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

Hi, everyone. I'm George Staphos, BofA's pulp, paper and packaging analyst for the Americas. Welcome to our next session with O-I Glass. Actually, ironically, one of the companies that was at our first conference way, way back in 1994 when it was Owens-Illinois. We're tickled that O-I is with us once again. Here from the company [Audio Gap] Chief Executive Officer; John Haudrich, Chief Financial Officer; and Chris Manuel, who we all know, who heads up the company's Investor Relations effort. Andres' focus is really to enhance performance for the company, to improve its returns and benefit customers and all of its stakeholders. He became President and CEO in 2016. John Haudrich joined the company -- was named CFO in April 2019, having joined the company in 2009. And John focuses really on strategy, execution and performance management. And Chris, we really appreciate all that you've done on the Investor Relations side in terms of the details. So without further ado, I give you O-I Glass. Andres, John, Chris, take it away.

Thank you, George, and the Bank of America team for hosting us today. Welcome, everyone, and I'm joined by John Haudrich, our CFO. Today, we will provide a few prepared comments, including an overview of O-I Glass, our key priorities and why we believe O-I has a bright future. Before starting, please review the safe harbor comments and other disclosures included in the presentation, which can be found on our website at o-i.com. We provided a high level profile for the company on Slide 3. O-I is the global leader in glass packaging with a broad product portfolio. We generated over $6 billion in sales last year, serving thousands of customers, supported by our network of 72 [Audio Gap] across 20 countries. We are the preferred glass supplier to many of the large blue-chip brands you know and use every day. Furthermore, we are well positioned to revolutionize glass as the best and most sustainable packaging option for food and beverages. 2020 was an unusual year for all of us, but O-I can point to some significant accomplishments this past year, as shown on Page 4. We divested our ANZ business at an attractive valuation and continue to advance our tactical divestitures. Likewise, we enhanced financial flexibility supported by our free cash flow and sale proceeds. As part of our COVID response plan, we accelerated our margin expansion initiatives and delivered $115 million of savings. As we seek to revolutionize our industry, we continue to advance MAGMA, which is a new way to produce glass. Finally, Paddock filed for Chapter 11 in January 2020 to establish a fair and final resolution to legacy asbestos liabilities. Overall, we are pleased with this progress. Turning to Slide 5, you'll see our 2021 priorities. Our objective remains the same. We are taking bold structural actions to improve O-I's business fundamentals. This includes 3 platforms. First, we are focused on a multiyear margin expansion effort, including revenue enhancement, strong operating performance and cost efficiencies. Building on the 2020 base, we expect around $50 million of additional benefits in 2021. Second, we will continue to revolutionize glass. MAGMA is a revolutionary development and will be integral to the new business model for glass. These efforts will be complemented by repositioning ESG, expanding our glass advocacy marketing campaign and by our [indiscernible] innovation and new product development capabilities. Third, we will further optimize our structure. In addition to completing our original tactical divestiture program, O-I is also evaluating growth initiatives that could be funded by incremental tactical divestitures. Likewise, Paddock will continue to advance. Finally, our top financial priorities include capital allocation discipline, increasing cash flow and reducing debt. Many of our efforts are visible by the accomplishments we just discussed. But just as important, we have been hard at work creating advanced capabilities that are improving our ability to execute and deliver on our commitments, both in the short term and long term. On Slide 6, we have included a number of these capabilities. Over the past year, we have shared our renewed focus on capital structure discipline, portfolio optimization and legacy liabilities. After nearly 3 years of implementation, we are now fully utilizing a new management system called Integrated Business Planning, or IBP. This system synchronizes our demand, supply and financial performance management across a 3-year planning horizon. Our turnaround initiatives evolve into multiyear margin expansion programs and are fully embedded across O-I. We have significantly upgraded our sales, marketing and innovation capabilities as we seek to improve the top line. Likewise, we have elevated our ESG leadership with an increased focus on recycling in North America. As we advance MAGMA, we are leveraging a unique third-party developers network to support faster invention and rapid implementation. Finally, we've streamlined the organization model in mid-2020 as we aim to improve agility and performance. Overall, I believe we hit an inflection point in 2020, resulting in a step change improvement in our ability to consistently perform. I want to expand on 2 key areas today: breakthrough R&D [indiscernible] starting on Slide 7. Let me start with why we are so focused on breakthrough R&D. Key trends in the food and beverage market have shifted over time. Consumers are increasingly looking for a more premium experience. Health and safety is a top priority, and interest in sustainable packaging has skyrocketed. This evolution is mostly good for glass. Glass conveys a premium image that is preferred by consumers. Glass design is highly flexible, which is great for brand building and increasingly important for customers. Likewise, glass is highly sustainable and protects the product base and integrity. So it fits well with the emerging green economy and trend towards health and wellness. The value chain has responded to these forces. Years ago, mega brands dominated the marketplace. Today, the store shelf is exploding with new brands looking to fit the needs of changing consumer preferences. Our legacy network was mostly for consistent, long product brands. This works very well for the mega brands, yet the proliferation of new brands favor flexibility, agility and innovation. These changes underscore the need to [Audio Gap], which reinvents how glass is made and is an integral part of a new business model for glass. Among other things, MAGMA leverages a new state-of-the-art melter as shown in the picture. This compares to a legacy furnace, which is about the size of a school gymnasium. MAGMA will have a lower capital intensity and total cost of ownership. As you can see, it is a steel unit and will not face the typical end-of-life issues with the legacy rig furnace that needs to be rebuilt every 12 years or so. So maintenance capital will go down over the long term. It is very scalable. We can add capacity at lower increments, which support growth and competitive entry into new markets. MAGMA can be prefabricated, so it supports rapid deployment. Importantly, MAGMA is very flexible. It can be turned on and off, quickly adapting efficiency to demand seasonality and economic cycles. It can also perform jobs and color changes in a fraction of the time required with legacy technology. With MAGMA, the entire production process will be reinvented, and glass production will no longer require a large-scale industrial plant. It can be in an industrial warehouse or co-located with our customers, which will significantly reduce logistics costs and improve sustainability. Finally, it will also improve our sustainability profile as it is designed to support future green energy inputs like biofuels or hydrogen. Likewise, MAGMA will enable greater lightweighting and increased cullet use. MAGMA is being developed over 3 generations. Generation 1 focuses largely on the new melter. Generation 2 addresses other important steps of the manufacturing process. Generation 3 is a full reinvention of the production facility, making it fully modular, portable, compact, scalable and prefabricated for quick deployment. Next week, we are firing up our first commercial scale Gen 1 MAGMA line at our Holzminden Germany site. Upon evaluation of our expectations, we expect to begin rollout of this new melter starting in 2022. Generation 2 will be piloted in the second half of this year. Depending on results, we could be in a position to [indiscernible] Gen 2 starting in 2022 and 2023. We expect to have the Gen 3 MAGMA facility validated by 2023 for deployment starting in 2024. I hope you can see why we are so excited about MAGMA and the future of glass. Moving to Slide 8. Let's discuss ESG. The situation is undeniable. We must [Audio Gap]. I think this is something that we all can easily relate to. Daily we see news about the trash that people generate and the damage packaging waste can create. I'm here to say, we have a solution. Glass is the world's most sustainable package. First, glass is never trash. It is comprised of 4 natural ingredients, namely sand, soda ash, limestone and recycled glass. So it won't harm the earth or oceans. Glass is 100% recyclable. It can be endlessly recycled into new glass bottles, something we will each and every day. Unlike other containers, the majority of recycled glass containers are recycled into new glass containers. A bottle becomes a bottle infinitely and without material or quality losses. Recycling rates are very high in Europe, and our efforts are focused on increasing rates in North America. Glass is earth. It does not interact or alter the taste of the product being packaged. Likewise, there is no plastic liner required in like the other soft drinks require. As such, glass is the only food and beverage contact material that is generally recognized as safe by the FDA. At the same time, we are accelerating our ESG activities. We have augmented our governance. Earlier this month, we refreshed our sustainability web page with more details, and we will have a new sustainability report later this year. We expanded our sustainability initiatives to include 9 different dimensions and set several new goals. Details are in the appendix. Our MAGMA technology will reinvent how glass is made and sold, and improve our sustainability profile across several dimensions. Furthermore, our glass advocacy campaign aims to rebalance the dialogue about packaging, in particular, the sustainability of glass packaging. As you can see, glass is the sustainable packaging choice for today and tomorrow. With that, I'll turn it over to John for a few comments on business trends.

Thanks, Andres, and hello, everyone. I'm now on Slide 9, where we show our 2020 shipment trends and our 2021 earnings outlook. Overall, our shipments were down about 4% in 2020. However, this decline was concentrated in the second quarter, which was the most disruptive period of the pandemic. Otherwise, demand was pretty stable, which illustrates the preference and resilience of glass. While on-premise consumption was down sharply due to lockdowns, this impact was fully offset by stronger retail sales, and this trend continues. Overall, we expect stronger demand in 2021, but will likely remain a bit choppy and inconsistent across the markets we serve. For example, our shipments in January were a bit lower than last year, given heightened COVID lockdowns in Southern Europe and some supply chain adjustments. On the other hand, shipments were stable in other EU markets and up in the Americas. As we look at February, shipments in Europe were about flat with last year. Sparkling water was impacted by ongoing lockdowns, but this was fully offset by solid performance in other categories. Favorable trends continued across many markets in the Americas, while severe weather temporarily disrupted positive underlying trends in the U.S. and Mexico. On the right, we have summarized our business outlook. Overall, we expect our business performance will significantly improve in 2021 as markets stabilize and recover. As shown, we introduced 2021 earnings and cash flow guidance during our year-end conference call. This guidance includes full year adjusted EPS of between $1.55 and $1.75 per share and free cash flow of approximately $240 million. This is based on a number of key assumptions, including a 2% to 4% improvement in sales volume for the year. As we announced last week, our sales and production was impacted recently by the weather and energy crisis in the Southern U.S. Importantly, the issues in Texas also significantly impacted Mexico, which buys much of its natural gas from Texas. Due to limited energy allocations, we were forced to stop production at 8 sites across Texas, Oklahoma and Mexico. Likewise, energy costs for the limited allocation were significantly elevated during this period. Fortunately, our employees took swift and effective action to safeguard our assets. The situation has normalized, and we have restored production. This is another example of the flexibility and resilience we have developed at O-I. Prior to this event, our business performance was trending above our most recent first quarter guidance due to improving demand trends and solid operating performance. Considering this transitory event, we currently expect our first quarter sales volume will be down slightly from last year and anticipate elevated energy and transportation costs for a little while. As a result, first quarter earnings will lag our earnings guidance of $0.32 to $0.37. We will continue to update the market as we gain greater clarity. While the situation is impactful in the first quarter, we are encouraged by our strong operating performance and positive demand trends more recently. As a result, we are currently maintaining our full year outlook. Importantly, we continue to expect strong demand, strong operating performance and earnings and cash flow improvement this year compared to 2020. With that, I'll turn it back to Andres.

Thanks, John. Let me conclude with why the future is bright for O-I. First, we are taking all the structural actions to change O-I's business fundamentals. We are boosting operating performance and margins. Furthermore, we are improving our capital structure and addressing legacy liabilities. Next, glass is a great fit for the new economy. It's incredibly sustainable, conveys a premium image and supports a healthy lifestyle. Furthermore, we are revolutionizing glass leveraging breakthrough technologies. With MAGMA, we are creating a new platform that fits perfectly the emerging trends. It's flexible, lower cost and advances our sustainability position. Let me draw an important contrast. Market trends have shifted in recent years, generating a proliferation of emerging brands. Existing technologies are very good fit for long runs, which remains a large part of the market, yet are not flexible enough for an increasingly fragmented market. Likewise, our capital structure was highly levered and 40% of our annual cash flow served our legacy asbestos liability. This was a tough situation to navigate. Compare this to the future we are building. Glass is a great product that fits well with the requirements of the new green economy. MAGMA redefines glass production and will realign our operating platform for current and future market trends. To support these efforts, we are leveraging new structural capabilities, and talent has been developed to support improved performance. Reflecting our disciplined approach to capital allocation, debt reduction as well as a final and fair resolution to our legacy asbestos liabilities will liberate the balance sheet. This new vision for O-I will support profitable growth and shareholder return. We believe that contrast is clear and represents a compelling opportunity to create future shareholder value. Rather than host 1 Investor Day, we expect to host at least 2 investor workshops later this year to lay out our longer-term plans and discuss MAGMA in greater detail. Thank you. And George, we are ready for some questions.

Thanks, Andres. Thanks, John. I just want to get through a couple of numbers here in the remaining time. So first of all, could you just give us what is your volume trend by region, quarter-to-date, Europe, Americas, anywhere else you care to cover? And then I had a couple of other things I want to get through relative to what you talked about.

Yes. So as you know, we started the year with Europe being slow in demand. We were down about 8% in January. Now February was already flat with prior. So we believe the softer volume in January was driven by an inventory correction pretty much. Now in both months, the segment that has been down the most is mineral water, and that's driven by the lockdowns, and restaurants and hotels being shutdown or being closed or been in a very low level of activity. In February, as an example, that particular segment continued to be down, but it's fully offset by everything else, which is doing very well. Americas, in total, has been quite strong. It was in January. It was through Q3, Q4, January and now in February, it was strong to the underlying demand was. Now as we mentioned before, we have this weather-driven event that reduced production. And obviously, reduced shipments in a temporary basis, but the overall underlying demand of every one of the regions within Americas is quite strong. We continue to see very strong demand in the United States, as we described before. Demand in Mexico is really strong as well in other countries and Brazil. And this is across categories.

Okay. So I want to -- again, we have a fair amount of ground to cover here in the remaining time. You talked about the sustainability of glass and the fact you have high recycling rates in Europe and not so much in the U.S. One of the reasons that you don't have it in the U.S., at least my perception is, the economics of recycling. So is glass economically viable from a recycling standpoint in North America, which, in my view, you would need for it to be truly the sustainable package that you expect it to be. And if it's not, what needs to change? That's my next question.

Well, it is economic in many places and many states, and it's not in some other. So what that tells us is there is a path to make it economic across the country. Now it's going to need some redesign of the total system. And...

What causes the differences, Andres, state by state? Is it deposit laws? Is it something else? Is it -- what's causes that differential state by state?

Well, every place where there is a deposit law, recycling rates are pretty high. Now the location of the consumption place, if you will, so where the people are located and the location of the factory obviously influences that. And the location of the collectors or the ones that are doing the treatment. So we're working on that. But I would like to highlight MAGMA. I think one of the things that MAGMA is going to do is create circular ecosystems because of the distributed arrangement that MAGMA is expected to have in the future. So we're very encouraged by that opportunity. We know Europe is very strong in recycling rates. We believe United States can be improved, and we're fully focused on driving that.

Next question I had, we appreciate the mid-quarter update. It's always helpful when things change a bit as opposed to leaving it for the end of the quarter and quarterly reporting. You didn't change your full year guidance despite some risk to the first quarter figures. Can you give us a bit more confidence in terms of why you didn't need to change your guidance on the earnings or the cash flow, recognizing maybe it's just -- it's early in the year, and we'll see how things play out? Or is it real confidence for reasons 1, 2, 3 in terms of why you have your outlook?

Yes. Let me just give you 2 comments, and then I think John can complement those comments, too. There are 2 things that I think are going quite well. The first one is our operating performance is strong. And we've been working on this for a long time. And I think now all these actions that we took are converging and are giving us a pretty good performance. The second thing is underlying trends for demand, they're pretty solid. So those 2 things combined give us confidence that we have a good year ahead of us. Obviously, we just lived through the weather situation, which has an impact. And we're learning a little bit more and more over time about the impact. But John, do you want to complement that?

Yes. I mean I would say that the biggest reason is, in fact, that last point is the guidance range that we have for the full year is booking with a 2% to 4% volume improvement for the full year. And the view on that has to do with how well we come out of the early stages of this year, understanding that we're still in kind of the peak of the winter months for the Northern Hemisphere and COVID. But it's encouraging to see what we've seen here in the last several weeks that we would be on the better side of that curve, axing out the weather flat to even up a little bit of volume here in February. And the expectation from what we're hearing with our customers about the shipment trends to come give us a little bit more confidence in that regard. You -- of course, it is early in the year. We do need to seek a little bit more of the whole Texas-Mexico impact, although at this point in time, we believe we have a reasonably good beat on it. Of course, the energy surcharge component and resulting transportation component afterwards is, we want to see that land a little bit, but we're reasonably confident about the ability for all those to fall in place and support the long-term outlook for the full year.

Question from the audience. And this is on ESG. Isn't 2-way glass more environmentally sound than 1-way glass, even at high collection recycling rate? Even if not, doesn't 2-way glass sound better than 1-way glass? And then the second related question, again, thanks to the audience, how does glass container -- how does the glass container industry decarbonize given the [indiscernible] use for furnaces and the significant energy impact on soda ash manufacturing? I want to bet that a lot of that is on the recycling and the lower energy content from recycling and then MAGMA, but...

Well, the 1-way glass is fully recyclable. And we just described in our comments, a bottle becomes a bottle and that's infinite. So there is no degradation. And I think this is the only package that can tell that story our way. This package is made of natural ingredients. Even if it is not recycled, it won't harm the environment. So that's a very important characteristic. Now the returnable container is the most sustainable package, right? It makes many trips. It's the most sustainable package. We have it in many places around the world. We continue to support it for all those situations in which it is a very good fit. Now when it comes to greenhouse gas emissions, there is a lot of development around biofuel and hydrogen, as I mentioned. And what we're doing right now is we're focusing on MAGMA development, which is quite advanced to fully leverage that. So I think what is ahead of us in that respect is pretty solid.

I would add on the decarbonization component. I mean there's multiple forces in place here. Obviously, over time, we are going to see the electrification of the energy grid in total. We're doing our part on participating in that over time. We'll see over time, electrification of transportation. That will also help decarbonize the full supply chain. And then, of course, with MAGMA, in addition to the hydrogen and biofuels, the colocation capability and the lightweighting capability, all those come together, and then it really equalizes and improves the overall carbon footprint across the whole substrate.

One question we frequently get both from clients and also internally is tell us about what is happening in South America, in particular, in Brazil. There's been a lot of discussion on -- obviously, very strong beverage packaging trends. Some shortages perhaps on beverage packaging, both glass and beverage cans. How is that, in a few words, shaking out for you right now? What constructive -- what positive should we take from that outlook? What fear should we have that perhaps you're going to miss the market because there's demand there that you can't meet?

Okay. So the -- what's taking place over there is all product categories are growing for the most part. We are seeing a significant growth trend in beer at this point in time, and it's driven by 3 factors. The first one is the focus on premium products, which tend to be very low in those markets. Brazil is the most advanced right now. It used to be low. It used to be probably around 2%, 2.5%. It's now around 14%. But every other market is very small percentage, the share of premium. Now the second thing is the localization of global brands. So global brands have been taking over those markets for quite a while now. At this point, they're localizing. And the third factor is the conversion from returnable containers to 1-way containers, which goes both to aluminum cans and 1-way glass. In the case of premium products, 1-way glass takes a lot of that share. When it comes to more commodity products, aluminum cans take an important share of that volume.

And I would add, back to our prepared comments, we did indicate that we're looking at expansion initiatives for this very purpose. I think it's important to note that our intention is to do that in a way that doesn't get in the way of our deleveraging path. So we're looking at other tactical divestitures, which we believe is a continued aspect of our structural optimization, getting out of low return, low cash yielding aspects of our business and migrating it to those that are very attractive for other reasons.

George...

It sounds like it's a real good news story. Sorry, Andres.

It is.

It is a really good news story.

It is. And I just wanted to complement by saying that we're closely coordinated with our customers -- strategic customers and we're planning together. So it is good news. There is a good outlook of that. We're making at this point in time the final analysis, and we're going to make the right choices here.

One question related to sustainability. How does the use of cullet help you from an economic standpoint in terms of reducing energy, recognizing that over time, as you move more towards MAGMA, there are going to be other sources of energy relative to natural gas that you realize in the future? And then one question from the audience on -- from a marketing standpoint, spiked seltzer has been a big driver of growth for the beverage packaging industry at large, but it's been something that glass has played less well in. What are the opportunities for future growth there? Why did the industry not get as inculcated there as, say, some other packages? And what's next in terms of innovation that glass is going to really be leveraged to from your vantage point that you can share?

Okay. So let's look at the European market where cullet recycling is well developed. In that case, it's very economic, right? And you know that when we use cullet -- we increase the use of cullet, we reduce the use of energy, right? So it's very good for recycling, for sustainability. When it comes to seltzer's growth, yes, it's been an explosive growth. For us, it's all upside because our presence in that segment is, at this point in time, very, very low. We believe at some point, branding is going to require glass. It's been happening across, a long time, in multiple categories. When you look at a shelf at this point in time, everything looks the same. It's all the same thing. It's becoming very difficult for brand owners to deal with that. So we have a space, we believe, in the future. And because of our low share, it's all upside. When it comes to innovation, we've been very focused, George, over the last few years on building a very solid marketing and innovation capability in this company. And as I mentioned before, those capabilities have matured, and they're now ready to be used. And I will say that our innovation process is quite sophisticated, not only for these categories we just touched on, but for everything we serve. So we are very encouraged by our possibilities going forward when it comes to innovation. One more comment on the category of seltzers. So far, these have been primarily beverages that are malt-based. The category that is emerging is primarily spirits space. We believe that is going to tend to be more in the premium tier of things, for which glass is a very good fit. So we see this as an upside going forward in all cases.

Excellent. And I seem to remember, Andres, that when you use, cullet, it saves something like 70%, 80% of the energy that you normally would use in the furnace. Correct me if I'm wrong. I'm just...

It reduces the use of energy, but it doesn't go as far as that. But it reduces.

Yes. One of the things that I wanted to cover, and we've got a related question from the audience is the next round of strategic cost reductions. Last year, you did something around $115 million. There were some temporary savings in that. This year, you're doing another $50 million, which is remarkable given the base. Where -- perhaps you've already mentioned this in the past, what are going to be the sources of that $50 million? How comfortable are you in terms of offsetting whatever headwinds you are going to see from inflation, et cetera, with that $50 million? Remind us how you bridge from 2020 to your guidance for 2021 when it comes to the cost savings and the inflation?

So I'm touching a few aspects of that and then John can complement. So the -- we are addressing the top line through a problem that we call revenue optimization, and that is addressing, obviously, price/mix, volume and even the cash components of how [indiscernible]. So that's a pretty broad program, and it's a global program. And we have the organization to drive it. When it comes to the cost reduction programs, we have 2 of them. One is totally focused on cost of goods sold. The other one is focused on SG&A. And as I shared with the first program, this has a pretty good network in place and very good process already implemented that give us the confidence that we can consistently execute into the future. And that's why we are now denominating this or naming this as multiyear margin expansion initiatives because they have runway. And we are well organized to be able to deliver. So this is one more aspect in which we are capitalizing on all the efforts over the last few years, reorganizing, transforming this organization to be able to perform.

And I would just say, back to the previous comment, one of the reasons we feel confident in our full year outlook despite the issue of Texas and Mexico is because of these cost programs and how well they're doing so far and the momentum that we're building. So a lot of legs there and looking forward to more advancement. To kind of clarify some of the number parts of it, George, for the audience is, as we go from 2020 to 2021, yes, we'll get the benefit of this $50 million that we're referring to. And as you alluded to, some of the benefits that we had last year are not -- were some belt-tightening activities, right? So we said $115 million of savings last year, $85 million of that is long-term sustainable benefit, okay? So that means $30 million of it represents kind of transitory savings. Now keep in mind, we're still in kind of a belt-tightening mode right now because we're not out of the woods on the pandemic. So maybe we can moderate that a little bit. And then some other costs will come back into the business. The depreciation will start to normalize. We had a little bit of a period of lower CapEx spending last year because of inability to get people even in the plants to go and do things. It was a disruptive period. So those types of things will hit normalize back again. Maintenance and expense, those type of activities will come through. So those are some of the moving pieces. But overall, it's a good story on costs.

Yes. No. And appreciate you reaffirming that and impressed with what you're doing on the cost savings side. I want to ask the question really direct it to you, Andres. You've been in the seat now for several years. You've been improving the performance of Owens-Illinois over that period of time. What's your vision for the company over the next 5 years? And I say that with the background of having covered O-I for a long time. The company's stock has not necessarily compounded in every year at the rate that we've seen with other packaging companies. Returns have -- there've been years where there are good returns and years where it's less good. To the investors and the analysts who covers Owens-Illinois, why are the next 5 years going to be better than the last 5 and last 10? What's going on that you're most confident? And what's your vision for the company 5 years from now in terms of why returns will be higher? And then I have a couple of follow-ons.

Yes. So the -- as I said before, George, we have been building capabilities in this organization that we were missing to be able to perform. And it takes time. We just mentioned in the opening remarks, IBP. IBP is a pretty good system to support planning and management of performance in an organization of this kind. It's fully in place now. It takes 3 years to put in place in -- across the global organization. But like that, all the capabilities around innovation or glass advocacy or the ability to deal with these factories with the flexibility requirements that the market of today has, it takes time to build. We're very confident all of these capabilities have matured and are converging. And we're using them. And to your question before, the cost reduction initiatives, which in reality are margin expansion initiatives, they're coming from the application of those capabilities. So how do I see the future? All these initiatives of earnings and margin expansion are going to continue. They're multiyear effort. They're very structural efforts. So that's one, and it's going to support our performance and obviously shareholder value creation. MAGMA is a breakthrough for this industry. And we know that we got to share with you numbers and more concrete scenarios in the near future, and we will. But the reason why we are investing in this is because it is going to transform how glass is produced and is [indiscernible]. It's going to be a new business model for glass. When you combine that with the capabilities that we've been building in this organization, I think we have a case to be able to serve the growth that we launched to glass that we haven't been able to serve because of the multiple things we needed to put in the right place. I think part of Chapter 11 is an important bold action we have taken. Living with this liability for 40 years has implications. And we are taking action to be able to move beyond that. So I think we have very good things on the table. We've been emphasizing bolder structural actions. We are taking actions that are going to change the course of this company in the future. And we're very confident that's the case. And we're very encouraged by the possibilities and very engaged to make it happen.

This may have to wait until the analyst session, but can you put a finer point on how much you've invested in MAGMA? And what kind of return we'll initially see from this, recognizing really what you're going to be doing is, over time, if it's proven out, replacing your fleet of furnaces and your -- and machines that are in the market on the furnace side? And then what kind of return on capital improvement should we see out of Owens-Illinois over the next 5 years, if you had to think about it?

Do you want to comment on that?

Yes. So I mean on -- of course, we can't quantify everything right now, George. It will be coming through the IDay activities. But what I would say that there are so many customers who come to us with growth opportunities. At the end of the day, we struggle with where we are right now to actually make the decision to invest, either the capital intensity is too high or the ability to fill up that high fixed cost facility just [indiscernible], right? You just can't make the decisions. The difference at MAGMA is it unlocks that. We -- it should be material enough that we can say, yes, there's so many things that we say no to, okay? And so -- and looking at returns, historically, we always considered at least a 15% return on investment is the hurdle that we look for our business, okay? And as we go into projects that are a little bit more internal and cost-related things, that typically goes up to 25%, maybe even 30% type of ZIP code. Those are the types of returns we need to deliver and those are the types of projects that we're going after. And to Andres' point, that's the kind of company and the capabilities we're building is to be able to find those opportunities and consistently deliver that type of ROIs.

So returns going up. Capital intensity is going down. You're going to get some volume growth. It sounds like it's a different Owens-Illinois than perhaps what we've seen in the '90s and 2000s. Lastly, to the extent that you can comment, you've already given us some comments, what's the latest on Paddock? And how comfortable are you that -- recognizing there's some unknowables here that this is behind us, behind you, some time in the next couple of years?

I can address that. Just -- I mean, as you know, we -- Paddock, our subsidiary that has -- includes the asbestos liability, filed for bankruptcy back in January of 2020. That has actually -- that's been progressing as expected. Importantly, the 3 parties involved, Paddock, the future claims rep and the claimants committee have all agreed to nonbinding mediation. And so that process is just starting. We have a good group of mediators involved. So we believe that this is going forward with the best of intents. Obviously, it's too early to tell, right? I mean we can't put words in the mouth. But we believe it is a constructive process that we're entering into that stage. We can't book in the time line, George. It's too uncertain.

Understood. I wanted to ask, nonetheless. But Andres, John, Chris, thank you very much. I appreciate you going through all of our lightning round questions. It sounds like you're very optimistic on the outlook going forward. It's a new day for Owens-Illinois and O-I Glass, hopefully. And with that, I'll turn it over. And thanks, everybody, for watching and listening in. And you have a great day.

Thank you. George. Thanks, everyone.

Thanks, everyone.