Nov 21, 2014
Executives
Jon Rich - Chairman & Chief Executive Officer Mark Miles - Chief Financial Officer Dustin Stilwell - Head of Investor Relations
Analysts
Mehul Dalia - Robert W. Baird & Co.
Mark Wilde - BMO Capital Markets Bill Hoffman - RBC Capital Markets George Staphos - Bank of America Merrill Lynch Al Kabili - Macquarie Chris Manuel - Wells Fargo Debbie Jones - Deutsche Bank Scott Gaffner - Barclays Capital Alex Ovshey - Goldman Sachs Bill Hoffman - RBC Capital Markets Jason Young - JCK Partners Clifford Greenberg - HPB Associates
Operator
Good day ladies and gentlemen, and welcome to the Berry Plastics Earnings Call. At this time all participants are in a listen-only mode.
Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded.
I would now like to introduce your host for today's conference, Mr. Dustin Stilwell, Head of Investor Relations.
Sir, you may begin.
Dustin Stilwell
Thanks Amanda. Good morning everyone.
Thank you for joining us and welcome to the Berry Plastics, fourth quarter Fiscal 2014 Earnings Call. Throughout this call we will refer to the fourth fiscal quarter as the September 2014 quarter.
Joining me today from the company, I have Berry’s Chairman and Chief Executive Officer, Jon Rich; and our Chief Financial Officer, Mark Miles. This morning they will review our financial performance for the September 2014 quarter and the 2014 fiscal year; make a few comments on the overall business and our strategies and provide the company’s outlook for fiscal 2015.
During this call we will be discussing some non-GAAP financial measures, including operating EBITDA, adjusted EBITDA and adjusted free cash flow. The most directly comparable GAAP financial measures and a reconciliation of the differences between the GAAP and non-GAAP financial measures are available in our earnings release and our public filings.
An archived audio replay of this conference will also be available on the company's website. We would like to make it clear that certain statements made today maybe forward-looking statements.
These forward-looking statements are made based upon management's expectations and beliefs concerning future events impacting the company, and therefore involve a number of uncertainties and risks, including but not limited to those described in the company's Annual Report on Form 10-K and other filings with the SEC. Therefore, the actual results of our operations or financial condition of the company could differ materially from those expressed or implied in the forward-looking statements.
Now, I’d like to turn the call over to Berry’s Chairman and CEO, Jon Rich.
Jon Rich
Thank you, Dustin. Good morning everyone and thank you for joining our call today.
First, I would like to comment on a recent change to our Board of Directors. In early October we announced the appointment of Robert Steele to our Board of Directors.
Rob retired from Procter & Gamble as Vice Chairman after serving in a variety of executive leadership positions during his 35-year career with P&G. His in-depth knowledge and experience in global consumer goods is a great complement to the talents and expertise of our existing Board members.
We are very excited to have Rob join our Board, and we look forward to working with him. I would also like to extend my sincere appreciation to Josh Harris who stepped down as a member of our Board of Directors after many years of dedicated service to Berry.
Now turning to our September ending quarterly financial results. Revenue increased by 9% over the prior year quarter and was a record for any quarter in the company’s history.
Operating EBITDA improved by $16 million or 8% over the same quarter in 2013, primary as a result from improved operational productivity and cost savings from our previously announced restructuring activities, along with contributions and synergies from our recent acquisitions. Operating EBITDA margins for the quarter came in at 16%, similar to the same period in 2013.
Adjusted free cash flow for the quarter increased by 9% over the prior year quarter to $131 million. Mark will provide more details on our quarterly financial results momentarily.
The September quarter concludes Berry’s fiscal year. So next let me go over a few highlights for the full fiscal year 2014.
First, I am pleased to report that we exceeded our adjusted free cash flow target for fiscal 2014 of $270 million by $32 million, achieving a record $302 million for the fiscal year. The cash flow results were achieved from higher year-over-year operating EBITDA, significant reductions in working capital despite higher raw material costs and lower capital expenditures.
With strong free cash flow, I am pleased to report that we recently made a voluntary principal payment on our term loan of $100 million. Revenue for the full fiscal year grew by 7% to approximately $5 billion and LTM adjusted EBITDA increased to $830 million, up 5% from fiscal 2013.
Both were record results for any year in the company’s history. Our debt leverage for the fiscal year ended at 4.6 times net debt to EBITDA, a reduction of about a quarter turn in the year.
Our highlight for fiscal 2014 was that our Flexible Packaging business made significant progress towards our stated goal of achieving 15% operating EBITDA margin. Operating EBITDA margins for Flexible Packaging increased from 9% in the September 2013 quarter to 13% in the September 2014 quarter.
Productivity from cost reductions, improved manufacturing efficiencies and contributions from new value added printed food and personal care products contributed to the margin improvement. I’m also pleased to report that we reached a milestone in our journey as an independent publicly traded company in fiscal 2014 when the remaining stock in Berry held by private equity investors was solid in the September ending quarter.
The overall economic and business environment that we faced in the September ended quarter remained challenged by the same factors that we’ve been discussing for the past several conference calls. Our results reflected soft consumer and customer demand for packaged food, personal care and restaurant food service products, along with continued increases in costs for freight, energy, employee compensation and benefits, plastic resin and other raw materials.
While overall US GDP rose 3.5% in the third calendar quarter of 2014, non-durable consumer goods were only up 1.1% and the food component was negative for the third consequent quarter. The Nielsen survey data for grocery in the quarter was down 1.3% overall versus the prior-year quarter.
Within the Nielsen survey data certain dairy and dry grocery categories, including products such as margarine, cereal, butter, yogurt and soft drinks where we have a strong presence declined 2% to 8% in the quarter. Berry's physical volume in our base businesses on a pound sold basis was down 1% for the quarter compared to the same period in 2013.
The data reported in these surveys mirrors what we have heard about consumer demand from our customers in the food, personal care and restaurant industries as they have reported their quarterly results. Now I’ll turn the call over to Mark, who will review Barry’s financial results in more detail and discuss our outlook for fiscal 2015, and then I’ll come back to provide an update on our strategies.
Mark.
Mark Miles
Thank you Jon and good morning everyone. Net sales for the quarter were $1.310 billion compared to $1.204 billion for the September 2013 quarter.
This 9% increase was primarily attributed to a 4% increase in net selling prices linked to the pass-through of increased resin cost and 8% from acquisitions completed in the last 12 months of the Flexible Plastics and Film business purchased from Graphic Packaging, Qingdao P&B in China and the Healthcare Containers and Closures business purchased from Rexam. The increased in selling prices and revenue from acquired businesses was partially offset by a reduction of price adjusted sales volume of 3%.
The difference between the 3% dollar change and the resin pound sold change of 1% that Jon just referenced was primarily due to mix. Combined net sales in our two Rigid divisions increased by 6% compared to the September 2013 quarter.
Principally as a result of the addition of the U.S. portion of the Healthcare Containers and Closures business purchased from Rexam, along with a 3% increase in net selling prices due to the pass-through of higher costs, partially offset by a 3% reduction in price adjusted base sales volume.
In general, demand for specific products in our Rigid business that predominantly sell into the food and beverage markets tracked the Nielsen survey data. As discussed in prior calls, in the December quarter of 2013 we entered into new agreements with several existing thermoformed drink cup customers, where our prior contracts provided exclusivity or very high market share of those accounts.
Excluding the impact of those renegotiated agreements, our thermoformed drink cup sales volumes improved in the quarter over the prior year quarter. We also experienced continued sluggish demand in several of our container categories during the quarter as a result of weak market demand in products such as margarine, butter and cream cheese.
In the Flexible businesses consisting of our Engineered Materials and Flexible Packaging segments, combined net sales in the quarter increased by 13% over the prior year. This increase was primarily attributed to a 5% increase in net selling prices due to the pass-through of higher raw material costs and revenue from our recent acquisitions of Graphic Packaging's Flexible Plastics and Film business, Qingdao P&B and Rexam's Healthcare’s Containers and Closures operations outside the United States.
Sales volumes in our flexible businesses excluding acquisition activity and selling price changes decreased 2% on a dollar basis over the prior September quarter. Operating EBITDA was $210 million for the September 2014 quarter compared to $194 million in the prior year quarter.
This $16 million increase in operating EBITDA included net cost reductions and improved productivity and manufacturing and SG&A of $13 million, as well as operating EBITDA related to the three acquisitions completed in fiscal 2014. These contributions were partially offset by unfavorable product mix and base volume weakness just discussed, primarily within our Rigid Open Top segment.
Combined operating EBITDA in our Rigid divisions was flat versus the same quarter in 2013, as a result of productivity improvements and cost reduction actions taken, as well as the addition of the U.S. portion of the Rexam’s Healthcare Containers and Closures business, offset by reduced earnings from the sales volume weakness and renegotiated drink-cup agreements within our Rigid open Top segment just discussed.
Combined operating EBITDA for our two flexible segments increased 22% in the quarter over the prior year period, primarily as a result of improvements in manufacturing efficiencies and cost reduction actions, as well as the contributions from our recent acquisitions. Fiscal 2014 net sales closed at a record of approximately $5 billion compared to $4.6 billion in fiscal 2013.
This 7% increase is primarily attributed to a 4% increase in net selling prices due to the pass-through of higher costs and 4% from acquired business, partially offset by a price adjusted base sales dollar volume decline of 1%, primarily related to the items mentioned earlier in the Rigid Open Top segment. Operating EBITDA for fiscal 2014 of $785 million was a fiscal year record for Berry.
The $10 million improvement over fiscal 2013 can be attributed to cost reduction actions, the realization of synergies from recent acquisitions, organic growth in certain product categories and earnings from acquired businesses, partially offset by unfavorable product mix, a $26 million under recovery of raw material and freight costs in spite of $178 million of net higher selling prices as compared to fiscal 2013 and volume softness in certain product lines. Interest expense for the September 2014 quarter was $53 million, representing a $3 million decrease from the prior-year expense of $56 million.
Assuming no change in short term interest rates or refinancing activity, we estimate fiscal 2015 cash interest expense to be approximately $205 million. Adjusted free cash flow defined as cash from operations less net spending on property, plant and equipment and payments made under the tax receivable agreement increased 9% to $131 million in the September 2014 quarter compared to the September 2013 quarter of $120 million.
This brought the company's fiscal 2014 adjusted free cash flow to $302 million, representing a free cash flow yield of more than 10% based on the market capitalization at the end of the September 2014 quarter. Our fiscal 2014 adjusted free cash flow of $302 million was an increase of $64 million or 27% compared to the fiscal 2013 adjusted free cash of $238 million.
The primary driver of our 12% adjusted free cash flow achievement over our fiscal 2014 target of $270 million was primarily related to improvements in working capital in all major categories, in spite of higher raw material cost and reduced capital spending, partially offset by cost associated with our restructuring and recent acquisitions. Now looking forward, we have targeted our fiscal 2015 adjusted free cash flow after deducting the $39 million tax receivable payment made in October 2014 at approximately $320 million.
This estimate assumes no change in plastic resin cost and conservative sales volume assumptions. Additionally our investments in property, plant and equipment are forecasted to be approximately $230 million for fiscal 2015.
I’ll remind you that roughly $80 million of our annual capital spending is related to maintaining our facilities and equipment, and the remaining capital we use to fund growth projects and cost reduction initiatives. Within our adjusted free cash guidance we are also assuming other cash uses of approximately $50 million related to items such as the completion of our fiscal 2014 cost reduction initiatives and acquisition integration costs from businesses acquired in fiscal 2014.
For clarity, excluding the $50 million, our free cash guidance would be $370 million less the tax effect for the $50 million just referenced. Also as a reminder, the tax receivable agreement payment of $39 million mentioned earlier in the guidance is paid annually in the first fiscal quarter and has been completed for fiscal 2015, and we estimate our fiscal 2015 effective tax rate for income tax purposes at approximately 33%.
This concludes my financial review and now I will turn it back to Jon.
Jon Rich
Thank you, Mark. First let me make some comments about the actions we are taking in the near term in response to the challenges that we face.
As I have said, throughout 2014 we’ve had increases in cost for freight, electricity, labor and benefits, resin and other raw materials. We went out with price increases in 2014 that were designed to cover the non-resin related cost increases that we were experiencing.
As the year has progressed these costs have continued to increase. While we did achieve improved productivity, the lack of volume leverage in our plants precluded some of the normal productivity we would use to offset non-resin cost increases.
As a result we recently announced another non-resin price increase to our customers in the range of 3% to 5% effective December 1. These increases are applicable to all products, including contract customers, unless the contract specifically addresses non-resin related items.
Contractual pricing mechanisms related to the pass-through of resin cost changes remain the same, which covers about 75% of our resin purchases, with about a one month lag net impact on our income statement. We continue to focus on our four key strategic initiatives in rank priority of first, reducing our debt leverage; second, driving organic growth; third, expanding internationally; and fourth, continuing to execute value accretive acquisitions that have brought us historical success.
In fiscal 2014 we continued to reduce our overall leverage ending the year at 4.6 times net debt to adjusted EBITDA. Our leverage came down about a quarter turn less than our goal of a half turn reduction per year.
We remain committed to our goal of a half turn reduction per year in leverage until we reach our target of two to four times. In line with our commitment, as previously mentioned we made a voluntary principle payment on our term loan of $100 million in November 2014.
On the innovation front, Berry continues to demonstrate its position as the leader in plastic packaging design and innovation. In the September ending quarter we introduced packaging for a new concept in liquid dispensing, which focuses on sustainability and consumer cost savings.
The product line is marketed at Wal-Mart and Sam’s Clubs under the Clean Path brand using Replenish technology. Replenish technology employs a reusable spray bottle that can be refilled with concentrate that is packaged in a novel pod container that attaches to the reusable spray bottle.
Working closely with the original inventors of Replenish, Berry made the product a mass retail market reality by employing its expertise and low cost manufacturing and process design. Replenish packages are being used for products like Hand Soap, Hand Sanitizer, household cleaners and other consumer products.
The Replenish concept is a great example of sustainability and improving environmental impact by significantly reducing packaging volume. The Clean Path products are available today at thousands of Wal-Mart and Sam’s Club stores.
Earlier this month at the Pack Expo show in Chicago, we introduced our line of non-round containers that we call Qubic, together with the new approach to decorating Qubic packages we have termed Iconic Printing. Qubic and Iconic are designed to help our customers get into the rapidly growing space of rectangular and square containers that help retailers utilize shelf space more efficiently.
Qubic containers with Iconic graphics provide customers with decorations similar to in mould labeled packages, but at significantly lower costs and without the need for long lead times and working capital required for labels. We expect to be commercial with Qubic and Iconic in fiscal 2015.
We continue to make progress with our commercial introductions of Versalite insulated cups and containers. At Dunkin' Donuts the second phase of consumer testing continues at Dunkin locations in Vermont, Massachusetts, New York and California.
We believe the consumer experience with Versalite cups remains very positive, similar to feedback from our internal consumer tests. Interest in Versalite technology remains strong, as we’ve now received inbound interests from over 100 potential Versalite customers.
We remain confident that Versalite cups provide superior insulating properties that can represent the customers brand image with vibrant high definition graphics and that Versalite is from a practical perspective the most readily recyclable disposable hot cup available. Regarding our outlook for fiscal 2015, as I discussed earlier, our industry and our customers have been challenged during the past two years with soft consumer demand for package goods.
Historically packaging has been a GDP like growth industry in the U.S. and with the recent favorable movements in commodity grain and gasoline prices, both of which should benefit working class consumers, we are hopeful that demand will increase in the coming year.
As I’ve also discussed, we have implemented a series of price increases to offset rising costs and to reflect the value that our products provide to our customers. These steps, along with our normal productivity and the impact of restructuring programs completed in fiscal 2014 should provide for margin growth in 2015.
While oil prices have fallen recently, polyethylene and polypropylene prices increased again in September and October. It’s always difficult to predict plastic resin price movements, but recently the reported commodity prices for ethylene and propylene, the primary inputs to polyethylene and polypropylene have fallen precipitously along with oil.
Long term the announced capital investments in U.S. shale gas and downstream infrastructure for polyethylene and polypropylene should also benefit Berry.
Changes in resin cost typically pass through our inventory over a two-month period, so any benefit from falling resin costs will not impact our earnings until the March 2015 quarter at the earliest. Historically, Berry’s operating margins have moved inversely to oil price movements.
Finally, Berry will continue to take the necessary pro-active steps to remain competitive and a leader in plastics packaging through a relentless focus on building and strengthening our competitive advantages. I am confident that the people at Berry will continue to drive our results and achieve our goals.
I thank you for your continued interest in Berry Plastics, and now we are ready to answer your questions.
Operator
Thank you. [Operator Instructions] Our first question comes from the line of Ghansham Panjabi.
Your line is open.
Mehul Dalia
Hi, good morning. It’s actually Mehul Dalia sitting in for Ghansham.
How are you?
Jon Rich
We are good, good morning.
Mehul Dalia
Great. Can you break out the various components and the other $50 million in cash cost that you detailed?
Mark Miles
Yes, the $50 million, so it includes items I referenced, which would include remaining restructuring costs from activities that we initiated in fiscal ’14. We would also have integration costs associated with acquisitions that we completed in fiscal 2014.
There would also be some other cash taxes, which would be in order of magnitude of $5 million to $10 million, and then there’s an equal $5 million to $10 million that would be included for cash pension costs in excess of book expense. Those would be the four categories inside the $50 million.
Mehul Dalia
Okay, great. Can you talk about purchasing behaviors by customers in the December quarter so far, given that oil collapsed, but resin hasn't moved; are they delaying purchases?
Jon Rich
We have faced an environment now for several quarters as we’ve discussed where consumer and customer demand has been sluggish. So far in the December ending quarter trends seem to be continuing along the normal path, so no worse, no better.
It seems like a continuation of what we have seen now for several quarters.
Mehul Dalia
Okay, great, and one last one. How is competitive activity across your various businesses, because it seems to be very challenging at the moment?
Jon Rich
The packaging industry is diverse. It’s always competitive and at Berry we love to compete and we think through our combination of innovation and our cost advantages, we are in a good position to compete.
Mehul Dalia
Thank you.
Operator
Thank you. And our next question comes from the line of Mark Wilde.
Your line is open.
Mark Wilde
Good morning.
Jon Rich
Good morning.
Mark Miles
Hey, good morning Mark.
Mark Wilde
I wondered Mark if you guys can talk a little bit about what's inside the capital program for next year and whether that continues to include a new Versalite line each quarter.
Mark Miles
Good morning Mark. The $230 million that I referenced for fiscal 2015, it includes $80 million that I would coin as maintenance and then the remaining $150 million would be for growth initiatives, cost reductions and the growth initiatives would certainly include Versalite capital investments, which are continuing to put in.
But we haven’t provided specific numbers in each of those three categories.
Mark Wilde
Is it fair to say though, I mean your plan had been sort of one Versalite line roughly every quarter. Is that still the plan?
Mark Miles
That’s correct.
Mark Wilde
Okay. And Jon, you talked about those price initiatives that you had announced for December 1.
How much of the business would be covered by that?
Jon Rich
It essentially covers all product lines and including contract customers, unless the contracts have specific items discussing non-resin related costs.
Mark Wilde
Yes, that’s really what I was getting at.
Jon Rich
That was all products in all lines.
Mark Wilde
Okay. So what percent of your business would have contracts that deal with the non-resin costs approximately?
Jon Rich
Well, we have about 75% of the business that’s on contracts in total and I would say that generically the vast majority of them cover resin only. A small fraction has other terms in it, which we’ve already just discussed as resin.
Mark Wilde
Okay. And then the last question I had.
Just can you talk about the impact that you’d be seeing from these falling oil costs, oil prices on your freight costs right now?
Jon Rich
Well, freight costs as you know went up significantly in the first calendar quarter of 2014. They then dropped as we got through that weather period, but have still remained well above the 2013 levels and we haven’t seen that move yet.
Of course there have been reductions in diesel prices and so forth, but just like plastic resin prices, we haven’t seen them go down yet and we haven’t seen freight costs come down yet either.
Mark Wilde
Okay, all right, sounds good. I’ll turn it over.
Operator
Thank you. And our next question comes from the line of George Staphos.
Your line is open.
George Staphos
Hi everyone, good morning. Thanks for the details.
Jon, I was hoping you could if possible just give us a quick rundown of physical volume and price adjusted volume for the quarter, for the broader or aggregate Rigid category and similarly for Flexible, and could you maybe spend a couple of words in terms of again, what is the difference? I know you mentioned its mix, but how your calculating revenue or price adjusted volume versus the fiscal volume.
Jon Rich
As I commented, total volume for the quarter was down about 1% on physical volume as we track it, and again there is some parts of our Flexible business that we don’t measure on pounds, but we generally measure consistently pounds across the businesses. Flexible was up about 2% on physical pounds, Rigid was down about 3%.
Most of the Rigid were the items that Mark discussed and that we have talked about over several quarters related to our Rigid Open Top business.
George Staphos
Okay. And on the price adjusted you said fiscal.
It sounds like its difficult to measure that or can you give us a price-adjusted volume for both segments as well?
Mark Miles
Yes. Hey George, it’s Mark, good morning.
Jon reference the 1%, which was pounds sold. The 3% is the dollar impact to that and as Jon mentioned, there are some businesses that aren’t measured on a pounds sold basis, so that’s number one, and those were down year-over-year in the quarter.
Two would be that mix certainly can impact it. So to the extent of business that has a higher dollar price per pound would impact the dollars versus the pounds; that would be the second category.
In terms of your last question, they were roughly the same in terms of the two segments. Rigid was 3% if my memory is right and I believe the Flexible businesses were down 2% on a dollar basis.
George Staphos
Okay. Yes, I’m with you.
Thanks for the primer on that. At this juncture, I mean obviously you’ve given free cash flow guidance, so you feel relatively comfortable with what you know for 2015 fiscal.
But are there any large contract renewals and/or price adjustments we have to be weary of as would have been the case with the thermoformed cup business a year ago. In other words, are there any holes we’ve got to try to fill in the model or that you need to fill in with your volume or pricing or rather for fiscal ’15 at this juncture that you know of?
Jon Rich
Given the scale of Berry, you can appreciate that we constantly have contracts that are up for renewal, but none of them are significant in terms of the scale of items that we had last year.
George Staphos
Okay. My last question and I will turn it over.
As far as the Dunkin rollout is going, can you share any additional color in terms of why you feel from what your hearing or from your own trade data. Why the product is resonating with the customer and why hopefully there’s a good outlook for further trial and ultimately adoption by the Dunkin franchisees.
Thanks.
Jon Rich
I would say that the experience and the feedback we are getting from consumers at Dunkin is very similar to the feedback that we had in our own test programs and from the feedback we are getting from other customers that we have for Versalite. So customers have a very positive view on Versalite cups from a performance standpoint.
I would just say that trial at Dunkin has a timeframe. I think they’ve discussed that in terms of running through the end of the year and I think it will be premature for me to make any comments about what they are going to do.
Dunkin is a great customer of ours and we look forward to working with them.
George Staphos
Okay. But the next mile marker should be end of year and therefore your next earnings call you should have a little bit more color on that.
Would that be fair?
Jon Rich
That’s consistent with what they have stated, but again, it’s largely in their hands and I will go along with them.
George Staphos
Understood. Okay, I’ll turn it over.
I’ll get back. Thank you.
Operator
Thank you. Our next question comes from the line of Al Kabili.
Your line is open.
Al Kabili
Hi, thanks. Good morning.
Mark, I wondered if you could just update us on this past fiscal quarter. Did that already reflect the bulk of the cost savings from restructuring actions or is there still a ramp up that we should start to see more of in the fiscal first quarter and into next year?
Mark Miles
The annual impact of the restructuring programs we continue to believe is a $27 million impact. Five of that was recognized in fiscal ’14 with about three of that impacted in the September quarter.
So more than around half – slightly more than half was recognized in the September quarter.
Al Kabili
Okay. And then in addition to that, I think there was about $20 million of annual labor savings from some things you’ve done and I don’t know if your sort of including it in there or if there is some benefit that we should see next year from some of the labor saving items as well.
Mark Miles
That is fully implemented in the September quarter. On a year-over-year fiscal year basis there will obviously be some impact as it wasn’t in the full fiscal year, but from a quarterly perspective, the full impact would have been in the September quarter.
Al Kabili
Okay, all right. And then secondly, kind of along this topic, but I guess going to the price increases, I think you mentioned roughly $25 million, $26 million of under recovery of raws [ph] in the fiscal ’14 year.
With the price actions and assuming the resin outlook stays the way it is, is there any reason why we couldn’t get almost all of that back in ’15, assuming kind of resin stays where it’s at here.
Jon Rich
I would say that our ability to forecast resin prices historically has been not all that great, so I don’t want to go out. Our assumptions as we build the plan and the assumptions that we made into the free cash flow guidance that we’ve given, is that it will be net neutral price minus resin movement.
Now if for some reason resin prices were to remain low or continue to drop or oil prices historically, we’ve performed well in that environment, but we just don’t have the transparency out beyond the period to give a full year forecast on that. But again, historically our operating margins have moved inversely to oil price movements.
Al Kabili
Okay, all right. So Jon, just along those lines, the net neutral assumption, is that with the price increases that you just announced and then is there some offsetting factor that we should be thinking about, because that would seem pretty conservative given kind of where we are at in the December 1 price increases.
Jon Rich
December 1 price increases, as well as the others that we announced throughout the year were designed to address non-resin related movements in our cost structure, freight energy and non-resin materials and indirects and so forth. So that’s the purpose of those increases.
Resin prices moved primarily through our pass through mechanisms and contracts and about 75% of our business is on contracts, 25% moves with the spot market and we’ll price our products appropriately as they meet our consumers needs, our customers needs.
Al Kabili
Okay, I appreciate it. Good luck next year and I’ll turn it over.
Thanks.
Operator
Thank you. And our next question comes from Chris Manuel.
Your line is open sir.
Chris Manuel
Good morning gentlemen. Congratulations on a strong finish to your year.
Jon Rich
Thank you. Thanks Chris.
Chris Manuel
A couple of questions for you. First, if I could maybe kind of dive a little deeper into the $323 cash flow guidance.
If I heard you correctly, you’re kind of assuming a neutral working capital environment. Is that correct?
Mark Miles
Yes, that’s correct Chris.
Chris Manuel
Okay. And then from a volume perspective, I think you said kind of at current trend.
So is that kind of a flattish or your assuming that volumes are still maybe a point or two negative or your anticipating a point or two positive. Kind of how would you couch that element?
Mark Miles
I would characterize it, yes as flattish.
Chris Manuel
Okay, that’s helpful. The next question I had was with respect to some of the restructuring elements.
What did you spend this year for restructuring?
Mark Miles
The cash restructuring expense was $46 million.
Chris Manuel
Okay, so there is maybe $4 million. I think the total was supposed to be $50 million, so there is still carry forward.
Are there further restructuring actions in that. It sounds like from earlier you talked about five to 10 in a couple of categories.
So presumably there is another $30 million to $40 million for restructuring in ’15. Are there some new actions that you’re leaving room for, maybe that you haven’t announced yet or how should we think about that?
Mark Miles
There is remaining cost associated with integrating the three acquisitions that we completed in the year. So a lot of those are related to getting them converted to our IT system and those are costs that we’ll have ongoing throughout ’15 as we get those businesses fully integrated into Berry.
Chris Manuel
Okay, that’s helpful. Last question is around some of the new business and particularly with Versalite.
As you sit today, just maybe refresh us Jon if you don’t mind, how many lines do you have in place today or did at say September 30. I think you had another and you’re still working on it here for what’s your first fiscal quarter, but where are you at as you sit today with respect to capacity?
Jon Rich
Now that situation is exactly the same as we discussed in the last conference call. We anticipate having 1 billion cups capacity by the end of this year.
We have the capability of adding 300 million cups a quarter. We have been working on improving our productivity and working with various capital equipment vendors.
We are making nice progress on that as well and that’s what provide us some ability to hopefully in the future increase that should we have the need to.
Chris Manuel
Thank you. Good luck guys.
Jon Rich
Thanks.
Operator
Thank you. And our next question comes from the line of Debbie Jones.
Your line is open.
Debbie Jones
Hi, good morning. I guess on Versalite, if we could just talk about the lines your adding again.
Correct me if I’m wrong, but I think you’ve said in the past if you get beyond six you might have to move either to a new building or a new Greenfield facility. Can you just talk about that and what the timing on that might be?
Jon Rich
That’s still true. We said the original building could hold six cell; four cells with six machines each.
We are currently evaluating and have been planning for expansion appropriate with the increases that we are going to need and all of those are still in the work.
Debbie Jones
Okay, and that would be at the same location where you’re currently producing?
Jon Rich
We’re evaluating that as one of the options. That’s obviously one of the more attractive options, but we are also discussing with our customers, trying to minimize logistics thoughts as we expand the business.
Debbie Jones
Okay, and then we haven’t really talked about it a lot, but could you give us an update on the Barricade and NUSEAL products, kind of the customer reaction and what your expecting for 2015?
Jon Rich
And that also continues to go well. We’ve said in the past that we hope to be in the market by the end of this calendar year and we still expect to hit that goal.
Debbie Jones
Okay, thanks a lot.
Jon Rich
Coming to a store near you soon.
Debbie Jones
Okay, great. Thanks.
Operator
Thank you. And our next question comes from Scott Gaffner.
Your line is open.
Scott Gaffner
Thanks, good morning. Just wanted to dig a little bit deeper on the volume commentary.
I think in a prior question you said flattish, but Jon I think in your prepared comments you mentioned you had a conservative volume forecast coming into the year. Can you maybe discuss why flattish given some of the trends that you discussed around consumer.
Why flattish is conservative as we move into 2015?
Jon Rich
I think its probably just based on historical perspective more than any. We’ve faced the past two years as your well aware of negative volumes at grocery as reported by the Nielsen survey.
That’s an unusual period of time to have negative food volume demand. We don’t believe that over a long tern period that it’s going to be sustainable.
You’ve got demographics still moving in a positive way. We think that this recent help to the consumers in terms of a little extra money in their pocket from falling gasoline prices and from falling food grain prices, hopefully we’ll return demand to more normal levels.
But until we actually see that happening, we decided to take a conservative approach in our planning and we are hoping that we end up on the short side of that, but we’ve taken a conservative approach in terms of planning for next fiscal year.
Scott Gaffner
Okay. And in moving over to Versalite again for a minute, you mentioned you had 100 customer inquiries on Versalite.
How many units of demand would that represent?
Jon Rich
Well, we’ve said in the past that with all the customers that we are currently trailing with, that’s something like 2 billion units worth of demand. I would caution thought that it will take a period of time assuming that that business is successfully landed and I want to reiterate that those decisions are still held exclusively by our customers.
It would take us a period of time to roll that in distribution center by distribution center. I would also say that we closed some business with new customers in the most recently completed quarter.
So Versalite continues to move in a positive direction.
Scott Gaffner
Right. I just think that the 2 billion units you referenced before, that was only on fixed customers, correct?
And now you’ve got 100 customers of inquiry. Does that double the 2 billion?
Jon Rich
Again, we plan to carefully balance the ability to serve customers with the invested capacity that we have and at the same time we are trying to grow our business as quickly as we can.
Scott Gaffner
Okay. And then as we think about the profitability on Versalite, is there any reason given some of the start up costs coming off, obviously your still rolling out new production cells every quarter, but is there any reason to think that you could actually have a positive EBIT contribution from Versalite in 2015.
Jon Rich
It should be positive on a year-over-year basis.
Scott Gaffner
Okay. And just lastly, you mentioned the inverse relationship between oil prices and your margins historically.
Do you have any rule of thumb on that that you can help us out with? $10 decline in the barrel of oil equals 50 basis points of margin is it…
Jon Rich
I’m not going to go into that level of detail. We went back and looked at the historical relationship between oil and Berry operating margins and obviously over the period of the history, Barry’s businesses have changed quite a bit as we’ve grown dramatically and so I think its difficult to just compare apples to apples.
I would just say generically that there is a clear inverse relationship between the movement of oil prices and Barry’s operating margins; the degree of which of course is highly dependant on the current mix and product lines of Barry’s portfolio.
Scott Gaffner
Okay, thank you.
Operator
Thank you. And our next question comes from the line of Alex Ovshey.
Your line is open.
Alex Ovshey
Thank you. Good morning everyone.
Jon Rich
Good morning.
Alex Ovshey
I wanted to come back to the non-resin inflation price increase point. Can you talk about what others in the marketplace may be doing around this initiative and what is your expectation around how much of the increase you are likely to be able to actually implement?
Jon Rich
I can’t comment on what others are doing. I can tell you that when we announced and discussed price increases with our customers, obviously nobody likes price increases, including us.
At the same time, our customers are experiencing the same cost factors that we are for freight, energy and directs and so forth, so they understand the need for it. These costs are going up and we have to be in a position to pass those through.
Alex Ovshey
You got it Jon. Then just on the Open Top business, ’14 was clearly a challenging year and the profitability of that business did take a hit.
As we think about 2015 for Open Top, can you just talk about some of the key puts and takes for that business and where do you see the margin profile potentially in that business over the next couple of years?
Jon Rich
I would say that it was a challenging year for us in fiscal 2014, mainly for the reasons that we’ve discussed in several calls. We are going to get through that on a comp basis.
We have a lot of really exciting new product things going on in our Open Top business. In addition, the lion’s share of the restructuring activities that we talked about from a cost standpoint in 2014, many of those were focused on the Open Top business and so we are looking forward, all of us, especially our colleagues in our Open Top business are looking forward to fiscal 2015.
Alex Ovshey
You got it. And just a couple of clean up questions just for Mark.
I think your CapEx for this year came in lower that where you initially said it would be. So I think if you can provide a little bit of color there.
And then the tax receivable payment, I think in the last Q you said it was supported to be $71 million and it came down to I think $39 million now. Would you be able to provide a little color on what’s driving that and how to think about that number?
Mark Miles
Yes, your first question on CapEx. I wouldn’t say there wasn’t anything unusual there, just normal timing.
Things moved from fiscal ‘14 into fiscal ’15, nothing unusual. With respect to the TRA, we did come in less there as a result of a number of factors that I would say predominately relate to just deductible items for tax purposes that we didn’t anticipate last quarter.
Items that we were able to deduct, that we did not anticipate in the last quarter Q.
Alex Ovshey
Right, thank you very much Mark. Thanks Jon.
Operator
Thank you. Our next question comes from the line of Bill Hoffman.
Your line is open.
Bill Hoffman
Yes, thanks good morning. Jon you haven’t really addressed some of the things, like from an acquisition standpoint.
Could you just talk a little bit about what you see in the acquisition pipeline and desire to be more or less aggressive at ’15 than you have in this year?
Jon Rich
We never make any assumptions about acquisitions in terms of the plan that we put out, so we assume that its not included. Again, our top priority is to continue to focus on our balance sheet to work on the deleveraging, to achieve that half turn reduction, so we are working very hard on that.
We are always looking for value added acquisitions. I would say that much like the stock market has risen, the value of assets have also gone up.
So I think it’s a little more challenging environment perhaps with that regard, but our four strategic priorities are in the order in which I say to them and we’ll continue to look for accreted value added acquisition, but it is the forth of our four strategic priorities.
Bill Hoffman
Okay, thanks. And just a couple of questions for Mark; in the $18 million of cost added back in your EBITDA this year, is all that just the normal cost reduction/integration expenses in the quarter?
Mark Miles
Yes, that’s correct.
Bill Hoffman
Okay. And then with regards to these, you mentioned in the cup business there were renegotiated contracts effecting the volumes.
I just wasn’t quite sure if you gave us some indication of what the impact was volumetrically on an overall basis.
Mark Miles
We haven’t discussed the specifics of that, but I think if you just compare the comps of the Open Top business, you can get a sense of what the magnitude was.
Bill Hoffman
Okay. Thank you.
That’s it.
Operator
Thank you. And our next question comes from the line of Jason Young.
Your line is open.
Jason Young
Hi guys, thanks for taking the question. Jon, just on NUSEAL and Barricade, now that it’s going commercial, can you just give us a little more color on the addressable market, the size.
I know it’s a longer selling cycle and a longer testing cycle. But what types of products can that take share from and replace.
Just a little more color on that would be great.
Jon Rich
We are very excited about that market. As I’ve said in the past, the main challenge is that because it’s a shelf stable, barrier package, you have to get through the testing periods equal to the shelf stability that you are certifying for.
Having said that, the market for NUSEAL and Barricade is bigger than the Versalite market and its largely a classic substitution of glass metal and paper substituting to plastic. And when you do that the customers get not only cost savings, because generally plastic is lower cost, but you also get improvements in performance of functionality.
We are originally kind of moving into that space in the snack food category, but there are some huge opportunities in things like pet foods, baby foods, things like tuna that are in cans and so forth. So it is a real classic material shift from glass, metal and paper to plastic.
Jason Young
That’s great. Thanks so much and best of luck with that.
Jon Rich
Thank you.
Operator
Thank you. Our next question comes from the line of Cliff Greenberg.
Your line is open.
Cliff Greenberg
Yes, hi Jon. Could you please do the same for Clear Path and Replenish and also Qubic and Iconic?
Just explain more of what those technologies, what the initial applications or uses are and where those stand in the market and long term what’s the opportunity for those new packaging ideas.
Jon Rich
On Replenish and Clear Path, that was a collaborative effort between the original investors and Wal-Mart and Sam's Clubs. I encourage you to go to your locals Sam’s and Wal-Mart, you will see the displays there.
This is a real focus on sustainability. It also helps Wal-Mart because it reduces the shelf intensity of the product.
But instead of throwing a bottle away every time you buy it, you are going to be able to reuse that bottle over and over again. So it’s a great play, really exciting technology.
Cliff, I think we just wait. Its on shelves now.
We have to see what the consumer response was. We have gotten a lot of incoming inquiries from customer package goods companies who are also interested in exploring the same technology, but I think we just have to see what the consumer demand is.
In terms of Qubic and Iconic that clearly is an opportunity. Probably not quite as big as Versalite, but it’s a big opportunity as retailers go to non-round packages.
I think as we’ve discussed with people in the past, the principal solution to that today is in-mold labels, injection molded packages and generally they cost about 50% more than the package that they were in originally. In this challenging volume environment our customers are really looking for a cost effective solution that will allow then to make this transition from round to non-round without having to absorb the additional costs and we think that Qubic and Iconic is a really breakthrough that will allow our customers to achieve that goal.
Cliff Greenberg
Cool. And you in market on that yet?
Jon Rich
It should be in market in that in the first half of calendar 2015.
Cliff Greenberg
Cool. Okay, thank you.
Operator
Thank you. And we do have a follow-up question from the line of Mark Wilde.
Your line is open again sir.
Mark Wilde
Yes, Jon just one follow-up. You had announced some management rotation earlier in the week and I wondered if you could just give us a little color on that.
It’s the first time I’d seen you do something like that.
Jon Rich
We took Tom Salmon who was the prior President of Engineered Materials, and Curt Begle, who was running our Closed Top business and we swapped them in their roles. Both had done an outstanding job; both businesses have performed extremely well.
Both individuals had been in those jobs for a while. So this is just part of the normal leadership development activities that we have at Barry that will allow people to get different experiences as they grown in their careers.
Mark Wilde - Deutsche Bank
Okay, very good. Thanks.
Operator
Thank you. And we do have another question from the line of George Staphos.
Your line is open.
George Staphos
Hi guys. Thanks for taking my follow-on.
So Jon, the Barricade new product that you should be commercial with in first half in ’15, it sounds like you are focusing on snacks first. Can you provide a little more color in terms of what kind of snacks would be in Barricade?
It should it would be maybe more of a bread beverage, and if you can go there. Are you from your knowledge replacing a bottle or a can?
And I have a couple of other questions unrelated.
Jon Rich
Pricing a glass application – I’m not going to get too far out in front of my customers, but I’m sure it’s a product that you will enjoy using as you are watching football games on the weekend.
George Staphos
Understood. Next question, if we look at the growth in EBITDA in the year and we try to allocate that to roughly sized buckets.
We know, and correct me if I’m misinterpreting anything that, cost that was not recovered with pricing was a $26 million or so negative headwind. Is it possible to fill in or bridge the rest of the growth in EBITDA roughly between or amongst acquisition productivity.
Clearly volume seemed like it was a negative.
Mark Miles
Yes, sure. Again George, its Mark.
Its actually fairly split between the categories of acquired EBITDA from acquisitions we made, productivity from operations and then I would say to a lesser extent some SG&A savings from synergies, from acquisitions, and that was offset by volume weakness.
George Staphos
Okay. Thanks for that color Mark.
Quickly, how is Rexam doing thus far? Can you provide some color and is there any difference between what your seeing in the U.S.
versus non-U.S. operations.
Jon Rich
We are very pleased with that acquisition, both in terms of the U.S. side and the international side.
On the U.S. side, those businesses, we were in the same businesses already and those businesses are starting to look like various historical businesses.
George Staphos
Okay. A last one and I’ll turn it over.
The spring price increase and correct me if I’m wrong, it seemed like you were going out with pricing increases at a time when other companies were also contemplating and going out with their own non-resin pricing increases. This increase is your sense that you were further out in front relative to other packaging companies that might be going out with non-resin increases or do you see a more or less similar timing.
Thanks and good luck in the quarter.
Jon Rich
Again, we are focused on what Barry needs to do. I’m not going to comment on competitors in any way.
These costs are real. Our customers have the costs.
They understand why the increase is necessary. As always, no customer likes to get price increases, but we are focused on what Barry needs to do.
And again, we are looking to make sure that our products deliver the value that we ask for in the market place.
George Staphos
Okay. Thank you Jon, thank you Mark.
Jon Rich
Yes, thank you.
Operator
Thank you. And our final question comes from the line of Chris Manuel.
Your line is open.
Chris Manuel
Good morning again gentlemen. Just actually one follow-up and it was kind of along the same lines as where George was at with price.
If memory serves, the price increasing went out with sort of midyear last year. At the time it was suppose to I thought be enough to offset all of your inflationary elements.
Just say for the fact that the timing was already maybe two-thirds of the way through your fiscal year. So to understand this current price increase that your in the market with or going in the market with December 1, are there incremental costs that your anticipating seeing or is it more margin enhancing.
How would we think about that?
Jon Rich
At the time that we went out with the original increases, they were designed to offset the cost increases that we understood at the time. As the year progressed, some of those cost increases went up.
I’ll give a good example. Barry is principally an electricity user in our energy.
We’ve seen significant increases in electricity. A lot of it due to the proposed announcement on regulations and coal use and so forth, so we are getting significant increases in electricity costs from utilities and you can see the same thing in other categories.
So it’s simply, we thought we understood the costs earlier in the year and those costs continued to go up and so we had to take the necessary steps.
Chris Manuel
Okay. Could you give us a sense as to – I don’t recall what the portion you had asked for back in, I think it was June or July.
What size comparison to the 3% to 5% now. How those are similar or dissimilar in size and maybe how much you did achieve back then.
In particular, I guess the area I’m thinking about Jon is, you have a lot of the big consumer products companies out talking about how they pushed price the last few years and they are kind of slowing their price push, but now going back looking to take more costs out through the supply chain from a good portion, I think packaging suppliers and things. So I’m just trying to kind of understand how it all fits together.
Jon Rich
In terms of what our customers have been doing, I mean you can look at the Nielsen survey data on packaged goods price and volumes and you can see that they’ve been very aggressive in trying to do what we are trying to do, which is cover their cost increases that they’ve had for grain related ingredients and so forth. So our customers are doing what we have to do and so I think there is – again, no customer likes to get a price increase, but I think they understand that they’ve been doing the same thing.
With regards to the magnitudes, again I think I covered that. They were designed to offset the cost increases as we saw them at the time.
Chris Manuel
Okay, thank you.
Operator
Thank you. And this does conclude our question-and-answer session.
I would like to turn the call back to Jon for any closing remarks.
A - Jon Rich
Thanks. I would like to thank everybody for joining our call today and we look forward to speaking with you again at the next conference call.
Operator
Thank you. Ladies and gentlemen, this does conclude our program.
You may all now disconnect. Everyone have a great day.