Ball Corporation - Special Call

Ball Corporation (BLL)

October 11, 2011 10:00 am ET

Executives

Colin Gillis - President

John A. Hayes - Chief Executive Officer, President and Director

Raymond J. Seabrook - Executive Vice President and Chief Operating Officer of Global Packaging Operations

Michael W. Feldser - President of Ball Metal Food & Household Packaging Division for Americas

Michael Hranicka - Chief Operating Officer of North American Metal Beverage Packaging Operations and Executive Vice President of North American Metal Beverage Packaging Operations

David L. Taylor - Chief Executive Officer of Ball Aerospace & Technologies Corp and President of Ball Aerospace & Technologies Corp

Scott C. Morrison - Chief Financial Officer and Senior Vice President

Gerrit Heske - President of Ball Packaging - Europe

Gihan Atapattu - President

Dave Taylor -

Analysts

Unknown Analyst -

Presentation

John A. Hayes

Okay, good morning, everyone. My name is John Hayes. I'm President and Chief Executive Officer of Ball Corporation. Welcome to our 2011 investor field trip management briefing. Before I begin, I want to give a special thank you to Ann Scott who's in the back here for setting this whole thing up. You can only appreciate the amount of effort that goes into organizing these types of things. So let's give her a big round of applause.

We have a couple of goals for not only yesterday, but also today, and I just want to quickly review and recalibrate everyone. The first is to get to know us as a management team. There's a variety of people we'll talk about in a minute here. But really for those of you in the room, take advantage of it. I think we are very broad, diverse and experienced and talented management team, and I think that's important as we talk about our Drive for 10 vision and what we're doing going forward. We also want to discuss our shared vision and I said this briefly last night at dinner, but our definition of shared vision is when you invest in Ball, you invest with Ball, its management, employees and directors. We own over 12% of the stock, which is over $600 million of our own money in the company. And we feel that's very important as we align with you all as to what we're trying to do going forward. We also want to share our long-term investment theses. And in addition to Ray Seabrook, Scott Morrison and our various business units presidents, I want to highlight some of the people in the room that you might not have had a chance to meet yet last night. The first is Lisa Pauley, who's head of our HR and all of our compliance. She's back in the left there, my left I guess. Charles Baker, our General Counsel, he's back over here. Dan Rabbitt, who's Head of Corporate Development, way in the back there hiding behind the curtain so to speak. Shawn Barker, our Vice President and Controller; Mr. money man, Jeff Knoble, who controls our cash. He's our treasurer. He's right over there; and then last but not least, Leroy Williams, who's the head of our IT and doing a lot of neat things in the IT area.

Before we begin, I need to say that some of today's comments may include forward-looking statements. Certain outcomes may differ materially from those expressed or implied, and these can be found on our website at ball.com. As I mentioned, participating today, we have Scott Morrison, our Chief Financial Officer. I think most of you know him. Many of you, in fact, probably all of you know Ray Seabrook. He's the old hand here at Ball Corporation. He's been around for a long time and does a lot of great work. He is currently our Chief Operating Officer of our Packaging businesses. Then, also our global unit presidents who you'll hear from a little bit later on. That includes Dave Taylor; Gihan Atapattu; Colin Gillis; Mike Feldser; Gerrit Heske; and last but not the least, Michael Hranicka. The agenda we're going go through, I'm going to give some opening remarks, and then, I'm going to turn it over to Dave Taylor to do a little bit of a deeper dive into the Aerospace business. We'll take a break then. Then, Ray will stand up and give an overview of our various Packaging businesses, and then, we'll have a roundtable-type discussion with our various packaging unit presidents. Take another break. Scott will go over the financial view historically and what our goals are, and then, we'll leave plenty of time for a Q&A session for all of you. And then, and I believe most, if not all of you, are going to tour our Golden facility, which we have a lot of neat things going on there.

So let's dive right into it. To understand Ball's future, I'm going to briefly reflect upon our past, and then, I'm going to layout our Drive for 10 vision. In order to anticipate the future, you have to understand the past. And this one image reflects Ball's entire 131-year history. Our business is involved from in 1880 from a private family held entity headquartered in Buffalo, New York of all places to a thriving Fortune 500 company. This history and our long-standing values, and we talked last night about uncompromising integrity and about being close to the customers, about behaving like owners, about the attention to detail that's woven in the fabric of our culture and DNA and last but not least, about being innovative. That's the way we do business. We truly believe is a competitive advantage for us and we believe a pathway to our future success. Much of the stock appreciation we've had as a company, much of the value created as a company has really happened over the past 10 years and reflecting on that strength of the businesses we remain in today.

Today, Ball is a highly profitable Packaging and Aerospace business. Approximately 90% of our revenues in EBIT are derived from our Global Packaging businesses and 10% from our Aerospace businesses. The irony is if you go back 10 years from now, the percentages were about the same, and we've done a wonderful job of growing our Aerospace business, which Dave Taylor is going to talk about, in an environment where we didn't need a lot of capital to do that. So there's a lot of great things going on in that business. All of our core businesses are very healthy today and quite defensive given the recent stock market volatility.

To get to where you want to go, one must know where you're going, and we do at Ball Corporation know where we're going. Our building blocks for the future lie in our Drive for 10 levers. They're maximizing value in our existing businesses, expanding into new products and capabilities, aligning ourselves with the right customers and markets and truly understand where they're going, broadening our geographic reach and leveraging our know-how and technology expertise. I'll touch on each one of these levers briefly and then, turn it over to Dave Taylor and Ray Seabrook and his team to address the future direction of Aerospace and Packaging.

Our vision on where we're going is what we call Drive for 10. It's based and grounded in the past and what has gotten us here today. Nothing here is necessarily new, but rather reinforcement of what we're doing, why and being a little bit more proactive about what we're doing around it. So what is Drive for 10? Really at its highest level, it's a mindset around perfection with a greater sense of urgency and deliberateness of what we're trying to do around our future success. You all know that at Ball Corporation, we have a culture of continuous improvement and whether it's in our manufacturing facilities to improve efficiencies; sustainability goals to reduce the impact on the environment or EVA-based philosophy to investment and to our incentives, which are the foundation of how we generate value for our shareholders and how we internally as well as externally measure success. So what I'd like to do is go through each one of the levers that I've talked about before, and the first one is maximizing value in our existing businesses. That really centers around regional supply and demand, the manufacturing efficiencies, customer mix and positioning our products. We are focused on aligning our packaging, manufacturing footprint with regional and customer demand. I think that's a key lever, and we talked a little bit last night about the levers. We have to understand what our supply and demand is. And since 2008, we've closed 7 facilities; and on a comparable basis, we're manufacturing the same amount of products with 7 less facilities. We are in a fixed-cost business and the key to running a fixed-cost business is getting more out of less. And we've taken an industry leadership position in this area and intend to do so in the future. And from time to time, we will redeploy existing assets to another Ball facility like we did in Serbia to reduce our freight and accommodate for regional growth or from our Torrance plant, which recently went down and taking that equipment, putting into other parts of the world.

Over the past 4 years, we have also executed a concerted effort to rebalance our customer portfolio in our Packaging businesses, and we will continue to focus on having the right mix of business, whether it's in the soft drink, beer, energy drink, teas or specialty can business, Ball has a wide array of solutions for our customers in all parts of the world, not just here in North America. And as the leading supplier of our beverage and food cans, it's incumbent upon us to position our products to ensure that all customers and all of their customers are aware of the infinite recyclability of our containers and the financial value these products have in the recycling system. We truly believe that metal packaging is the best in terms of value, the best in terms of quality and the best in terms of sustainability. And we are rededicating our efforts to get this message out, as I said, to not only our customers but to the retailers and consumers as well, which leads me toward sustainability focus at Ball. We believe that another way of maximizing value in our existing businesses is the triple bottom line approach by balancing the economic, environmental and social impacts on our decision-making process because we think it creates long-term value for all of our stakeholders, whether it's about returns for our shareholders, our license to operate with the communities in which we operate and providing a health and safe environment for our employees in the areas in which they live. We really think that this provides a competitive advantage for Ball Corporation.

Our priorities are in packaging, energy, water and waste, safety and talent management, and we've done some pretty amazing things here over the past few years. Since '05, we lowered our total safety recordable rate by 55%. We've reduced our greenhouse gas emissions 18%. We have exceeded the goals we set for ourselves a year early on that, and now we're only sending 29% of all of our waste generated from our manufacturing facilities into the landfill. So that's, obviously, that's some good proof points of what we're doing in terms of focusing on our people, our communities and most importantly, the bottom line.

So far, I've talked a little -- mostly about the Packaging businesses. Dave Taylor, as I said before, is going to deep dive into our Aerospace business, but we've had a lot of great examples on our Aerospace business as well of maximizing values in that business. Here's one example of using a lean manufacturing approach in creating a detector technology center. We co-located labs and staff and we could work on multiple programs simultaneously. What that translated into was a 55% improvement in our manufacturing and efficiency in our Aerospace business and an 81% reduction in total hardware moves. Now these are just some examples of what we're doing at Ball Corporation. We literally could spend days on how to -- talking about the various examples of how we can maximize the value of our existing businesses. Not to worry, I won't do that today. But this is truly indeed the fabric of we do at Ball Corporation, and this has set the foundation of our future because if you don't -- you don't have a bright future unless you have a bright baseline. And we certainly do have that today.

So turning to the second lever is broadening our geographic reach. Ray and Dave Taylor are both going to discuss this lever, so I won't steal their thunder a little -- thunder much, but we are and will continue to pursue profitable expansion to meet our customer needs, whether it's in Serbia, Brazil, China or Vietnam. This morning, we announced that we are buying out our partner in our Qingdao plant, relocating and expanding our new facility. It'll be up and running by the end of 2011 and I think Scott will talk about it. We will record a fourth-quarter gain as part of all that. Each of these regions of the world provide growth project for us, which we believe exceed our EVA targets and our hurdle rates of at least 9% after-tax. Sometimes those return rates are higher in other parts of the world where the risk is higher, and as we look forward both near and long term, we do believe that there are going to be continued opportunities for us to leverage our customer relationships and technological skills to ensure that we capture our fair share of the growth outside of the mature markets.

The third lever I will talk about is aligning ourselves with the right customers and right markets. Our customer base, as you all know, includes many companies, some of the biggest companies in the world serving the food, the beverage and the household products arena, as well as defense and civil space markets. We win with the winners. We have a strategy of following our customers and making sure that we're giving the best in terms of value, the highest quality, the best service. And by understanding their need, we truly believe that we're going to have great opportunities with all of these customers as we move forward and in addition to continuing to expand our customer base.

A couple of examples of that are just here. The first one is ConAgra Foods. We entered in a joint venture in the early 2000s with them. We ultimately bought them out and we recently reentered into a long-term agreement with them. The same thing with Coors. We formed a joint venture as well as a commercial supply agreement. Since that time, they've merged with MillerCoors, and we are in the process of renegotiating and feel pretty good about what we're doing with them as we move forward to extend those various agreements. And then last but not least, the fad way's [ph] representation of DigitalGlobe. It was a company we started in the early '90s to provide remote sensing, commercial remote sensing opportunities. We are in the process of building the fifth satellite for them right now and it's been a homerun for them. It's been a homerun for us. So those are just a couple of examples of what we mean about being close to the customer and how we can provide value for them while at the same time, providing value for us.

Today, Ball's top 10 customers make up more than 50% of our global sales, and over time, we're going to continue to pursue profitable growth in existing businesses as well as engage in additional activity to grow our business through leveraging our expertise in metal manufacturing and aerospace technology. In the future and through growth of our recently acquired extruded aluminum container business, we'll be able to balance the scale and diversity of our customer mix while continuing to grow with them around the world because we see great growth opportunities in places that we currently don't do business.

The fourth one is about expanding into new products and capabilities, and this is a necessity if we're going to meet our Drive for 10 goals. Not to worry, we're not going in the automotive or rocket making business, but this is really expanding into what we do best. You saw some of that yesterday in terms of our R&D center. But Ball has a very long history of remaking its product portfolio over time. We were in the zinc penny blank business, so you think about that and you think about the slug business that we're in today. We've been in wood, oil can jackets. We've been in prefabricated housing, which was phased out in the '70s. We used to make Christmas ornaments and did several other things. I mentioned that only because you have to understand the lessons from being in and out of various businesses, and those lessons to us are: Number one, you need scale; number two, you need manufacturing expertise; number three, you really have to understand the full supply chain. You just can't be looking in your segment of the supply chain, but really understanding it all. So when you think about our entry in the slug business, that's a good example of it. You need to align with customer demands, not only on a regional basis, but also on a global basis. Some of our businesses that we're in right now are regional businesses, and we understand that. Some of them are global businesses. We understand that too. So to truly understand and being able to align the customer demands are quite important. And then last but not least, you need technological know-how in order to differentiate yourself. Those are the lessons learned that we've had and we are going to be applying them and have been applying them as we go forward. A good example of that is the impact extruded business and the slug business. When you think about the reasons why we got into those businesses over the last 12 to 18 months or so, it's because they were able to serve global customers. We're able to use our technologies similar to our D&I process in the two-piece beverage can making businesses. We are able to understand the full supply chain, and it's just not about making containers, but it's understanding the filling and understanding the raw material side. It's also having manufacturing know-how. We also do some other things that you all saw yesterday in our innovation and technology center here in North America. We also have one in Bonn, Germany, and we're doing some pretty neat things in terms of product expansions and providing value to our customers. Specifically, we can help our customers differentiate the products on the shelf and create a higher tier pricing for them. These are just a couple of examples. Whether it's in the wood stain business, the beer business, the CSD business or energy drinks, we're able to provide our customers packaging, which is able to improve their price points, improve their profitability and in return, help us grow with them. So we're going to continue to aggressively pursue the segmenting of these opportunities in the future because we see real value in that.

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