cash flow, we have developed plans to achieve working capital improvement this year.
Capital expenditures in 2012 amounted to $0. 124 billion, roughly the same as in 2011.
Capital investment accounts for 2% or less of two-year sales.
Our capital expenditure is lower than the depreciation expense of $0. 17 billion in 2012 and $0. 147 billion in 2011.
In 2013, as we look forward to the future, I will talk about our need for a slightly higher investment.
Continue to slide 11.
By the end of the year, cash and cash equivalents stood at $0. 68 billion, an increase of $0. 14 billion over September 30.
Our total cash and committed liquidity as at December 31 was $1.
5 billion. our net debt is $4. 8 billion.
The sale of Diversey Japan\'s net income of $0. 313 billion and operating cash flow were used to reduce our net debt in the fourth quarter by $0. 483 billion.
When you think of 2013, keep in mind that we tend to use cash in the first half and generate cash in the second half.
In the fourth quarter, we refinance some of our regular loans, saving $6 million in cash interest each year.
We also refinance the five 5/8 senior notes due on July, with $0. 425 billion of the six.
5% of senior figures noted that 2020 was ripe.
So we\'re reduced.
This changes the maturity of our debt.
We have used the new debt term ladder as an appendix to the presentation.
We will continue to seek opportunities from the market to extend our due date and/or reduce our interest rates.
We continue to plan to pay dividends with excess cash flow, reduce debt and invest cautiously in the business.
Slide 13 highlights our prospects for this year.
Although our first-line growth prospects are affected by negative growth in gross domestic product and low single orders in Europe
Digital growth in the United States estimates that we estimate net sales of 2013 in the $7 range. $7 billion to $7.
9 billion, compared to $7.
Net sales of 65 billion were 2012.
Our focus on revenue improvement quality is expected to achieve an adjusted EBITDA within $1.
Between $1 billion and $1. 03 billion.
Adjusted earnings per share are estimated at $1. 10 to $1. 20.
We continue to estimate that the total benefits of the restructuring plan will be between $0. 195 billion and $0. 2 billion by 2014, with an incremental benefit of about $90 million in 2013, compared with $2012.
I would like to remind you that our staff base is large and 90 million of the $2012 saved by the restructuring plan will be used to fund the inflation costs of that staff base from $50 million to $60 million.
Our free cash flow is defined as cash flow generated by operating activities minus capital expenditures, estimated at approximately $0. 3 billion to $0. 35 billion in 2013.
This estimate minus approximately $70 million in restructuring payments.
You should compare $0. 3 billion and $0. 35 billion with free cash flow of $0. 28 billion in 2012.
The $0. 405 billion adjusted free cash flow shown on slide 10 does not include restructuring costs of approximately $80 million and other balance sheet changes of approximately $40 million.
2013 The increase in capital expenditure will also affect the estimated free cash flow compared to 2012.
As I pointed out before, over the past few years, our capital investment has accounted for 2% or less of sales, and our expenses have been lower than the depreciation expense.
In 2013, we estimated capital expenditure of approximately $0. 16 billion, including targeted strategic growth investments and cost expenditures.
Reduce projects.
Our capital expenditures will also include approximately $20 million to promote our ERP system to certain traditional diversified operations.
This will be more than one
The project is expected to be completed by 2015.
Our interest payments are estimated at $0. 32 billion and our core effective tax rate is estimated at 26% this year.
I would also like to make a brief comment on the potential impact of Venezuela\'s recent devaluation.
We estimate that the 32% devaluation announced by the Venezuelan government in February 8 will result in losses of approximately $10 million to $15 million in the first quarter, a pre-tax loss.
This is mainly due to the trapped cash balance held in local currency.
The outlook I just described does not include this potential loss as it will be an abnormal operation for us to show Adjusted EBITDA and adjusted earnings per share. We would like --
Like other companies that do business in Venezuela, we are challenged to minimize our exposure to the country\'s economic volatility, especially in terms of cash balances.
We may suffer operating losses due to the devaluation of the currency, but the impact is not clear.
Our annual sales in Venezuela totaled less than $50 million, before the devaluation of the currency.
I would also like to stress that although they are profitable through double salesdigit margin.
Before returning the call to Jerome\'s leadership Q & A, I would like to point out that we included in the Appendix to the presentation a summary of our 2012 adjusted earnings per share calculation for your reference, to help us move from adjusted EBITDA to our adjusted earnings per share.
Now, I turn the phone back to Jerome. Jerome? Jerome A.
Thank you, Carol.
Operator, I would like to open the phone if there is any problem with the participants. Question-and-
Operation instructions]
Your first question comes from George Staphos of Bank of America. George L. Staphos -
I think, my first question, you mentioned in the press release that you will actively manage the cost structure and explain here that you will be more decisive in terms of pricing.
We know what you mean but, can you give us more colors? You need to do the most work in both areas relative to your individual sections, then I have the followingon. Jerome A.
Question of PeribereSo month.
The first is cost.
The second one on pricing
With regard to costs, we have not completed the cost synergy, you have noticed, or wrote in the document that we still have a cost synergy increase of about $90 million, so this is one. The second on --
Continue this way, and you know Europe\'s GDP growth rate will be around 0 in 2013.
I don\'t know what you think 2014 will look like, but I think it will take many years for Europe to come back and enjoy 2% GDP growth.
So, given our employee base, we need to make sure that we remain cost-competitive, which means that we need to make sure that our costs are not over-inflated compared to our growth potential, by definition, the potential for growth will be limited.
So my observation about pricing is that we--
Still no price champion and not necessarily paid for its IQ, we are not a bag, a food protein bag seller if you allow me to be here for a second.
We are not only a seller of protective packaging products.
We have a high IQ.
Our employees design plans with our customers.
Because we also produce equipment, they use Lean Sigma technology to help shape factories, equipment, and ultimately commercialize the product.
We won\'t be rewarded for that.
This is one aspect of our pricing and I think we need to understand this better.
The reason I say this is that either the customer values this IQ and we need to pay a price for it or they don\'t.
In this case, we need to stop providing this service to them.
In addition, there are fluctuations in inflation or raw materials.
I\'m from this industry--
I am very clear that this is a more basic synthesis, where are the ethylene prices and propylene prices in early 2000, and they are moving up and down slowly.
This is no longer the case.
Now raw materials, ethylene, ethane, propylene, propane and so on, benzene and so on, they move very fast.
We cannot leave the price protection we have.
We need to work very hard to deliver this information because we just don\'t have enough space to absorb them for a while.
So my motto in sealed air is, leader leadership, when we lead first in the market, we need to be ready to lead pricing. George L. Staphos -
Bank of America Merrill Lynch, Research Department
At this critical moment, do you feel that you have enough intelligence in terms of competitive positioning? The added value your product brings to your various customers and vertical industries is to price, not to put your business at a disadvantage, not to lose the market share you ultimately don\'t want to lose?
Eventually, there will be some mistakes in the process, but what do you think of your intelligence at this critical moment? Jerome A.
PeribereI will finally say that there are tools. There are --
There are techniques for evaluating pricing, and by definition no one wants to make stupid mistakes, but the thing is ---
We want to be cautious, but again, if the leader does not lead, then there will be some problems, I believe ---
It\'s called an equal profit curve, these are the models we need to look at, and so on, but I don\'t think it\'s necessarily a confrontation.
We have the right to reinvest by reinvesting economics.
This is not more.
Everyone wants a strong supplier.
In some areas, we do not reinvest in economics, and we need to do better in this area.
Your next question comes from the route of Robert W. Gansham PanjabiBaird.
Panjabi-Robert W. Baird & Co.
Into the research section, can you give us some parameters about this new operating structure, operating segment structure? How should we consider volume when we look at \"13\" and \"12?
There\'s a lot, I think--
For example, you mentioned the protein supply in food, but there is also a meat pollution scare in Europe.
I would like to know if this is included in your opinion as well. Jerome A.
Carol, why don\'t you start? let me talk about meat pollution in Europe. Carol P. LoweOkay.
So Ghansham, we do not provide this specificity if you are asking for a 2013 regional breakdown.
We are going to say that, as Jerome commented, we expect flat growth for the European region.
As announced in North America, especially the United States, the economy will grow from flat to negative growth by less than 2%.
We believe that our growth rate will be slightly higher than that of North America.
We expect that we will achieve good growth in developing regions, Latin American countries, especially Brazil, and Asia, the Middle East, which we call AMAT, our growth rates in Africa and Turkey will be very stable.
Usually, we see high orders in developing regions.
Double to double digitsdigit, we --
That is what we expect.
Did you answer your question?
Panjabi-Robert W. Baird & Co.
Yes, then the pollution problem, Jerome? Jerome A.
Pollution, you can imagine that we started to pay attention to this problem from a very close place.
We keep talking to our main customers.
Now it seems that the most affected food is prepared food.
Fortunately, we are very small in the area of ready food packaging.
So we are not worried about the immediate impact.
Some potential speculation is that there may be an increase in fresh meat and fresh packaged meat in supermarkets.
But we didn\'t expect this at this point in time, but I hope it will help you a bit.
Panjabi-Robert W. Baird & Co.
Yes, it\'s just a follow-up.
About George, so if you think about EBITDA bridge \'13 and 12, you give us some parameters, yes, volume, synergy.
If you specifically consider the price cost, do you think 2013 is positive, neutral or negative compared to 12? Jerome A.
Our goal is to recover at least our increased costs.
The next question comes from a line of Phil Gresh from JPM. Phil M. Gresh -
The first question is that when we were thinking about the redistribution of the business, I looked at the EBITDA profit of the agency and the laundry room relative to the food and beverage as well as the protective packaging, George kind of asked about the cost and pricing factors, I just want to know what you think about what leverage you have in the industry to increase profit margins.
Do you feel that pricing needs to be an important factor in it, or do you feel that it saves costs, or that it is a business that will be structurally lower than these other businesses, what do you think? Jerome A. PeribereSo I&L.
At this point, the EBITDA profit margin of I & L is obviously unacceptable.
So we are working on several fronts.
First, we are looking at the cost structure.
Specifically, in the region where we are most exposed, that is, in Europe.
So, given the cost of the extension in Europe, you know this is what we are taking, what we are making, but we are making it carefully.
Second, we are growing stronger in emerging countries.
We are very pleased with the progress we have made in Asia, the Middle East, Africa and Eastern Europe.
As we grow in I & L, including in Latin America.
We did a good job. We have double-
Digital growth has been achieved in most of the places we operate.
In most cases, our market share is increasing.
This is where you will see us continue to invest in this proportion.
Finally, no, I don\'t want to be aggressive in price because I don\'t think pricing is the solution.
I think we will make a lot of progress once we can convince our customers that we have enough quality and that we are a credible alternative to their current solution.
When we have them, we can continue to provide them with better solutions than we currently offer.
So it will convince them that we have critical mass everywhere and we have improved better sustainable technology because we do--
We believe in better and better sustainable solutions.
Therefore, we expect that we will continue to grow.
So this is not the cost, the cost, the cost is reduced.
More specifically, where we think unfortunately we can\'t count on growth to help us.
We believe that we have a competitive advantage, growth and sustainability, and we believe that this is our enhanced value proposition. Phil M. Gresh -
Research Department, JPMorgan Chase
The problem is red meat.
There was a significant performance in the fourth quarter.
Do you think this is sustainable in 2013? What would you say is the key driving force for sealing air to perform so well in this area? Jerome A.
A mix of several things.
First, we\'re back--
You had a negative reaction to our second quarter, which could be an overreaction.
We believe in our product management, our innovations and these things enable us to get more profits than you can see in the third and fourth quarters. That\'s one.
So I would say, go back to normal.
Second, we launched a new product, which is very attractive.
Third, not only do we rely on red meat in the food packaging business, but we also provide vertical bags, which is a very good solution for our customers.
Third, our food and beverage sector, what you are seeing now, we have a good development in health solutions, which is an important business and, in fact, we are working to improve its quality, and has made good progress in several parts of the world.
The next question comes from Scott Gaffner at Barclays. Scott Gaffner -
Barclays Capital, research division, as part of your discussion about being able to push prices, because you do provide a complete solution for your customers, which is one of the things you know well, for quite some time, you spend on R & D.
I think about 2 percentage points, 2% of R & D sales, do you think this is a sustainable level?
Do you need to spend that much money to create these products? Maybe you can talk about this in the future where we can see the level of R & D spending? Jerome A.
When we have Investor Day, PeribereWe will tell you more about this.
We haven\'t chosen a date yet, but at the end of the second quarter or sometime in the third quarter.
So you will be fully aware of this.
Now, the level of R & D is--
We will not treat it fairly in a few years now. -
About a minute later.
My point is, innovation, successful innovation. -
Make sure your future is reversed.
My opinion on professional products is that it is just a product that is moving towards productization, which means that you need to update your portfolio with successful innovation.
We do have some amazing, amazing innovations in the sealed air that we are introducing and I can say a few, but due to the lack of time, I am not going to start this journey.
This year, we invested about $0. 14 billion in research and development in sealed air.
Is it too little? Is it too much?
I haven\'t decided yet.
The first thing I want to measure is the productivity of our R & D.
It is not necessarily a matter of money, but of quality.
I want to make sure we have the best in every department in our department --in-
First-class R & D enables us to bring solutions that our customers need.
They are in the product or system and they are here to surprise our customers, which makes them win.
So we have to add value. I \'ve been trying to build these three movies.
Footrest for sustainability, cost competitive and performance.
If these three questions can be answered well, the new innovation is a huge innovation.
So please stay tuned and we will discuss this more. Scott Gaffner -
Yes, I look forward to the coming of analyst day.
The other question is about growth investment, I think it\'s mainly in institutions and laundry, you added some sales staff in 2012, can you talk about how much you spent on new sales? About the growth investment in 2012 and how much we should expect you to spend in 2013, and then maybe when should we see the benefits? Jerome A.
PeribereI doesn\'t have the exact number, maybe Carol can add when I make some comments, but yes, we have added some sales people in some parts of the world, because we believe we have enough quality and competitive advantage.
We have increased some in the United States. S.
Because of the contract I just announced, we will execute it perfectly.
So again, we will be able to make a positive pricing for customers in I & L on this specific contract.
But we have also increased in some places, in some other parts of the world, we have seen growth, and as I said, we are looking forward to the double
In most emerging countries, the economic growth rate of some countries has reached a single digit. Carol P.
LoweSo as a follow-up
On top of that, Jerome, the EBITDA bridge we included in the earnings slide, the $22 million minus, like the EBITDA bridge you did for SG &, this includes additional resource investments of less than $10 million, most of which are in developing regions, mainly within AMAT.
We have also added some resources to the I & L business to support the growth of specific market factors in North America.
Your next question comes from Anthony pitinari of Citigroup.
Anthony petelli
Citi Group (research Inc . ) research Department, when we look at your 2013 EBITDA and sales guidance with your results in 2012, the midpoint of your outlook does not seem to assume an increase in profit, is this probably conservative given the pricing actions you are taking and some cost reductions?
Then take a specific look at I & L, considering that you think the profit is unacceptable, but it may take time to understand the restructuring, should we consider the increase in profit margin of I & L as an event of 2014, or could you please talk about the potential for increased I & L margin in 2013? Jerome A.
You have noticed that we have changed the president of I & L.
She is evaluating the whole situation and has started to make some decisions.
So this is a business, and there may be too many changes in its ownership over the past few years.
So the first step is stability, and the second step is to reverse the situation.
I\'m optimistic, but I\'m not going to say this will happen in 6 months.
Anthony, I think your 2014 is a good time.
In general, what I want to say is that the reason why I want to take some very firm positions on pricing is because I have observed that over time, sealed Air has lost EBITDA including lack of pricing power.
My point is that we need to be firm about this because we are adding a lot of value to our customers, including helping some projects and selling the best from the aspects I talked about earlierin-
First-class equipment including vacuum chamber and vacuum equipment, best-in-class.
We have a huge market share in these areas and we may not have properly valued all of them.
At the same time--
You will understand that these things are a cultural change and take a little time.
The reason why I put so much emphasis on pricing at this moment, because some of our colleagues in the polyethylene industry, the polypropylene industry, and the polystyrene industry raised the price in a considerable way in January, I think in February. And this can --
These are the huge growth we need to deliver.
You need to prevent the profit from shrinking before you gain profit expansion.
That\'s why I say it\'s very important.
Anthony petelli
Citigroup research.
Very helpful.
Then maybe it\'s just a short question for Carol.
Carol, you mentioned that ERP spent $20 million in 13 years and the project ended in 2015.
From an ERP perspective, will these ERP costs fall in 2015 or what should we look at 2015 of the capital expenditure in 2014? Carol P.
LoweSo they will be in line with a slightly larger target in 2014, and there will be less spending in 2015 because we will end the implementation by then.
We also benefit from the fact that we have a well-trained, good
Over the past few years, trained employees have implemented this ERP internally through Sealed Air, so we are able to take advantage of our internal IS team without having to rely heavily on external resources in implementation.
Therefore, we feel that we can strictly control the expenditure of project implementation.
Your next question comes from the lines of Adam Josephine kebank. Adam J. Josephson -
Capanke capital market CO. , Ltd.
, According to the research division of EBITDA bridge from \"12\" to \"13\", regarding the improvement of your hypothesis, can you tell me how much revenue FX has, how much is the synergy and volume growth, and what is the partial offset of $25 million
Do you guide the improvement? Carol P.
I think, Adam, we \'ve commented that we\'re going to have a synergy of about $90 million, and I \'ve also noticed that based on the size of our current workforce, we spent about $50 million to $60 million on inflation, which means more compensation and more welfare costs.
So that\'s a lot of savings with these synergies.
Let\'s say we haven\'t specifically commented on the volume from low to medium-low single-digits.
If you would like to think about it in general, I have previously commented on how we see it relative to an issue in each region.
So from a monetary point of view, what we estimate, or what we use, we use 1 if you want to use the euro as an agent. 27 euro/U. S.
Dollar comparison as exchange rate.
And a whole year, we--
I\'ll check my notes and see where we ended up.
I know we were a little bit in the fourth quarter and I think we were about $1.
29 before we finish this year, it\'s about a bit lower than the average for the fourth quarter, so you can use it--
Based on estimates of monetary impact. Adam J. Josephson -
Capanke capital market CO. , Ltd.
The research department got it.
Only one follow upon.
You have an incremental synergy of $90 million, partially offset by an increase in the labor force, do you? -
Is there anything that will allow you to offset labor inflation in the years following the synergies? Carol P.
I think, as Jerome commented, LoweWell, we do focus on lean six sigma, continuous improvement.
So we will always focus on the cost structure, I think. -
He also offers colors specific to the I & L business.
So we will always look for a way to make sure we do our best to cover the cost of inflation. Jerome A.
The answer here is that we must do so.
We\'re human-
Intensive company25 --
Sales of more than 25,000 employees amounted to $8 billion.
This is obviously a human force.
Intensive company
Some are manufacturing and supply.
The products we produce are normal.
Others are in the service industry.
When you are in the service industry, you need to pay for the service.
So, it is very critical that by expanding our profit margins we get the rewards we need to increase our productivity.
Your next question is from Philip Ng of Jefferies. Philip Ng -
Jefferies & Company, Inc.
I know the fourth quarter is a big e-commerce era, and the number of you in terms of protection is actually significantly stronger than in the last two quarters
Business quarter, so most of the power comes from when you focus on Q--
2013, do you see some of these flows? Jerome A.
The industry is seasonal.
We have made good progress in e-commerce.
We \'ve also launched some new shrink movies that are absolutely revolutionary. They are --
Higher definition.
They have lower meters and perform very well.
They have a great value proposition for our customers, and we have achieved good initial success in these areas. Philip Ng -
Jefferies & Company, Inc.
Okay, research.
So it sounds like there\'s some momentum of 2013.
And then, I think
According to the free cash flow guidance of 2013, $0. 3 billion to $0. 35 billion, Carol, if I heard it wrong, the cost of restructuring cash is about $80 million, so when we look forward to 2014, should we expect to disappear most of the time and how should we consider capital expenditures? Carol P.
LoweYes, under the current project, there won\'t be much of a way to restructure the cost, which you will see in 2014.
Less than $20 million, maybe even less than may. -
It could be less than $15 million.
This depends to a large extent on the time of departure, because a large amount of collaborative cost savings are related to reduced resources.
From the point of view of capital expenditure, as I pointed out in 2013, we estimated to spend $0. 16 billion.
In 2014, if we had achieved results in 2013 and were able to continue to reduce our debt, we would not expect a reduction in investment.
And hope that we can improve in terms of business profits, not only to provide cash for restructuring, but also to provide investment.
In addition, to clarify the $80 million you mentioned, the 2013 restructuring payments were actually $70 million. Philip Ng -
Jefferies & Company, Inc.
Okay, research.
So, when you reduce the cost of restructuring and the proportion of capital expenditure by 2014 and higher, is this a good way to consider normal free cash flow in the future? Carol P.
What we are doing is we want to make it easier for everyone to understand free cash flow and be able to view GAAP financial statements.
The cash flow generated by the operation is deducted from the capital expenditure.
This is the standard definition of free cash flow, and what we will do is to shout out unusual items that we are spending cash on, such as restructuring costs.
We think it will be easier.
We are confused about adding support for some of the operations we do that are not standardized, and we think this will provide better clarity.
So yes you can learn from GAAP financial and we will list specific projects for your model in your best way-
You decide the best thing to do.
We use all our time to ask questions. Mr.
Peribere, I will give you the meeting now and please make any additional or concluding remarks. Jerome A.
PeribereWell, I would like to thank you for attending today\'s meeting.
We have published these results and our guidance on 2013. We are --
We have spent January and we think it is satisfactory.
This confirms that there is some de-stocking in December, and at the same time, we look forward to getting guidance from us in the early days
During this conference call.
We look forward to talking to you in the second quarter.
With this, I want to finish the meeting. Thank you.
Ladies and gentlemen, thank you very much for attending today\'s meeting.
This is the end of the speech.
You can disconnect now. Good day.
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