Anders Lopez - Chief Executive Officer John Haudrich - Chief Financial Officer Chris Manuel - Vice President of Investor Relations.

Thank you for standing by and welcome to the O-I Glass, Fourth Quarter and Full Year 2019 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions]. Please be advised that today’s conference is bring recorded. [Operator Instructions]. I would now like to hand the conference over your speaker today, Mr.

Chris Manuel, Vice President of Investor Relations. Thank you. Please go ahead sir. .

Thank you Vincent and welcome everyone to O-I Glass year-end and fourth quarter earnings call. Our discussion today will be led by Anders Lopez, our CEO; and John Haudrich, our CFO. Today we will provide key business developments and provide a review and outlook of our financial results. Following prepared remarks, we’ll host a Q&A session.

Presentation materials for this earnings call are available on the company's website at o-i.com. Please review the Safe Harbor comments and disclosure of our use of non-GAAP financial measures included in those materials.

Some of these financials we’re representing today relate to non-GAAP measures such as adjusted earnings, adjusted free cash flow, segment operating profit, net debt, which excludes certain items that management considers not representative of ongoing operations.

A reconciliation of GAAP to non-GAAP items can be found in our earnings press release and in the appendix to this presentation. I’d now like to turn the call over to Anders..

Thanks Chris. Good morning and thank you for your interest in O-I Glass. O-I made solid progress improving its operating performance over the course of the second half of 2019 despite a very challenging start to the year.

While faced with these challenges, the company continues to execute its strategy, which included taking a number of bold structural actions to change O-Is business fundamentals.

As we will discuss shortly, this includes efforts to optimize our business portfolio and capital structure, including critical efforts to address our legacy asbestos liability. Likewise we initiated a number of important turnaround initiatives to improve our business performance.

With an eye on the long term, we continue to advance MAGMA and create a new business model for Glass. We are confident that this effort will improve our business performance and cash flows in 2020 and beyond. Turning to some details on slide three. Last night we reported fourth quarter 2019 earnings of $0.50 per share.

For the full year earnings were $2.24 and O-I generated $133 million of adjusted free cash flow. Earnings were at the high end of our most recent guidance range and adjusted free cash flow exceeded our expectations.

Fourth quarter segment profit was down modestly from the prior year, and was flat with 2018 when excluding the impact of foreign currency and a few temporary items.

Operationally the benefit of higher net pricing and sales volumes offset elevating operating costs linked to a balance, that’s linked to a plant capacity fulfillment implemented earlier this past quarter. As I said a moment ago, we ended the year on a positive note with good momentum heading into 2020.

At a high level, we expect 2020 adjusted EPS would range between $2.10 and $2.25. Operationally this is a 3% to 10% improvement adjusted for the impact of divestitures and temporary items. We expect cash flow will significantly improve following actions to address our legacy asbestos liabilities.

White 2019 free cash flow was slightly negative; we expect to generate $300 million or more in 2020. On slide fourth, I will expand on my previous comments on the bold actions we are taking to change our business fundamentals. First, we are improving our structure.

We are expanding in attractive growing markets supported by long term contracts with our strategic customers and we are exiting areas that are not core to our strategy. We are very pleased with the Nueva Fanal decision and recent expansion efforts in South America. Both of these efforts increased our presence in the premium beer segment.

As part of our tactical divestiture problem, we monetize our soda ash JV at an attractive toleration. Likewise, our strategic portfolio review is underway, which includes review of alternatives for our Australian, New Zeeland businesses. Recent refinancing efforts have improved our liquidity and financial flexibility.

In 2020 we will continue to expand our business in attractive markets and segments. This includes the first brownfield expansion in Europe in the past 20 years, and is starting the fifth furnace at our JV with CBI early in the year. Likewise, we will advance our tactical and strategic portfolio review.

This review includes several aspects of our business and we expect to have a resolution on AMC by mid-2020. In late December we completed our Corporate Modernization initiative that supported the Chapter 11 filing of Paddock in January and set in motion efforts to finally resolve our legacy asbestos liability.

Overall, we are laser focus on improving our cash flow generation and reusing debt. After our challenges last year, we are highly focused on turning around our operating performance. Fortunately we did see improving trends in the back-half of 2019 and we have momentum heading into 2020.

Consistent with seasonal trends of our business, we generated a strong cash flow in the second half of the year, supporting nearly $1 billion of debt reduction by year-end.

Following recent challenges, adapting to mix-changes in a handful of plants in North America and Europe, I'm happy to report our focus factories have exceeded marked improvement in recent months. We expect this headwind will awake over the next few quarters.

We have also introduced three turnaround initiatives to further boost performance, which I will discuss in a moment. Importantly, we have taken actions in the fourth quarter to shut-down capacity in North America, to align capacity with demand.

In 2020, execution of our turn around initiatives will be critical to improve performance alone with ongoing efforts in the footprint in North America. Finally, our aim is to revolutionize glass. This means addressing the historic constraints that glass has faced and leveraging key trends like sustainability.

These actions should create new growth opportunities. MAGMA represents the future of glass manufacturing. The technology to enable dramatic reductions in capital intensity improvement speaks to market and significantly enhance flexibility.

We have achieved all key milestones at our initial pilot plan and we are expanding MAGMA to a second location in Germany, which should be operational near the end of 2020. Overall, we are taking a number of bold actions as we build on our recent momentum to change O-I’s business fundamentals.

Turning to slide five, admirably 2019 was not the year we expected as organic sales volumes were down and operating costs were elevated. In response, we initiated our turn around initiatives to directly address these challenges. In total we are targeting $35 million to $50 million of net benefits in 2020 from these actions.

As we are currently ramping up activity, the run rate savings exiting this year will exceed this net benefit amount. Over the three years we expect the initiatives will generate $150 million or more of net benefits. Revenue and mix optimization is our first initiative. We are taking a holistic approach to growing the top-line.

I’ve already discussed expansion initiatives to grow our business. In addition, we expect to drive higher price and improve mix in select markets and categories, building on the success we have achieved in the past two years in Europe.

While we have seen good growth in certain markets, we have also experienced base erosion in some pockets of our business. With enhanced focus, we intend to mitigate these pressure points. This focus also applies to customer payment terms, which are essentially for improved cash flow generation.

Finally, we are commercializing a suite of new innovative product offerings that can serve a changing market landscape, particularly in North America. Factory performance is our next initiative and built on total system cost approach over the past few years.

In addition to targeting cost improvements, we are improving operating performance and efficiency across the network. As we've seen with our focus factory effort in the back half of 2019, greater intervention and enablement at the plant level can have a quick and meaningful impact on operating performance.

This initiative expands that concept across our network with a clear set of priorities per plant supported by global resources. Likewise, we are evaluating our plant portfolio and will be making footprint adjustments to keep supplied match with longer term demand trends, primarily in North America. Cost transformation is our third initiative.

Supported by Accenture, we are implementing a zero based approach to reuse SG&A and evolve our operating structure in-line with our current strategy. We are confident that these three initiatives will help turn around O-Is performance in 2020 and beyond. On slide six we have depicted a historic review of our organic sales volume trends.

On the top right you will see O-Is network volumes that have exceeded stable to improving levels over the past five years, including 2019. Legacy volumes which include O-I consolidated operations have been flat to modestly down.

Recognizing this challenge we have seen intentionally, we have been intentionally building our position in key strategic JVs focused on attractive markets in Mexico and Central America. Each of our regions face their unique market trends with tailored strategies.

Europe was able to grow with the market in earlier periods, until they become capacity constrained in 2018. As such, the region wide successfully focused on mix optimization towards segment profit. Our brownfield expansion should restore growth in 2020.

The Americas network has posted consistent volume improvement, aided by expansion in our strategic JVs and a strong growth in Latin America. However, the America's legacy trend has been under pressure.

This reflects the net effect of a strong growth in Latin America, which has been more than offset by a significant decline in beer across North America. To put this into perspective, North America, we have declined about 14% in 2019 and now represent just 9% of O-Is total legacy volume.

We have addressed this head-on by stopping two furnaces in the fourth quarter and a total of five furnaces since 2015. Likewise we have closed or repurposed 17 machine lines over the past several years. Overall these actions have effectively reduced our North American beer capacity by 35%. We stand ready to take further actions as conditions warranted.

As I touched on earlier, we are focused on introducing new product innovations for the changing market needs in North America. As we discussed, key elements of our Asia Pacific region are under strategic review. Let’s advanced to slide seven, where I will outline our expectations for future volumes.

In summary, we anticipate 2020 total sales volume will be flat to up 2% including Nueva Fanal and expansion initiatives. This chart illustrates the sale volume trends by key geographies for 2019 and our outlook in 2020. For comparative purposes, we have provided market forecast the euro money for both regions.

As you can see, we expect our sales volume will be stable or growing across nearly all geographies and our performance should be in-line with market trends. Overall North America is expected to be down mid-single digits, and is the only market we expect to be below the prior year, driven by a double digit decline in beer.

In some geographies we expect to outperform market trends supported by capacity expansion initiatives hand carved by new supply agreements. Increasingly, our customers see the strategic value in working with O-I, as well as the strong brand building and sustainable attributes that glass offers.

Now, I would like to turn the call over to John, who will address the specific financials and outlook. .

Commissioning cost, operating complexity and mark related downtime. These factors were more than offset by corporate cost control efforts, lower management incentive expense and other items as illustrated on the chart.

Looking at cash flows, the company generated $133 million of adjusted free cash flow in 2019 and as I mentioned, this exceeded our guidance of $100 million. We achieved this higher result despite reducing AR factoring by 10% or $61 million as we rebalanced our liquidity position. By comparison, factoring was a source of cash in 2018.

Working capital was an overall headwind to cash flow this past year, yet results were better than we anticipated as we sharpened our focus on working capital management in the second half of the year. We view 2019 as an aberration. As I’ll review shortly, we expect significantly improved cash flows in 2020.

Let me spend a moment discussing capital allocation. I'm now on slide 11. Our priorities remain the same. We intend to improve our balance sheet, fund our strategy and return value to shareholders. With that said, debt reduction remains our top priority, driven by operating cash flow and proceeds from divestitures.

As illustrated on the charts, seasonality plays a big role in the timing of cash flow generation. The first part of the year is the use of cash and the second half is a strong source. As you can see, the company generated over $900 million of adjusted free cash flow during the second half of the year.

Strong cash flow, as well as the proceeds from divestitures enabled about $1 billion of debt reduction in the second half of 2019. Net debt ended the year at $5 billion, which was favorable to our guidance. As Andres discussed earlier, we continue to advance our tactical divestiture program and our strategic portfolio review efforts.

While we intend to fund our strategy, 2020 strategic CapEx will be directed to advancing MAGMA, while acquisitions remain de-prioritized. Finally returning value to our shareholders is essential. In addition to initiating a dividend in 2019, $400 million is available on our share repurchase authorization.

However this will be de-emphasized until leverage approaches three times or to potentially offset the impact of divestiture dilution. Moving to slide 12, I will share more details on asbestos. First, let me put this in context. Asbestos related liabilities have profoundly impacted O-I.

Over the past 10 years cash payments have consumed about 40% of adjusted free cash flow. While we are committed to honoring our responsibility, this cash strain has maturely hindered the company's ability to invest in the business.

With Paddock’s Chapter 11 filing, definitive action has been taken to establish a final, certain and equitable resolution legacy asbestos related liabilities. Building on the material shared January 6, let me provide some further information. First the Chapter 11 core proceedings are progressing as expected.

Second, in conjunction with our annual review process, we did update our year-end 2019 asbestos related liability. The estimate now stands at $486 million and we expect this will remain fixed until there is a final court determination. Third, Paddock was de-consolidated after the January filing.

For modeling purposes the de-consolidation of Paddock’s cash will be reflected in the investing section of the cash flow statement. Finally, all asbestos related settlement payments are suspended pending the outcome of the Chapter 11 proceedings.

2020 will be the first year in decades that all of the companies free cash flow is available to fund value for the company and its shareholders. As I mentioned, debt reduction remains our capital allocation priority. Shifting gears, let me touch base on 2020 outlook as depicted on slides 13 and 14.

Overall we expect 2020 adjusted earnings will be between $2.10 and $2.25 per share and full year free cash flow should be approximately $300 million or greater. While our earnings outlook is at or slightly below our 2019 results, we do face about $0.20 of known headwinds including temporary items, and forgone earnings from sold assets.

Absent these items, we expect base earnings will improve about 3% to 10%. Earnings will benefit from continued favorable net price, sales volumes that are flat to up 2% and improved operating cost. Shipments will benefit about 1% from a full year of Nueva Fanal and organic volumes should be plus or minus 1%.

While we still see some residual effect of mixed complexity and commissioning costs, the benefits from the turnaround initiatives will more than offset these ongoing costs.

Non-operating IMs include lower interest expense given the recent refinancing, as well as higher corporate costs to support MAGMA advancement and resetting of management incentives. Shifting to cash flows, overall we expect free cash flow of approximately $300 million or greater.

It's important to note that starting in 2020 our guidance will include free cash flow and not adjusted free cash flow since asbestos payments have been suspended. This represents a significant improvement from the prior year as illustrated on the chart.

Higher cash flow reflects no asbestos payments and lower CapEx, which should be in the range of $350 million to $375 million. Working capital will remain a use of cash, given the ongoing shift in regional and customer mix that affects accounts receivable levels.

However, it will be less of a drag, representing a benefit of $75 million or more on a year-over-year basis. Overall we expect better core earnings and significantly improved cash flow generation. Additional regional details are in the next page. Let me conclude on slide 15 with our perspective on first quarter.

Overall we expect first quarter adjusted earnings will be in the range of $0.40 to $0.45 per share. While this is down from $0.51 in the prior year, results should be in-line with last year adjusting for divestitures and temporary items such as the Italian Energy Credit.

We expect higher prices will more than offset cost inflation and volume should be flat to up 2% supported by Nueva Fanal. Elevated operating costs will continue through the first quarter, but moderate thereafter as we absorb some market related downtime and our furnace maintenance activity is skewed to the first half of the year.

We will also incur some commissioning cost at Gironcourt ahead of the second quarter start up. With that said, these elevated costs will be partially offset by continued improvement in addressing mix complexity and the initial benefits from turnaround initiatives. As we all know, the coronavirus outbreak could potentially affect economic activity.

Fortunately our plant in Southern China is currently operating without issue. However, this is a fluid situation which could impact our outlook as events unfold. In summary, the first quarter results will be muted by temporary items and elevated operating costs, but we are setting the stage for improved results in subsequent periods.

Now, I’d like to turn the call back to Andres to make a few closing remarks..

Thank you, John. Let me conclude today’s discussion by reiterating the bold structural actions we are taking to change our business fundamentals. First, we are optimizing our structure. This includes ensuring we have the right business portfolio for evolving market.

After a few recent acquisitions geared to increase exposure to attractive growing markets, we are now focused on divesting assets that are not core to our strategy. Proceeds from divestitures along with decisive actions to address legacy liabilities will improve our balance sheet here. All of these actions are well underway.

Second, we are focused on turning around our business performance. Executing our turnaround initiatives is a top priority in 2020. In total, we expect $35 million to $50 million of net benefits will be achieved this year with a run rate totaling $150 million or more to be unlocked in coming years.

Considering unfavorable secular beer trends in North America, we expect continued footprint adjustments, as well as introduction of innovative new products. Success will be measured by generating higher free cash flows, redeployed for debt reduction. Third, we intend to revolutionize glass and MAGMA will be a game changer in our business.

Coupled with important trends like sustainability, glass is well positioned for future growth. Thank you for your interest in O-I Glass. We will now welcome your questions. .

Thank you, Vincent. We’re now ready for questions. .

[Operator Instructions] First question comes from the line of Ghansham Panjabi from Baird. Your line is now open. .

Hey guys, good morning.

How are you?.

Good morning Ghansham..

Hey Andres, as you consider further North American capacity optimization, I guess how are you preparing for the inevitable increase in manufacturing complexity, related to some of the production struggles you've had you know post previous closures in North America.

And then second, you know on the CapEx of $350 million to $375 million, that would be the lowest level since 2014 and after 2014 CapEx stepped up quite a bit. Just trying to get a sense as to whether the CapEx you’re citing for 2020 is sustainable going forward? Thank. .

Well, thank you. With regard to complexity, we've been working along - in the last few years in putting together things like lower manufacturing fundamentals. We have in place a standard work assistant for factories which we are deploying.

We have about 30 factories at this point in time implemented, so we are very quickly increasing the number of factories that have it in place. We are deploying resources globally. We are increasing the severity of performance. We improved reporting; we improved that accountability in the system; we have better governance overall.

So we feel that after having the issue we had last year, we've been able to bring together all the things that we developed over the last few years to be able to better sustain and improve performance in factories that are exposed to complexity.

Now, over the last two or three years we on-boarded a large volume within North America of diverse mix to be able to offset beer. We have a slowdown that’s on-boarding lately, so we gave the factories the chance to improve too.

So, at this point in time we feel very comfortable, we have the right system in place, we have the right resources, we are deploying them to the largest opportunities and we should be able to sustain operations going forward, even though complexity will continue to increase because of the changes in the end markets.

When it comes to the CapEx, I think the most important thing to watch is the asset stability and asset stability has improved over the last few years. We monitor this very closely and we feel comfortable for the 2020 period.

This is the right level of cash to be deployed to assets in the maintenance side and we will evaluate as we get closer to 2021, the needs of CapEx for that particular year..

I would add here Ghansham is that in our system we spend about $300 million a year on maintenance related capital and we will continue to do that this year too, so that, the reduction we would see on a year-over-year basis is as I mentioned before is more on the strategic capital side, so that’s $50 million to $75 million of strategic capital and most of that as we said is MAGMA and wrapping up some projects we were doing such as Gironcourt and other things.

An important note is, is going forward, as MAGMA evolves, you know we would look for you know potentially a deployment of that down the road and we do expect that to be at lower capital intensity than legacy assets and furnaces. .

Your next question comes from the line of the George Staphos from Bank of America. Your line is now open..

Hi everyone, good morning. Thanks for all the details and actually I really appreciate some of the reconciliation table that you had in terms of bridging to ‘20 and the quarter, so thank you for that. I want to piggy back a little bit off of Ghansham’s question.

You know we've all been covering the company for, a long time and you know they are always these episodic plans to improve operations, performance, volume.

I mean, I think you touched on a little bit, but, what one or two things Andres tangibly make you confident about the fact that this turnaround program will actually lead to sustained, improved performance as opposed to, you know in a few years we’ll have to you know true it up again.

What, one or two things tangibly make you positive on volumes for O-I, which have never been, something that can be - growth has never been able to be sustained for in the company and that's maybe the biggest issue for the company, and when we think about that transformation and the buckets, how do the three contribute both to, twenties numbers and then over the rest of the $150 million program? Thank you..

Okay, so when I look at complexity, we had the issue we had last year. As I mentioned before, we've been developing several tools and several approaches to our production process that we’re now deploying across more factories to be able to view the complexity better. What gives me confidence is the progress we're making.

We’d in fact seem quite a good progress in what we call the focus factory, which are the ones direct impact - impacted by complexity, so that's going quite well. We have the right system; we have the right people in the right roles.

We have the right reporting system in the company, the right analytics, the right accountability, so I feel comfortable we're making good progress and I think we're going to be able to deliver in our commitments for 2020 in that regard. When it comes to volume, again 2019 we had quite a few issues, many of them, functional issues.

We saw the [wear] [Ph] issue in Europe, we saw the slowdown of wine in France, in exports to China, a slowdown in Mexico in NAB’s. We saw a slowdown in the U.S. in NAB’s growth too. Now when we look at this year, there are three final things that we are considering as we look at our volume performance for the year.

There are, inorganic volumes, kicking in and there are organic volumes. Inorganic is Nueva Fanal which is now going to have a full year. Organic we have sales in Brazil, because now we're enjoying the capacity that we added last year. We have increased volume too in Colombia. We're seeing incremental volume in Mexico.

Mexico is exporting in 2020 to various countries in America and in Europe and that is supporting our volumes and we are having the incremental capacity in France, which is going to kick off in the second quarter, so that should give us incremental volume too.

And one more item that we’re factoring in is the incremental line, production line that we put in place in Europe in the last quarter of the year, so now we're going to enjoy the capacity to move forward. .

I can build on that and on the back half of that question George. I mean just to piggy back on what Andres was saying, I mean on the volume side when we invest in growth, in the capacity constrained markets like we did in Brazil and Colombia this year, we see that solid growth coming through, double digit growth in some cases.

However, it's when we don't have the capacity for growth, that is when we head rooms in that regard and then there's exposure to some other markets that are more pressured.

So going forward, having you know the ability to keep all on top of that and ideally down the road with MAGMA to do that at less capital intensity, will allow us to be able to fund growth and keep ahead of that curve as opposed to behind it.

And then on the transformation, the three buckets, to put them in a level of financial priority for 2020, the factory profitability is probably the largest of those three buckets. It is really building on the TSC work that we've already been doing, but also a lot more intensity and profitability at the plant level.

The cost transformation is probably the next largest bucket, but it'll take a little bit time to ramp up, because those are newer initiatives that are kicking off and the revenue optimization side is the third bucket and that has more to do with more price and mix management in ultimately trying to work the volume pipeline that we've been building over a period of time.

Over time, that will continue to progress. Where I think the cost transformation elements will start to pick up steam is on a relative basis to the whole population. .

Next question comes from the line of Brian Maguire from Goldman Sachs. Your line is now open. .

Good morning guys. So get some more details on the cash flow guidance and also kind of related to that, the $150 million of turnaround improvement. It wasn't clear if the $150 million was an EBITDA, EBIT number or a free cash flow number. Just wondering if there are some, you know maybe one-time working capital benefits included in that.

But on the cash flows, you know it seems like the working capital will be a big use of cash again in 2020. I think about $100 million use of cash. It sounds like if it’s down 75 year-over-year, I’m wondering if there's also some one-time restructuring cash costs in there that may go away or I don't know, maybe they’d recur again at ’21.

But just getting a sense of like you know that free cash flow guidance, there are some, unique one-time items in there for 2020. Thanks. .

Sure, sure. Let me build it out a little bit further. But first point, on the $150 million of turn around, that is targeting EBIT and so it’s not mixing and matching EBITDA free cash flow or anything that is an EBIT number.

And so on the free cash flow and the slide, I believe on page 13 is where we have the full year guidance, we work off of where we started in ‘19 and then we have kind of a sub total there of $95 million, which includes the adjustment for things, discrete items, Tata, the Soda Ash divestiture as well as the Paddock.

So, building off of that, obviously you know you can model in your own view of operating performance, but we would expect some level of EBIT improvement. CapEx at 350 to 375 is something like a you know $50 million to $75 million year-over-year improvement to cash. Working capital as we mentioned before is going to be $75 million or higher.

You are right, working capital was a use of cash this last year. It will be less of a use of cash. Importantly what I would say is that factoring was historically a source of cash as factoring was increasing. We elected to reduce factoring this year to rebalance our liquidity position.

So there was actually a $61 million hit to working capital so to speak in our numbers this year. So then moving down the levers, dividends we do expect will be higher, say $20 million to $30 million more. Some dividends in our joint ventures were suspended in the last year or two because of building out of furnaces and things like that.

We did a lot of refinancing this last year, so interest is down from the expense standpoint, but also say $30 million to $40 million on the cash side, giving especially the timing of payments. Now on the flip side we expect cash taxes to be up a little bit higher, $10 million to $20 million.

We’ll have about another $15 million higher pension contributions and there are a number of other things, let us say $30 million in total, you know how much we spend on returnable pallets and things like that, that will also flip over a little bit in to next year.

So hopefully that gives you a little bit of color on some of the details behind free cash flow and the movement into next year. The last question you had was on restructuring. We spent a little over $50 million of restructuring in 2019.

This model assumes that that remains flat and that takes care of what we said is, if we would anticipate footprint activities as well as ongoing other restructuring activities within the business. .

The next question comes from the line of Debbie Jones from Deutsche Bank. Your line is now open. .

Hi, good morning. I wanted to focus on slide seven and some of the highlights that you mentioned. Very specifically, can you talk about what you're seeing in Europe that supports the low single digit growth rate since the market is expecting and I'm assuming for you its contracted volumes on the line extension and that’s shown in that side.

And then for Asia Pacific, can you just remind us you know what’s kind of holding back the Australian, it's even market and then just kind of the disconnect between your 2020 outlook of low single digit growth in the market which is a bit higher? Thank you. .

Yeah, when we look at Europe, we are expecting solid demand in this region. We are expecting their volumes to be flat to up 100 basis points. Beer is expected to be quite as strong, because we are going to enjoy the new capacity. We have a long term agreement in place for that capacity. So that is going to kick-in in Q2.

Wine is expected to be slightly positive for the year, the manning wine, of wine in Italy is very strong. France is a little softer, but it’s still in a very good level of demand.

Important to watch closely if there is any change in tariffs with the United States going forward, because that might imply changes in France, but at this point in time, we are very comfortable these will be a big, normal year for France.

And the spirits demand in Europa is expected to grow around mid-single digits, so that is going to support our volumes. So all-in-all we have additional capacity for Europe, which we are going to enjoy now and demand remains very solid over there. When we look at APAC, demand is around flat, about flat for everyone out there.

Europe is in which we are, including Australia and New Zeeland, they are pretty much flat. China which has growth potential obviously has been impacted by the economy and now we have the coronavirus that is kind of slowing down activity over there too. So we won't be able to enjoy that growth at this point in time.

Indonesia basically has some growth, that altogether we are expecting that will have from flat to a slightly up volumes in APAC going forward. .

Your next question comes from the line of Mark Wilde from Bank of Montreal. Your line is now open. .

Good morning, Andres..

Good morning. .

Andres I wondered if you could just give us the little color on what we might expect in terms of just downtime in 2020. And then maybe if you could talk about kind of the retrenchment in both North America and whether there's anything further to come in China. .

Okay, so we are respecting a normal hearing downtime. We are seeing a little bit of a heavier than normal quarter this time in Q1, when it comes to asset repairs, that is just timing within the year, but for the year it’s expected to be the same.

When it comes to capacity in the United States, we already took the actions we needed to take, the capacity that needed to be down is down already, so we are balanced at this point in time. But as we said in the opening remarks, we're going to watch this closely.

If something warrants a change, we’ll move forward with that change, but everything we have at this point in front of us in terms of information tell us we are balanced for the year. When it comes to China, we just got to watch closely what’s emerging over there and see what that implies.

As you know, many businesses that have been shutting down because of the coronavirus. In our case, our business is operating, but we need to again monitor that very closely. .

The only thing I would add on the down time on the front end of the comments is that you know we have a – we have different types to rebuild activities, major rebuild activities where every 10 to 15 years we replace the furnace, and we also have these minor repairs that periodically go and extend the life of the furnaces.

The schedule this year of those major furnaces we’ve built is very ratable over the course of the year. It’s the minor rebuilds that are a little bit front end loaded in the year and that's why we're seeing a little bit expense during the first quarter. .

The next question comes from the line of Gabe Hajde from Wells Fargo Securities. Your line is now open. .

Good morning, gentlemen. I’ll try to attack the capacity question from a different angle. You mentioned in the prepared remarks and the presentation you closed about five facilities since 2015. I think that somewhat coincides with the number furnaces that have been opened up in your joint venture down in Mexico.

So I was curious if you can give us maybe a sense for what the net capacity adjustment has been with the new legacy system, and I mean where utilization is today, and if we continue to see kind of beer decline, I think you put again in your prepared remarks maybe up or single digits what that would imply in 2020 and 2021?.

So, the – well the capacity that has been shut down over this period of time, all relates to a local demand in the United States. They have shared of the various tiers of the beer categories, obviously has changed over time. The category has moved towards premium. Premium is made up of several brands. Corona is very important brand there.

So that has an influence in the total demand in the United States. When it comes to a JV with CBI we already built four furnaces. The fifth furnace is going to operation earlier this year and with that, that's the base – it is all we have planned.

Now there is no direct connection right now between that furnace and the capacity within the United States. So for all purposes we are balanced right now.

We're going to have the last furnace going into operation in Mexico for CBI, and we’ll continue watching very closely the capacity here and if something changes beyond what we have reflected, which is the fastest decline rate we’ve seen so far, is what is reflected in our projections right now, then we’ll make a change.

But we don't expect any of that at this point. .

Just to give you a sense of sensitivity here is for example if there would be another follow-on 10% to the decline in North American beer. That represents about one large furnace of volume, just as far as the sensitivity of the derivative activity. .

[Operator Instructions] Your next question comes from the line of Anthony Pettinari from Citi. Your line is open. .

Hi, good morning. .

Good morning. .

I had a follow-up question on complexity. I think on the last call you talked about a $0.10 to $0.12 hit from complexity issues for full year ’19; a $0.10 hit form startup costs.

Just wondering if you could talk about the extent to which you expect those costs to drag into 2020, how much of a hit do you anticipate them being or how much of a hit you have to offset in other places?.

Yeah, I can touch basis on that, is with where things ended, they ended the year. We had profiled in one of our charge a $0.25 EPS hit for operating costs for the full year, of which about one third of it each was around complexity, commissioning costs and then market related downtime.

So that number ended up being a little trim down from that previous estimate there. Now keep in mind that we are also doing the turnaround initiatives that are looking to address this.

So I understand that turnaround initiatives are something like $35 million to $50 million, but we're also going to have some of this residual complexity and other commission costs coming through.

You probably think that the net of improvement in that operating costs line, understanding those moving parts is probably $0.10 to $0.15 so to speak on a net-net basis.

That means that we get the turnaround benefits, and then you have some of that residual effect of complexity still there and some residual commissioning cost with the Gironcourt, so hopefully that provides a little bit of context. .

Next question comes from the line of Mike Leithead from Barclays. Your line is now open. .

Thanks, good morning guys. Just a quick question on divestiture program. I believe you're targeting, call it $400 million to $500 million and the soda ash sales gives you about $200 million.

So I guess for the remaining $250 million or so that you are targeting, can you just give us a rough updated time frame of when you would expect to execute on that. And do we expect it to be another one to two sizable announcements like soda ash or are we talking five or six smaller things left. .

I'll address that. So you are right, so we have something like $2 million to $3 million left in that program when we originally initiated that program, which was at our Investor Day over a year ago. We said it was a three year program of which we were going to get $200 million in the first year.

We had a number of irons in the fire, probably the largest individual one did represent the soda ash transaction, although there are a few more in there that are of size.

It’s going to be a combination of non-core elements, kind of like that soda ash transaction is a good example, but there's also a number of property sales that are underway right now. In fact we have a number of them that are getting inked up as we speak. That we are going to probably spattered across the time horizon.

I do think we'll probably make good progress here in 2020, but I don't want to commit to a specific dollar amount, because it affects the negotiating position of the company. So again, good progress this year; a number of different items in the hopper right now. .

Your next question comes from the line of Adam Josephson from KeyBanc. Your line is now open. .

Andres, John, good morning and thanks for talking my question. John, just a couple on cash flow.

So assuming your asset sales go as you expect over the balance of the year, and given your earnings forecast, your cash flow forecast, what do you expect during that leverage to end the year at? So is it for year-end ’19, what are you expecting roughly at year-end ’20? And just on a related topic, you talked about reducing your factoring in ’19 to rebalance your liquidity, and I'm not sure what exactly you mean by that.

Obviously you know factoring means debt, so maybe you didn’t want to increase your debt, I'm not sure. But can you just kind of in plain English talk about why you reduced your factoring last year and after addressing the other question about net leverage? Thank you very much. .

Yeah, sure. So first on the net leverage, so with what's laid out here in the outlook, which does not have any divestitures in it, that brings the leverage down to around 3.8x versus 4.0x at the end of 2020.

Obviously anything that is incremental to that as far as divestitures, we'll continue to bring that down and obviously our longer term goal is to bring it down to three times leverage, through the combination of these divestitures, as well as operating cash flows, obviously.

So we think that will end the year if we are able to execute these divestitures in the strategic reviews as we've been talking about, with making more progress obviously than that 3.8 number, but I don't want to give a specific dollar amount to that. So let me touch basis on liquidity.

So as you may recall, around mid-2019 we renegotiated our bank credit agreement that increased our line of credit from $1 billion to $1.5 billion and then we also were talking a look at other things that were out there and factoring was one of them. So factoring at the end of 2018 was around $600 million or in excess of 50% of total receivables.

And so taking a look at how – you know what is the total liquidity online, as well as uncommitted lines of credit for example as factoring represents, you know we wanted to rebalance that off and we ended the year in 2019, making about a 10% reduction or around 40% of receivables being factored.

So it's really just kind of balancing that off, also keeping in mind that on factoring it’s in many ways the lowest cost of debt that we have and financing for the company, but we also want to make sure that we don't find ourselves factoring in higher cost markets that obviously increase the interest costs of the business.

So I think where we landed right now is a pretty good place for balancing that off. .

Next question comes on the line of Arun Viswanathan from RBC Capital Markets. Your line is n now open. .

Great! Thanks, good morning. Another question, I guess on the longer term cash flow outlook.

When you think about that $300 million or better and then you know you mentioned [inaudible] on the maintenance CapEx, I mean looking at a couple years, you know how do you expect CapEx and cash flow to trend? Would you consider 2020 kind of the inflection point to continue free cash flow growth? Thanks. .

Yeah, I would say that it will be, intentionally meant to be an inflection year to growth. So as we look at the operating leverage of the business and we spent a fair amount of time talking about the turnaround initiatives, things like that, so that's an important component of improving the operating performance of the business.

You know the capital levels, again there’s $300 million on the maintenance related side of the fence is one piece of the pie.

Ultimately you know we will probably need to put some more capital into strategic growth, but as we go even longer term in the future, as I talked about before, as MAGMA comes online, that becomes at a lower capital intensity, not only for the maintenance side of house, but also to be able to do more on the strategic side of lower capital intensity.

So obviously as we look to reduce debt, interest, payments and things like that will also go down. You know the working capital management practices that we've been talking about and focus on that should yield fruit also. .

I think we have time for one last follow-up Vincent. .

Next question comes from the line of George Staphos from Bank of America. Your line is now open. .

Hi guys, thank you so much for talking the follow-on. Really quickly, can you update us on what the next steps for the Paddock process are? Thank you and good luck in the quarter. .

Yeah George, as you can imagine right now there is – you know the process has stated. Its proceeding as expected, the initial motions and the formation of the creditor community activities. You know I think what we're going to go into is a period of lot of administrative activities that require set-up and things like that.

So there is probably not a lot, but we can update for the time being, although it's following as we would expect and obviously we intend to be constructive through the process as we’ve noted. .

Okay, thank you. I would like to note that, thank you for participating in O-Is call today. Our first quarter conference call is scheduled for April 29, 2020, and it's always an exciting day to choose Glass. Thank you. .

This concludes today’s conference call. You may now disconnect..