O-i Glass, Inc. · NYSE:OI
O-i Glass — Owens Illinois — Investor Day (March 2016)
73 slides from O-i Glass's investor day presentation, Mar 1, 2016
Slide 1: Safe harbor comments: Regulation G
2 Safe harbor comments Regulation G The information presented here regarding adjusted EPS relates to net earnings from continuing operations attributable to the Company (exclusive of items management considers not representative of ongoing operations) divided by weighted average shares outstanding (
Slide 2: Safe harbor comments: Forward Looking Statements
3 Safe harbor comments Forward Looking Statements This document contains "forward-looking" statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. Forward-looking statements reflect the Company's current expectations and proj
Slide 3: Global leadership team
Global leadership team 4 Andres Lopez Chief Executive Officer John Haudrich Chief Strategy and Integration Officer Jan Bertsch Chief Financial Officer Paul Jarrell Chief Administrative Officer Giancarlo Currarino Chief Technology Officer Suley Muratoglu Chief Marketing Officer Jim Baehren General Co
Slide 4: Agenda
5 Agenda Andres Lopez John Haudrich Jan Bertsch Miguel Alvarez Tim Connors Sergio Galindo Vitaliano Torno Strategic Overview Integrated Execution Financial Review and Outlook Break Panel Discussion: Strategy in Action Q&A
Slide 5: Strategic Overview
6 Strategic Overview Andres Lopez
Slide 6: New approach, new culture
New approach, new culture Comprehensive plan to improve performance Renewed, focused, aligned leadership Regional presidents have strong glass manufacturing experience and know-how External talent brings in valuable expertise Integrated approach to business Manage interdependencies Enterprise and ow
Slide 7: Leading positions in key global markets
9 Leading positions in key global markets #1 position in North America MATURE MARKETS #1 position in Australia and N. Zealand #1 position in Europe #1 position in Latin America EMERGING MARKETS Foothold in China Leading position within Southeast Asia
Slide 8: Trusted by the world's leading and emerging brands
Trusted by the world’s leading and emerging brands 10 Strong partnerships with blue chip companies Valuable partnerships with craft and premium customers and distributors Consolidation across the food and beverage industry requires increased efficiencies across the value chain Proliferation of new (
Slide 9: Mega trends continue to support glass container growth
11 VALUE REDEFINED PREMIUMIZATION HEALTH AND WELLNESS RESPONSIBILITY AND ENVIRONMENT Mega trends continue to support glass container growth Embracing mega trends where glass thrives Glass is pure Glass is safe Glass keeps products fresh Glass is natural Glass is infinitely recyclable Glass is return
Slide 10: Premiumization drives glass demand in North America
Premiumization drives glass demand in North America 12 Consumer tastes shifting to craft and premium products Wine, spirits, non-alcoholic beverages and high-end food growing at low single digits Within beer, strong growth in craft and imports; ongoing megabeer decline 1 Share of NA beer market. Sou
Slide 11: Case study on Brazil beer market: Glass is growing
Case study on Brazil beer market: Glass is growing 13 Consumer preference for premium beer drives one-way glass container demand growth One-way glass has grown 10% annually for last two years One-way glass was the fastest growing package in 2015 Today’s macro uncertainty leads to less on-premise con
Slide 12: Consistent and growing end market demand
Consistent and growing end market demand 14 1Source: Euromonitor, O-I Internal data and O-I analysis; All market data is based on consumption * NAB = Non-Alcoholic Beverages Global glass market growth Global glass market growth is forecasted to double from ~1% historically to 2% over 2016-19 Every c
Slide 13: The perfect fit: Strategic expansion in Mexico
15 The perfect fit: Strategic expansion in Mexico Investing in growing Mexican market Investing in U.S. beer imports, the fastest growing beer segment in the U.S. Strategic acquisition of Vitro’s food & beverage business Strong, expanding relationship with Constellation Brands (CBI) 50-50 joint vent
Slide 14: O-I's organic volume growth
O-I’s organic volume growth 16 20161 Post 2016 Key Drivers – Post 2016 Europe ~ 1% ~ 1% Growth expected to be in line with market North America ~ 1% 0-1% Higher sales to CBI; ongoing megabeer decline Growth in craft beer, food, spirits, wine and NAB Latin America ~ -3% ~ 2% Growth expected across en
Slide 15: Need for fundamental change
Need for fundamental change 17 Implementing fundamental change to drive new behaviors and outcomes that address real market needs O-I must evolve with the market Customer consolidation Cost efficiency Proliferation of smaller customers and new entrants Focused on branding Flexibility and innovation
Slide 16: Yesterday's problems = today's opportunities
18 Yesterday’s problems = today’s opportunities Our evolution is underway Aligned leadership Leadership team: mix of strong legacy knowledge and new talent Operating as one, integrated enterprise led by the Global Leadership Team Strategy and integration function created to drive change Integrated d
Slide 17: Leadership alignment and depth
Leadership alignment and depth 19 One aligned team Deep knowledge of our business New capabilities and mindsets Responsible for enterprise rather than a function/region Compensated for enterprise performance
Slide 18: Key initiatives support strategy
Key initiatives support strategy 20 Strategy Establish revenue and operational stability Improve commercial and end-to-end supply chain performance Develop new business Integrate and maximize the value of our recent acquisition Create breakthroughs in processes, products and services Optimize organi
Slide 19: Stabilize, then improve performance
Stabilize, then improve performance 21 Operational and commercial stability provide foundation for improved performance Reducing number of asset events that disrupt manufacturing performance Gaining better control of operational performance Taking a balanced approach to price and volume in line with
Slide 20: Manufacturing: Growing performance improvement
Manufacturing: Growing performance improvement 22 Elevate the performance of all plants By increasing safety, efficiency, quality and flexibility By reducing structural costs, waste and inventories Full platform of global manufacturing initiatives Already seeing results Overall uptrend in manufactur
Slide 21: O-I must enhance customer-centric culture
O-I must enhance customer-centric culture Launching Key Account Management to get closer to customers Help customers manage change Meet/exceed increasing customer expectations Adding new business development capabilities to harness emerging sales opportunities Integrating decision-making to marry co
Slide 22: Maximizing value of the acquisition
24 Maximizing value of the acquisition High margin business, in line with O-I’s legacy business in South America Expands presence into an important, strategic geography 5 facilities in Mexico and 1 in Bolivia Strong fit with O-I Acquired business and O-I Latin America have similar product offerings
Slide 23: Conclusion: Must execute flawlessly
We will succeed by Creating a culture of Performance Execution Accountability Addressing and resolving legacy issues Approaching operational improvement systemically – leverage what we know Creating new commercial capabilities Re-establishing credibility – we do what we say 25 Conclusion: Must execu
Slide 24: Integrated Execution
26 Integrated Execution John Haudrich
Slide 25: Integrated execution
Integrated execution 27 Profits are earned/lost at the inter-dependencies within the organization Past initiatives have fallen short because connectivity was missing We are driving improved integration by Employing a comprehensive, disciplined approach Building networks within O-I around performance
Slide 26: Increasing accountability through performance management
Project management office Developing network of capabilities in all regions Ensures action on key projects Performance management capability Ensures visibility and accountability at a higher level Strategy and integration network Ensures senior level attention and improved execution Operations leade
Slide 27: Improving operational performance
Improving operational performance 29 Manufacturing improvement program Performance targets for all 80 facilities Focus plant improvement at 24 plants Plant improvement teams (PIT) for 7 lowest performing plants Allocate resources for best financial impact 1 A productivity index based on an internal
Slide 28: Significant supply chain opportunities
Significant supply chain opportunities 30 End-to-end global supply chain strategy Opportunity to manage inventory in a more optimal way Pockets of excellence in different regions Latin America has reduced days of inventory on-hand by 7 days in recent years Supply chain cost reductions Refining logis
Slide 29: Creating a customer-centric commercial organization
Creating a customer-centric commercial organization Key Account Management initiative Cross-functional teams execute key account plans to meet customer needs Will expand this approach to cover more of the customer base Sales volume and mix optimization Better price/volume decisions Grow selectively,
Slide 30: Organizational redesign
32 Organizational redesign Supporting all aspects of our strategy and culture Identifying a target state organization structure Providing appropriate resources to ensure employee success Focusing on talent development and training
Slide 31: Measurement and accountability
Robust monitoring of projects and initiatives Operations dashboard Manufacturing productivity index Asset stability index Quality index Days of inventory Management incentives linked to these indicators Will provide performance update every six months 33 Measurement and accountability
Slide 32: 2016 Operations dashboard
2016 Operations dashboard 34 Target Target Target Target +100 bps +25 bps +80 bps -2 days 2011 2012 2013 2014 2015 2016 Manufacturing Productivity Index 2011 2012 2013 2014 2015 2016 Asset Stability Index 2011 2012 2013 2014 2015 2016 Quality Index 2011 2012 2013 2014 2015 2016 Days of Inventory
Slide 33: Executing on operational efficiency
35 Executing on operational efficiency Execution is driving improved performance Manufacturing productivity improvements are most pronounced where initiatives are underway 7 PIT plants have boosted operating performance > 5% since mid-2015 Performance improvement momentum is visible at other focus p
Slide 34: Financial Review and Outlook
Financial Review and Outlook 36 Jan Bertsch
Slide 35: Sales volumes beginning to grow
Sales volumes beginning to grow 37 Organic sales volumes have been flat when accounting for two factors: China retrenchment in 2014 European price/volume action in 2012 Incremental 8 months of sales from the acquired business in 2016
Slide 36: Top line growth expected in 2016
Top line growth expected in 2016 38 Volume ~1% Price ~1% Post-2016 Expectations Ramp up business with CBI (NA and O-I Mexico) ~$160 million FX headwind1 ~1% average price increase ~1% increase in legacy sales volume Full year of acquired business 2016 Animate 2016 Then 2017 1 Based on currency excha
Slide 37: Key value drivers
Key value drivers 40 2016 Post 2016 Key Drivers - Post 2016 Strategic initiatives ~$50M-$70M ~$25M-$35M Layer in end-to-end supply chain benefits Acquired business ~$100M ~$15M-$20M Synergies + organic growth Segment operating profit (estimated annual impact year-on-year, $ in millions) Strategic in
Slide 38: Improving margins
Improving margins 41 2016 Post 2016 Key Drivers - Post 2016 Europe +150 bps +40 bps Improvements in end-to-end supply chain, building on asset optimization program North America +20 bps +10 bps Better product mix from higher volumes in categories other than megabeer Improving operational performance
Slide 39: 2016 Non-operational outlook
2016 Non-operational outlook 42 2012-15 Average ~$100M Higher expected interest expense driven by acquisition debt Uptick in D&A in 2016 mainly driven by inclusion of acquisition for full year Corporate expense expected to be substantially lower than average of prior years Tax rate1 expected to be i
Slide 40: Stable pension expense and contributions
Stable pension expense and contributions 43 1Adjusted earnings refers to earnings from continuing operations attributable to the Company, excluding items management does not consider representative of ongoing operations. See appendix for a reconciliation to adjusted earnings. 2Related to the “amorti
Slide 41: Continued favorable trends in asbestos
Continued favorable trends in asbestos 44 1 year Add’l year Asbestos Payments Asbestos Expense $225M 2008 – 2014 annual charge represents 1 year of expense 2015 charge reflects 2 years of expense Add’l year Year 1 0 2 4 6 2008 2009 2010 2011 2012 2013 2014 2015 Thousands Asbestos Cases Filed per Yea
Slide 42: Adjusted EPS: 2016 outlook and beyond
Adjusted EPS: 2016 outlook and beyond 45 Earnings up between 5% and 12.5% in 2016, despite FX headwinds 2017 includes full year benefit of margin enhancement initiatives that began in late 2015 $0.20 – $0.25 (~$0.05 ) (~$0.25) (~$0.08) ~$0.30 $2.00 $2.10- $2.25 $2.45- $2.60 Stronger business perform
Slide 43: Working capital: significant source of cash
Working capital: significant source of cash 46 Over past several years, A/R and A/P was a ~$100M source of FCF annually One-time VAT refund is a large expected source of cash in 2016 Initiatives focused on reducing inventories over time VAT refund Inventory reduction as a source of cash Post-2016 Ex
Slide 44: 2016 Capital spending at sustainable level
2016 Capital spending at sustainable level 47 Capital spending for legacy business is ~$385 million and ~$65 million for acquired business Asset advancement program directs capital to assets that most need it Expect capital spending to remain at 2016 levels in near term Capital spending to level out
Slide 45: Free cash flow growth expected in 2016
Free cash flow growth expected in 2016 48 1 Free cash flow is defined as cash provided by continuing operating activities less additions to property, plant and equipment. See appendix for free cash flow reconciliation. 2 Working capital includes an approximate $135 million expected VAT refund from t
Slide 46: Higher sustainable free cash flow expected
Higher sustainable free cash flow expected 49 >$300M $280M 1 Free cash flow is defined as cash provided by continuing operating activities less additions to property, plant and equipment. See appendix for free cash flow reconciliation. $250-$270M Based on currency exchange rates assumed for 2016. Se
Slide 47: Deleveraging plan
Deleveraging plan 50 Deleveraging is highest priority use of FCF EBITDA expected to increase Proceeds from potential asset sales used to deleverage 1 Net debt divided by adjusted EBITDA as defined in the Company’s bank credit agreement. See appendix for calculation for 2015. Debt reduction Based on
Slide 48: Capital structure review: Deleveraging
Total debt $5.6B at year-end 2015 Acquisition funding of $2.25B at ~4.2% blended interest rate Repaid remaining 7.375% senior notes due in 2016 Leverage ratio of 4.0 times at year end 2015 No significant maturities until 2020 Negotiated more flexible leverage ratio covenant in light of volatile FX e
Slide 49: Financial priorities
Improve margins Deliver on our strategic initiatives Maximize the value of O-I Mexico and the JV with CBI Generate a higher level of sustainable cash flow Deleverage the balance sheet 52 Financial priorities
Slide 50: Financial priorities
mmm Financial priorities = Improve margins + Deliver on our strategic initiatives + Maximize the value of O-I Mexico and the JV with CBI = Generate a higher level of sustainable cash flow = Deleverage the balance sheet oie?
Slide 51: Reconciliation to Adjusted Earnings
Reconciliation to Adjusted Earnings 54 (1) For adjusted earnings per share, the diluted average shares (in thousands) are 162,135 for the year ended December 31, 2015. The reconciliation below describes the items that management considers not representative of ongoing operations. (Dollars in million
Slide 52: Reconciliation to Free Cash Flow
Reconciliation to Free Cash Flow 55 Reconciliation to Free Cash Flow $ Millions Year ended December 31 2015 2014 2013 2012 2011 2010 Cash provided by continuing operating activities $ 612 $ 698 $ 700 $ 580 $ 505 $ 600 Additions to property, plant and equipment (402) (369) (361) (290) (285) (500) Fre
Slide 53: Leverage Ratio
Leverage Ratio 56 1 Based on historical EBITDA of acquired entities and for those periods not already included in net earnings from continuing operations Year ended Twelve Months $ Millions December 31 Ending 2015 2014 2013 9/30/2015 2012 2011 2010 Earnings (loss) from continuing operations $ (47) $
Slide 54: Impact from currency rates
Impact from currency rates 57 2015 Average Rates Assumed for 20161 Devaluation Approx. Translation Impact on EPS from 10% FX Change Euro 1.10 1.10 0% $0.10 Mexican peso 15.98 17.25 7% $0.07 Brazilian real 3.39 4.00 15% $0.05 Colombian peso 2,769 3,200 13% $0.03 Australian dollar 0.75 0.73 3% $0.05 1
Slide 55: Debt maturity schedule: minimal near-term maturities
58 Debt maturity schedule: minimal near-term maturities Focus on deleveraging No significant maturities until 2020 $250 million of senior notes due in 2018 $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 $ Billions Senior Notes Term Loan EU Securitization
Slide 56: Debt maturity schedule: minimal near-term maturities
MMMM Debt maturity schedule: minimal near-term maturities $10 . onl LJ _ _ im 2016 ©2017-2018 2019-2020 a 2022 © 2023» 2024 «= 2025 Senior Notes =TermLoan = EU Securitization = Focus on deleveraging * No significant maturities until 2020 = $250 million of senior notes due in 2018 Goins?
Slide 57: Europe Business Drivers
Europe 60 Business Drivers Overall stable industry demand Solid export trends, given FX rate Improved price-volume dynamics in 2016 Region Specific Initiative Realizing benefits of completed asset optimization program * NAB = Non-Alcoholic Beverages 1 Segment margin is defined as segment operating p
Slide 58: North America Business Drivers
North America 61 Business Drivers Well balanced supply and demand Growth in premium products and high-end beer offset decline in megabeer Region Specific Initiative Integration of O-I Packaging Solutions Segment Performance 2016 Financial Targets Sales Volume Growth2 ~1% Segment Operating Margin +20
Slide 59: Latin America Business Drivers
Latin America 62 Business Drivers Higher growth in one-way glass in Brazil Weak FX impacts translation and USD-priced raw materials Region Specific Initiative Continuing integration of the acquisition boosts top and bottom line Segment Performance 2016 Financial Targets Sales Volume Growth2 ~ -3% Se
Slide 60: Asia Pacific Business Drivers
Asia Pacific 63 Business Drivers Volume uptick from beer contract and Australian wine exports Inflation headwinds, driven by FX Profitable growth in emerging markets Segment Performance 2016 Financial Targets Sales Volume Growth ~2% Segment Operating Margin +25 bps Sales by Category * NAB = Non-Alco
Slide 61: Asia Pacific
MMMM Asia Pacific $1,000 $600 Gin? Sales by Category Business Drivers = Volume uptick from beer contract and Australian wine exports * Inflation headwinds, driven by FX = Profitable growth in emerging markets ‘Segment Performance $966 $793 671 2016 Financial Targets Sales Volume Growth ~2% Segment O
Slide 62: Andres Lopez
65 Andres Lopez Andres Lopez’s focus is to enhance the performance of the business to benefit customers, employees, investors and other key stakeholders. Lopez has established himself as a strong and successful leader, most recently serving as chief operating officer during 2015 and playing a leadin
Slide 63: John Haudrich
66 John Haudrich John Haudrich, in partnership with the Global Leadership Team, leads the development and execution of O-I’s strategy. He is focused on enhancing the stability of O-I’s operations, driving sustainable performance improvements, and enabling longer-term breakthroughs to advance O-I’s p
Slide 64: Jan Bertsch
67 Jan Bertsch Jan Bertsch leads O-I’s financial and information technology functions, including finance and accounting, corporate reporting, corporate tax, treasury, investor relations, internal audit and IT. She is focused on maintaining the financial flexibility of the company, as well as ensurin
Slide 65: Jim Baehren
68 Jim Baehren Jim Baehren oversees activities related to legal, ethics and compliance, mergers and acquisitions and government relations. With nearly two decades serving in a general counsel capacity, Baehren has extensive experience managing the global legal team on projects including general liti
Slide 66: Paul Jarrell
69 Paul Jarrell Paul Jarrell joined O-I in 2011 with extensive experience leading functions in complex global organizations, including structuring and staffing organizations to consistently deliver results. Jarrell is responsible for leading the company’s global human resources and environment, heal
Slide 67: Giancarlo Currarino
70 Giancarlo Currarino Giancarlo Currarino is leading O-I’s technology group in the pursuit of new capabilities to enhance the manufacture of glass containers. He has direct responsibility for the company’s manufacturing, engineering, research and development, quality, and licensing functions. He is
Slide 68: Suley Muratoglu
71 Suley Muratoglu Suley Muratoglu leads O-I’s global sales and marketing activities and is responsible for ensuring the deployment of corporate strategy as it applies to commercial activity. Working closely with the sales and marketing leaders in each of O-I’s four geographic regions, Muratoglu is
Slide 69: Miguel Alvarez
72 Miguel Alvarez Miguel Alvarez leads O-I’s operations in Latin America, home to some of the world’s fastest growing markets for glass. The region generates approximately 20 percent of O-I’s global revenues. Focused on continuing strong growth in the region, Alvarez leads more than 5,000 employees.
Slide 70: Tim Connors
73 Tim Connors Tim Connors oversees nine plants and more than 2,500 employees in Australia, New Zealand, China and Indonesia, as well as O-I’s joint ventures in Malaysia, Vietnam and China. In his nearly 20 year career at O-I, Connors has served in a variety of finance, manufacturing and business st
Slide 71: Sergio Galindo
74 Sergio Galindo Sergio Galindo oversees 19 plants with nearly 5,200 employees in the U.S. and Canada. He has more than 20 years of experience serving the company in various key positions in several countries. He was an instrumental force behind expanding O-I’s glass packaging specialties business.
Slide 72: Vitaliano Torno
75 Vitaliano Torno Vitaliano Torno is focused on strengthening O-I’s leading market position in Europe, the largest of O-I’s four regions, where the company employs 8,000 people in 11 countries. Torno was instrumental in the design and implementation of the successful reorganization that allowed the
Slide 73: Vitaliano Torno
MEM Vitaliano Torno PRESIDENT, O-| EUROPE Vitaliano Tomo is focused on strengthening O-'s leading market position in Europe, the largest of O's four regions, where the company employs 8,000 people in 11 countries. Tomo was instrumental in the design and implementation of the successful reorganizatio