NWL
#Yes, on your first question regarding Project Renewal, cumulatively, so the annualized savings through the end of 2015 is $360 million.
So that's banked, and that's in the bank.
We have articulated a range of $625 million to $675 million in cumulative savings.
But I just shared with you, my ambition and hope is that we get closer to $700 million when it's all said and done, at the end of 2017 or into early 2018.
2016 is a big year of renewal savings delivery.
We've got a lot of work that was initiated last year, that flows into the P&L in 2016.
We set up the transformation office, in order to really establish a set of very disciplined project management capabilities.
We've got teams organized along, and across many different work streams.
So we expect 2016 to be a banner year, with respect to savings, and it's important to the overall algorithm.
With respect to the Jarden transaction, I'll pass that over to <UNK> to answer.
Sure.
Hi, <UNK>.
With respect to Jarden, we don't anticipate any challenges from a regulatory standpoint or anything else.
We made good progress.
Obviously, both teams have been working hard together with their outside advisors.
So we don't anticipate any challenges.
We're still marching towards a closing sometime in Q2, and no red flags.
So we're in good shape.
With respect to your question on customers, it's a little early.
We're not engaging customers with one voice at this point, because that would be inappropriate as two separate companies.
But the general feedback on the day the deal was announced ---+ and I know Martin got some of this feedback as well, from customers from ---+ on the announcement date.
And we've subsequently had them in our conversations with retailers, has been very, very positive.
As you know, the combination significantly scales our presence in a number of retailers in the US.
We put that into the web deck that we put together, when we announced the deal.
We'll have over $2 billion of revenue at Wal-mart.
I think we'll end up being probably a top ---+ in the eighth or ninth position, in terms of their overall suppliers.
And on the general merchandise side, we'll be at the top, if not near the top.
I think that's very exciting.
That will lead to a really strategic set of conversations with all of our retailers where we scale.
And the other thing about the come combination of the companies is, it opens up access to new channels for some categories.
So Jarden has real strength in mass sporting goods, with the Coleman brand, and with some of their action sports businesses.
That opens up opportunities for brands like Contigo and Avex, where we probably never would have gotten to investing the SG&A and selling expense to access those markets, which we can now access.
And the reverse is true for Jarden.
We have tremendous scale in home centers and hardware, and the distributed trade in the US for commercial products and tools, which can provide the Jarden businesses access to channels.
And so, it's going to be very exciting to unlock all those opportunities.
I don't view scale at customer as being a leverage point with respect to negotiating.
Some people think, oh, we're going to be a able to yield a bigger stick at these customers.
That's not how we think about engagement with our retail partners.
We think about building our business collaboratively.
We have a responsibility as leaders in our categories to own the development of those categories at those retailers.
And, of course, we leverage our branded assets to do that.
So we build share when we do that effectively.
But we share accountability with our retail partners for developing the size of the pie, the size of the categories.
And that's how we approach our relationships, and we expect the combination to now be able to do that across a broader landscape of categories for our retail partners.
And through that, become more of a strategic supplier to them.
So unbelievable set of opportunities connected to the selling, and the potential for a strengthened strategic capabilities in that space.
Thanks.
Hi, <UNK>.
Yes, I gave you some color on quarterly flow in Q1, in that I gave you the Venezuelan impact.
If we had not deconsolidated Venezuela in 2016, it would have been worth $0.03 to $0.04 in Q1.
So that's some color on flow.
I didn't give you the numbers for a year ago, but that's slightly more than what Venezuela contributed in the year ago period.
So there's a little bit of color.
We're pretty bullish on what the first half of the year has to offer, because a lot of our new items ship in the first half of the year.
So Rubbermaid FRESHWORKS goes, InkJoy gels go in the first quarter.
We had good performance last year, very, very good sell-out performance.
So we don't enter the year ---+ you can see it in our receivables numbers.
You didn't see a tremendous movement in our receivables numbers year over year.
So that's a good sign that inventories have come down in the fourth quarter, retail inventories have come down in the fourth quarter.
That's true in a number of places, I suspect.
And the kind of POS and sell-out that we've got going on is really encouraging.
We should have very good ---+ with good sell-through, comes good sell-in.
And that's set up well.
We will spend more in Q1 than we did year-ago, from an A&P perspective with stronger innovation.
And so, we're set up for a good first quarter I think.
And obviously, the proof of the pudding's in the eating, and it's only not even really the end of January yet.
But the green light is in the engine room.
So there are always things that you have got challenges, that you've got to overcome.
And undoubtedly, we will have those to deal with this year.
Hi, <UNK>.
It's <UNK>.
So with respect to the debt, there's a couple of moving pieces.
But overall, the term loan is locked, and that rate is ---+ roughly for your modeling 2% to 2.2%.
It's a variable rate instrument.
The public debt that Mike was talking about earlier.
Right now, we originally said in the S-4, we modeled 4%.
Credit spreads have moved, but there's still a lot of moving pieces.
So we don't know where the tenor will be, or how much we'll go with variable rate debt overall.
So there's still a lot of work to done ---+ to do.
But we're not too worried about the creep off, of the 4%, on the public portion of the debt.
So that part is ---+ again a work in process.
And there's, as you know, a lot of market volatility between now and the time that we ultimately go to market.
Yes, so we get to that ratio, we're committed.
So part of the reason why we structured the deal we did, is the term loan is a three year instrument that we have to pay down, the $1.5 billion that I mentioned earlier in my script.
And so, part of that is a commitment, so we get down to that 3, 3.5 times, two to three years right now, and we've modeled in a number of sensitivities.
So we're very comfortable that 2.5 years from now we will be back in that range, give or take, absent some massive change in the underlying economic culture of the world overall.
So we have good shape, in terms of that.
With respect to tax, right now, obviously, I think the easiest thing to do is model just the blended tax rate between the two companies, but there is opportunity.
Now none of that is reflected as Mike said in the synergy numbers that he's talked about and so forth.
And we're excited about bringing Jarden in together with us, in terms of what we can do with some of our tax structures and so forth.
So we definitely see upside on that.
But it will take some time, obviously to get the two companies together, and into one tax system.
So we're going to push to get the delever as quickly as we can.
If you look at our numbers, and you probably haven't had time to plow through them all, we've got EBITDA around $900 million in for Newell.
And Jarden is ---+ you can figure out what Jarden is.
With synergies coming perhaps a little bit quicker than what was modeled, we'll be very quickly approaching $3 billion of EBITDA.
And so, we're going to have lots of flexibility to pay down the debt quickly, and we will want to do that.
That's the commitment we made to get back into the range of 3 to 3.5 times within two to three years.
But I'm hoping we can do that closer to the two, than to the three.
With respect to the other issues on ---+ potential derailers that's could undermine that.
I really don't see them, because we've been so conservative in the assumptions we've made, on the timing of synergies, the growth rate that we built into the model.
So the tax opportunities, the working capital opportunities, we should have some quick wins there, that are not built into the deal economics.
And it's just going to take a little bit of time to get our arms around that, once we're able to more openly engage with each other, but not much time.
We'll want to go for that type of stuff quite quickly.
And the other thing to recognize is that the leverage ratios look high at the beginning, in part because of the timing of the year we're doing this deal.
Right.
So Q1 is probably the worst moment to try to convert a deal like this with ---+ given the flow of cash flow for both companies.
So the optics of our leverage ratios are pretty high, probably half a click high in ---+ at the end of the first quarter, versus what they will quickly be over the next few quarters.
So there's all those dynamics at play.
We've made a commitment to get down to 3 to 3.5 times.
We're going to do that in a focused way.
We are prioritizing capital allocation to that outcome.
And the only exception to that is the CapEx assumptions we've got in the business, which we have not compromised on CapEx investment on either business.
We've blended the base plans.
And we won't pull back on that front.
And you should expect in the Newell Rubbermaid side for us to be spending around $200 million in CapEx this year, maybe slightly above that.
And then on the dividend, we've assumed that we maintain Newell's current dividend of $0.76 per share.
Obviously, across a higher share count, which means more cash out for that in the combination, but we believe that's an important element of our capital allocation strategy that will be and should be preserved.
That's not in our line of sight right now, and doing an equity deal not in our line of sight right now.
We're going to be really focused on executing both companies' plans.
Obviously, if we get good momentum in the core of the business, we can think of different options as we come into 2017.
But our focus right now will be on execution of the deal, execution of the individual business plans, delivery of the EBITDA progression that's built into those two plans and into the deal economics.
And playing for more EBITDA if we can find it, either through acceleration of the synergies, or through accelerated growth in the businesses, or through other means of influencing gross margin development which are also available to us.
Yes, I don't think you should expect us to go deep into the integration at CAGNY.
Because again, we will not own ---+ we will not be combined at that point, the two companies.
We will lay out where we see the opportunities.
And those opportunities will be articulated based on the thinking that went on in the fall, and conversations that have happened with senior management since that time.
But the planning stages are early on.
It's a little premature for us to be doing a deep dive on exactly what we're going to do when, in a couple of weeks.
That said, I'll lay it out.
I'll visually present what I just described to you in the earnings call, in a little bit more detail to give you some evidence of where the opportunities are, and talk about the ambition we have for the business.
But I would expect the more detailed discussion to happen after the shareholder votes, and after the transaction's consummated.
That's when we'll get into some far more detail.
Our focus though, will be on engaging both sides of the house, in understanding where their business opportunities are, learning the Jarden businesses.
And then after a period of work and thinking about those, bringing that back together into an integrated approach and strategy for the Company.
Of course, we'll provide guidance for 2016, revised guidance for 2016.
And we'll provide perspective on the out years, once the transaction's completed.
Yes, we typically don't guide core sales by segment, but I think you should expect writing to have another very good year, albeit without the benefit of Venezuela.
You should expect baby to have a very good year as well.
We've got terrific momentum there, with great innovation coming.
Commercial products, I think you should expect another year of good progress.
And you'll see probably the most change in home solutions, where Rubbermaid has a whole series of innovations that are coming to market like FRESHWORKS, like Fasten+ Go which is effectively taking our lunch box concept, and executing an adult version of a lunch box for work.
And so, that will come.
And then in the back half of the year, we've got another exciting food storage innovation that I won't disclose now, that really will be very, very cool, and fun to see how consumers respond to.
So you've got three innovations in Rubbermaid coming this year.
You've got a big year in beverages as we continue to develop and build the Contigo, Avex, bubba and Rubbermaid brands in this space so.
And Calphalon is going ---+ Calphalon and Goody will go through complete relaunches.
We saw some weakness in Calphalon in the fourth quarter, as we're transitioning out of product lines and into new product lines, which start flowing in here in the middle of Q1.
So we've got a full facelift going on Calphalon.
And we've got the Goody brand relaunch which set for the second quarter of this year.
So I think home solutions will probably the place where you see the most change.
We will continue in the ---+ to continue optimize the Rubbermaid consumer business by continuing to pull back on consumer storage, the less profitable end of that business.
So some of the positives that I was just referring to, will be partially offset by continued contraction in that portion of the business, as we look to reposition the Rubbermaid brand to play in areas where the brand can be differentiated.
And through differentiation comes higher gross margins, through margins comes higher affordability and to invest in really create the renaissance in Rubbermaid that we hope to deliver over the next couple of years.
Hi, <UNK>.
In any given quarter, the margin will float, depending how much investment we put in.
We said we spent more money in A&P than we were planning on spending in the quarter, and writing was the beneficiary of that, which it is almost always is.
The ---+ but we don't have a target margin for businesses.
I mean, anything over 20% in my experience is a really exciting place to be, because if you grow, you really create a ton of value so.
But I don't envision us drifting down to that level.
But I also don't want to target and peg 25% operating income margin as a target margin for the writing business, because I feel like we might constrain the opportunities for growth.
As we move writing into new geographies, there's sort of an SG&A bubble you have to accept in front of the ---+ ahead of the revenue stream.
And our ambition is to deploy this portfolio as broadly as it is relevant to deploy it over the next 5 to 10 years.
So there will be periods where there's a cost of growth associated with that choice, that will be covered by some other business.
Just like you saw some of the businesses cover tools investment in 2014.
You see other businesses covered baby investment, at the beginning of this year.
We'll now see baby margins come back to fund other investments in home solutions.
And so, we manage this money very dynamically, and we don't let it get trapped in any particular segment.
The leadership team allocates resource.
And in any given period, you should expect operating income margins to flex up and down, depending on what investment bets we're making.
Yes, that's a great question.
But let me answer that one last, and maybe <UNK> can provide some perspective, so that it's not biased by me, because I'm obviously very excited by it too.
I think people are very energized by this, because they've seen what's happened here.
And they now ---+ most people are probably thinking, gosh, there's all kinds of opportunity for me personally, to go work in different types of businesses over time; and I get the sense there's a lot of excitement about this.
The group's been through a ton of change, so they understand how to ---+ and they're resilient as all heck, to be able to absorb the rhythm of change that we've had over the last number of years.
But there's a lot of excitement.
There's pride in the fact that we're creating something big and special that could really be very, very exciting.
But maybe <UNK>, you should answer that last part, rather than me.
Sure.
So <UNK>, I'll add some color in a second, with respect to the system, so part of Jarden is on a version of SAP.
But we're fairly comfortable that we'll be able to get them, and get our arms around their systems relatively quickly.
Obviously, they have a great business, and they've run their business extremely well.
So they certainly understand their numbers, and we're encouraged coming in, that we can get to a common nomenclature, and common vocabulary relatively quickly.
Our IT guys are really excited to work with them.
And certainly, I think we can give them some perspective on things that have worked well for us.
And as Mike said, it's really consistent, with taking the best of both companies.
So we also have some things I'm sure we can learn about them, and get a little more leverage out of our systems overall.
So comfortable, we'll get our arm around the business fairly quickly.
And certainly in our meetings with them, they clearly, they have arms around their business.
So we're very comfortable with that.
In terms of the excitement, certainly, it's not something I think that many of the employees expected, but we're excited.
We're excited about the progress that certainly Mike and the team has made over the past five years to put us in this position, to be able to rewrite the future for this Company.
And that's what people are most excited about you now.
We look at the opportunity now with Jarden and things that we think we can do, as we broadened our set of cable abilities across a number of different new categories and new brands.
And as Mike said, as well as the synergies, places where Jarden has been very successful, and we haven't been as successful in certain channels.
So there's a lot of excitement.
We know it's going to be a lot of work.
It's been a lot of work for a number of people for the past three or four months, but it's going to be a great combination overall.
So it's a ---+ we're a little bit disappointed maybe some people don't see it that way.
But for us, we only see upside.
Yes, I think the market's reaction I ---+ I'm not even going to focus on it to be honest with you, because the opportunity is in front of us.
It's not in the moment.
And so, the opportunity is to bring this combination together, and create the value release that will naturally occur.
But more importantly, strategically to create one of the leading consumer branded companies in the world.
And certainly, a leader in the durable space, where nobody's going to be able to have the capabilities we have.
We'll have the [affordability] to invest in a really advantaged set of brand development capabilities, that should enable us to trump the competition.
We'll compete in category country sales against lesser competition is quite small.
So if we want ---+ as we set this company up to be managed the way we manage things today, where we ---+ a senior group of people, leaders from each of the businesses come together every year to allocate resource, as we allocate those against the businesses with the greatest right to win, we should see really tremendous release of value and growth.
And that will create a very, very exciting story going forward.
We're a risk-on scenario and a risk-off environment at the moment, because of the leverage that we need to raise to bring these two companies together.
And that is fine.
We have the clarity, the security, and the sense of what will happen next, to give us the confidence, that what we've said about maintaining investment grade, getting the deal financed, getting the deal ---+ having the deal deliver high single-digit accretion in year one, and mid-teens to high teens in year two, and strong double-digit accretion in year three ---+ we have the confidence and line of sight, to all the moving parts in that algorithm, to give us the security that the risk-on increase is appropriate for our Company.
The market doesn't have access to everything that we've got access to.
And we don't have the opportunity to talk as explicitly as we'd like to, to the market until the transaction is consummated.
So we're in that period where, there's uncertainty in a risk-off environment, and I'm sure that's creating pressure.
We will over time, in a very deliberate way articulate our vision for the Company, what we believe is going to be possible through the combination.
And I am certain, we will find more opportunity, the more time we have to engage with the partners on the Jarden side.
And we intend to bring the best of both together, to bear on this collection of categories that are really quite strategic.
The opportunity is quite strategic.
These are large, growing categories with unconsolidated markets.
And the brand portfolio is powerful, because we have leading positions in those categories.
And so, there's so much roll-up potential, either organically or through a combination of organic and external development that you just sort of feel like a kid in a candy store, in terms of the potential opportunities ahead.
We're going to do this deliberately.
We're going to do this with putting the best people on the field that we can, to unlock the upside.
And we couldn't be more excited by what's ahead.
But our line of sight goes beyond the next 90 or 30 days, it's the next 3 years.
And it's putting in motion the set of choices, that I think we will illuminate over time for the market.
But we are certain, we'll unlock the value we have represented to you, if not more.
Yes, I wouldn't count on the 10% type of growth levels, as being something that's sustainable every quarter, but we've got a lot of innovation coming in baby.
We're excited about baby.
The combination actually potentially brings together some really exciting opportunities, particularly with Nuk and Baby Jogger.
And there are a couple of European soothing businesses as well that Jarden has.
So we've got some tremendous opportunity here.
We love our baby business.
It's a different business than the rest, in that on our side of the family, we've outsourced the manufacturing to a strategic partner.
So our gross margins are dilutive to the total Company performance.
But because we don't own the assets, our return on invested capital is quite high.
It's just next to writing, in terms of its value creation potential if we grow.
So when you grow baby, you create a ton of value for investors to the ROIC of [RONA], return on that asset is so high, just shy of writing's levels.
And writing's levels are margin-driven, baby's levels are driven by the absence of fixed assets, and a very short value chain because most of our retail partners ---+ so many of them, DI, direct import from the point of departure in Asia.
So we have a very short value chain, inventory chain.
So this is a great business.
We expect to grow it.
I think if I were building a model for the next number of years, I'd be building sort of mid single-digit growth.
There will be a moment in time, when China opens up as a huge market.
There are now car seat legislation, there is now car seat legislation in place, not yet being enforced.
But that will create a car seat market over time.
And when that happens, we want to be right in the middle of the growth that will come with Baby Gear.
Our business is sourced from China, so we've got great presence there.
So that if and when that market opens, we will be in the position to participate in a more material way than we do today.
But that will ---+ when that moment comes, that will trigger a different level of growth for the Company in that segment.
But I think the right planning stance is mid singles.
Hi, <UNK>.
Sure.
Good morning, <UNK>.
So we generally don't guide with respect to cash flow, operating cash flow overall.
So we won't give you any guidance numbers for 2016 or 2015.
I will give you ---+ I'll give you an explanation where we landed for 2015 versus 2014.
Essentially, we were up about 2% if you take out the $70 million pension payment that we made in 2015, to get our pension plan up to about a 93% funded status.
And then, we had a little more cash spend on Project Renewal and some other restructuring costs overall.
In terms of focus on cash going forward, the model was built without any working capital improvements.
But there are plenty of working capital improvements for the transaction, as well as on our side.
As we've talked about before, we ---+ our inventories we can do a little better job on.
Overall, we built some inventories this year for growth and so forth, but we know we can do a better job managing inventory, as well as managing the other pieces of working capital.
So that will be a focus.
It will be part of our incentive plan next year we've talked about, because of the importance of delivering on cash overall for us, in terms of getting our leverage ratio down, as Mike said as quickly as we reasonably can to the 3 to 3.5 times ratio.
But again, a good focus on cash, but we made good progress in Q4, as well on inventory.
So I'm relatively comfortable that we have line of sight to another strong year for 2016.
Just to punctuate the point <UNK> made, we will ---+ we've recommended to the Board, that our 2016, the Newell Rubbermaid 2016 bonus program, the short-term incentive program include a component on operating cash flow.
And so, obviously cash flow matters a lot, and operating cash flow matters a lot, in the context of this deal.
So we will put some skin in the game for our employees, with respect to really moving the needle on operating cash flow.
Like <UNK> said, we don't guide, but you can be you assured it's going to be a focal point for us.
There's a lot of opportunity in working capital as I've said over time.
And this is the time to go get it.
We have not assumed any benefit.
We've just blended the programs that existed from both companies in our deal economic assumptions.
So you can rest assured, cash is king in the coming years, and really ought to be all the time.
And you should expect us to really move the needle on this over time.
And I again, I think we've got a very clear line of sight to being able to get down into the leverage ratio range that we've committed to.
And I'm hopeful that we can do that, closer to the two year horizon, than the three year horizon.
But our commitment is to do that within two to three years.
Yes.
Hi, <UNK>.
Yes.
So with respect to the cash generation and the sources and uses, it ---+ the cash flow write-off, for us going forward, the difference will be about $50 million on an annual basis.
So it doesn't materially change the numbers that we put together, in terms of the sources and uses of cash overall.
The other thing I'd say is that all of the modeling we did with the rating agencies, all the modeling we did on the deal economics, assumed Venezuela out.
So everything that we've articulated externally excludes Venezuela.
Yes.
So we have three different writing businesses.
We have a fine writing business.
We have the Dymo business, which gets consolidated in our writing segment, and then what we call writing and creative expression.
Writing and creative expression is growing very, very well.
This is where Sharpie and Paper Mate, and Expo and Prismacolor, they all live in that cluster.
Fine writing has been less positive to growth rate.
And your observation is accurate, growth in Europe was not as strong, as we believe it can be over time.
In part because WACE growth, or Writing And Creative Expression growth was offset by fine writing declines.
And so, we're in the midst of repositioning our fine writing portfolio in Europe, pulling back on some of the low end portions of that portfolio, so that we focus brands like Parker and Waterman on the high end portions of that portfolio.
So that is what contributed to Europe's modest writing results.
Terrific growth on writing and creative expression in markets like the UK and in France, offset by fine writing contraction in the same geographies.
Over time, you should expect our writing business to become more dominant and present in the core, which is Writing And Creative Expression.
We've got a terrific plan in place for our writing business in 2016.
I think you should plan for like performance in your models for 2016, as we delivered in 2015, ex-Venezuela.
And while we haven't quoted a specific number for writing ex-Venezuela, and you shouldn't expect us to, you're in the general ballpark with your analysis.
Hi, <UNK>.
Yes.
So great questions.
I'll give you some perspective on innovation.
So when we evaluate the impact that innovation is having on our business, we look at what we call the vitality rate or the innovation rate.
And we measure innovation rate, as the percentage of our revenue that's been touched by innovation launched in the last three years.
And when we started in 2013 with the new model, our innovation rates were quite low, in the low teens type of level.
And as we enter 2016, we're getting very close to what we have as our long-term objective for the innovation rate, which is 30%.
And so, this is a vitality rate or an innovation rate that the best consumer goods companies would consider the gold standard.
And we're well on our way to getting there.
We will get there in 2016, with the pipeline of ideas that are coming to market.
We don't typically communicate that.
But I'll let Nancy and you guys try to triangulate around what that would be.
But the way you should think about it ---+ it's not that big of a deal, with respect to its impact on overall margins.
It may be slightly ---+ may hurt us a bit on operating margin, but not at gross margin.
So I think it actually may help us with (inaudible) gross, and hurt us in operating income margin, because we don't spend a ton of money in A&P there.
But just modestly, not as much as you might think.
Well, thank you very much, Leanne.
And thank you to all on the call for your interest in our Company.
And most importantly, thank you to all the Newell people who worked tirelessly to make these results happen, and to our future colleagues at Jarden, who have worked tirelessly as well over the last few months with our team to pull this transaction together.
I think together, we're going to make a great team.
Thank you very much.
