O-I Glass, Inc. (OI) Earnings Call Transcript & Summary

Good morning. This is Anthony Pettinari. I'm the paper and packaging analyst here at Citi. And we want to welcome you to our Annual Basic Materials Conference. Obviously, this year, we're virtual. We're very pleased to host Andres Lopez, CEO; and John Haudrich, CFO of O-I Glass, for this fireside chat. Andres is going to begin with some comments, and afterwards, we'll move to Q&A. And for those on the line, you can certainly e-mail me with any questions or if you have any questions about disclosures or anything else. So with that, Andres, if you'd like to kick it off, please begin.

Thank you, Anthony, and Citibank team for hosting us today. Welcome, everyone, and I'm joined by John Haudrich, our CFO. Today, I will provide an overview of O-I Glass and chair how O-I is navigating the pandemic well and continues to advance our strategy despite this challenging backdrop. John will share our business outlook and key financial priorities as we wrap up 2020 and look forward to 2021. Following prepared remarks, we will be happy to take questions. For those listening or who wish to later access the materials, the slide presentation we are using today is available on the company's website at o-i.com. Please review the safe harbor comments on Slide 2 and disclosure regarding for use of non-GAAP financial measures and reconciliation to the most directly comparable GAAP measures, which can be found in the appendix. Let's move ahead to Slide 3, where we provide a high level profile for the company. O-I is the global leader in glass packaging. We served a highly stable and steadily growing food and beverage industry. As we noted on the slide, we have a balanced product portfolio, including food, spirits, beer, wine and NABs. Importantly, we serve customers within the beer category with product lines spanning multiple tiers, including craft, premium, super premium and mainstream, among others. We support more than 5,000 customers spanning 20 countries. Our customers include major multinational companies as well as emerging local customers. Our 2019 sales were about $6.2 billion with a clear majority of our sales generated outside the U.S. supported by our network of 72 factories across 20 countries. Notably, our customers highly value O-I's global reach and mastery of glass. All those figures are ongoing and adjusted for the midyear ANZ divestiture. O-I specializes in glass containers, which is the most sustainable packaging option and the only package that is infinitely recyclable. So it is ideal for the circular economy. Likewise, it is the preferred substrate by most consumers, given its premium characteristics and the increased focus on health and wellness. In summary, O-I is the preferred glass supplier to many of the large blue-chip brands you know and use every day. Furthermore, O-I is well-positioned to revolutionize glass as the best and most sustainable packaging option for food and beverages. Turning to Slide 4. O-I is taking both the structural actions to change our business fundamentals and create value for our shareholders. While we contend with the most difficult business environment in our lifetime, we remain focused on executing our strategic plan. This includes the 3 areas of focus shown on this slide. First, we continue to make great progress with our turnaround initiatives. These efforts were launched in the second half of 2019. We accelerated implementation in 2020 due to the pressures imposed by the global pandemic. These initiatives represent a multiyear effort to sustainably optimize the top line by improving sales volume and margin as well as structurally reducing costs by simplifying the organizational structure and improving factory, flexibility and performance. O-I is very well-organized for effective execution, and this effort is gaining momentum. In fact, this is the best I've seen the company execute in a long time. We expect to share further details about these initiatives during our fourth quarter earnings call. Second, we are revolutionizing glass, as I mentioned earlier, MAGMA is a proprietary new production process that represents the future of glass manufacturing. When deployed, it will create a competitive advantage for glass and importantly O-I. Overall, this technology will enable O-I to profitably grow at much lower capital intensity and lower total cost of energy. It will also make our cost structure more variable as well as increase our flexibility to serve a wide customer base. Likewise, we expect MAGMA will operate at high-efficiency levels, which will also enhance our sustainability profile. We are developing MAGMA in 3 distinct generations, and there is a slide later with some details. Our next installation is in Germany early next year. We are confident that we will achieve our objectives at this site, which will pave the way to broader Gen 1 deployment in 2022 and beyond. Furthermore, we are working on the long-term MAGMA deployment strategy, which will frame the value creation potential. We expect to share the details of that plan with you around mid-2021. This will be part of a broader communications program we are planning for next year, covering our strategy, long-term objectives as well as MAGMA. Finally, we are optimizing our structure as we rebalance our portfolio and improve our balance sheet. Late last year, we divested our soda ash joint venture. In January, a Chapter 11 filing for Paddock was initiated, and at the end of July, we completed the sale of our ANZ business at an attractive price. I strongly believe these are the right steps for OI, our customers, our employees and our investors. Furthermore, I remain highly confident in our ability to execute across these fronts and unlock significant shareholder value. If you flip ahead to Slide 5, you will see some of the steps we have taken to navigate these turbulent times. I touched on a number of these elements earlier, but it's worth noting a couple of items. We swiftly align supply with demand to avoid costly inventory growth. As we balance capacity, we optimize our network to manage fixed cost absorption and establish the right flexibility for the business recovery. Additionally, we have quickly implemented strict cost controls and established a new operating model that simplified the organization, improving speed, agility and execution. Together, this have generated significant and immediate results. We are watching capital like a hawk and have reoriented our capital allocation priorities to focus on debt reduction. Moving ahead to Slide 6, I will share additional color on 2020 demand trends. The charts provide 2 sets of information. On the left, you will see O-I's recent shipment trends. On the right, we have chaired retail purchase trends for key markets and categories for glass. Let me share some thoughts starting with O-I. While our volumes were stable for most of the first quarter, the pandemic sharply impacted orders in April and May. This was subsequently followed by a strong recovery beginning in June that carried forward to the present. Entering the fourth quarter, we anticipate enterprise volumes will be flat or slightly up when compared to prior year. Quarter-to-date through November, our sales volumes are up about 1% from last year, which is consistent with our expectation heading into the quarter. Continued stable-to-improving shipment levels, reflecting the resilience of glass, especially given the significant shift between on-premise and off-premise channels. Let's shift to retail patterns on the right. As you can clearly see, retail sales have increased dramatically since the pandemic. And while they remain consistently higher, they have moderated for the last few months and are running up between roughly 5% and 20% depending on category. Bottom line, we are serving our customers' needs well and are confident that our shipment levels will return to and eventually exceed pre-pandemic levels. We are pleased with how strongly customers and consumers have maintained a strong preference for glass packaging in both the on-premise and off-premise venue. We believe this will continue as new product development activity remains at elevated levels across all markets. Now let me turn the presentation over to John.

Thanks, Andres, and good morning, everyone. I'm now on Slide 7. As we all know, significant macro uncertainties remain given the pandemic. However, we reintroduced quarterly earnings guidance given improved stability. We now expect our fourth quarter adjusted earnings will be around the high end of our $0.30 to $0.35 guidance range. Looking at 2020 cash flows. We expect our EBITDA to free cash flow conversion will exceed 10% this year or above $100 million. Keep in mind this is temporarily skewed by items related to our recent ANZ divestiture that I commented on during our last quarter end. Adjusted for these items, free cash flow conversion would be at least 18% this year or greater than $180 million. This represents a significant improvement from 2019. We anticipate favorable trends will continue into 2021. Most notably, we should benefit from higher sales and production volumes as well as continued favorable operating cost performance. This will be somewhat offset by lower net price. Keep in mind, this is a purely timing element as contracted price adjustment formulas reflect minimal inflation in 2020, while we would expect inflation will begin to normalize sometime next year. While it's a bit early to provide a detailed view on cash flows, we are focused on improving our EBITDA to free cash flow conversion. For 2021, we aim to increase our conversion to between 20% and 25% and enhance that over time. This assumes CapEx of approximately $375 million. Working capital should be a modest use of cash for accounts receivable as sales recovered and we keep ideas consistent or favorable with the current year levels. The slide provides more details. Bottom line, we expect 2021 earnings and cash flow will be a measurable improvement compared to 2020. Let's shift to Slide 8 and discuss capital allocation. We are operating under a specific capital allocation principles amid the pandemic. First, we are squarely focused on maximizing free cash flow. Our third quarter free cash flow was $205 million. On a year-to-date basis, cash flows are well above prior year levels, reflecting our significant focus on cash and working capital management. Second, we are preserving our strong liquidity. Our committed liquidity exceeds $2 billion, well above the liquidity floor that we identified for 2020. Third, we are reducing debt. As illustrated on the chart, net debt was just under $4.8 billion at the end of the third quarter. The ANZ proceeds and free cash flow helped reduce net debt by nearly $850 million year-over-year despite currency pressures. Our leverage ratio was 4.4 per our bank credit agreement, and we should end the year around this range as well. Additionally, we remain on track to complete our $400 million to $500 million tactical divestiture program in 2021, and we expect to complete a few small transactions over the next several weeks. As we recently noted, there are attractive growth opportunities with key customers in certain markets. We are evaluating additional noncore divestitures beyond the scope of our current program to potentially fund this growth. As such, this would not impact our deleveraging plans. Finally, Paddock continues to proceed as expected. Overall, we are making solid progress on our capital allocation priorities in 2020 despite the challenges of the pandemic. With that, I'll turn it back to Andres.

Thank you, John. Let me conclude with a few comments. 2020 has presented many unique challenges, which we met with a high level of resilience, speed and agility. We have remained focused on executing our turnaround initiatives, and our operating performance is strong. The abrupt downturn in demand from earlier in the year has been met by an equally strong rebound as reflected in our improving sales volume outlook. Additionally, glass has now demonstrated it can excel in both an open and closed market environment given a strong consumer preference in both channels. As we successfully address the short-term challenges imposed by the pandemic, we are taking bold actions to sustainably improve our business fundamentals and continue to advance our long-term strategy. As a result, while we successfully operate to deliver short-term results, we remain focused on creating long-term value. I'm confident the steps we are taking today will place O-I in a stronger position that will benefit the company and stakeholders in 2021 and beyond. Thank you for your interest in O-I Glass. Anthony, we're now ready to take questions.

Great. Great. Thank you for the update, Andres and John, that was extremely helpful. I'm wondering if you could maybe start and talk a little bit more about the current demand environment that you touched on, on the slides. And maybe we can start with the Americas. And specifically, with regards to kind of the recent rise in COVID cases and the impact to at-home and on-premise channels? And then maybe if you can break out what you're seeing geographically between North America, Mexico, Brazil and The Andes that would be very helpful.

Yes. So the demand across the Americas is holding up pretty well. And despite the increase in COVID cases, we haven't seen any major shift. The demand in Americas, North America is strong. It continues the same trends that we saw before. Mexico and the Andean countries are recovered. And Brazil is chipping up to its maximum capacity. So that's the situation in the Americas. We continue to see a very high level of resilience in glass when we see shifts in channels. And I think that's something that when we come into the year, we didn't expect to be as high, but it's been proving that it's a lot better than we ever expected, which is very good for us.

Great. Great. And then maybe kind of similar update in Europe in terms of what you're seeing in the markets there and on-premise versus at home?

Yes. So demand in Europe has been fairly stable. It's been flat to slightly down. We saw very little change as a result of the increase in COVID cases. I think as we said during the call, all the stakeholders in the supply chain have learned how to deal with this virus better. Governments have learned too, and I think the consequence of that is being seen by the stability we've seen in the demand despite of the increase in the COVID cases around the world.

And when you look either in Europe or the Americas, when you look at the main categories that you participate in, whether it's beer or wine or spirits or food, nonalcoholic. What -- are there specific end markets that have performed better than you might have expected or maybe a little bit worse? Where are you maybe gaining some share or sold out versus other areas that are weaker, any kind of general color you can provide there?

Yes. So as you mentioned, Anthony, we're present in multiple categories. So that's a very important aspect of our business to highlight. Food has been very, very strong across markets, around the world. We're seeing very strong performance in wine. We're seeing in RTDs. We're seeing it in NABs, in spirits. So for the most part, all categories and segments within those categories have been strong. There are 3 areas to highlight that have not been at that level. Champagne has been softer, and it was before COVID, in fact, right? So that one is -- continues. Bottle water in Europe, and in particular, in the south of Europe has been also soft and the mainstream beer. And I think it's important to highlight that within beer in the United States, we serve multiple tiers, right? As we just mentioned in the opening comments, mainstream, obviously, has been a soft segment for a long time. However, it's been performing better this year than it was in previous years. So we're seeing like half the decline we used to see. Now in the other segments, which are primarily towards the premium tiers, are very strong. They're growing really well, and glass is very well represented in those segments.

And when multiple beverage producers have announced new product launches and certainly, hard seltzer has taken a lot of attention. When you think about a pipeline of new products for 2021 or do you have sort of a comparable -- or do you have a meaningful pipeline of new product launches in 2021? Or maybe where are you seeing the most incremental growth?

Well, we do have a pretty strong pipeline of new products across markets, including the United States is quite rich. What you see in the back of the room is new products. It's all new products. We change this set up very often. So there is plenty of activity in that space. We are seeing activity in other soft areas too, but those categories don't compete with us. For example, when you see the very fast growth in hard seltzers, that is a segment in which we are not present. So for us, it's all upside. And we have new product development activity in that dimension. When you see growth within NABs, in aluminum cans, for example, that's primarily driven by the energy drinks as well as the bottle water. We're not present in either of those 2 segments. So if anything is an upside for us, too. So I think aluminum cans are growing, which is fine. We have had opportunities too, and we will grow with them. And the new product activity is high, as I said, and we expect that to impact volumes in 2021 and beyond.

Great. Great. And Andres, with regards to the operational improvement and some of the turnaround initiatives, I think when you initially announced those. You talked about revenue and mix optimization, factory performance and cost transformation as being kind of 3 key areas. I guess, as demand returns in '21 how much of that kind of cost savings can be retained? And can you talk about those kind of 3 individual areas? And then maybe from a bigger picture perspective, like qualitatively, how do these initiatives maybe differ from previous restructuring or operational improvement efforts at O-I?

Yes. So let me start with the qualitative comment. So we have 3 streams of initiatives; revenue optimization, which is primarily focusing actions that improve either volume or mix or pricing. So it's the quality of that revenue. And that's progressing very well. We have better and better systems and organization to deal with that. And we expect that to have runway into the following years, impacting '21 and beyond. Then when we look at factory performance, you might recall that we had the challenges with factories impacted by demands of flexibility in the United States and Europe last year. We recovered from that well. We improved those facilities, and now we're focused on improving flexibility and performance across the footprint, and that is progressing well. We put capabilities in place over the last few years to be able to do that. Now we're using them to full extent. So for that stream award, we see, again, runway 2021 and beyond. So it's a multiyear approach. Then when we look at cost transformation, that is related to redesigning O-I's organization. We accomplished a lot this year, but we have plenty of opportunities for the following years, too. It's a pretty large structural effort. Simplifying O-I is making O-I a lot more agile and a lot better executing. Connecting this global corporation today, Anthony, is far better and easier than it used to be, and it has to do with multiple things, one of them being the simplification that we just went through. When it comes to sustainability of savings, John?

Yes, I can touch base on that. I mean, as we communicated during the third quarter call -- and it's on the slides, we've had about $70 million of turnaround initiative benefits year-to-date through the third quarter. That will grow. We're seeing good progress through the fourth quarter. So the exit run rate will be obviously clearly better than that, not to mention operational efficiencies that we've seen in the business. We believe about 75% of that is truly long-term sustainable savings. And the other 25% is more temporary. And to give you a flavor for that, it has to be during the peak of the pandemic midyear. So it was very difficult to get into the plants to do a lot of maintenance activity, capital activity and things like that. So those would be the kind of the nature of the cost that will rebound next year. Nonetheless, given the good momentum that we're seeing on the fundamental improvement, we see additive incremental benefits going into next year that will exceed and more than offset those turnaround elements that we're going to see that 25%, such as the maintenance cost. So we're feeling really good about the ability to sustain and then continue to grow. Although the net effect of it will be a little bit more muted next year because we do have some turnaround of those short-term savings elements.

And when compared to previous initiatives, they differ in magnitude. They defend -- they differ on the structural impact they can cause in the business, positive impact. And obviously, how far into the future they can contribute.

Great. Great. And Andres or John, can you talk a little bit more about Paddock. I mean you formed it in January, and I think it effectively delays cash as best as payments until the settlement of the case. Can you just talk a little bit more about the rationale for the structure and the corporate reorganization that you did earlier? And then understanding you don't necessarily have any updates today. As investors think about the next few years in terms of potential timeline for resolution, maybe what you've seen in other maybe potentially similar cases. How you think about kind of the path going forward and just sort of the rationale for the steps that you've taken?

Yes, sure. So I'll kick that off. And the rationale on the very front and why did we do this? There's a couple of factors. One is we're starting to see some changes in the tort actions within the U.S. court systems, was we all know that there's been a pickup with whether it's a weed killer and things like that. It's just the backdrop of the environment became a little bit more aggressive in that regard, and it was spilling over into the overall tort system. So we saw some pressure going on in that regard. But we also saw in the last, call it, 18 months or 2 years prior to that changes in legislative positions as well as some legal positions that made the corporate modernization that we conducted, which was the first step of that viable, okay, and well-grounded. So we saw that opportunity, and that was between those 2 variables where those are major decisions and major factors in why we decided to do what we did at that time, okay. So we initiated this in -- back in January, as you mentioned. Obviously, there is a process that includes a lot of motions, a lot of legal activities and everything like that, but that have been -- have moved through. And I think that we are now at the process where both parties, ourselves and the creditor committees are now engaged sharing each perspective. And so obviously, that's the front end of that position. I can't really go into a lot of details at this point in time in that regard. As far as the timing and the prospect of what's going on. Obviously, we have a liability out there, it's called supportive Paddock and it's about $470 million. That's the liability that we assumed based upon the legacy way of managing this through the previous process. So that's held out there in the balance sheet. Now we believe that the process going forward with under the bankruptcy is more preferential, hopefully, a better process to be able to deal with this for all parties involved. So we're working obviously constructively to try to find a solution and a resolution of this. How long it will take? We originally said it is anywhere between 1 to 7 years. I think it's a little early to be able to provide any more update on timeline.

Got it. Got it. And then maybe just shifting gears. I mean, John, in your comments, you talked a little bit about maybe additional opportunities for divestitures, if I got that right. I'm curious sort of what's driving that? I mean, are you seeing more interest for these assets or maybe better valuations? Or are you just seeing some growth projects that really -- that maybe you didn't see 6 months ago or 12 months ago. Can you talk a little bit more about that?

Yes. So first of all, I mean, we are making good progress on the original book at the $400 million to $500 million, and we believe that we should have that done, as I mentioned before, in next year. With that said, the dynamics of the world on a demand standpoint, in particular, in certain markets where we're capacity constrained and the strategic ambitions of our customers are creating opportunities for further growth. At the same time, we want to make sure that we continue on our deleveraging track for the business, and we don't want to disrupt that. So what we're looking at is as we continue to evaluate our business portfolio, and with a lot of the insights that we've had through the tactical divestitures that are done now or in the hopper right now, we're evaluating in more granular levels of the business, looking at different pieces that make sense or don't make sense for business, and we're identifying some additional opportunities to fine-tune our portfolio. And looking for that arbitrage, that opportunity to do the fundamental growth with our customers on the core of our business relative to the opportunities, the capital needs of these other parts of the business and the returns that we're seeing on them. So combining those together, we're trying to find a path forward to be able to unlock and unconstrain the core business at the same time, do it in the most capital effective way.

Great. Great. And in terms of some of these new projects or new opportunities, some of the CPG and food and bev customers of yours are sort of sold out, some of maybe your packaging competitors are sold out. When you think about the visibility into some of this demand, maybe into 2021 and going forward, and as you talk to your customers, and maybe they're asking you to make investments, how should we think about sort of the visibility into demand that you typically have in this business? And that would back maybe some additional CapEx projects or additional capacity. Any kind of general comments you could give on that?

Yes. All these opportunities are driven by pretty structural trends in those markets. So they're not related to what we're seeing lately in terms of demand. It's more what we saw before, and we continue to see into the future. They're driven by the expansion of, for example, global brands. They're driven by the increase in premium brands in the markets and premium products. There are markets where those products have very small share. And we've seen how in markets that are similar, that share goes up driving glass consumption. So there are very solid fundamentals in every one of those cases. And we're working with -- along with our customers to set up what the future looks like and then align on that and then see what we can do to move those opportunities forward. But they're pretty solid cases.

In several of these marketplaces that have the strong growth, and we've proven it out over the last few years when we do add incremental capacity, it's used -- fully utilized within 6 months. And so we quickly get back into a capacity-constrained position time after time. And so those are the types of opportunities. There's asymmetrical opportunity of demand on the upside.

Great. Great. And Andres or John, can you talk a little bit more about MAGMA, your proprietary manufacturing process. I guess the first question, sort of like what problem does MAGMA solve? And then from an earnings perspective or from a financial perspective, how long will it take before it could potentially move the needle for your company earnings?

Okay. So the -- multiple things are solved by MAGMA. And the reason why we're doing MAGMA is because we took a market back approach. And we look at all the structural issues that somehow make difficult for this business to grow. And I will give you an example, the ability to scale up and scale up in line with the pace at which markets go up. In our case, we got to put in place very big facilities with very large volumes. They've got to be committed for a multiyear period. They've got to be 24/7. Otherwise, you won't be able to absorb your fixed cost, and then you won't come together in an ideal way. So this technology will allow to scale up. It will be flexible to absorb seasonal changes, right? So because it will be able to go on and off. It will be highly flexible. It will be movable, so you can take capacity from one place to the other. When it comes to color changing capability, job changing capability will be significantly better. So we will be able to serve the markets in the direction they're going. They're becoming more fragmented. And this kind of technology will fit that better. Capital intensity is lower, which is something that makes difficult to grow in this business. The total cost of ownership is lower -- is expected to be lower, too. The lead time to deliver this capacity to the market, it will be significantly shorter. So I mean, we can go from there. But it's multiple structural changes that will set this business down a completely different path. I think it will create a new business model, and that's what we're working on, what we described in the opening comments. We're actively engaged right now in setting up the final plan for deployment, and we expect to be able to communicate that to the market in the beginning of the second half of next year. We're making very positive [Audio Gap] progress, we're developing or finalizing the installation of Gen 1 in Germany. Once we confirm -- what we expect to confirm out of that operation, we'll be in a position to start the deployment of Gen 1 in 2022. We have 7 of those applications identified. We're analyzing them to define what to move forward. Gen 2 will be tested in the second half of next year. And then Gen 3 will -- is expected to be ready in 2023 for deployment in 2024. So this is almost around the corner now. It's been on the table for a couple of years now, but now we're approaching the moment in which it will be deployable. So any other comments...

No, no, that's good. I think the key point there is that after we validate these elements in Germany, midyear, a little bit later after that, we're going to lay it all out.

Is there any kind of initial way to think about the return on the investment or maybe the margin differential or sort of apples-for-apples comparison with an existing O-I furnace? Or should we wait until next year?

What I would just share is that when we think about the hurdle rates for investments in our business, in a greenfield or a brownfield type of structure, you're talking about low teens on IRR and legacy technology. When you're adding machine lines, you're talking 15% to 20% because it's already -- the structure is already there. When you're talking about manufacturing improvements, you're talking about 25% higher IRRs. We would look for this to be meaningfully better, right? I mean, this is a change in the capital intensity and return profile of the company, but more to come in the future.

I think in the past we mentioned this. But there is a parallel that can be established between what we're doing here and what the steel industry lived through when they put the mini-mills in place. So that's a way to look at this.

Great. Great. And then a question on sustainability. I think last year you became the first packaging company to issue a green bond. And that was -- it seemed like it was quite successful. Can you talk a little bit more about the sustainability proposition for glass versus metal versus plastic versus maybe fiber-based and just sort of the ESG benefits of glass over other packaging substrates? And then just maybe within the markets that you participate, whether it's Europe versus North America versus South America, the collection systems and if there's any sort of meaningful difference between sustainability and sort of the footprint there?

Yes. So the first thing I would like to highlight, Anthony, is we want to rebalance the dialogue around packaging attributes and advantages. We believe, over the last few years, that dialogue kind of went out of balance. So we're going to be very active rebalancing it. Now when we look at glass, we see a product with lots of advantages. It is made up -- or is made of 3 inert ingredients. They don't interact with any product. It's a packaging that doesn't have any plastic liner inside in contact with the product, which is good from a health perspective. When we look at recyclability of glass, it's 100% recyclable, is indefinitely recyclable. And when we look at Europe, you can see the potential. In Europe, we reached recycling rates, over 90% in certain countries. Overall Europe is over 70%. It's the highest recycling rate of any packaging material in the world. Now when we look at the United States, the situation is very different. So what we're doing is we're taking the learnings from Europe to be able to develop the system in the United States to improve it. Obviously, it's not an easy change, but we are already engaging that change. So from a product perspective, we have a great product, highly sustainable. From an organizational perspective, as we mentioned before, we appointed a Chief Sustainability Officer, which is dealing with ESG in total, all the dimensions of ESG, including recycling. He is going to advance ESG for us in the organization. But he will also take what we're doing today because it's plenty of actions that we're taking in ESG and communicate them better. So they're more visible to the external world. So there is a very structural approach to it. We believe we have a product, plenty of advantages with lots of potential, and we're moving forward with that.

Great. Great. And a couple of investor questions from over the line. The first one, in recent years, we've seen this decline in U.S. mega beer, and I don't think that's a comment on O-I, but just something that's impacted a number of packagers. You and some of your competitors in the U.S. have taken a number of capacity actions. The question was, has that decline in mega beer volumes sort of run its course or maybe sort of reversed temporarily with COVID? Or how do you see that? And then is it possible that additional capacity reductions could be required to balance supply/demand in North America on beer?

Okay. So the -- our capacity and demand are balanced. So we don't see any reduction in our system in the near future. When it comes to mainstream beer, it's becoming a smaller and smaller piece of our portfolio within the United States. And obviously, in the global operation, we're seeing a better performance of mainstream beer this year than previous years with COVID, so that's real. Now at the same time, I think it's important to highlight that premium beers in what -- in which we have a very large presence, are growing really well. When we look at the joint venture we put together with CBI, IBC that now has 5 furnaces. It has 16 lines, a state of the art technology is one of the largest, if not the largest factory in the world that is serving premium beer that comes into the United States. When you look at the total volume of that facility, that's equivalent to a decline in mainstream beer in the United States before for us, right? So it is beer has plenty of very healthy segments for glass. Mainstream beer, obviously, has been the pressure point.

Yes. Just to add a little bit more dimension to this. So against -- looking at O-I in total, U.S. beer is less than 10% of our total market, okay? And mega beer within that, which is the one that is more under pressure, is half of that. So it's really about 5% of our total O-I market. So as we look at some challenges there, it's somewhat muted in the particular grand scheme of the overall organization. With that said, and to the point that Andres was saying, we continue to transition capacity. Over the last several years, we've transitioned probably about 30% of our beer capacity into other end-use categories, foods, et cetera, the ones that are growing, in some cases, double digits. That represent really about 17 different projects that we did. We will probably do a few more as we go forward, but it probably won't be to the level of scale that we've done over the last few years as we continue to mix manage.

Yes. And I think while that adoption of new mix was challenging last year, the factories that reduced performance, we already stabilized all that and our skill -- and skill set and capabilities to that have increased, improved as an organization. So we are in a much better position to at least going forward.

Great. Great. And just 1 more question from over the line. And John, I think you addressed this in your earlier comments. But just in terms of priorities for cash, once you reach kind of your deleveraging target, and then just maybe a related question. You gave that cash conversion target for '21. When you think about long-term cash conversion, is MAGMA something that could change that, obviously, not in '21, but is that sort of 1 of the primary sort of goals of that technology?

Yes. Yes, I'll just do the last one first there, is, yes, I mean, the capital intensity of our current legacy assets here is pretty high, right? I mean big smoke-stack factories and things like that. Building on Andres' comments earlier, as we move into more of a MAGMA environment and you can do more and more of these into more industrial warehousing type of structures, their colocation with their customers and things like that. All of a sudden, the capital intensity goes down, the logistics cost can go down, things like that over time. And that is something that could unlock the EBITDA to free cash flow conversion to continue to improve it over time, okay. So that's certainly part of the whole story. And then back to the overall capital allocation priorities. Clearly, as we've stated, debt reduction as our top priority right now, we are working that through free cash flow as also -- as well as some of those tactical divestitures that we know we are working to complete. And so we are looking to get down into the low 3s, around 3 over the next few years. As we migrate closer and closer to that goal, obviously, we have suspended a dividend. And whether that could return in the next whatever period of time is that's obviously the decision of the Board of Directors, but I mean, that was a decision back then that would -- that was suspended, but look to see what that opportunity would look like in the future. And as we get closer to those -- that 3 range, certainly, the share repurchase allocation could change around. Of course, we want to be mindful and understand as we go through the business case for MAGMA, but with the capital requirements that would be. Overall, we expect it to be -- to have a lower capital intensity, but we have to look at the timeline and rate at which we would employ. So we'll know a little bit more in that -- in the grand scheme of things in the back half of next year.

And when we look at the maintenance capital, for example, on the MAGMA base, today, let's say, on the legacy, we have a significant amount of capital that we deploy every year just for maintenance. In -- under MAGMA, that's a fraction of that amount. So it's a major structural change.

Great. Great. So Andres, John, with that, we're coming up on time. So I want to thank you for your participation and for the investors on the line. You can definitely reach out to myself or Chris Manuel on the O-I team for follow-up. But with that, Andres, John, thanks so much, and we'll continue to be in touch.

Thank you, everyone.

Thank you, Anthony, and thanks, everyone.