Amcor plc (AMCR) Q4 2009 Earnings Report, Transcript and Summary

Good day everyone, welcome to the Bemis fourth quarter 2009 earnings release conference call. This call is being recorded. For opening remarks and introductions, I will now turn the call over to the Vice President and Treasurer for Bemis Company, Ms. Melanie Miller. Ms. Miller, please go ahead.

Thank you operator. Welcome to our 2009 year-end conference call. Today is January 28, 2010. A replay of this call will be available on our website, www.bemis.com, under the Investor Relations section. Joining me for this call today are Bemis Company's President and Chief Executive Officer, Henry Theisen; and our Senior Vice President and Chief Financial Officer, Gene Wulf. Today, Gene will begin by providing details on financial results and comparability to guidance in last year followed by Henry's comments on the business. After our comments, we will answer any questions you have. However, in order to allow everyone an opportunity to participate, we ask that you limit yourself to one question at a time with a related follow-up and then fall back into the queue for any additional questions. Before we begin, I'd like to remind everyone that statements regarding future performance of the company made in this teleconference are forward-looking and are subject to certain risks and uncertainties. Actual results may differ materially from historical, expected or projected results due to a variety of factors, including currency fluctuations, changes in raw material costs and availability, industry competition, unexpected consumer buying trends and customer order patterns, our ability to pass along increased costs in our selling prices, the regulatory approval in timing of the Alcan Packaging Food Americas acquisition, costs and integration, risk associated with business combinations, changes in labor relations, interest rate fluctuations and regional economic conditions. A more complete list of risk factors is included in our regular SEC filings, including our July 8-K filings and our most recently filed Form 10-K for the year ended December 31, 2008. Now, I'll turn the call over to Gene Wulf.

Good morning everyone and thank you for joining us today. Since our announcement in the first quarter of 2009, over write-off of costs related to the possible acquisition of Alcan Packaging Food Americas, the July signing of a definitive agreement to acquire the Alcan Packaging Food Americas business, and later that month the announce of our successful fund raising to finance that transaction, our financial reports have been more complex to understand. With all of the unusual items that we have recorded in conjunction with this anticipated acquisition, I will do my best to focus my comments on clarifying our results for you to better understand the quarter. First, our GAAP earnings per share results for the fourth quarter were $0.26 per share. As I just mentioned, there are many items we have excluded from our guidance for comparability to 2008. When adjusted for these items, the fourth quarter results are $0.45 per share. We have included a schedule in our press release that provides a reconciliation of GAAP to non-GAAP data to illustrate these items. As you can see on this schedule, fourth quarter results included legal, accounting, and other professional fees associated with our planned acquisition of Alcan Packaging Food Americas, and the Department of Justice second request for information related to the Hart-Scott-Rodino approval process. For the fourth quarter, these charges totaled $15.1 million or $0.09 per share. In addition, fourth quarter results included the interest expense associated with bonds that we issued during the third quarter to partially fund the pending acquisition. During the fourth quarter, we incurred $12.4 million of interest expense or $0.07 per share for debt service on the $800 million of public bonds. And finally, results for the fourth quarter were reduced by about $0.03 per share, as a result of the dilutive effect of 8.2 million shares also issued during the third quarter to partially finance the acquisition. These three items totaled $0.19 per share for the fourth quarter and reflect items that are not comparable to the fourth quarter of 2008. Therefore adjusting our $0.26 per share GAAP results for these items, our non-GAAP results for the fourth quarter totaled $0.45 per share. It is important to note that our guidance was prepared on that same basis, excluding any acquisition-related charges. So the $0.45 per share non-GAAP results can be compared to our guidance of $0.40 to $0.45 per share and the 2008 fourth quarter results of $0.32 per share. Of this $0.13 per share improvement from 2008 to 2009, about $0.02 was related to foreign currency translation fluctuations. During the fourth quarter of 2008, global currencies rates weakened in response of the global financial crisis. Rates in 2009 have been less volatile, and the non-US currencies have regained strength against the dollar creating currency related gains compared to 2008. Last quarter, we talked about increased sales of value added flexible packaging products, and that sales mix improvements continued in the fourth quarter. Compared to the fourth quarter of 2008, and excluding the positive impact of currency translation, net sales for the fourth quarter of 2009 decreased 1.8%. This decrease reflects the pass through of generally lower input cost for certain flexible packaging products, substantially offset by higher unit sales volume and mix improvement in many of our product lines. When examining the impact of price on sales, we see all markets are down year-over-year on average by nearly 9%. This decrease is principally related to the impact of the escalator, de-escalator provisions of our sales pricing. The lower raw material costs have been passed along in lower selling prices. Our customers, our markets that are predominantly polyethylene based have year-over-year double digit price decreases. This would include markets such as bakery, multi-pack, industrial and health and hygiene. This quarter we experienced increased unit sales volume in products for market segments applications representing about 85% of the total flexible packaging sales. We saw an impressive double-digit volume growth in the dry foods and medical product markets, while the other food market had nearly double-digit volume improvement. Remaining markets with year-over-year volume improvement were meat and cheese, dairy and liquids, multi-pack, health and hygiene, and other non-foods. Several of these applications represent increased demand for products that extend shelf life or preserve freshness, which are value added products within our product portfolio. We estimated that the benefit from the acquisition of the South America Huhtamaki rigid packaging operation that was made in June of 2009, led to an increase in net sales of the total flexible packaging segment during the fourth quarter of about 3.6%. In our Pressure Sensitive Material business segment, excluding the impact of currency translation, net sales decreased by about 5.9%. While we enjoyed modest unit volume and sales mix improvement in labeled products, shipments of value-added graphics and technical products were still below the levels of last year's fourth quarter. This segment's product and customer base remain very sensitive to economic conditions in both the United States and Europe, and these markets should rebound once the economies of the US and Europe improve. Looking briefly at the total year, we've recorded GAAP earnings per share for 2009 of $1.40. Again, this results included a number of items that we excluded from our guidance in order to compare 2009 with results of 2008. Our reconciliation of GAAP to non-GAAP data illustrates these items. Specifically, 2009 included severance costs for reduction in workforce totaling $4 million or $0.02 per share. The impact, which was offset later in the year by gain on the sale of a property in Brazil totaling $3 million or $0.02 a share. We also recorded acquisition related legal, accounting and other professional fees totaling $34.6 million or $0.21 per share. In addition, we incurred bridge financing fees totaling $10 million or $0.06 per share. Results included the interest expense associated with the bonds that we issued during the third quarter to partially fund the pending acquisition. We incurred $21.3 million of interest expense in 2009 or about $0.13 per share for debt service on the public bonds. And finally, results for the year were reduced by about $0.06 per share as a result of the dilutive effect of the $8.2 million shares also issued during the third quarter to partially finance the acquisition. These items, which total $0.46 per share for the year, reflect items that were not comparable to 2008. Therefore, adjusting our $1.40 per share GAAP result for these items, our non-GAAP results for the year ended 2009 totaled $1.86 per share. Our guidance on that same basis was $1.81 to $1.86 per share. Our 2009, non-GAAP performance results are therefore 15.5% higher than our comparable 2008 result of $1.61 per share. This substantial improvement in earnings per share was driven by raw material cost reductions early in 2009, improved sales mix to more value added products, production improvements and cost management initiatives. Total year sales of 2009 decreased 7% compared to 2008, including a 3.3% decrease related to currency translation. Excluding the impact of currency, flexible packaging sales for the total year 2009 decreased 2%, reflecting lower unit sales volume partially offset by the positive impact of improved price mix. In pressure sensitive materials, net sales excluding currency decreased by about 12% compared to 2008 levels, primarily due to lower unit sales volumes. Back to the fourth quarter income statement again, gross margins, as a percent of net sales increased by 19.6%, compared to 16.9% in the fourth quarter of 2008. This increase reflects the ongoing benefits of improved sales mix to higher margin items, and continued cost management initiatives in 2009 through our world class manufacturing program. In cases where the raw material costs have declined in 2009, selling prices have contractually adjusted to match those lower input costs, neutralizing the impact on gross margin dollars when we compare the results of the periods. Selling, general, and administrative expenses continue to be up substantially over 2008. In the fourth quarter, SG&A as a percent of net sales was 10.8% in 2009 compared to 9.2% in 2008. This year-over-year increase is principally attributed to the substantially higher incentive and defined contribution pension cost after a very low cost year in 2008 due to lower earnings. With substantially improved financial results in 2009, incentives and defined contribution pension programs based on earnings have a much higher payout in 2009. Additionally pension expense for defined benefit plans has increased due to the impact of last year's market loss. Those losses started to pass through this year's pension expense at the rate of about $2.5 million per quarter. Like sales and operating profit, currency fluctuations had an impact on increasing our SG&A costs in 2009. The currency impact was approximately $3.6 million. Let's return to the business segments now and talk about operating profit. Flexible packaging operating profit improved from $66.2 million or 9.2% of net sales in the fourth quarter of 2008 to $90.9 million or 11.8% of net sales in the fourth quarter of 2009. This is a great improvement and one that reflects strong cost discipline and increased sales of value added products in 2009. The fourth quarter is normally a lower production period for our manufacturing plants. Capacity utilization is generally lower as plants have shutdowns over holidays for major maintenance and production demand slows late in the quarter for the seasonally slowest months of January and February. These two factors are predictable and therefore reduce our overhead absorption compared to the second and third quarters of 2009 when operations ran at higher capacity utilization and operating profit as a percent of sales was 13.9%. In the Pressure Sensitive Material segment, sales and operating profit were higher than we expected, especially during the usually slow holiday season. Operating profit for the fourth quarter of 2009 was $7.1 million, or 5.2% of net sales. This is the highest level in terms of both dollars and percent of net sales since the third quarter of 2008, and we are very pleased with these results. This business unit has seen this market substantially drop in sales demand due to the weak global economy. As we have mentioned in previous calls this year, this business unit has been working diligently to right size their operations, focus on higher margin products and make their plans more responsive to change in demand. For the fourth quarter of 2009, net other costs and income included $15.1 million of cost for accounting, legal, and other professional fees associated with our anticipated acquisition of Alcan Packaging Food Americas. These fees are expensed as incurred. These costs were partially offset by other income primarily related to fiscal incentives earned by certain of our non-US flexible packaging facilities. These fiscal incentives are already included in the flexible packing operating profit results that I just mentioned. Also included in the income statement line item for the fourth quarter of 2008 were foreign exchange transaction losses totaling $6.1 million. Foreign exchange transaction gains and losses were not significant in the fourth quarter of 2009. Fourth quarter interest expense included $12.4 million of interest expense related to the new $800 million of public bonds issued earlier in July of 2009 as partial funding for our pending acquisition. Excluding this amount, interest expense decreased by $4.6 million, compared to the fourth quarter of 2008. This decrease reflects lower levels of commercial papers outstanding, as well as substantially lower average short-term interest rates in 2009. This leads us in to an analysis of our current debt levels and cash and cash flow. As of December 31, 2009, debt to total capitalization, including the financing already secured for the partial payment of the acquisition price at closing was 38.7%. While this is within our target range of 30% to 40% debt to total capitalization. We expect it to go up to approximately 42% immediately after the acquisition closing. This increase will reflect the transactions, plans, remaining funding, using commercial paper. As we have mentioned in earlier conference calls, it will be our intent to pay down bank debt with our free cash flow in order to return to our target debt to total capitalization level. We increased our emphasis on cash flow from operations in 2009 in line with the financial markets and our acquisition efforts. In addition, our business units management teams were financially consented to improve their use of working capital in 2009. With this increased emphasis and careful working capital management across the company, I am pleased to report that Bemis has achieved a record level of annual cash flow from operating activities this year. Our 2009 net cash provided by operating activities increased to $476 million, from $294 million in 2008. In 2009, our management team's reduced working capital by $141 million. Capital expenditures for 2009 ended at $89.2 million. This level of expenditure was much lower than the $100 million we had anticipated. Planned expenditures for some projects slated for the fourth quarter slipped in to early 2010. This decrease is not a reflection of projects canceled or postponed. Normally on this conference call, we provide first quarter and annual guidance. At this time, discussions with the US Department of Justice regarding a possible remedy are progressing but not finalized. However, we do anticipate regulatory approval and closing on this transaction before the end of the first quarter. In light of this, we have decided to provide annual guidance following the announcement of the Alcan Packaging Food Americas closing. We believe it would be more meaningful to provide annual guidance when we can have a more fulsome commentary on the transaction. In the meantime, we are continuing to provide guidance for the first quarter of 2010 on the same basis we have for the past two quarters of 2009. We currently expect our first quarter earnings per share results to be similar to those of the first quarter of 2009, excluding the impact of all acquisition related and severance costs from both years. We plan our capital expenditures for Bemis legacy business units to be in the $130 million to $140 million range. teams have been working diligently (inaudible) the favorable impact of those improvements as they hit the bottom line. all acquisition-related and severance costs from both We were disappointed that we could not complete our years. We plan our capital expenditures for Bemis legacy business units to be in the $130 million to $140 million range. This includes the $10 million 2009 shortfall that carries over to 2010. Net of the carryover impact, our 2010 capital expenditures will be in the same range as our 2000 outlay for capital equipment. We look forward to providing more fulsome guidance with a full year following the completion of the Alcan Packaging Food Americas acquisition. Now I would like to turn the call over to Henry for his comments.

Thank you, Gene. I am very pleased with the operating performance we achieved in 2009. Our business teams have been working diligently in recent years to build positive operating profit momentum using our world class manufacturing initiatives. To implement change across the company and we are experiencing the favorable impact of those improvements as it hits the bottom line. We were disappointed that we could not complete our acquisition of Alcan Packaging Food Americas business in 2009. But we are nearing a resolution with the US Department of Justice, and expect to close this quarter. In the meantime, we are prepared our integration plan and are ready to hit the ground running once the transaction is complete. As we have said many times in the past, our intention is to integrate these new plans and grow our business. We plan to use the combined technological capabilities of both companies to expand our product offering to customers and approve our processes. This acquisition will expand our technologies in retort applications, pharmaceutical packaging, and crystallized polyester products. We will also be expanding our geographic presence. This acquisition gives us a larger footprint in Mexico to serve that domestic market and it brings to Bemis our first facility in the Australia, New Zealand market to provide meat packaging to that area of the world. The acquisition will be adding not only food flexible, packaging capacity to our growing South American business, but pharmaceutical packaging as well. The Alcan pharmaceutical packaging operations in Brazil are part of the Food Americas operations that we are acquiring and will open the door for new business in the growing pharmaceutical packaging market in South America and in other regions of the world. While we have a strong global presence in medical packaging for products used in sterile hospital and clinic environments, development of packaging for pharmaceutical markets requires long-lead times. We have been investing time and capital to create opportunities for Bemis products in the North American pharmaceutical markets and these new Brazilian operations should accelerate this process. Over the past several years we have invested in technology platforms from which we have launched new products, and continue to identify new applications. I recently met with all of our global business leaders to review current growth opportunities, and I am pleased to see a full pipeline of new products coming to the market over the next 18 months, both from our flexible packaging as well as pressure sensitive materials business segments. In recent years, we have invested in formable rigid film platforms in the United States and European operations. Using this technology, we have developed new packaging for lunch and meat, single-serve coffee, and consumer products such as razors, dental floss and toothbrushes. Specifically our polyester platform is a great fit for our European customers, while using it to eliminate laminations, reduce material content, and add consumer convenience features. This platform has now expanded to include other polymers such as polystyrene, and polypropylene. Our sealant technology expertise creates opportunity for Bemis to overcome product development obstacles for our customers. We introduced our new Peel Reseal technology in Europe and has become a common convenience feature used by European packaging customers. We have added a tamper evident feature to this package and we are expanding this product offering to our North American customers. Another example of our sealant technology solutions is the steam in bag package used in North America for frozen vegetables. Standard polyethylene sealants were unable to stand up to the microwave heating process, when customers wanted to add sauces and oils to their vegetable recipes. We developed a unique polypropylene sealant that stands up to higher cooking temperatures while still steaming the vegetables uniformly and venting at the appropriate time. We are currently developing the next generation of this sealant to further improve the cooking process and add more features to enhance the consumer's experience. In our paper bag division, we are coming up with new solutions to age-old paper packaging problems. Our now new (inaudible) bag offers high performance, puncture resistant packaging solutions for multi-wall paper bag applications. (inaudible) represents a combination of unique film and paper technologies designed to meet customer demands for maximum durability and great print quality. Another development from our paper bag division is our new ask our new Intra-Guard bags which offer an environmentally friendly packaging solution. These bags are repulpable, biodegradable and recyclable, important features that many of our customers are seeking from suppliers. We are currently offering both of these new bag solutions to customers for packaging products such as pet food, agriculture products and food ingredients. In addition to new packaging technologies, our engineers have been working to expand the use our pressure-sensitive adhesive technologies into new markets in both North America and Europe. In a recent example, a US customer is using Bemis pressure sensitive adhesive technology to affix mirrors to solar energy collector panels which are often exposed to harsh environmental conditions in the desert. New products, some of which I had just mentioned provide opportunities to expand our sales to customers and newly acquired products and technologies from Alcan will further enhance these growth opportunities. We are a multi-national company with operations in many regions of the world providing solutions to customers as a local supplier. The Alcan transaction further expands our multinational footprint. As regional economics around the world recover and grow, we will certainly grow with them. In 2010, our focus will be to integrate and maximize the synergy benefits of our investment in Food Americas business, while maintaining a high-quality service model that delights our customers. Finally, I would like to personally thank all of our employees for their extraordinary efforts, hard work, and creativity throughout 2009, and congratulate them on achieving outstanding operating performance in an incredibly challenging environment. Now we'll open it up for any questions.

The question-and-answer session will be conducted electronically. (Operator Instructions). We will go first to [Ariel Avila] with JPMorgan.

Can you comment on how demand trends are looking coming out of the quarter in both of your businesses?

You know, I think that we see modest growth in demand trends in the majority of our businesses. There is nothing really jumping off the table and there is nothing falling off the table. It's a pretty steady slow growth in across all of our businesses.

Okay. And can you, just as a follow-up, can you just comment on demand trends in various geographic regions?

I think Europe and North America are much the same. As I said, slow, low single, mid single digit kind of growth, and with some excellent growth in our Brazilian operations in South America. As you know that economy is Brazil is heating up and doing very well. So that's got some good high single digit, maybe even double digit growth opportunities.

We will go now to Chris Manuel KeyBanc Capital Markets.

Good morning, this is actually Jason in for Chris. Regarding the progress with the Alcan acquisition, understanding that you may have limited comments on a public forum like this. Can you provide any further context of what the possible or around the possible remedies that you are discussing with the DOJ?

Unfortunately, we're not in a position to make any comments about what the possible remedies could be. We have been working very closely with the DOJ to resolve this. We expect to have resolution this quarter, and that's the extent to which we can comment.

Okay. Then if I could just switch gears to your first quarter guidance, flat excluding all of the transaction variances, I would expect, I guess, I would think volumes would be up and I know you have taken some costs out of your business. Why wouldn't there be some growth in that number, I know you had some rising gains in the first quarter of last year and is that the primary variance or may be if you could just walk through the variances first quarter to first quarter?

The primary variance, Jason, is really the price of the raw materials, and of course we saw the fall of the raw materials late fourth quarter 2008 into the first quarter of 2009 and the vast majority of that relates to the raw material costs.

We will go now to Sara Magers, Wells Fargo Securities.

Understanding again that you probably are limited in what you can talk about, are you anticipating any kind of changes to the quantified synergies you had previously associated with the Alcan acquisition?

Sara, when we close on this transaction, we'll have a more fulsome discussion around that, but at this point, I don't think it's appropriate for us to make any comments.

Okay. And then I guess to follow up on that, do you continue to anticipate that the deal will be accretive to earnings in the first full year?

Yes, I do think that in the first year this will be an accretive transaction for the Bemis Company.

We will go now to Christopher Chun, Deutsche Bank.

I was just wondering if you could give us some information on what the incremental impact of the Alcan deal in terms of the interest expense. Obviously it's already gone up but I would guess its going to go up a little bit more and the incremental D&A and the CapEx?

Well right now, as we said in my commentary, our quarterly interest is about $12 million for interest, for the bonds that we have issued. We'll have to issue some more commercial paper at closing, but commercial paper rates are pretty low right now. So it's not going to be a big number in terms of increase in to the interest going in to once we close this transaction but, having other conversations about CapEx around the acquisition, we prefer to keep still on until we get to a closing and that can have that more fulsome discussion.

What about incremental D&A?

We would like to remain silent on that too, until we get to the close.

And we have a lot of information that was included back in the summer in the 8-K filings that we did that included the 2008 Alcan Packaging Food Americas data. So that might be helpful though we have no update since then.

(Operator Instructions). We'll go now to George Staphos Banc of America/Merrill Lynch.

This is actually Benjamin (inaudible) currently filling in for George. My first question, what's the latest period for which you have audited Alcan results?

I think those would be the period that we filed in the 8-K earlier this year. So like that would be, I think its 2008.

And to follow up, to the extent that you have visibility, what kind of investment will need to be made in people, management, and systems to put Alcan together with Bemis?

As I said in my comments that we've had an opportunity to put our integration plan together till we are ready to go, and we think this will be an excellent transaction. We'll be marrying the best people that we have, and we can gain from both operations to give us the best performance going for the Bemis Company but getting down to the specifics of numbers, the people will think we'll just wait until we do complete the transaction. We have said in the past, though, that we don't anticipate the need to do a lot of investment in Alcan, because Alcan has invested quite heavily in the past few years in their operations and so their operations are first class. So there is no fix up that we see in this transaction.

We will go now to Tim Thein with Citigroup.

Okay two questions. First is on the, Gene, if you can go back, you had highlighted some of the incentive in deferred comp along with the pension expense and what that cost in '09? Do you have any outlook or guidance for that for 2010? And separately, and maybe Henry this is more for you, I'm curious what you see in terms of, this time of the year you typically have pretty good visibility with regards to your customer initiatives around new product launches and upgrades and the like, where do you see that kind of level of innovation and spending as we head in to 2010?

Well I would go with the first question regarding the incentives and the higher SG&A costs. If we have a strong 2010, I would expect those incentives to be very similar, but if we're on a normal level, we'll probably drop down in SG&A, and that SG&A will probably be closer to 10% range nominally.

As I take the second part your question as far as new products coming up for the Bemis Company and as I said in my comments we had kind of a global review, and we have a full assortment and a full product line and new products touching all of our business units, and what drives this is, what drives our customers all the time. They recognize that packaging helps to sell their product and that's a point of differentiation and they are continuing and in fact some of them are upping their willingness to launch new products new packaging initiatives, convenience features, single serve and all the things that help to move their products off the shelf and then we've got a [recall] new products issue on the next year to 18 months.

We will go now to Ghansham Panjabi with Robert W. Baird

Its actually Matt (inaudible) sitting in for Ghamsham this morning. I was just hoping that you guys could comment on any feedback you are receiving from existing customers regarding the uncertainty with Alcan Packaging, and whether that's going to affect any business for the upcoming year and if you've heard anything with discussions about new contracts regarding Alcan Packaging?

I think all of our customers would just like to see this concluded, so they can plan their business and know what's going on. But regarding new contracts with customers, that's something that we have no insight into. We're still competitors in the marketplace at this point in time and so it's impossible for us to understand what's going on inside their market at that point.

Understood and then as a follow up question, in the pressure sensitive business, just switching gears a bit here. Is this the type of recovery that you typically see coming out of a recession, obviously noting that the recession is much deeper than it has been in the past?

I think it's a little slower. A lot of the things that we look for in our growth in the pressure sensitive business is the return of the graphics business, and we still haven't seen really the return of the graphics guys wanting to put the advertising in marketing. It's been a little slower than I hoped it would be.

We will go now to Al Kabili with Macquarie.

Hi, it's actually (inaudible) filling in for Al. Just a quick question on 2010. Excluding Alcan, what is your sense of kind of expectations on core performance that you can talk about, volume trends and price. Appreciate it, thanks.

Well, as we look in to 2010, we intentionally didn't give any guidance for the legacy, Bemis organization because we don't think that's meaningful, because when we start combining Bemis and Alcan, it will be a whole new view as we start to look at the organizations. However, as we look at the first quarter, as Henry said earlier, we do expect that we have some headwinds with the raw material area with some announced price increases on raw materials. But generally, we're feeling pretty good about the year as we go forward. We aren't expecting any major problems with raw materials in the long run. We think this is kind of seasonal right now.

We'll go again to Sara Magers, Wells Fargo Securities.

You guys had a fairly strong working capital management on the for the year, do you expect that to be sustainable going forward? Or why might it be kind of one time in nature?

You have to look at typically how our capital expenditures go, and when we develop new platforms or new products, we typically invest in those, and you'll see our CapEx rise a bit, and then you'll see a number of years where you fill those additions you made. And you fill things up and then the next new thoughts, the new platforms and when we invest in those. So we did a little bit of that a few years ago. Our CapEx is less the last couple of years, but long-term I think you have to look at it as it's going to be equal to our D&A.

Sara, I think Henry misunderstood your question. Let me address it. You were asking about working capital.

Yes.

And we did have a substantial improvement in working capital this year, and our management teams did an outstanding job this year in driving costs out of working capital. $140 plus million was a substantial improvement. Now I don't think I can get another $140 million out next year. I would love it if we could, but, resin cost will be a part of that too, but if resin costs are relatively stable, we'll target to at least maintain what we have in working capital levels right now, but of course our people continue to be incentived to get better and better. So if things go right, we should have some improvement in working capital going in to next year.

That would be improvement from the 140?

Yeah. I don't think it's going to be in the magnitude that you saw this year, though.

Looks like that's going to be another 140.

We will go now to Timothy Burns, Cranial Capital.

I've got two questions, first is a follow-up. Pressure sensitive materials, one of the big problems has been in the kind of roll label price mix, and I guess, is that a business that you can ever bring the margins back up on, or is it more a function of maintenance, and then making it smaller?

In our pressure sensitive business, in the labels area, we recognize that we're not going to drastically increase the margins. We're going to be following what the key players like Avery Dennison and (inaudible) do there. And we're not really investing in it. That we're going to maintain, and our desire, our plan is to grow the margins in the pressure sensitive business in the graphics and in the technical areas. We've invested in some energy cure programs, and we invested in some new pressure sensitive adhesive technologies. I pointed out one of the exciting things we have or we're making progress in the solar energy area. So I think we're going to grow our margins, but it's a going to be in the roll label business its going to be in the technical and the graphics sections or segments of our pressure sensitive business.

It appears that 2009 was somewhat of a cookie cutter year. I mean everybody benefited from lower raw material cost inputs, price mix improved, there was, major benefits from 18 to 24 months of cost cutting, and, I kind of ask myself how much longer can this go on? And you see some of these major acquisitions that are going on, whether it's Brinks and Tyco or Stanley Works and I forget who they are merging with, but it's like they've kind of said we can't keep cutting costs, we need more running space. And I think that's what Alcan does to you. Is the flexible packaging business, I heard all the products that you guys, and it is always great. It's a myriad of fabulous products. Is the core flexible packaging business still 3% to 5% grow as far as you see it, Henry?

Overall I see that in the net 3% to 5% growth area for the overall flexible packaging business. I think there are segments of it that offer more opportunities, and there are some segments that are a little less than that. Well overall I agree with your 3% to 5%.

(Operator Instructions). And at this time, we have no additional questions. I would like turn the call back to our hosts for any additional comments.

Thank you very much, operator. And thank you everyone for joining us today. We'll look forward to talking to you again soon.