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

Good morning, everyone, and welcome to O-I's Virtual Investor Day. I'm Chris Manuel, Head of Investor Relations. We've designed today's event to share our vision for O-I and enable a rich dialogue on how we intend to create value for all stakeholders. I'm joined today by several members of our senior leadership team at our global headquarters in Perrysburg, Ohio, as well as at our office in Switzerland. The presentation materials include a list of all presenters for your reference. Moving ahead to Page 3, you'll see the agenda for today. Our main investor presentation will last about 1 hour and 15 minutes, at which time we'll take a quick break. At around 9:55 a.m. Eastern, we'll host a Q&A session. [Operator Instructions] At the conclusion of Q&A, we will again take a short break and resume around 11 to begin our 3 focus sessions that will provide more insights on key parts of our strategy. They include how O-I is advancing ESG, its Glass Advocacy campaign and how the company will enable growth supported by new product development. We encourage you to stick around and participate in these discussions. Finally, spend some time reviewing our Investor Day microsite. You should have a link to this site or it can be reached from the Investors section of our website. Included are details on MAGMA as well as the focus sessions and include a number of insightful videos. Advancing to Slide 4. Please note that we will be making forward-looking statements today. The forward-looking statements are subject to risks and uncertainties, and we direct your attention to the risks discussed on this page as well as others discussed in our SEC filings. Again, for your information, the presentation materials for this Investor Day are available on the company's website as well as the Investor Day microsite. Before I turn it over to Andres, please note that we have provided some high-level information on the company on Page 5 and many of the brands that we serve on Page 6. As I am sure you know, O-I is the leading global glass packaging company, serving the stable and growing food and beverage industry. We support over 6,000 customers across a broad product portfolio. These customers highly value our dedication to service and our unparalleled production network to meet their needs across the globe. As the industry leader in innovation, we are proud to make glass the most sustainable packaging solution. Now over to Andres, who will start on Page 7.

Thanks, Chris, and hello, everyone. We've been looking forward to this Investor Day for a long time. We have an exciting story for you today about O-I's strategy for transformation and growth. It is a story about a company that makes a great product, a product that's been trusted for thousands of years, and how the company and its product, glass, are more relevant than ever now and in the future. It is a story about leadership and deep transformation, about taking bold action as we pivot to meet the evolving requirements of the packaging market. It is about an organization that is embracing and executing change. And it's a story about innovation spanning all business disciplines. In particular, O-I will soon begin deployment of the MAGMA solution, which we believe will revolutionize glass supply for decades to come and open up new business opportunities for O-I. We are eager to share our strategy that brings together favorable market conditions, a transforming O-I and a highly innovative MAGMA solution. We are building a path to yes. Yes to profitable growth, yes to an agile and resilient company and yes to a new paradigm for glass. We are confident this plan will enhance value for all stakeholders. While we usher in a new period of long-term prosperity for O-I, we are also setting the conditions to accelerate performance over the short term. On Page 8, we have shared the key objectives we expect to achieve by 2024. While John will review these goals in more detail later, let me provide some highlights. Supported by favorable market conditions and leveraging the initial deployment of MAGMA, we intend to invest in new capacity to remove critical constraints in attractive markets and segments. And improving top line coupled with our highly successful margin expansion initiatives will boost adjusted earnings, margins and adjusted free cash flow. We also intend to improve our financial flexibility, which will benefit from continued portfolio optimization efforts and the resolution of legacy liabilities. We are confident the combination of profitable growth, higher adjusted earnings and adjusted free cash flow as well as the improving balance sheet will increase stakeholder value and favorably position O-I for further advancement. Moving to Page 9. As we accelerate our transformation, I firmly believe O-I is an attractive investment. O-I is the market innovation and ESG leader in the attractive glass segment, and we are well positioned to advance our business. We also continue to take the bold actions necessary to transform the company. Operating performance is improving, and we are consistently achieving our guidance. Our margin expansion initiatives are delivering tangible benefits with good momentum for continued advancement. As I mentioned, our MAGMA solution represents a breakthrough in how glass containers are made. Our current production platform, which we call our heritage network, is a great fit for many of the categories we have served for decades, but MAGMA will uniquely align O-I to the evolving market needs. We've been hard at work rebalancing our business portfolio. We are now well positioned in the market and see good pockets of opportunity for expansion. MAGMA is a perfect fit to capitalize on these opportunities. At the same time, we are resolving legacy liabilities that have hamstrung the company for years. This will reduce our balance sheet risk and increase cash flow conversion, which supports other value-creating opportunities. We are removing the constraints of the past and enabling a prosperous future for all stakeholders through solid execution and the ability to say yes to profitable growth. I believe O-I represents a compelling investment opportunity for all these reasons and many more that we will discuss today. Now let's begin with a discussion on why market trends are now favorable to glass and how we intend to grow our business. I'm now on Page 11. Markets are very dynamic, and we have placed new and unique requirements on packaging over time. This chart outlines the key market trends over the past several decades. While there have been some challenges, most of the trends have been good for glass, and we see a bright future. If we look at the postwar era, glass affinity was very strong, refillable systems were common and a fragmented market fit well with glass, which was easily designed to meet branding requirements. In the 1970s and into the 1990s, society began to focus on convenience with little consideration for the environment. During this period, we saw conversion from glass to plastics across a number of important categories. While this trend was prevalent in more mature markets, especially the U.S., the situation was different in emerging markets in the 2000s, where growth was very good for glass. Packaged food and beverage soared in these markets and returnable systems common in these geographies enabled glass growth. And a growing middle class demanded more premium products with a high affinity for glass, like wine and spirits. The 2008 financial crisis initiated several years of austerity for both consumers and businesses. Cost was prioritized over branding across the mainstream product lines. Bowing to these pressures, the conversion of U.S. beer from glass to aluminum accelerated and nonalcoholic beverages further shift to plastics. While this was a period of increased austerity, affordable luxuries were also important and glass performed very well in many premium categories. During this period, glass was rather stable while other substrates grew. More recently, consumer preferences began to reflect underlying trends towards health, wellness and sustainability. Over the past 2 years, the pandemic and increased urgency on climate change have accelerated these trends. Lifestyles are changing with more at-home living. Affordable luxuries are increasingly a priority. The growth in digital and e-commerce is also reshaping retail. All of these trends have had a profound impact on brands and their packages. As we will discuss on Page 12, O-I is prepared and determined to capitalize on these trends and succeed in this market. The global food and beverage market is enormous with around $3 trillion of annual sales. We have identified 4 key megatrends in this highly dynamic market: Heightened considerations around health and climate change have led consumers to look for wellness-oriented products that are also responsively manufactured, like Kombuchas as an example. Luxury and premium value remain very important considerations. In a world where our actions have been reshaped by the pandemic, consumers accelerated their preference for attainable luxury. On-premise dining remains very important to people's lives, and they want to make more out of it when available. Overall, we are seeing a conversion to premium products. One way premium beer is growing in Latin America and spirits, a nice bottle of wine and premium quality products in general are in high demand. At-home living has been vitally important over the past 2 years given COVID restrictions. With remote working arrangements likely here to stay, at-home living will remain an important trend. In this situation, people are looking for indulgent treats and experimenting with new meals. Combine this with the trend of health and well-being, and you'll see the affinity and opportunity for glass. Finally, e-commerce is booming and rapidly reshaping the world. Whether it is Amazon or grocery deliveries like shipped, the digital economy has a profound impact on what people buy and how those products are packaged. Products need to look good and stand out in an online catalog. Glass offers a prime opportunity for these numerous and flexible design possibilities. Consumers love glass and recognize its many favorable attributes. On Page 13, you can see the results of recent consumer perception studies. Nothing comes close to glass on taste, premium value, quality and experience. Consumers also recognize the cost advantage of the returnable glass bottle, which is by far the lowest-cost packaging option on a per unit basis. People also view glass as the most sustainable package. As you can see on the right, glass is rated significantly higher than other packaging options, including aluminum cans. To build on these great attributes, O-I is actively working to make glass significantly lighter, more convenient and affordable. Glass is a great product and -- that is more relevant than ever, and these favorable glass attributes are recognized by consumers across the world. Let's now move to Page 14. Market trends and consumer preferences make it obvious that glass is more relevant than ever. Glass is the answer to health and wellness concerns. It is made of all natural ingredients: sand, soda ash, limestone and recycled glass. It is inert and will not contaminate what's put inside. It is the only food and beverage package that is generally recognized as safe by the U.S. FDA. Glass offers a premium experience and can be completely tailored to differentiate a product. The shape, size and color of a glass container alone can identify and define a brand, transform the ordinary into the extraordinary and build a consumer connection unlike any other substrate. Glass is earth-friendly. It is all natural, reusable and 100% infinitely recyclable. Glass is never trashed, and it is safe for you. It is safe for every consumer, the earth and the oceans. In many ways, glass is already what other packaging options aspire to be. Our Glass Advocacy campaign is focused on increasing the awareness of the benefits of glass, to see more brands packed in glass and see more consumers choosing glass. This will be reviewed in greater detail in one of the focus sessions. Before I turn it over to Arnaud, I would like to invite you to listen to Gary Vaynerchuk, CEO of VaynerMedia, who is our partner in our Glass Advocacy program, to share his perspective on the relevance of glass.

Hi, everybody. I'm Gary Vaynerchuk, CEO of VaynerMedia. I'm incredibly fascinated by the way the world turns, the consumer trends that drive business results and cultural movements and government change and all of that. For me, running VaynerMedia, a company that's really grounded in modern communication, how social media actually drives and builds brands and all the other behaviors has been a real joy. And occasionally, there's projects, clients, scenarios that really stand out. And I would say the O-I glass scenario is incredible, first, in general, if you just look at what's going on with not only Gen Z, which is a big fascination of this very conscious consumer, but the way Gen Z bleeds into millennials and boomers and form people's opinions. To me, I'm a very big believer that glass has a competitive advantage right now on trend over many of the other containers, as you would call them, in the world. I think that building narrative through social and understanding how to make that contextual and on trend to people that are already predisposed to be advocates is an incredible way to get adoption through the roof. And so just very excited about the ingredients we have to cook this monumental brand moment for glass in general to eat up categories that we've known it for in the '40s, '50s and '60s and get back to being the container of choice and really categories we haven't thought about. And I'm excited to be part of that journey.

Thanks, Andres, and hello, everyone. As Andres discussed and building on Gary's video comments, we see a bright future for glass. Glass is a wonderful fit with consumer trends and the aspirations of new generation. We are being much more vocal on the benefits of glass, which we believe can truly help build the business. So what does the future hold for glass? Turning to Page 15. We have provided some perspectives on future demand trends for glass containers and packaging overall. Global and regional details reflect data from Euromonitor and internal O-I studies. As you can see, global packaging demand is expected to grow about 2.6% on average and glass is expected to grow around 1.6% a year on average through 2024. While global glass growth is expected to lag the overall packaging demand, glass is expected to outperform in all key markets where O-I operates. In Latin America, the growth rates for glass is expected to be almost double that of the overall market. This is mainly driven by the premiumization and the move to one-way glass. In North America, it is expected to be a bit higher, while glass demand in Europe should be consistent with overall packaging trends. Asia Pacific is the only market where glass is expected to lag the overall market -- packaging market yet still expected to grow. Keep in mind that O-I has a very minor presence in this market after the sale of Australia and New Zealand business in 2020. Importantly, glass inputs and productions are local with clear supply chain, financial and sustainability benefits that are a real advantage given increasing macro uncertainties. On the right, we have provided more information on the North America beverage markets given headwinds faced during the austerity era. The North American market is highly dynamic as consumer preferences continue to evolve. The various packaging materials play in different lanes. The chart illustrates how glass is positioned across different beverage categories. Specifically, we broke out categories with low, medium and high affinity for glass. We also introduced the distribution of glass demand by each category and the shares of consumptions of products in glass within each grouping. As you can see, glass has currently almost no overlap in categories such as water, energy drinks and RTDs that are the focus of other packaging options, such as aluminum and plastic. On the other end, glass maintains a high share of the more premium segments like spirits, wine, RTD and premium beer categories. Bottom line, glass has limited exposure to categories, which are the focus of the other materials while enjoying very good positions in categories that fit well with the future megatrends that we discussed. Importantly, O-I has the opportunity to expand as a disruptor in categories with lower glass penetration like hard seltzers. MAGMA can increase our way to win and can be positioned as a great fit to drive brand differentiation strategies, but more on that later. So there is only upside in these categories. You may be asking what's changed to cause a shift from stable demand to moderate growth. Let's start on Page 16 for the answer. To start, we have faced a number of challenges that limited us in the past. Part of this was related to softness in some market segments as local solutions were prioritized over branding over the past 10 years. As we discussed, current trends increasingly favor wellness, sustainability, premium products and experiences, which are perfectly suited for glass. In addition to these external challenges, we also recognized the opportunity for some internal change. We have advanced our sales and marketing efforts through investment in sophisticated sales, marketing and product innovation capabilities. We now take a market-based approach to the business compared to a mostly manufacturing mindset in the past. We have restructured our commercial approach, and we are working in partnership with our customers to enable their aspirations by jointly creating value. Our social media marketing campaign is changing the dialogue on glass, bringing the benefits of glass top of mind for consumers. We augmented our capacity to generate true consumer-driven innovation. These investments and improvements have made our commercial and new product development pipeline, the strongest we have ever seen. Take a listen to Felipe Baruque, Vice President of Global Procurement for AB InBev, as he explains how his company's relationship with O-I and glass has evolved in its creative value.

Hello, I'm Felipe Baruque, Vice President of Global Procurement for Anheuser-Busch InBev. I'd like to highlight how important is glass for our structure. We really believe that glass can premiumize and can create a unique identity for each one of our products. And at the end, this is what we want. We want the consumer feel a unique experience every time that they are in contact with one of these most valuable beer brands in the world. And glass is an important asset on that. Our relationship with O-I is a key factor in this process and has evolved a lot. We moved from a very transactional and tactical relationship to a more strategic alignment, where we understand each other better and through that, we can allow growth and create value together. At the end, this is what we want. We want to change the future, to create the future and to bring people together for a better world. Cheers.

As this testimonial underscores, we are removing the shackles of the past and are building strategic partnerships while also capitalizing on the premium nature of glass. As Andres will expand on, we have also addressed other limitations such as financial and capacity constraints, ensuring O-I is poised for profitable growth. Moving to Page 17. We have transformed to a market-focused organization. We now have a very robust, fast-growing commercial pipeline that currently exceeds 1.7 million tons of potential opportunities, a 70% increase since 2019. All leads are documented in our CRM system and go through a standard qualification process. Based on our commercial strategy, we have a clear set of principles we use to evaluate our commercial opportunities. We evaluate each opportunity based on attractiveness of the segment as well as it fits with O-I's current strengths. We seek to grow our business by supporting our key customer strategies and expanding our leading franchise position in high-growth and high-value markets like Latin America. And we seek to expand in select categories with high glass affinity, solid growth and high value. Spirit is a great example here. We also want to expand in attractive categories where glass O-I is underrepresented, think hard seltzers. While not all categories are uniformly attractive, there are very good pockets of business in certain subcategories. For example, we intend to support growth in premium beer, while we are more conscious about value beer categories in the U.S. in particular. Of course, we intend to mix, manage and optimize our margin, and in certain case, exit or divest business that is less attractive and not a good fit for our system. Before we move on, I'd like to share one more example with you. This is a story of Stone Brewing on their recent launch of Buenavida hard seltzers in O-I glass.

I'm Lizzie Younkin, Stone Brewing's Director of Communications. And I'm here to tell you why we're so thrilled with our new bottled Buenavida hard seltzers. Like many in the brewing industry, we were impacted by the aluminum can shortage last year. We had to make some important decisions as to which periods we continue with cans. When it came to the development of our new Buenavida hard seltzer line, we knew we needed a really strong differentiator. Our seltzers will be carefully crafted with quality ingredients. Glass bottles felt premium and appropriate for this new approach to hard seltzers. When we came to O-I with this opportunity, the team coordinated several calls with their design team to present their capabilities and help us fully understand what they could offer. We insisted the bottle needed to match our existing bottle dimensions to ensure packaging efficiency. And they gave us a few really cool options that delivered on the premium look that we needed. The team's performance is amazing. They communicated every step of the way, making for a smooth launch with our distributor and retail partners. And when the launch significantly exceeded our expectations, the O-I team made sure we got back in to supply quickly. Although we're still early in our launch, we're thrilled with the results. Our distributors and retailers appreciate the differentiation that our glass bottles offer in the seltzer category. And consumers are embracing it. It seems that seltzers aren't just being enjoyed in the beach and pool anymore. They've earned the spot at our dinner tables, barbecues and other gatherings where bottled beers used to dominate. We outsold our projections in half the time we expected. So alongside our O-I team, we're hustling to meet this high demand. Thanks, O-I team, for helping make the launch of Buenavida hard seltzer a success.

This partnership is a good demonstration of our customer and market focus and ability to create value. Moving to [indiscernible]. We have prioritized about 1 million tons of organic expansion opportunities that are consistent with our commercial principles. The focus is on the few key markets and categories. Our first priority is to remove the capacity constraints in severely oversold market like Latin America markets, where we enjoy our highest growth rates. To that extent, we already announced a plan to significantly expand capacity in the Zipaquirá plant in Colombia. In the Andean and Brazil markets, we are focused on global premium beer brands, One will be a conversion from returnable glass as well as NAB, spirits and food. Over time, we would also expect to expand our leading franchise position in Mexico. We also intend to remove the current capacity constraints in the highly oversold U.S. and U.K. premium spirits categories, which are also expanding nicely and deliver high value. In Canada, we intend to support growth in the premium beer category in collaboration with one of our global strategic customers. We can also see how we intend to pursue other opportunities across North America and Europe. In addition to these priorities, we will continue to develop our commercial pipeline and anticipate further expansion opportunities in the future. In summary, glass is a great product that is more relevant than ever given market trends. Following a period of stability, we expect glass will return to moderate growth, reflecting these favorable trends. O-I fully intends to say yes to profitable growth, consistent with our growing commercial pipeline. John will discuss our specific investment programs later. Now I will turn back to Andres, who will discuss O-I's ongoing transformation.

Thanks, Arnaud. Our story continues. I'm on Page 20. Glass is a great product in a great market, and there is real opportunity to expand our business. The potential is there, but O-I will require a deep transformation to achieve this potential. We face many challenges, and it has required both the structural actions to build the O-I of the future. It started with addressing the fundamentals and building critical capabilities. Leadership is the most fundamental building block. All the leaders representing O-I today are either new to their roles, new to the company or both since we have started this journey. The global leadership team has been fully renewed, and we now have the right leaders in the right roles to effectively lead O-I's transformation. We implemented a new enterprise operating model, becoming a simple, agile, effective and adaptable organization. If you ask anyone at O-I, they will tell you that people leading performance is at the center of our company strategy. I want to take a moment to recognize the O-I team for their tireless dedication and enthusiasm to this task. Speaking of fundamentals, we clearly had to optimize our structure. Following years of growth through acquisition, we needed to address a number of mismatched assets. Importantly, we had to resolve legacy liabilities which had profoundly limited our ability to advance the company in the past. No company, no matter how good, can truly be successful when almost half of its cash flow is siphoned off every year for decades. O-I has always been the master of glass manufacturing, yet we needed to take action to improve our competitive edge. We modified our structure. We created new processes and practices and leveraged them through our multiyear margin expansion initiatives. Together, our operational and functional experts are working wonders to improve our cost and operating performance. Beyond these critical fundamentals, our transformation is about changing the paradigm for glass. As I mentioned earlier, our heritage network is a great fit for the categories that we have served for years. But as Arnaud covered, the market has shifted, and we need new capabilities to reach a broader range of market segments. Incremental adjustments were never on the table. Our goal has always been to redefine glassmaking around a flexible, scalable and sustainable solution that also significantly improves our supply chain position. That is our journey. Deep and impactful change is hard and takes time. Despite facing difficult times, we have stayed the course over the last few years. Speaking for the O-I team, we are proud of our journey and excited for continued advancement. On Page 21, you can see a number of the bold structural actions we have made recently on our transformation journey. O-I now operates with a single unified business strategy and has fully embraced integrated business planning, which is one of our most fundamental advancements. Let me turn it over to Vitaliano for a minute to provide some additional color here.

Thanks, Andres. In a nutshell, IBP is a company business planning process, encompassing the whole value chain of the company. Importantly, it connects day-to-day business decisions all the way up to the strategy of the company. To understand this better, let's discuss the key steps in the process. You start with sales and operations planning, S&OP in short, which is the very basic process connecting the short-term sales, forecast that with the plus on planning, usually focusing on the next 2 or 3 months. IBP extends the horizon to 3 years. With IBP, we consider market trends, engage with our customers on long-term business opportunities. With that in mind, we align our capacity investment decisions to enable our combined strategic ambitions, consistent with market requirements. This way, we build on simple sales forecast to include strategic demand planning, while production planning shifts to long-term capacity planning. Also, we have a rolling 3-year financial outlook of the business that is updated monthly. With this view, we can really focus on efforts to increase our cash flow generation and conversion, including the optimization of working capital. IBP aligns the company's strategy and the organization with the tempo of the market. It leads to a more predictable and consistent performance that enables O-I to meet a commitment. Back to you, Andres.

On top of IBP, we established a simple and effective organization. By early next year, we will have reduced the SG&A staffing levels more than 30%. With our renewed focus on commercial capabilities, our Net Promoter Score is at an all-time high, our commercial pipeline exceeds 1.7 million tons of potential opportunities and our new product development pipeline is the strongest I have ever seen. With a new dedicated Chief Sustainability Officer, we have a clear plan to achieve our key ESG objectives. I invite you to review our updated sustainability report that was published just a few weeks ago. We have also made great progress optimizing our structure. We are now over 80% complete on our divestiture program. And as you know, Paddock has reached an agreement in principle for a fair and final resolution of its legacy asbestos liabilities. Our cash flow conversion has improved significantly compared to our historic levels. Current year cash conversion should approximate 23% compared to the 15% average over the prior 5 years. Also, net debt is down $1.5 billion since mid-2019, reflecting the combination of proceeds from divestitures and favorable cash flow. To improve our competitive position, our margin expansion initiatives have generated over $240 million of net benefits in the past several years. We see significant opportunities to further boost results over the next few years. With our refocused R&D organization, we have developed breakthrough innovation. As we will expand on shortly, the MAGMA solution achieves our goal of changing the paradigm for glass and will further accelerate our transformation. We are proud of our progress. All these efforts are translated into improved operating performance as we have delivered on our commitments over the last few quarters. So what does all this do for us? I'm now on Page 22. We are saying yes to an agile and resilient company, and I believe there is significant value to O-I's transformation. Our efforts are boosting earnings and cash flows, margins are rebounding, and we are improving our return on invested capital. We are now an organization that is better poised for profitable growth. Most importantly, we are a sustainable business that has reached an important inflection point. O-I is a great company with a great product in a great market. As we will discuss next, the MAGMA solution represents a major leap forward that will accelerate O-I's transformation. Let's start our review of MAGMA with a short video that introduces some of its innovative capabilities. [Presentation]

MAGMA represents a major breakthrough. And as we shared on Page 24, it significantly enhances our capabilities. MAGMA is more flexible and enables rapid color, shape and container size changes. Greater flexibility will enhance our right to win in the highly differentiated markets we discussed earlier. MAGMA is more scalable. This will allow us to add capacity in the small increments to grow with the market rather than in large-scale investments like with heritage technologies. Given improved scalability, we can enter new markets at lower capital commitments than in the past. Also with greater flexibility, MAGMA's cost structure is more variable. This means MAGMA will be more cost effective and increase agility to navigate the seasonality of our business as well as economic cycles. A MAGMA line costs less to build than heritage technology, and there is no defined end of life for a MAGMA melter. As a result, MAGMA will have lower capital intensity and higher returns. MAGMA can ultimately fit in an industrial warehouse rather than a traditional factory setup. This means we can co-locate or near locate with customers. In addition to increasing customer intimacy, MAGMA will be more supply chain efficient and reduce logistics impacts and costs. And the ultimate MAGMA design will include the ultra-lightweight solution. This will significantly reduce the weight of the glass container and make the product more convenient to consumers and more supply chain friendly. Finally, and maybe most importantly, we have conceived MAGMA to be more sustainable and generate lower greenhouse gas emissions. In fact, MAGMA can shift almost entirely away from carbon-based fuels over time. As you can see, MAGMA will radically change the glassmaking process. Next, let's dig into what MAGMA is and how it is being developed. I'll turn it over to Ludovic to cover the next few slides starting on Page 25.

Thanks, Andres. MAGMA stands for modular advanced glass manufacturing asset. It is a radically innovative end-to-end production line that spans all manufacturing steps from raw material handling to product inspection and packaging. Let me explain. Current furnace technology includes a large structure made of refractory blocks. A furnace typically serves 3 or 4 production lines. It is housed in a large glass plant that includes a basement and [ AV ] infrastructure. We developed another way of melting glass and related processes that do not require as large of an infrastructure as compared to a typical heritage furnace. Each MAGMA production line is connected to its own melter. The system can be turned on and off quickly. It's highly flexible and mobile and can be built and installed in smaller increments. This will enable rapid and agile capacity expansion to follow the growth of our customers in a profitable manner. The footprint of MAGMA Gen 3 is expected to be about 1/2 the length and 1/3 the height of the equivalent heritage line. Its glass manufacturing process could be housed in a conventional industrial warehouse. The full MAGMA solution will uniquely combine lower capital intensity and lower total cost to serve. We are also working on the standardization and modernization of all components of the production line. This will lead to an unprecedented flexibility to tailor the manufacturing capabilities to the specific needs of the market we serve. Turning to Page 26. We have followed a set of specific design principles as we reimagine glassmaking. First, we wanted to invent a new way to make glass, not just an incremental change from the past. We also required a simple solution, consistent with moving from a multiline production system to a single-line process. This was critical for increased flexibility. We are going all-in on digitalization to increase production precision, provide predictive controls and enable significant automation. We needed a smaller production system that will provide the scalability to meet changing market requirements. We intended a modular systems with plug-and-play capabilities to drive standardization and quick deployment or redeployment of assets. Finally, we required a highly sustainable solution that move glassmaking beyond carbon-based fuels. On the right, you see our multigeneration development road map consistent with these principles that completely redefines glass production. Generation 1 is primarily focused on a novel and improved way to melt glass. Gen 1 was successfully piloted in 2018 in Streator, Illinois, and we started the first full-scale manufacturing line during the first half of 2021 in Holzminden, Germany. We would like to recognize the teams on site, who continuously optimize the technology to validate critical process parameters. Our Gen 1 solution has achieved or exceeded our expectations, and we'll be ready for deployment starting in 2022. We are particularly proud of this achievement as the installation occurred during the height of the pandemic on the significantly more difficult conditions. Gen 1 incorporates important advancements. It provides increased operating flexibility, along with modestly lower total cost of ownership and capital intensity. Gen 1 will primarily be used to retrofit and upgrade our heritage-based network over time. Generation 2 will add new production capabilities, such as a flexible batch system, improve forming technology and modular inspection and packaging equipment. This is a complete end-to-end integrated production system. Piloting of key components is already in progress. We expect Generation 2 to be ready for deployment in 2023. It will be a very versatile solution that can be used to retrofit the base as well as brownfield and greenfield expansion. Gen 3 is the ultimate evolution of MAGMA that combines a modular end-to-end system with optimized processes and capabilities. It will include ultralight weighting technology, along with other advancement in sustainability. For example, the utilization of renewable energy sources and a broader range of recycled glass materials to enable increased recycled content rates. Overall, we are pleased with our progress on Gen 3, as many of the key elements are in place and the invention of our capabilities is going well. We expect Generation 3 will be available for deployment in 2025. This is the ultimate solution for growth and expansion. Our heritage technology remains a great fit for a number of key categories, and MAGMA expands our capabilities. Eventually, we expect the different generations of MAGMA solution will represent about 50% to 75% of our manufacturing footprint. At the end of the day, MAGMA will bring glass packaging to our customers when they need it, where they need it and how they need it in a sustainable and cost-effective manner. Moving to Page 27. MAGMA is not just an incremental improvement of glassmaking. MAGMA represents a complete reinvention of the production process. So we expect the impact will be substantial. MAGMA will meet the market needs for increased flexibility. Heritage technology requires a utilization rate of 80% to achieve attractive economics. MAGMA Gen 3 should get to that same spot around 65% utilization. Market growth is usually incremental rather than coming in large blocks. A MAGMA melter is 1/10 the size of a typical heritage furnace, while providing between 25% and 50% of its capacity. So we can add more MAGMA lines proportionally as markets grow or to enter new markets. MAGMA is modular and prefabricated. It can be deployed in half the time of heritage technology, so we can be more responsive to demand changes. Also, the MAGMA melter does not have a defined end of life. It requires only periodic maintenance or upgrades that will dramatically reduce O-I's maintenance capital requirements in the future. There is a huge advantage to local production in terms of surety of supply and lower transportation costs. Both Generation 2 and 3 can be new or colocated with customers, and we expect Generation 3 will be situated in an industrial warehouse rather than a traditional factory. In the future, we anticipate near or colocation will reduce shipping distances by 30% to 80%. It will provide improved surety of supply. And at the same time, it will significantly reduce the environmental footprint. When you combine all of these factors, MAGMA will materially improve our competitive position. Ultimately, we envision closing 50% to 75% of the gap with a competing substrate. And capital intensity with Gen 3 solution will be up to 40% lower than today. Our future ultra lightweighting solution should reduce the bottle weight by up to 30%, which will improve convenience and supply chain efficiency. Finally, MAGMA can significantly enhance the sustainability of our supply solution. With Gen 3, we see a path to reducing plant greenhouse gas emission by up to 95%. As we consider future investments, our capital allocation decisions will adhere to the investment hurdle rates that Andres will discuss. We will also ensure projects are substantially supported by customer agreements and commitment as appropriate. The market demands a more convenient and sustainable product and production process. And that's what we have conceptualized and are developing. We cannot share the technical details of MAGMA due to confidentiality reasons. However, moving to Page 28, you can catch a glimpse of the MAGMA melter installed in Holzminden and an example of commercial, high-quality glass bottles produced on the line. Now I will turn it over to Randy, who will discuss how MAGMA will enhance O-I's sustainability position.

Thanks, Ludovic. MAGMA will indeed accelerate sustainability at O-I. I'm on Page 29. As we've seen, the world wants both highly sustainable packaging and equally sustainable companies and manufacturing processes. While the glass container is already the most sustainable rigid package, MAGMA will enhance this. It's capable of using less refined recycled glass, which means more recycled content. Gen 3 allows for ultra lightweighting. This will reduce package weight by up to 30%, lowering inputs and impacts and increasing convenience. Of course, we're using innovation to implement new technology, increase efficiency and cullet use independent of MAGMA, but MAGMA simply will enable a step-change impact on the sustainability of glassmaking and its business models. MAGMA is built from different materials, quickly constructed, minimizes maintenance and associated waste, has on-off capability, co-location potential and simply avoid significant time, effort, material and logistics needs. SOx and NOx emissions are also significantly lower. When you add the potential ability to use low carbon and renewable fuels to these advancements, MAGMA has the potential to substantially reduce or eliminate our reliance on carbon-based fuels and minimize GHG emissions. As you can see on the right, MAGMA is expected to substantially reduce the carbon impact of glass containers compared to a heritage system, while the ultimate MAGMA Gen 3 solution running on renewable fuels and high-cullet input should reduce our plants' carbon impact by up to 95%. MAGMA uniquely enables O-I to accelerate sustainability advancements in glassmaking, and at the same time, it addresses climate change, resiliency, technology and other risks while broadly increasing stakeholder value. Stepping back, I believe you'd be hard-pressed to find another packaging manufacturer using innovation to create so many levers that will substantially improve the sustainability of their product and production processes. Andres, back to you.

Moving to Page 30. MAGMA will be more cost competitive and enable higher returns on investment. We expect MAGMA Gen 3 could eliminate about 50% to 75% of the current cost gap between glass containers and alternative substrates for certain products while enhancing the unparalleled sustainability, brand building and premium attributes of glass. Also, there is a material opportunity to drive higher return on invested capital with MAGMA. Currently, with heritage technology, there is no incremental return on maintenance projects, and we typically look for 10% to 15% returns for expansion projects. We believe we will earn an incremental return of 3% to 5% on replacement of current furnaces at end of life with a MAGMA melter. This reflects a longer asset life and a greater operational efficiencies, such as higher quality, higher yield and faster color changes. For expansion projects, MAGMA Gen 1 and 2 solutions should earn returns in excess of 15%. MAGMA Gen 3 should further improve returns, which are expected to be greater than 20%. In the past, we often said no to many expansion opportunities as 10% to 15% returns were right on the edge of our risk-adjusted hurdle rate. The situation was further complicated by the impact of legacy liabilities and limited financial flexibility. Going forward, we will say yes to more expansion opportunities as the combination of stronger returns and improving financial flexibility unlocks the opportunity for profitable growth. We have reviewed many of the favorable attributes of MAGMA. There is one more major benefit, which I believe will be game-changing for O-I going forward. MAGMA will enhance O-I's current strengths and expand our right to win in key markets. I'm now on Page 31. Glass represents a sizable market in the geographies where O-I currently operates. Based on O-I's current strength, we are well positioned to serve a significant portion of this market. The rest of the market is characterized by highly fragmented and differentiated product lines that don't fit so well with our current strengths. MAGMA will improve our right to win in these high-value markets that represent 10 million tons of potential opportunity. Given the enhanced capabilities we have discussed, we will have the right capabilities to win in these major fragmented and differentiated markets. For market segments which are already well aligned with O-I's current strength, we will leverage MAGMA to further enhance our competitive position as well as increased value and market share by selectively adding increments of capacity to align with the market needs. I'm now on Page 32. Over time, we expect to transition into a company generating sustainable profitable growth with attractive returns on investment. As you can see on the left side of the chart, our sales volumes were about flat over the past few years. Adjusted for the performance of our strategic JVs, growth has averaged about 1% a year. This is pretty consistent with the overall glass packaging market trends. Leveraging Magma's unique characteristics, we expect to break from this past trend. Glass is an attractive market, and we believe we can capture a greater share of future growth. Initial deployments will leverage Gen 1 and 2 MAGMA systems to invest in growth and remove the capacity constraints in key markets. This will enable an organic growth rate of 1% to 2% on average over the next 3 years with growth investment returns above our 15% hurdle rate. MAGMA Gen 3 should support further growth and market share gains. Over the long term, we anticipate a 2% to 3% annualized growth rate with attractive returns above our 20% hurdle rate. Let me wrap up on Page 33. MAGMA represents a unique competitive edge for O-I. MAGMA is O-I's invention and it is protected by over 100 patents or patent applications worldwide. This new capability will uniquely align O-I to important market requirements. Our customers will favor O-I over the competition. MAGMA should support more innovative, differentiated products and enhanced flexibility to meet evolving requirements. It should also provide the ability to follow customer growth and enter new markets quickly. With MAGMA, we can say yes to profitable growth and support our customers' strategic ambitions with greater cost efficiency and lower capital intensity. The supply chain will prefer O-I's glass as it is lighter weight, and co- or near location reduces the logistics impacts and cost. In the future, consumers and customers will prefer O-I's high-quality, ultra-lightweight and more sustainable manufactured glass. MAGMA will also benefit investors as it boosts the top line, improves margins, higher return on investment and positions O-I as a highly sustainable company. Bottom line, with MAGMA, we are saying yes to a new paradigm for glass that will benefit all our stakeholders. Before we move on, I'd like to take a moment and allow you to hear from John Walker, the Chairman of our Board of Directors.

On behalf of the O-I Glass Board of Directors, we thank you for attending our Investor Day and appreciate your interest in O-I. Over the last few years, O-I, under our senior leadership team, has been transformed. It is now a company focused on safety, innovation, new product development, operating performance and cost reduction. Our portfolio has been realigned and streamlined. We have been investing in our MAGMA solution for the glassmaking process, and Paddock has sought a final resolution of its legacy asbestos liabilities. What you will hear about today is our new vision of how O-I will change as a result of the technology we refer to as MAGMA. We believe MAGMA has the potential to change the course of O-I in the glass industry. I spent my career in the metals industry and watched how a technology, the steel minimill, radically changed that industry. It was a low-cost, extremely efficient, more sustainable and a highly flexible solution. Minimills permanently changed the steel industry, and I believe MAGMA has the potential to transform and disrupt the glass industry in the same way. The Board of O-I is firmly committed to taking bold, transformative actions necessary to advance O-I. Glass is a great product with incredible potential. Thank you, and I hope you enjoy the remainder of our Investor Day.

Now I will turn it over to John, who will share how the combination of these elements enhance the value of O-I Glass.

Thanks, Andres, and hello, everyone. In our final section, I'll pull together the various elements that we discussed and lay out our business plan for the next 3-year period. I'm now on Page 35. As Andres noted earlier, our story centers on how favorable market conditions, a transforming O-I, and the deployment of MAGMA come together to increase stakeholder value. You can see all the ingredients here on one page. We are building our path to yes: yes to profitable growth, yes to an agile and resilient organization, and yes to a new paradigm for glass. O-I is well on its way, and we are confident our plan will increase stakeholder value for our investors, customers, employees, communities and the planet. I'm now on Page 36. O-I has a clear plan to increase value, and our plan will unfold over 2 horizons. The first horizon covers our current 3-year planning period from 2022 to 2024. During these 3 years, our margin expansion initiatives will accelerate performance as we complete development and initiate deployment of MAGMA. The second horizon will start in 2025 once we have the MAGMA Gen 3 solution in place. At that time, we plan to accelerate MAGMA deployment and achieve the full potential of our renewed capabilities across the business and capture profitable growth opportunities of an expanded addressable market. Horizon 1 enables horizon 2 with stronger earnings and cash flow to support further value creation. Our plan will improve short-term performance, while at the same time, create the on-ramp for long-term sustainable performance improvement. For today's discussion, we will focus our plans on horizon 1. Moving to Page 37. We provide an overview of our business plan for the next 3 years. Our margin expansion initiatives should generate incremental annual benefits of $50 million or more, which will boost near-term performance. This includes revenue optimization efforts that will boost price realization and margins, continued factory profitability efforts and cost transformation, which should reduce SG&A costs by $20 million a year on a run rate once fully implemented. O-I will leverage MAGMA to enable profitable growth consistent with the commercial priorities Arnaud reviewed earlier. We will expand our portfolio optimization program. We see more opportunity to further align the base and help fund high-return MAGMA expansion initiatives in key markets as well as boost O-I's ROIC. We will resolve approximately $1 billion of legacy liabilities that have weighed on the company's cash flow for decades. And of course, we will complete the development of MAGMA. Gen 1 is available now, Gen 2 will be available in 2023, and Gen 3 should be available in 2025. Finally, we intend to advance our ESG position and glass advocacy campaign as we build on our already strong sustainability profile and reposition the dialogue around glass in the marketplace. Next, I'll provide some additional context on a few of these points starting on Page 38. O-I will invest to expand the business in premium markets across premium categories with premium technology. Overall, we intend to invest up to $680 million to add 700,000 tons of much needed new capacity to support existing demand in constrained markets. This represents about 70% of the top opportunities Arnaud mentioned earlier. We will focus on expanding premium products in our franchise-leading position in Latin America and in the fast-growing and high-value premium spirits categories in the U.S. and U.K. As previously announced, we are currently expanding our Colombia operation, which will focus on domestic premium beer and food growth. Our new expansion initiatives over the next 3 years will leverage MAGMA, including up to 11 lines that are based on a combination of Gen 1 and Gen 2 MAGMA capabilities. We plan to invest up to $580 million with an average return of 20% to debottleneck highly oversold markets. We will add up to 3 MAGMA lines in our Lurin, Peru plant to support the domestic premium beer and food categories. Due to urban encroachment, we will be closing our small plant in Callao, Peru by 2023 and transferring that volume to the new MAGMA lines. In Brazil, we will be building 2 new greenfield sites, including up to 3 MAGMA lines focused on domestic premium beer and spirits categories. To support growth in the attractive spirits markets, we intend to build a new greenfield site in the U.S., including up to 3 MAGMA lines, and a brownfield site in the U.K. with up to 2 MAGMA lines. Finally, we will invest in an incremental line expansion in Canada to support a strategic customer's ambition in the premium beer category. Combined, these investments represent around 5% total growth for O-I. 75% of this growth will be realized by 2024 and the balance in 2025. Overall, this aligns with our 1% to 2% CAGR growth expectations for the next 3 years prior to any divestitures. In recent years, we have been very disciplined, focusing on cash conversion, debt reduction and capital allocation discipline. As we consider future capital allocation decisions, we will continue with that discipline. We will adhere to the investment hurdle rate shared earlier and ensure these investments are substantially supported by customer agreements and commitments as appropriate. Let's turn to Page 39. We will continue to optimize our portfolio as we realign the business to our core markets. We will reinvest a part of our divestiture proceeds and profitable growth and use the rest to improve the balance sheet. It's also important to note that we have deprioritized inorganic growth given our growing commercial pipeline in MAGMA's unique capabilities. We've expanded our portfolio optimization target to $1.5 billion of proceeds by the end of 2024, which is an increase from our previous target of $1.15 billion. Overall, we expect to be about $1 billion of proceeds by around year-end or early next year. So we expect around $500 million of transactions during the 2022 to 2024 period. Efforts include divesting noncore assets and other steps to decapitalize the business, such as a few sales leaseback transactions for properties in highly desirable markets. The chart on the right brings these efforts together. As we realign the business, we expect to use about half of the total proceeds to invest in expansion projects and the other half to improve the balance sheet. Growth investments include completed projects over the past 2 years like our recent expansion in Colombia and brownfield at Gironcourt, France, which have earned their targeted returns of around 13%. As discussed, future investments also include further expansion in Colombia that is currently underway as well as the new investment in MAGMA at attractive returns. The remaining proceeds help reduce net debt. We believe this is a prudent approach to realign the business from lower-return assets, redeploy capital to more attractive growth initiatives, which will increase ROIC and at the same time, improve the balance sheet. Let's turn to Page 40. Our strategy is to redeploy capital within the business to expand our business with MAGMA. We have illustrated our net capital investment expected over the next 3 years. As noted, our CapEx will be elevated as we enable profitable growth and initiate MAGMA deployment. At the same time, we are realigning the business through our portfolio optimization program. As you can see on the right, our total CapEx should exceed $1.9 billion over the planning horizon. This includes expected maintenance investment with about 25% of furnace rebuilds replaced with MAGMA Gen 1 solutions. It includes the expansion initiatives we discussed as well as other strategic investments, including cost improvement initiatives and ESG projects. However, the net investment is just over $1.4 billion, considering proceeds on efforts to realign the business. This equates to about $480 million of average annual net investment, which compares to our average CapEx of around $425 million over the trailing 5-year period. Higher net investment primarily reflects cost inflation pressures, which we will continue to monitor and calibrate accordingly. Overall, we expect a favorable EBIT arbitrage of $50 million to $60 million a year on a run rate basis by redeploying capital. Based on our current investment plan, expansion CapEx will ramp up in 2022, peak in 2023 and start to moderate in 2024. We expect our portfolio optimization proceeds will be a bit more front loaded. So I anticipate we will have cash in-house before the bulk of the capital redeployment occurs. Again, we believe this is a prudent approach to enable profitable growth, boost earnings and improve ROIC and at the same time, maintain our glide path to improve the balance sheet. Turning to Page 41. As you know, Paddock has significant legacy asbestos liabilities, and other subsidiaries have underfunded pension plans. These total more than $1 billion. Historically, these liabilities pose significant financial uncertainty and consume nearly half of our cash flow over the past decade. This cash drain was a significant constraint, which limited investment, strained the balance sheet and inhibited returning value to shareholders. Our intention is to resolve these legacy liabilities. As previously discussed, Paddock reached an agreement in principle to fund a 524(g) trust with $610 million to resolve its legacy asbestos liabilities, and we currently expect that will be completed over the next few quarters. This will eliminate the substantial uncertainty we have faced over the years with asbestos litigation. Overall, our annual cash call will drop from between $120 million to $150 million a year annually in recent years to about $25 million in interest costs related to funding of the Paddock trust. We also have a golden opportunity to eliminate the underfunded position on defined benefit pension plans, primarily in the U.S. While this liability was $464 million at last year-end, the liability is less than $200 million currently. This improvement reflects year-to-date asset returns and current discount rates. We have changed our asset class allocations to essentially lock in a significant portion of this more favorable position. With our current glide path, we expect to essentially eliminate the underfunded position by 2024. Subsequent to this, we expect our annual pension contributions will be about $20 million a year to cover pay-as-you-go plans in some countries. By resolving legacy liabilities, we will reduce uncertainty and risk and increase the cash flow conversion of the company. Cash will be used to improve our balance sheet and help fund attractive expansion initiatives. In addition to our $40 million a year share repurchase program, our capital allocation priorities for the next 3 years will focus on funding expansion projects with MAGMA at attractive returns and debt reduction to achieve our leverage ratio target. Let's turn to Page 42. All of these efforts will yield improved financial performance and financial flexibility. As we begin to deploy MAGMA, we expect to shift from flat, historic sales volumes to organic growth of about 1% to 2% CAGR gross of investitures. We expect adjusted earnings will range between $2.20 and $2.40 by 2024, which represents an 8% to 12% CAGR improvement over the next 3 years. Keep in mind, this target is net of an estimated $0.25 to $0.30 per share impact from anticipated divestitures and additional interest on funding the Paddock trust. Also, the expansion initiatives should have earnings momentum exiting the 3-year period, which will add $0.15 to $0.20 of additional earnings in 2025. Higher adjusted earnings will be driven primarily by our margin expansion initiatives as well as initial efforts to unlock sustainable profitable growth. Margins should improve about 150 basis points or so. Higher operating profit should boost adjusted free cash flow, as you can see on the chart. We have introduced an adjusted free cash flow target of approximately $400 million to $450 million by 2024. We define adjusted free cash flow as cash from operations less maintenance capital. The onetime funding for the Paddock trust is also excluded. We believe this measure properly reflects our strategic intent. Overall, elevated strategic CapEx for MAGMA will be substantially funded by proceeds from our portfolio optimization activities, which is included in cash from investing activities. Also, keep in mind that the timing of expansion investments and proceeds on portfolio optimization could be lumpy, so adjusted free cash flow helps avoid this reporting noise. Finally, we expect our leverage ratio will improve to the mid-3s after absorbing the incremental reported leverage as we fund the Paddock trust. One final note here. We are updating our third quarter and full year earnings and cash flow outlook that we shared during our last earnings call. We now expect third quarter results will be at the high end or slightly exceed our prior guidance of $0.47 to $0.52. Full year results should approximate $1.70 to $1.75 per share with free cash flow around $260 million. Let me conclude this section on how we view capital creation -- value creation for all stakeholders. I'm now on Page 43. The world is grappling with a number of important considerations. Climate change is upon us. The pandemic has disrupted our lives and social norms are changing. It is no surprise that the conversation on value is rapidly evolving. The decisions we make today impact how the organization operates well in the future. Those decisions often go beyond the 4 walls of our company, impact society and the planet. One thing is clear, organizations must move past narrowly defined views on value in favor of a broader set of factors. At O-I, we are taking a multidimensional view on value as illustrated on this page. We want to build value for the unique talent within our organization as a capable, diverse and inclusive team is critical to our future success. We want to build value through a highly adaptable enterprise that can easily pivot to evolving market conditions and deliver on our commitments. We want to build value with the people interacting with O-I, including our customers, suppliers and employees. We want to build value for the communities that we serve across the globe by providing the most pure, healthy and sustainable package. We want to build value through innovation, making our products and processes better every day to meet the needs of a changing world. Of course, we want to build value for all stakeholders, including our shareholders through improved financial performance. The chart illustrates the objectives we have set as a company to advance O-I across these dimensions and all of our decisions consider these important facets as we chart our path forward. Now back to Andres for some concluding thoughts on Page 44.

Thanks, John. When I started this presentation, I promised you a story about a market-leading, innovative, glass packaging company with a compelling strategy for expansion, one that has reimagined itself and glassmaking and done so in a way that uniquely aligns it with dynamic market trends that strongly favor glass. I promised a story about leadership, bold action and transformational change. Leadership and change that has pivoted the company into a more flexible, agile organization, able to consistently deliver on commitments. Leadership and change that has resulted in bold action to address challenges that have constrained the company for decades. We are at an important inflection point, and we are ready to accelerate our transformation. You've seen how consumers feel about glass, the trends and the unique characteristics that give glass a sustainability profile today that is unrivaled by any other packaging. We have outlined and shown you how the market trends favor glass, and how we have transformed our commercial capabilities and business to align with and capitalize on key growth opportunities. You've seen how we have deployed a simpler organizational structure, IBP, margin expansion initiatives, cost control and a strategic partnership to improve operating performance and deliver on our commitments. You've seen MAGMA and its potential, how this breakthrough will uniquely enable O-I to take glass and glassmaking to markets and places historically unavailable to glass. And how MAGMA will change the sustainability profile of glassmaking and empower organic growth. We've shown you strategic divestitures and bold action on legacy liabilities that are removing historic constraints and improving the balance sheet to help drive value creation. We acknowledge our historic challenge, and we are actively transforming our company across all dimensions of our business. We are leaving those issues in the past. This is the O-I of today and tomorrow, a company ready to meet the needs of its market; positioned with the right culture, structure and technology; a company poised and ready to win. We are excited about the future of O-I, the opportunity for investment it represents and the privilege to generate value for all our stakeholders. Most of all, we are anxious to write the next chapter of the story, and we hope you are as eager to watch it unfold as we are to bring it to life. Thank you for your interest in O-I. Now back to Chris.

Thanks, Andres. This concludes our main presentation. We'll now take a break prior to Q&A. [Operator Instructions] We'll return at 9:55 a.m. to take your questions. [Break]

Welcome back to our 2021 Investor Day. We'll now transition to a Q&A session. [Operator Instructions] Let's begin with our first question. Operator?

Your first question comes from Ghansham Panjabi with Baird.

I guess for my first question, one of the limitations of the legacy glass production process has been with the production of multiple SKUs, especially in a sort of a dynamic volume environment. How does MAGMA change that and, I guess, will allow you to be more efficient -- more efficiently produce through all the SKU complexity that I'm sure you'll encounter as you sort of progress into new categories, such as hard seltzers?

Thanks, Ghansham. Yes. So MAGMA will increase flexibility quite substantially. There are many reasons for that. We will be able to obviously, multiproduct runs in the MAGMA line. But we also, by having the single line set up, a given line wouldn't be impacting the other lines as it happens in legacy technology. Today, we have 3, 4 lines in any given furnace. If we job change 1 line, that is going to alter conditions for the balance of -- for the remaining 3 lines. In this case, every line is independent. Now we are also digitalizing this technology in full, which is going to give us a lot more ability to do changeovers to be able to go back to a high-performance operation. It will help us to replicate better the conditions from run to run. So one of the big values of this technology is exactly that, it's flexibility.

Got it. And then in terms of the expanded portfolio optimization to $1.5 billion now, give us some color into the $350 million or so increase relative to your prior forecast. What's driving that?

Yes. So this is John. So yes, we're increasing our target by about $350 million. We have identified more what I'd call noncore assets within our business. By that, I mean operations that don't make glass containers. And so in evaluating those returns and where we want to invest our capital going forward, we're evaluating what we do there and evaluating them from a strategic basis here. And as I also mentioned that we have a couple of facilities that are on some pretty high-value properties. And so there's a couple of sales leasebacks in there that have very good valuations at this point in time. We think that's a great opportunity to redeploy trapped multiple in the company and redeploy it to use for MAGMA.

[Operator Instructions] Your next question comes from Anthony Pettinari with Citi.

Maybe just following up on Ghansham's question. Can you talk a little bit about the potential operational risk of MAGMA? The risk of it maybe not scaling or maybe the cost of scaling potentially higher than you could expect. Is technology risk kind of completely off the table now? And then by 2024, you'll have, I think, 13 more MAGMA lines. Just based on your expected footprint, can you -- what's the penetration rate for MAGMA in 2024?

So let me touch first on development risk. Generation 1 has been developed. And at this point in time, it's ready for deployment. Generation 2 doesn't require more innovation -- more invention, excuse me. It's been already done. So from that perspective, we are now piloting the technology, and we expect to be able to confirm every one of the assumptions we have. If something is required, it will be primarily engineering or further innovation, but not invention. Now Generation 3 requires further invention and what we are -- what we've done so far in terms of testing every one of those assumptions and every one of those innovations has been highly encouraging. So from that perspective. We don't see a risk to be able to deploy Generation 1 and 2, and Generation 3 is progressing quite well. Now it's important to highlight that even if Gen 3 takes longer, the Generation 1 and 2 have enough advantages to be transformational by themselves. So we're not totally depending on Gen 3. Now Gen 3 will be the ultimate development in the sense that all the things that we described in Slide 27 will be fully realized. But Generation 1 is already realizing some of it. Generation 2 is realizing even more benefits and then we'll obtain 100% of them in Generation 3. Operating risk, well, we are very well organized and structured, with very strong talent in R&D. Our development process is very well structured. So we're taking all the steps necessary to be able to develop technology successfully and being able to deploy it successfully. We're -- go ahead.

Yes. I can address your second part of the question, Anthony, about the rollout and the penetration activity for this. By the end of this 3-year period by 2024, we anticipate having a total of 24 MAGMA lines with the 11 growth that we've indicated plus 13 more that we would be using as we start to retrofit the heritage base. As we think going forward with the concept of about 50% of our heritage being replaced with MAGMA consistent with what Ludovic had indicated earlier, that would probably be at a pace of about 10 to 15 a year as an ongoing process through the refresh process. And to be able to support a 2% to 3% CAGR growth rate using MAGMA, we would expect after that 3-year period going into the 2025 and beyond, that you'd be probably adding anywhere from 5 to 8 MAGMA lines a year to support that type of growth. Hopefully, that gives you sensitivity on the penetration activity.

Great. Great. That's very helpful. And then just a second question, a lot of markets, your biggest competitor is the Bevcan. And in many of those markets, I think Bevcans have been sold out since 2018, 2019, but we have kind of new waves of capacity coming online in the next 2 to 3 years and new market entrants. Is that something that changes the market or impacts you're planning on volumes? And can you just talk a little bit more specifically about how you're positioned versus the beverage can, both with MAGMA and with the kind of legacy-based business?

Yes. So 75% of the growth for aluminum cans is driven by products in which we are not present. I think it's Slide 15 that has the 3 lanes. They're primarily driven in their growth by the lower lane of the right side of the chart. Our growth is driven by the top line -- or top lane of that chart. We are focused on premium products in all the categories. That's why that's driving our growth. When we think about the investments we have moving forward, those investments are all directed to markets in which we have a very solid position. Those markets are already demanding those products. We've been serving them through imports. So it is -- that demand is already happening. So the risk of our demand for the projects that we are bringing forward in this plan is fairly low.

Your next question comes from Kyle White with Deutsche Bank.

Appreciate all the details in the presentation. Can you just talk about the decision to deploy MAGMA and ramping up your growth capital and how you weigh that decision against just deleveraging? How did you come to the $680 million growth capital over the next 3 years versus putting more towards deleveraging?

Yes, I can initiate that. So when we looked at this -- the trade-offs between these 2 and we wanted to find a bridge, a bridge that allows us to achieve a lot of different targets here and opportunities. One is we were dealing consistently over the last several years with an increasingly capacity-constrained market in our strongest growing markets and categories, and it was very critical that we serve that growth in a way that we were not being able to do the last few years. And as we looked at the balance sheet, we found the road map through a combination of investing in the growth with MAGMA, being able to do the portfolio optimization and do the capital redeployment to also -- and then apply the free cash flow of the business to debt reduction overall to basically achieve all of those 3 targets. So we believe by the time that we get -- go through this planning cycle, this 3-year window, we will get -- we will start to grow the business. We will have redeployed capital more effectively within the business through the portfolio optimization activities and gotten the leverage into our target of 3.5x.

Got it. And then just a follow-up on MAGMA, is there anything in the contract structure with your customers related to the new technology that is significantly different from the heritage production? And how is the cost savings of MAGMA being shared across you and the customer?

Yes. So a couple of things. The -- every one of these projects is bringing along a contract with it, a long-term agreement with our customers. Now from our perspective, MAGMA is a win-win proposition for customers and O-I. And obviously, every negotiation will be unique and every approach to every one of the conditions will be defined in a one-by-one basis. But we see the possibility of value creation for both our customers and ourselves. John, any additional comments you have?

Yes, I think that covers it, yes.

And I have a couple of questions that have come in here from the Internet that I'll ask now. First is with respect to MAGMA. What prohibits you from advancing Generation 3 and rolling it out, say, 12 months earlier? And can you take some of the benefits from Generation 3 and retrofit them back on to Generation 2 as you begin that process at a later date?

Would you like to make a comment on that, Ludovic?

Yes, absolutely, Andres. So advancing Generation 3 12 months earlier. We have, as Andres mentioned, already validated Generation 1. Generation 2 is being piloted as we talk or in the phase of being piloted, and we will build Generation 3 on top of Generation 2. Generation 3 will require some additional invention. And we have already a pretty large team working on these. We are working really at a high speed to try to minimize the time at which we will be able to develop and implement at least some portion of Generation 3 to further improve the performance of Generation 2. Retrofitting Generation 2 with Generation 3 techniques, as I said, we were doing exactly these. Some modules will probably be able to do exactly that, especially as we start developing some technologies for the rest of the lines, such as digitalization and ULTRA lightweighting for sustainability reasons.

One thing I would add is Gen 2 is a very, very good solution. It is fit for market for expansion and includes many of the aspects. Gen 3 is one that optimizes on top of that. But we're very pleased with what Gen 2 can do for us and being able to roll that out in this window of time.

One more question here I'll introduce from the Internet. Both of them had to do with commercial and the growth outlook and marketing. The first is you outlined that growth is going to be 2-plus percent in your markets over the next couple of years, but yet you're only anticipating 1% to 2% for your business. Why can you not do a little better?

Well, in this case, the growth that we are projecting is fully aligned with the opportunity that we highlighted. Other opportunities might be available, but this is the plan that we have moving forward.

And I would say it's a capacity constraint issue more than anything. It's that where those growth is at, we need to build the capacity to be able to capitalize on it, and that's exactly what we're doing with this plan.

And the second part was how did the pipeline grow to 1.7 million tons? Did you have to invest in marketing? Did you use any data analytics to ID new opportunities?

Arnaud, will you please comment on that?

Yes. So to capture these growth opportunities, we actually restructured and improved quite a lot our commercial capabilities. We have been actually working on organization, on tools, on processes and on culture. I won't develop all of them, but on organization, we rebuild some marketing capabilities, some communication analytics capabilities to be able to create new product and create proactively NPV opportunities. In terms of tools, we have been using a CRM tool since a few years, which is actually helping us to capture all the opportunities coming from the commercial organization that we are progressively qualifying and integrating in IBP, as Vitaliano explained before. So just to restate those 2, building the marketing organization communication to create the demand, but also creating tools for the sales organization to capture those opportunities and the process to refine them are really helping us to completely step change the pipeline of opportunities for the future.

Your next question comes from Salvator Tiano with Seaport Research.

Yes. My first question on MAGMA. Given that you're still -- you mentioned there's still some innovations trying to -- you're trying to figure out for Generation 3, as we look at the benefit from slides, I think, 27 and Slide 30, can you put a kind of a ballpark figure on these benefits if you were to speak with Generation 2 with regard to attractive economics and review and IRRs, et cetera? Can you provide us more clarity on where you would be?

Yes. Let me start that off and maybe Ludovic can add some additional color on it, thinking about Page 27, where we identified those, I believe it's 8 different capabilities that's being built there. When you talk about the flexibility and the scalability benefits, those are very quickly available in Gen 1 and Gen 2. So those -- that's really associated largely with the melter technology that goes with Gen 1. So you get that flexibility and scalability very quickly with the Gen 1, Gen 2 solutions. The other characteristics, whether it's the cost performance improvement or the capital intensity performance improvement is fairly ratable going from right now, if we're talking about up to 40% capital intensity reduction for Gen 3, it's pretty ratable through the Gen 1, Gen 2 type of solutions. And the same is fairly true with the cost performance activity. So think of it in those terms. Anything to add, Ludovic?

No, that's a very good, John. Maybe on the supply chain efficiency. This is really something that comes with Generation 2 already. So again, we won't need to have ready Gen 3 to achieve the full benefit there. So a number of those numbers would be very close, as you said, as we move from Gen 1, 2 and 3 will have...

And a good example would be when we're doing some of the greenfields that we will be doing, we would -- with Gen 2, we would be putting those very close to customers with the co- and near location capabilities.

Co- and near location, indeed.

Yes. And I think I can add that flexibility will be present in Gen 1, will increase in Gen 2 and it will be significant at that point in time, too.

Okay. Perfect. And...

Yes, Sal?

Looks like we lost him. I do have a quick here to add from the Internet. It looks like for...

Still there.

Are you still there? Okay.

Just for my follow-up, if you can still hear me, if you can provide a little bit more clarity on the R&D and commercial costs that are associated Generation 2 and Generation 3 over the next few years? And essentially, when should we assume they go away?

Yes, it's a good point. We would expect the operating costs over the next few years that have included anywhere between $20 million to $40 million a year associated with either R&D or the commissioning costs associated with the next-generation elements. Keep in mind, it's probably about $20 million of actually development costs. And then you might have some operating costs as you start to do piloting things like that, and that tends to be fairly episodic. And the idea then would be as we develop Gen 3 and have it available in 2025, is that a lot of those R&D costs could trail off at that point in time. So when you think about it in those terms, we have pretty good earnings momentum going into 2025. I mentioned before just the additional momentum from the additional volume that we're getting with the 11 projects that we're doing now is anywhere between $0.15 to $0.20. There's probably another $0.05 to $0.10 worth of earnings momentum going into 2025 as some of those other costs dissipate.

I have a number of questions that have come in here around the same topic, and they all seem to center around inflation. So could you talk to us about what inflation looks like, how you feel you're going to be able to cover that and how that fits into your 3-year role?

John, do you want to comment?

Yes, sure. So the inflation in the outlook, for example, this year, we had indicated even during our last earnings call that, that probably could be up to around $175 million or so. That's still our view for the current year. We do think that, that is the peak. And then looking at how we manage our procurement, I think we do a very good job managing our procurement with the contracts and the policies and the tools that we use, we expect that will ebb off next year. And looking at how we've managed it and position the organization, it might be something like 75% or 80% of that level compared to where it is this year. As we look to the pricing activities, clearly, this is an environment where we expect to recover the unfavorable spread that we've incurred, we expect the unfavorable spread this year to be about $50 million, $55 million, but that includes Winter Storm Uri in it, too. So we would anticipate the ability to recover that next year through favorable spread. And as we look into periods beyond 2022, for our modeling purposes and what we've laid out here, we've just assumed kind of neutral spread, but of course, we will have to evaluate that over time. Now if you look over the past 5 years, this is a business that has consistently been able to pass through and actually improve margins a little bit on the price spread side. So optimistic about being able to do better than that, but it is -- we have to see how the inflation plays out. Anything to add?

Yes -- no.

Your next question comes from Arun Viswanathan with RBC.

Appreciate all the details here. So first question is just on free cash flow. It looks like you're guiding to about $1.2 billion of cumulative free cash flow over '22 to '24 and then you have the $610 million of Paddock contributions. Is that right? So what would you say that net $600 million would be used for? I know you noted value creation, but what are some of the priorities for that? Would it include stock buybacks or dividends or other capital return? And would you consider deploying that $600 million for further deleveraging to bring leverage closer to 3 rather than 3.5x?

So yes, let me kind of recap free cash flow here a little bit. And keep in mind, what we're laying out is an adjusted free cash flow measure, right, because we're going to have a lot of the -- it's going to be a bit lumpy with the fact of elevated capital expenditures, in particular for MAGMA, but substantially funded for by the portfolio optimization. So if you take that out, to your point, is there's a good block of money associated with the free cash flow generation of the company. We would anticipate using the bulk of that on deleveraging. So the Paddock is being brought into the fold, but then we'll continue to use that to offset that extra leverage that's been brought in and continue to manage the overall leverage ratio down. So other cash calls, as we had mentioned before, we do have about -- over the 3-year period, about $120 million of share repurchases. That's part of the equation there. And then there's other periodic things around refinancing costs and things like that, that we expect over the 3-year horizon. And those are all baked into the leverage ratio target that allows us to go from 3.8 down to 3.5. While that's a 0.3 reduction, keep in mind, we're absorbing 0.5 because of Paddock, so we're really reducing that by 0.8. So it kind of corresponds to the numbers you're talking about.

Okay. And then I also just had a question on sustainability and how you see the glass market evolving over the next couple of years. So you noted that obviously, there are several positive attributes with glass. But have you thought about addressing breakage and weight? These are issues that I think some of the competing substrates use as positive attributes as well that there are still issues for glass. So how do you address breakage and weight? And is that kind of factored into your 1% to 2% volume growth, i.e., if breakage and weight continue at this rate, is there any reason to expect that volumes will be below that level? Or do we need to improve breakage and weight attributes of glass to get to that 1% to 2% volume growth?

So Randy, can you take the first part of the question about the sustainability of [indiscernible] glass, that market.

Sure. So there's a couple of things to address upfront with this. So breakability issues that relate to fragility are an issue with glass, but all substrates have breakability, crushability or other issues that are particular to their substrate under particular conditions. So on par, we believe that the fragility of glass if handled properly, which most consumers do handle, that it's really not an issue. It's kind of a non sequitur consideration that you hear sort of on the margins. That's not something that really our customers or others complain about on a sustainability standpoint. Weight's another one that has looked at in isolation with glass. The other substrates have enormous distributed global supply chains that glass does not have that pose problems that are far in excess of weight that are built into their sustainability over time. So glass solves a tremendous amount of problems, because as a local supply chain, it's made locally, it's recycled locally, you don't have to invent how to recycle it. And typically, it is a more localized process in general than the other substrates. And so weight, you can look at it in isolation, but when you consider all of the other things that are involved with the large global distributed supply chain that are dependent on a lot of things. From a sustainability standpoint, weight isn't something that is really, over the long haul, a big sustainability type of issue. Andres?

Yes. Thank you, Randy. Ludovic, will you help us with the -- addressing the weight?

Yes, absolutely, Andres. So as we have discussed during our presentation, we have a large initiative called ULTRA, which is aiming at reducing the weight of our containers by up to 30% when we are at 2024 time frame. This is included in the MAGMA Gen 3 road map. It will be part of the package that we will deploy with Generation 3. That being said, we believe that at least a portion of this technology will be able to be retrofit into our heritage line. So we will address lightweighting, not only with MAGMA, but also with the heritage technology.

Your next question comes from Mike Leithead with Barclays.

Great. Firstly, I just hope you could help bridge together the roughly 10% EPS CAGR you have over the next 3 years. There's a few moving parts. So just how should we think about the base business growth? Any potential earnings loss from divestitures, growth projects, cost reductions? I'm just trying to get a sense of the moving pieces that helps build to that roughly 10% earnings CAGR.

Yes, sure. Let me give you some of the puts and takes here overall. So if you kind of start with the guidance that we just updated this morning, we should pick up next year, for example, call it $0.15 because of the overhang from Winter Storm Uri, that will be a benefit to the company. At the same time, we had indicated in our prepared remarks, there's about $0.25 plus associated with divestiture dilution as well as the Paddock trust funding interest. So both of those -- probably divestitures is about a $0.15 or so headwind, while the interest is about $0.10. Over the cycle, we would think of there's kind of $0.15, plus or minus, of spread benefits. All the volume that we're attributing to the 3-year period is attributed to the growth expansion initiatives. And so at this point in time, we're kind of assuming base business is kind of flattish to maybe up 0.5% per year, with really the growth being driven by the expansion initiatives that certainly ramp up a little bit over time. We have probably $0.60 to $0.70 benefit in there on initiatives because those are pretty ratable at $50 million a year. We do have a few things that are working in the other direction. We will have a little bit more depreciation we'll have some onetime costs with the rollout of these large initiatives, and we are assuming a little bit more costs for things like insurance. Insurance is becoming more expensive now with all the events that are going on around the world, cyber costs, things like that. You bring all that together, you get pretty much into the midpoint of the guidance range that we're talking about. Hope that helps.

Great. That was super helpful. And then secondly, can you just quickly spend a little bit of time on just kind of what has made second half trend a bit better than your earlier expectations? And earlier, you touched on inflation, but just specifically to natural gas. Can you just refresh us just on your sensitivities or your ability to recoup inflation just given some of the crazy moves we've seen in gas lately?

I'd just add on the second half here, in the third quarter in particular, which we indicated was above our previous guidance range. It's really on operating performance. And I think this is just a consistent theme that we've been bringing out on really over the last year or so is that the business is performing very well and the cost takeout is very, very well. And we -- even though quarter after quarter we keep thinking more and more about what we can do. We keep exceeding that expectation and perception. So that's really good. On the cost inflation side, it really does vary on a market-by-market basis. So for example, in the U.S. here, 95% of our business has long-term contracts that pass through natural gas, either on a monthly or quarterly basis. So that -- those particular markets move very quickly. Over in Europe, we have about, call it, 70% of our business under long-term contracts that have price adjustment formulas that could range from relatively quick turnaround time or annual. And then in Europe, in particular, the other 70% is more an annual contracting, open market kind of position on a lot of smaller customers. That usually occurs in the very early part of the year that the negotiations start kind of around Thanksgiving and go into early part of next year. So when we talk about the outlook for the year on inflation, the next quarter, the fourth quarter is kind of where we have the exposure to the inflation, but then we quickly are able to be in a position to recoup that through the price adjustment formulas or the annual renegotiations over in Europe in particular. So that's why we feel as though, even though we're hitting some cost inflation right now, by early part of next year, we're in a position to be proactive on the pricing side.

John, you mentioned operating performance as the reason for the improved second half. And I think our predictability has improved quite significantly in the business. And one of the things that has helped that quite a bit is IBP. So we mentioned that in the opening remarks, but I would like Vitaliano to expand a little bit on that because it is an important change in the organization that make it significantly more predictable, consistent and increase its ability to react to circumstances that come our way so we can always deliver on our commitments. Vitaliano?

Yes. Thanks, Andres. Yes, when we introduced IBP, we said a few things that you can connect with performance and with consistency. As always said, is a process looking into 3 years. It does not mean that it's setting a goal 3 years from now. It means that it's setting a path that you have to follow from the present to the goal you want to achieve in 3 years. So it's forcing people to focus on the path and what we're going to do starting today to get there, which means you're going to focus on the future. And by doing that, you see the obstacles, the bottleneck, the risk in the future and you work on that. Actually IBP has a specific word, which is called vulnerability. You focus on the vulnerability to avoid or mitigate them. And at the same time, you focus on the opportunities to exploit them because sometimes it's not a matter of avoiding vulnerability, but sometimes it's a matter of missing opportunity. All of this is driving fundamentally consistency and resiliency in the result. On top of that, there is another important element, which is we explained and we show how our strategy connects to the day-by-day decision to all the people, which means that everybody knows what it's doing and what and why, what it's doing is important to achieve the goal of the company. And this knowledge drives engagement and engagement is a proxy for performance, if you like. And finally, and finally, because people know where we are going, what we're aiming to and what's important to get there, you can trust them. You can actually empower them. And so that decision are taken at the right level because they know where we are going and they know that they want to get there all together, which means that you have the decision taken at the right level with the right speed. If you put all together, you see that all these can give you, at the same time, consistency, performance and agility and speed. And this is the secret, if you like, of IBP. Back to you, Andres.

[Operator Instructions] We have a follow-up question from Ghansham Panjabi with Baird.

Just going back to the inflation question. I mean there's 1 element, which is the cost side. But what about just sanctity of supply in terms of energy? I mean, obviously, there are shortages in discrete parts of the world, including the U.K., companies have curtailed production in some cases. Is there -- what do you think in terms of the operating environment specific to some of those regions?

Yes, Ghansham. So in your comments, you referred specifically to some places in Europe. So I would like to ask Vitaliano to help us with that with the comments on that question.

Sure, Andres. Now probably the -- what we are hearing today in the EU and U.K. in reality has not to do with a shortage of fuel per se, it is the issue that we are seeing, almost everywhere on logistics, and I think it's a relatively short-term issue, that is particularly painful in ULTRA short term. In general, we are not expecting to have major shortages of energy going forward. The one that you see is specifically related to gas and is specifically related to the difficult situation that across the world, we are seeing on the logistics side. Fundamentally we are missing truck drivers. That's the fact, that's the result of the disruption that you had in the supply chain and on the pandemic and probably a bit about the Brexit, but that's a separate topic. We do not see, at this stage, a major issue on the supply of energy at the moment. Of course, it's going to depend how cold is going to be the winter. But at the moment, we do not see it as a very big risk.

Okay. And then just back to MAGMA, as customers evaluate/qualify the product, et cetera, can you share any direct feedback from them, positive and maybe also some of the limitations that they may see in terms of your feedback with them?

Yes, the feedback has been very positive. The interest in MAGMA is quite high. We've been in conversations with the strategic customers for quite a while. And Arnaud has been, obviously, directly involved with that. So I would like to ask Arnaud to make specific comments on the value that customers see on MAGMA.

Definitely as we talk about MAGMA with customers, they see the great opportunity it represents. I think one of the challenge we have with glass is making glass available, addressing sustainability challenges, flexibility and so on. So the fact that MAGMA answers to a lot of those questions that are limiting glass availability and competitiveness, I think, is a great opportunity for customers. So we have been starting discussions with customers, obviously, at this stage, and they are all very positive. Now we are working on, as you have seen in this plan to implement those MAGMA lines to unlock some of the potential we have in terms of capacity constraints. But more to come. They really perceive that as a win-win proposition, and we're working in this direction with customers.

Let me end that with -- by saying that there are opportunities for glass growth than we can pursue. And the reason for that is it's multiple, but one of them is technology. It's the inability of the technology to scale up as customers grow. They see this as an important solution for that. And that's why we're having the opportunities we have right now with the projects that we presented today.

Your next question comes from Gabe Hajde with Wells Fargo Securities.

The first one, if you're willing to share or discuss it maybe contextually, curious about capacity utilization that's kind of assumed as part of your 3-year strategic plan that you've laid out for us today. And more specifically on MAGMA, I'm kind of thinking about the 700,000 tons of incremental volume in Slide 38 that you've identified and then in the context of the 1.7 million tons. So it kind of built off what you were just talking about, Andres, in terms of you got a pretty big funnel, but maybe there's only so much of it that you can attack at one time. And then maybe the second part of the question is what's the risk that you, in fact, grow faster than that? And would this be included in kind of the scope of what you laid out of these 11 initial MAGMA lines? Or would you need more CapEx there?

So we laid out this 3-year plan. These opportunities are based on demand that already exist. And as I mentioned before, we are [ important ] at this point to be able to support our customers in those markets. So that's our focus. We believe it's a pace of deployment of capacity that we can manage well. This is going to allow the organization to learn to deploy MAGMA at scale in preparation for the following 3-year period. So we're very comfortable with that number. My expectation is that as more customers learn about the potential of MAGMA, more opportunities are going to present. Now as we mentioned before, we continue to be very disciplined in our approach to that and free cash flow generation and everything we have done over the last couple of years. So that's an important criteria we're going to use to define how far can we go. We're very comfortable that what we have on the table is what is important and proven for this period of time, and then we'll evaluate more opportunities as we go. John, any comments?

I think that's right. And the real question will be is what does the demand profile look like, the emerging, as we wrap up this 3-year window here? And what do we stage going forward? And in particular, as Gen 3 becomes online and available, I think we'll evaluate the timing of that next batch, especially as that technology comes to fruition. And so more likelihood we'll wait until that 2025 window and beyond to put another group of CapEx projects together.

Okay. And then -- and I appreciate that, I guess, prior performance is not representative of future. But when we think about it, you laid out growth has been kind of flat here over the past few years, again, notwithstanding what's going on with the pandemic. But before that, I think growth have been tough to come by for a while. So I'm trying to kind of reconcile you guys and some of your peers taking capacity out of the U.S. market versus now what is being characterized as being capacity constrained. So is this a function of categories that are growing versus maybe where some of your legacy capacity or capabilities were aligned? And again, just you guys call out, I think, spirits where when we listen to some of their presentations, they talk about trying to revenue optimize and stuff like that and maybe premixed cocktails as a component of that, which, at this point, kind of come predominantly in cans.

So the -- let's talk about growth and the performance of growth in the past. So when we look at the last 3, 4 years, One major challenge we have had has been the accelerated decline of domestic beer in the United States. Now what we're seeing lately is the rate of decline is slowing down, so it's about half what it was before. And it is out of a smaller base because this is becoming smaller and smaller. So the impact of this issue in the United States has been reducing over time. So that helps our look going forward. The other thing is premium beer in the United States as well as imported brands are going -- are growing very fast, and that's primarily in glass. Now when we put the 2 together, the domestic beer and the premium and international brand, they offset each other. So that's the situation. Now we mentioned before that we were going to diversify away from mega-beer, and we've been actively doing that, which is also changing our volume profile. Now premium products are growing really well. And this is across categories. It's not only beer or spirits, it's food, it's NABs, it's every one of the categories, and that's a very good fit for glass. So that helps also our projection going forward. When we look at projections from Euromonitor, specifically talking about beer in the United States, looking at the past 3 years, there was a projection that, in fact, was negative. Looking at the next 3 years is a slightly positive projection, which is reflecting all these changes that I'm talking about. Now as we mentioned before, the opportunities that we brought forward today are responding to demand that already exists. So from that perspective, those numbers are quite solid. And every time we work on this strategic partnerships with customers in the past to bring capacity up, it worked out very well. So this is something that worked out for us well. We expect the situation in the United States to improve based on what I mentioned before. And with that, we're quite confident on our projections going forward. With regards to capacity in the United States is for spirits. Spirits is a category that is growing quite well, and the capacity is fully utilized in the country. Most likely you heard some of the key players in the spirits industry describing in their earnings calls how challenging it's been their growth, obviously, and their supplies in multiple areas. So I think we're aligning with premium segment that is critical for glass, and that's why we're bringing that capacity forward. Any additional comments, John?

Yes. I would just say one of the things that we brought up during the prepared comment is the ability to say yes. I mean, historically, we just didn't say yes to a number of opportunities. We were either financially constrained or we couldn't get the projects to get the returns in the markets that -- where the opportunities are at. Between addressing the financial elements and having the cash flow now going forward to be able to support that and with the new technology, and being able to tap into new markets that right before we didn't have the capabilities to go after. There are so many areas to be able to say yes to. I don't know how many times in the last number of years in my role I've looked at these projects and said, ""No, we can't make it work." We don't have that -- you didn't have the money or you didn't have the return. Now we're going to find those. So we're very confident about the ability to go forward with that.

Yes. Something that we're doing that is having an impact is glass advocacy and the figures that we're seeing out of it as we continue to deploy it are very encouraging. And I would like to ask Arnaud to comment on that because that influences obviously the -- over time, the demand for glass in the United States. As you know, we've been very silent for, I would say, decades with regards to glass. That got to change. And it's got to change because glass has significant opportunities in the market, and we got to rebalance the dialogue around packaging. So that's what we're doing. Arnaud, would you please comment on some of the outcomes that we have seen out of the glass advocacy?

Yes. So we will talk more in depth in the focus session later. But -- so we started 1 year ago to be much more active to bring to light the benefits of glass in the mind of consumers and customers. And we know that consumers prefer a glass, but sometimes they don't have the benefits top of mind. So what we have been doing is a pretty significant social media campaign to bring to light the benefits of glass to really dedicated targets. And the results we have at this stage is pretty encouraging. So if we think about some, I would say, media criteria, we already had 1.1 billion impressions, so number of [ page ] seen. We had more than 9 million engagements. So consumers that like, share or comment on our views -- on their views. We had -- we have been reaching almost 100 million Americans more than 8x, so which is pretty massive. We think about business impact, we did several research and the first one was to measure how the campaign is impacting purchase in that, okay? And the first results we have is it's influencing purchase intent by a lift of 6 points, which is 6x higher than the average because, usually, it's an increase of 1 point. The second measure we are having right now is, first, with Nielsen analysis with 36 controlled tests is what is the impact of the campaign on sales, and what we see at this stage is a 2.4% uplift. So driving glass demand in store, okay? And probably the last dimension that we are measuring is the impact on customer engagement and leads. So what we are seeing right now a B2B part of the campaign is 17x more leads generated by the campaign than our historical rate. And finally, we have a lot of customers going to -- coming to us to sharing their appreciation of the campaign because they love glass and to see us talking about the benefits of glass is a great benefit and wanting to partner in this campaign and be featured in some ads. So all of that is really beneficial to create the demand and help this demand for glass further.

Your next question comes from George Staphos with Bank of America.

Perhaps you've -- you might have answered these questions a little bit earlier, had to drop off given a conflicting conference. But one, can you address how MAGMA, if it works the way you would expect, might create operational complexity for you, not just in terms of just the fact that you will be dropping lines perhaps closer to the customer and multiple lines relative to the legacy model, but also the related service model that would be joined at the hip with this? Especially if you're doing co-location, what is built into your projections in terms of managing that and ultimately driving higher returns? On the subject of returns, and again, you may have talked about this a bit earlier in the presentation, but what gives you the most confidence, what one thing, whether it's MAGMA, the outlook for volume, the new business model, integrated business planning, what gives you the most confidence that, as opposed to last number of years that we and others have covered O-I where the performance has been somewhat irregular, that you will see a sustained, improved trend on returns? And I'll turn it over.

Yes. Let me start with the last part. This is a changed company, George. There are a number of things that have changed. When you look at margin expansion initiatives, that's obviously the application of the capabilities we developed over the last few years. They're multiyear. We've seen how they've been delivering consistently, and they have plenty of runway. So that's an important factor that makes us confident. When we look at the growth projects that were included in this plan, all of them are related to demand that already exist. So they are very low risk. When we think about one of the most critical factors we faced over the last few years that inhibited higher performance, the domestic beer in the United States is a big factor. Now that's becoming smaller and smaller. The drop rate or the decline rate is slowing down. Premium beer and international beer, which are primarily in glass, are growing really fast. Those are offsetting the decline in mega-beer. So that factor is slowing down, and that's important. Remember that we diversified away from the domestic beer into the other categories which are growing well, so that also reduced that exposure. So there are multiple changes in the organization. Obviously, we can talk quite long about culture and talent and the organizational design and IBP. This is a different company. And as we said in the opening remarks, we acknowledge our past, and that's why we're transforming the organization. And we believe the steps we're taking are setting this company totally different as we move into the future. We feel very confident. We're very well organized to be able to perform. And that's what we are...

Andres, do you need Gen 2 and Gen 3 to work as expected for you to basically fulfill the other elements of your program? I guess maybe that's what I'd piggyback with.

No, good question. Gen 2 has been developed so far in such a way that all the invention that was required has been completed. So this is primarily about finalizing some work in the area of innovation of engineering -- for engineering. It's currently in pilot, and we're very confident that it's going to be okay for deployment. Gen 1 has been finalized and is ready for deployment. The combination of characteristics or advantages of the 2 are the ones we're using for this plan, right? So if I can call it Generation 1.5, that's what we're doing. So we're not fully depending on having Gen 2 completely finished. There is one characteristic of Gen 2, which is already in pilot. We expect to be very successful out of that pilot. That changes pretty much how we deploy capacity for glass is a major, major development. Now Gen 3 still requires invention. And everything we did so far is very encouraging. So we are very confident that's going to work well. But even if Gen 3 doesn't come through, it wouldn't affect this plan at all, the 3-year plan that we discussed.

Okay. And on the process on the operational complexity and how you deal with that?

Yes, that's a very good question, too. We've been doing extensive work now for almost a year that is all around business model. And we have an external support in that regard because there are important changes that we can put together around this MAGMA technology that will in fact propel the potential of it. So we are deeply focused on that. Very well organized. Same is with regards to deployment of capacity. So all of that is being put together. One of the values of this phase, George, is growing the organization into new technology deployed, right? And the -- we're taking a gradual approach to that. Coming out of this 3-year period, the company will be quite knowledgeable about deploying technology in higher scale. And that's what we're focused on. Any additional comment, Ludovic, on -- with regards to business model or technology deployment or risk of it?

No, Andres. First, indeed, we had a very good track record of success in demonstrating our objective. So Generation 1 has been fully validated at all scale. We pilot it successfully. We -- full-scale commercial line is working in Holzminden. And we are utilizing the same process to finalize Gen 3 development. So again, we do expect both invention to come to fruition over time. But as you said, the next 3 years is really the on-ramp of the deployment. We are building new capabilities to be able to deploy the technology and operate the technology in an effective manner.

So let me make some closing comments. Glass is a great product in a great market, and we've been transforming O-I addressing the issues of the past. Now we're becoming more predictable. As a result of that, we are meeting our commitments. We are focused on increasing performance and initiatives like the multiyear margin expansion initiatives are just leveraging all the capabilities that we built over the last few years and they're delivering results. We are introducing new technology to the market that, in our opinion, will propel O-I's potential. We are addressing legacy liabilities. We are actively working on business portfolio optimization. We are redeploying capital in order to increase return on invested capital, support organic growth and reduce debt. We are improving the balance sheet and we are increasing financial flexibility. We are committed to create value for all stakeholders. And considering what we shared today and everything in this Q&A session, as well as earlier in the opening remarks, we believe O-I is a compelling investment opportunity. We thank you for your attention today, and have a good rest of the day.

Thanks. That concludes our Q&A portion. We'll now take a short break and return it at 11 a.m. to cover the focus sessions. Let me briefly preview what's to come. The first session will be on ESG. Randy will review our key sustainability goals and the road map we have to achieve these objectives. As we advance to the second session, it will be on glass advocacy. Marie-Laure will handle our efforts there and show us what we're doing to move forward. The final session will be enabling product growth and new development. This will show how we're taking an advanced approach to unlock the brand-building attributes of glass. It will also include a case study on beer and seltzers. We encourage you to stick around for these focus sessions, and you will have the opportunity, by using the text box, to ask questions to these subject experts. So we'll see you back here at 11:00. Thanks. [Break]

Welcome back to our 2021 Investor Day. We'll now begin our 3 focus sessions. I will be joined by Randy and Asad here in Perrysburg as well as Arnaud and Marie-Laure from Switzerland. You may submit your questions into the chat function at any time, and we'll address them at the end of each topic. Over to you, Randy.

Thank you, Chris. Let's start on Page 51. The essence of a sustainable organization is the presence of a constant search for more balance among its operations and products and the needs of others, the planet and everyone's prosperity. Reducing, reusing and recycling, they are necessary steps to create this balance, but they aren't sufficient to get the job done. Sustainability requires a vision, innovation and transformation. And those are exactly the drivers of O-I's ESG and sustainability strategy. Our vision is a future where the innate circularity of glass meets O-I's disruptive MAGMA system and other innovations to forever change how glass is made and sold. A vision where our quest for balance creates a diverse and inclusive workplace, where our social engagement not only strengthens our community, but also has positive environmental impact, a vision as it comes to life that mitigates climate change risks while it also builds the strength and resiliency of our business, including its financial resiliency. As you can see on Page 52, our sustainability initiatives cover 10 areas material to our stakeholders. They contain goals that are purposefully aspirational and premised on the need for innovation and transformation. Our sustainability and ESG approach is focused on breaking down the barriers between the E, S and G to ensure work at one place has positive impact on and synergy with the others. And this can be seen on the next slide in our emissions reduction road map. I'm on Page 53. Our sustainability strategy ensures that our sustainability goals and climate mitigation approaches are 2 sides of the same coin that we not only set objectives aligned with global ambitions like the UN Sustainable Development Goals, but also that our reach for those goals responds to climate change objectives and risks. By setting a science-based emissions reduction target and framing our renewable energy, our technology and our recycled content goals accordingly, well, we've done just that. Our approach involves advancing the technology in our heritage furnaces, finding creative ways to lower carbon impact, like diverting waste heat for use in our neighboring communities; improving all parts of our manufacturing process with programs like our Total Systems Cost and finding tailored end-to-end solutions for recycled glass sourcing and use. We are creating advanced lightweighting in our products to reduce energy, raw material use and increase efficiency. With these and other efforts, we are on target to have 23% of our global electric load under renewable energy by the end of the year. We're making steady progress on our interim 2025 emissions reduction target. And we are very excited about the further transformations that MAGMA will enable here. Maybe a few more comments on that. Sustainability and ESG obviously aren't just about emissions. They're also about reducing impacts holistically and creating strength, resiliency and longevity in processes, products and relationships everywhere. MAGMA presents just this kind of holistic step change in the overall sustainability of glassmaking. It uses a fraction of the materials and resources needed for heritage furnace. It avoids significant time, effort and waste material from heavy maintenance or rebuilds. It simplifies procurement, installation, repair and operation. It uses tomorrow's technology. It can be turned off, relocated and has the potential for co-location. All of these things and more are transformative and a real paradigm shift for glassmaking. Speaking of glass and big picture ESG and sustainability issues, come with me to Page 54. Glass has endured for generations for good reason. Its unique attributes haven't changed or decreased in utility over time. It's just the opposite. Time and technology have done nothing but improve and optimize how glass is made, sold and reused. Today, glass already solves for a broad spectrum of sustainability balance issues, like waste and waste toxicity, recyclability and human wellness concerns. Alternatives, especially amalgamations of different materials, may never be infinitely recyclable. We'll require chemical processes for manufacture and end-of-life recycling, if recycling is even possible. And they will have unresolved and unresolvable questions about waste, toxicity and related issues for a long, long time. And you needn't look any further than our global plastic bag situation for an example of just such an outcome. Alternatives also rely on ingredients originating in far, far away places with all manner of potential supply chain issues. Ingredients that are extracted and then shipped around the world to be refined or transformed before being shipped again to a location where the material is further refined or transformed. And then shipped again to be purchased and then finally converted into a container. Well, not glass. The materials are mostly local. And when recycled, glass isn't shipped to another hemisphere for disposal or processing. It's recycled near where it's consumed. Because of the nature -- local nature of glassmaking, glass recycling and the direct control over the raw materials to make glass, we have real-world examples of local manufacturer, local recycling and bottle-to-bottle circularity. Outcomes, by the way, that MAGMA and our work on recycling systems will only accelerate. Maybe one more thing. Because we control the mix of raw materials going into our process, we have firsthand knowledge of how much recycled glass we have in our products. Other substrates don't. They're forced to rely on mass balance certifications or other representations about how much actual recycled content is in the material they purchase and then convert into a container. The world is demanding more of what glass has to offer, not less. While others are still chasing basic sustainability characteristics and may do so indefinitely, glass already has them right now. Let me conclude on Page 55 with a few comments on our social engagement program called Glass4Good, G4G for short, and show you an example of how we are connecting innovation in our work in the S category to impact the E. G4G is about bringing glass recycling to all locations where we operate, to achieve one of our sustainability goals. But it's also a program where we partner with the local community around our plant to provide glass recycling and charitable donations based on the glass collected. These partnerships allow us to engage with the community, them with us and to provide mutual benefit. G4G helps with community waste and recycling goals, reduces logistics impacts for them and us and strengthens our interconnected relationship. Once we establish a program around a plant and create the logistics needed, our objective is to expand the ecosystem to collect and reuse as much glass from the surrounding local communities as possible. And as part of our work and in anticipation of a more localized MAGMA application, we're also building tomorrow's blueprint for how we may collect and recycle glass, create circularity and, at the same time, increase community benefit. There's much more to say about ESG and sustainability at O-I, and I invite you to learn more by taking a look at our recently published sustainability report, if you haven't done the already. It's available on the micro site, or at o-i.com. And I welcome your questions. Chris, over to you.

Thanks, Randy. Let's answer a couple of questions that have already come in here. First question is -- it's a fun one. It seems like every substrate has made superiority claims on their sustainability, both cans, plastics, et cetera. How can you help us make sense of this disparity?

Well, I'm glad somebody asked that question. The dialogue on this issue is confused and unbalanced. Glass right now, as I mentioned a minute ago, solves for more big picture sustainability issues than the others and many they won't ever be able to solve for. Infinite recyclability, it's one material. You don't have to invent a process to recycle it. It's earth, ocean and wellness-friendly, local manufacturing and local supply chain in addition to local recycling. There's no product contact issues. There's really no waste toxicity problems because it's in earth. Glass is effectively never trash. And you can see all of this reflected in the consumer surveys about how they perceive the sustainability of glass. Now if we want all that, and we clearly do, plus we want to lower global coal use, energy consumption and CO2 emissions. There are some simple and compelling facts missing from the dialogue that can add to the balance. So for example, did you know the global energy impact for making the primary materials for the other substrates is far greater than glass. The global infrastructure needed to produce these materials is rather enormous. So is the global supply chain that moves these materials from continent to continent for processing and transformation and ultimately to sale. You can't make these materials with some percentage of that infrastructure. The global impact is what it is. And these materials are dependent on these expansive and complicated global supply chain issues and ocean shipping. The global impact of glass, like I said, is not comparable on an energy consumption or CO2 basis to the competitive substrates. The infrastructure for glass is local as is the recycling infrastructure and many other things. Against these facts, the global impacts of glass are far less and much more sustainable right now. A dialogue or comparison that suggests glass somehow finishes behind competitive substrates on sustainability obviously needs a little bit of rebalancing. It needs to take these facts that I just mentioned into consideration. And that's exactly what we're doing.

Thanks, Randy. The second question here is your target to increase recycled content to 50%. How limited are you in increasing this further by the local infrastructure and subsets in place and, call it, availability?

That's another good question, and it goes to an issue that we see all over the world, which is any material that you want to recycle requires a top-down approach that seeks to recover and reuse the materials as opposed to recover and discard the materials. One of the critical components in the EU that explains the superior recycling rates they have really across the board is that they do have a very top-down approach and aligned policy on encouraging collection and reuse. So where you see well-developed collection and reuse policy and behaviors and habits, you see enormously high recycling rates. So in Europe, those systems enable the collection of the needed supply of glass, provides stability, both on price and supply, and make the possibility of high-recycled content among the different colors of glass possible almost everywhere. In other places like the U.S. and in some developing countries, the recycling infrastructure isn't exactly set up that way. And so our work needs to focus on making sure that we have an adequate supply, a stable supply and one that's economically viable for us to collect and reuse in our plants. With those systems in place, we don't have any of the limitations that the system might otherwise put on us. We can take recycling contents as high as they need to be based on the restrictions of specifications or color supply. And so we're approaching our recycling ambitions with this in mind. Everything is local. Recycling is as local as politics. We need to solve the local problems to create the supplies around our plant, which, as I mentioned, what our G4G program is doing, create closed-loop systems with our customers, which is also part of G4G. And then we need to have policy solutions that help us bring those ecosystems together to create a more complete supply chain for glass. So everywhere that we operate, we're looking at it from the top-down and the bottom-up to create the things that we need to line up for continued, resilient, strong and longevity oriented supplies of recycled glass.

Thanks, Randy. The next question is -- builds on your earlier comments from prepared remarks. Any color on the potential shift to carbon-based fuels or from carbon-based fuels with MAGMA?

So any industry that's -- well, first, that's an interesting and it's a great question because the move to low carbon or no carbon fuels is an aspiration -- that it's global in scope and affects many industries from cement to steel to automaking to practically all of the industries that we depend on, including power generation. So MAGMA enables us to localize around whatever low carbon fuels would be available. And it presents the opportunity for us to create local ecosystems for things that may not be available in scale in one place or the other. So it unlocks potentials for us to take advantage of things locally, whether it's recycling or lower carbon fuels in ways that a legacy arrangement might not otherwise provide for. I may or may not be getting at the root of the question, Chris, so.

Well, I think you did. One last question. Will the product quality of glass deteriorate at some point? And if so, how many times or cycles can you do it?

Well, the good news is the glass is one material and it's infinitely recyclable. You can recycle it as many times as you want, and it doesn't degrade in quality or in material. So you can remelt the same bottle over and over again indefinitely, and you won't lose any material and you won't lose quality. So using more glass and more recycled glass only has benefits because it's easier to remelt recycled glass, and you can do it as many times as you want, which is one of the best arguments to make sure to protect our permanent materials whether it's glass or something else from landfill and to make sure that we use whatever efforts necessary to recycle them because they really are the perfect circular solution in packaging and other places, and we ought to take full advantage of that. And one of our objectives at O-I is to maximize the circularity of glass by capitalizing on just what's mentioned at the base of that question.

Thanks, Randy. We appreciate you taking the time to share with everyone O-I's plan and path forward for ESG. And now, I'll hand it over to Marie-Laure, who will cover glass advocacy.

Thank you, Chris. Let me start by playing a video that presents O-I's glass advocacy initiative and highlights some of the key elements from objectives to execution to results to date. [Presentation]

As you can see, there is a lot to say about glass. And we are finding many engaging, memorable and targeted ways to rebalance the narrative on packaging material and convey how relevant glass is today. Let's go deeper into our objectives and approach. If you'll turn to Page 58, glass advocacy is focused on feeding and strengthening the top of the funnel when it comes to purchase decisions. The more consumers and customers are aware of the benefits of glass, the more they realize how relevant glass is to them in more occasions and more locations than they currently think about and the more they will start to consciously consider products packaged in glass. As discussed earlier, current megatrends favor glass. Meaning that glass attributes are more relevant than ever. Whether it is about establishing a healthier lifestyle and/or a more sustainable one or whether it is about creating memorable, multicenterial experiences, glass is a perfect fit for what consumers seek. And therefore, it is a strong value creator for brand owners. Glass advocacy is about rebalancing the narrative on packaging material to ignite this relevance and activate the funnel to set the stage for growth. To do so, we must ensure everyone, customers and consumers alike, know about everything glass has to offer. With consumers, our primary objective is to create a solid foundation of awareness and interest that elevates the positive glass perception closer to top of mind and triggers the unique emotions linked to using products in glass. With customers, the campaign focuses on demonstrating how glass creates value for their brands through innovation, differentiation and sustainability and how O-I helps them harness the full potential of glass packaging. Glass advocacy will create a snowball effect by making glass relevance to megatrends obvious, fueling the preference for glass and activating ambassadors in their private circles. It creates an environment where consumers and customers will be more receptive to activations that drive purchase, which will transform into glass incremental volume. But knowing that glass is relevant is not enough. We need our message to be seen and heard in a context where everyone is trying to get attention. I'm now on Page 59. Working with VaynerMedia, O-I has embarked on a disruptive journey to step change how we -- leveraging social media to find the most engaging, relevant and impactful way to raise awareness of the benefits of glass. While previous marketing was about a single-minded message to a broad audience, the glass advocacy campaign takes a targeted testing and approach. We broke down our target audiences into many cohorts and qualified messaging pillars with millions of consumers and customers. We are finding the most attention-grabbing, impactful, engaging, relevant way to talk to each audience about why glass is relevant to them, to their communities, to their lifestyle today, every day. The unique attributes of the various social media platforms enable us to be timely and relevant talking about what matters most to each group, where it matters most to them in the format that they are most receptive to them. By doing this, we are able to cover the various trends and attributes of glass at the same time, but each time to the right target audience. This means increased relevance, improved engagement and higher impact, as you'd see on Page 60. We are increasing awareness. In 12 months, we have achieved over 1.1 billion impressions, reaching 93 million Americans, on average 8.5x. We are raising interest. We've measured a 6-point lift in purchase intent, 6x higher than the platform benchmark. We are also in the process of measuring through Nielsen data actual in-store sales lift in test versus control markets and are seeing a 2.4 lift. We have generated 17x more leads than in 2020. We are activating advocates. We see the emergence of a TEAMGLASS, a group of consumers who explicitly wish for the return of more products in glass and are becoming more and more vocal about the desire to better be able to recycle glass. With glass advocacy, we're building the glass brand with consumers and with customers. At the same time, we are strengthening the O-I brand by showcasing the innovation and new products generated through the new approach Asad will present next. I invite you to look at the link provided on the micro site if you would like to spend more time on the campaign. And I hand it back over to you, Chris.

Thanks, Marie-Laure. Let's take a few minutes and answer some questions that have come in. And extra credit, you get bumped up in the queue if you include #TEAMGLASS in your question. First question that's come in here is how do you measure the ROI or gauge the effectiveness of this program?

Yes. So Arnaud touched on this a little bit in the previous Q&A session. But basically, we're looking at 3 sets of KPIs. And the first one is media KPIs impact on consumers and impact on customers. So on media KPIs, the objective is to measure the awareness that we're building. So we're looking at reach, how many people, unique people are seeing that content and frequency, how many times they're seeing it. So you've seen in 1 year only we've already achieved almost 100 million people reached, on average 8.5x, which is a very big scale for only 1 year. We also, for certain messages, have been able to measure the actual awareness lift for that message. So for example, when we ran the campaign for one of our new product launch with our targeted customer audience, we've measured a 5-point lift in awareness, which is also above benchmark. On the consumer impact, the direct measure that we can have is purchase intent lift. And Arnaud mentioned that already, and you've seen it in the video. For example, with the Glass Up the Holidays campaign, we've measured a 6-point lift, which is 6x higher than the platform benchmark, a benchmark that's been established with consumer products. So that's even more impressive to us to achieve that with a packaging material. And then the last set of criteria is the impact to customers. And as you've seen, again, we've generated more leads. We get great positive qualitative feedback from customers, but also we've developed a more efficient approach to new product launch. So that's still early, right? We're only 1 year into the process, and we keep learning and becoming more efficient as we grow and as we expand. So we expect to amplify our impact as we keep going.

Thanks. We've had a couple of questions come in along these same 2 lines here or the same line here. How much of this work is being done by O-I alone? And are there obstacles to expanding it across the industry? Or would that make it more powerful?

So let me maybe comment on that. So definitely, this initiative has been started by O-I, specifically North America, as we saw the need to rebalance the dialogue on glass, okay? So there is a lot to say in that. There is a lot of benefits. But we saw that really it was a moment to drive the awareness of those benefits to consumers. So this is O-I initiative starting in North America. But at the same time, we are partnering with the glass associations across the world. And through this partnership with the glass associations, we are also driving some communication messages with different initiatives that more or less, I would say, talk about the same benefits of glass. So indirectly, we're also driving the same type of campaigns as associations. Obviously, the more we have communications on glass as an industry, the more we drive glass benefits awareness and the more we can drive the category.

Thank you. That's helpful. One last question here that's come in. There's been some direct messaging against plastic and cans. What's been the response? And how have customers and consumers been responsive of what we've done thus far?

Yes. So as we mentioned and Randy touched on this as well in his answers, we've actually been focused on rebalancing the dialogue. So we've been looking at reestablishing some facts and truth about glass packaging and making sure that we raise awareness on the benefits of glass. So what we've heard from consumers and customers is only positive messages. We hear from consumers how much they love glass. You see -- you saw from the video we had over 9.7 million engagements with our content. And what we hear is just that they love glass, how many fond memories consumers have of products in glass. I'll also say -- I mean, they also sometimes share their frustration that they cannot find some products in glass anymore or that they cannot recycle it where they live. And that makes us actually feel very encouraged by the various initiatives, right, as we work with customers to bring more products in glass or as we work with the communities, as Randy explained, to improve recycling facilities. Then we know that consumers will follow because that's what we hear on social media is they want to be able to get more in glass and recycle more glass. And then customers, I think Arnaud mentioned that already, that they're very positive. And actually, we start to partner with some of them in some of our content.

Okay. Thank you, Marie-Laure and Arnaud, for taking time to share our plan and path forward for glass advocacy. Now I'll hand it over to Asad, who will cover enabling growth and new product development.

Thanks, Chris. Our new product development program is an essential part of O-I's overall customer value proposition. We built strong customer relationships by actively working on joint value-creation programs across all elements of the business model from security of supply through the brand and business-building innovations. As part of O-I's transformation, we have rebuilt our product innovation capabilities with focus on helping customers embrace and leverage glass packaging to build powerful brands that drive growth. Let's look at this video that showcases our value proposition. [Presentation]

Let's start on Page 63. As so compellingly showcased in this video, glass is a unique material in the way it can be designed and shaped to engage consumer's senses and emotions and enable the creation of great differentiated brands. There are many examples of iconic brands across all segments that are intuitively recognized and loved through their glass packaging. In some of our key markets, we had recently lost sight of this truth and let customers pursuit of austerity drive us to deliver efficient but uninspiring and commoditized solutions. Our innovations have become focused on new technical features, ideated through internal brainstorming rather than desirable consumer benefits anchored in a deep understanding of market and brand needs. With a transformed approach, we have now gone back to our roots and embraced the brand and business-building nature of glass designs. To do so, we have upgraded our market research capabilities to intimately understand consumer needs and occasions, along with customer brand strategies and make this expertise a foundation for all new product development. Our product design approach is anchored in deeply understanding brand stories and personalities and ensuring we can efficiently bring them to life through packaging in ways that are intuitive and desirable for consumers and efficient for customers. We have also step-changed how we engage, excite and inspire our customers about product innovation in glass. Through an infusion of consumer packaged goods marketing talent, we now speak the same language as our customers and can actively work with them to identify market opportunities, frame success factors and develop compelling glass solutions to unlock profitable growth for their brands. Moving ahead to Page 64, we consistently see the market and financial value created by differentiated and relevant glass solutions in many product segments, both from a premium pricing and shelf productivity perspective. In many instances, customer products in exciting, brand-consistent glass packaging outperformed in the highest margin and most attractive tiers of key food and beverage categories. Our customers increasingly understand the important role glass innovations can play in enabling value creation and capture to secure a disproportionate share of the segment profit pools. This reality is driving strong renewed interest in glass packaging and innovation, with new product development activity in glass outpacing other substrates. MAGMA will only further enhance our ability to compellingly deploy and accelerate this approach in the marketplace. If you'll join me on Page 65, we'll bring our new approach to life by showcasing the innovation program for U.S. beer and hard seltzers, a critical segment where we had over time led the drive for austerity take away from true brand building, value creation and growth. Through extensive qualitative and quantitative research, we discovered that while consumers still expressed a strong underlying preference for glass over cans, they perceive many existing glass products as too traditional lacking relevant differentiation and unsuitable for the exciting new liquids and experiences they aspire to in craft beer, hard seltzer and other emerging beer adjacencies. Digging deeper to understand what they were looking for, we found key emotional motives that drove their choices in beer and hard seltzers. These include connection, creation and defiance for craft beer as well as adventure and playfulness for hard seltzers. We took these insights and designed a new range of bottles geared towards bringing these consumer aspirations to life in modern and exciting ways, creating the new Catalyst Collection launched earlier this month at the Craft Brewers Conference. These differentiated bottles reflect the primary motivations driving the craft beer and hard seltzer consumers and will allow brands to select the packaging that most compellingly tells their brand story. We launched 5 new designs this fall, and we'll continue to add new designs to the Catalyst range in the future, including expanding it to other categories. At this point, I would like to share a couple of short videos that were successfully used in our glass advocacy campaign to bring this to life. [Presentation]

The Catalyst Collection truly changes consumers' perception of beer and hard seltzers in glass and restores a premium, modern and exciting image for glass packaging within this important segment. Euromonitor recently pointed to the greater role glass packaging will likely play in a more diversified future for hard seltzers, specifically linked to new premium occasions and locations in which these products are being increasingly consumed. Many of our customers are expressing a similar perspective, and we are optimistic about our ability to capture a share of new hard seltzer innovations. As proof points of tangible progress, we have already launched new hard seltzers in glass in both the North American and European markets, including the Buenavida hard seltzer from Stone Brewing, with several other active projects in the pipeline. We are also currently market testing the highly disruptive Snifter Drinktainer with 2 leading brewers. With the formal launch earlier this month at the Craft Brewers Conference, these initiatives are just starting to get traction with our customers, and we see a bright future for glass in beer and hard seltzers as they build marketplace momentum going forward. Moving to Page 68. This outside-in approach is being replicated around the globe and in many other high priority segments. We are confident that this new value creation approach, anchored in consumer insights and reflective of brand strategies and personalities, will significantly enhance the relevance of glass and drive growth. Our ambition is to make new product development an essential driver of value creation for both O-I and our customers, driving renewal and profitability. Back to you, Chris.

Thanks, Asad. Let's take a few questions that have come in. The first is O-I's talked about innovation in the past and shared some platforms that didn't necessarily performed to expectation. What's changed with your approach and why do you feel it will be successful this time?

Thanks, Chris. That's a great question. I would say the fundamental change that we're making is moving from an inside-out sort of philosophy to an outside-in philosophy when it comes to innovation. In the past, we were very manufacturing-driven and capabilities-driven, and we would sort of generate a lot of technical features for glass that were based on internal brainstorming based on what we thought we were capable of doing with glass. We've radically changed that approach and now we start with the marketplace. We start with going and getting some really deep insights on what we think the market needs, where we think the unmet needs are, where we think the opportunities are. And we engage with those to start coming up with where to play and how to win strategies for each of those segments and each of our geographies. And when we have developed the strategies, we translate those into innovation platforms, and then we go and validate those innovation platforms with consumer research again. And so when we engage with customers, in the past, we used to share these exciting new technical sort of features with them without really being able to make a compelling case for why they should launch them and what value that we're going to get from a brand perspective or financial perspective. Now when we approach them, it's more to talk about specific business opportunities that we've identified. And when it so happens that they have seen the same, we can start really discussing about what potential solutions could be to address those opportunities so that we are creating value for them and customers have been much more receptive to that approach. And our innovation pipeline is starting to reflect that.

Thanks. The next question that came in was on new products. How have the new products filtered into the commercial pipeline? And what does this pipeline look like? Is there any way to differentiate? It seems as though there have been a lot of cans launched in the marketplace recently.

Yes, absolutely. So our new product pipeline, I think Andres referred to it earlier, is the strongest it's been in many years. Our pipeline today for products that will be launched in 2021 represents over 900 kilotons of opportunity. About half of it is new products, and about half of it is product refreshes, so redesigns of existing containers that are in the marketplace. This is up 38% versus last year and actually 20% above what our objectives were. Much more interestingly, about 10% of this pipeline already represents ideas that O-I should have took to customers and that have been driven by some of our global initiatives. So this is translating into our active pipeline actually relatively well, and we are only getting started. As far as your other question about cans, yes, cans are doing very well in the marketplace as well, but glass and cans can equally do well. If you look at data provided by Mintel, glass innovations in the marketplace are up double digits versus last year in an overall market that's relatively flat. Can innovations are up 6%. So actually, both glass and cans are doing fairly well. Obviously, we are excited about what glass can do, and we will continue to work with our customers on those pipelines.

Thanks. Another question came in here. How does the Catalyst Collection compare to cans and plastics, both with respect to cost and then what it looks like when it's on the final shelf for how it appears on the shelf for costs?

So again, I'll start by saying that we're not necessarily looking to replace plastics and cans, right, with this one. We have identified specific needs that we think consumers have that are not being met in the marketplace right now with those substrates. And we're working with our customers on meeting those needs with these exciting products. Some of it has to do with premiumization. Some of it has to do with some of these motives that we talked about that are not necessarily being met effectively. We -- our customers have reacted quite well to them, and they are -- a lot of these projects are now either in market test or in our pipeline.

Okay. The last question that came in here. How does the refillable, returnable fit into new product development? Are you seeing any activity in this area?

Absolutely. So refillables are still very important within the portfolios of our customers. We're seeing a lot of sort of growth in one-way glass in emerging markets, particularly in Latin America. But refillables, returnables are still very important. They're also very important in many of our markets in Europe. And there's a lot of innovation happening. Refillables and one-way glass actually play 2 very different roles in our customers' portfolio. Refillables are really the lowest cost packaging option that they have, and they're leveraging them to meet magic price points to drive mass consumption. And within the growth of that, there's a lot of innovation. There's a lot of new products that are being launched at that mass level. The second reason why returnables are doing quite well is that there is this demand for sustainability. And in developed markets, in particular, we're seeing a lot of experimentation with new business models, whether it's loop, whether it's Boomerang, both of which we are involved in, there's a lot of sort of new ideas around how to make returnables valuable and value creating in developed markets again. And again, we will be a part of that, and we are going to continue to sort of engage with these actors to do it.

Okay. One more has snuck in here. I know I promised one more, but -- so this is the last one. Won't e-commerce trends impact glass? What can be done with weight and breakability and through new product development to help with this?

Actually, that's a very, very good question. In fact, we're seeing e-commerce has exploded in the last 2 years, particularly with COVID. And that has coincided with actually glass doing extremely well as well. And so the data would tell us that it doesn't necessarily have a direct impact. I think if you go into the details of it, when it comes to e-commerce and food and beverage products, we're seeing that growth being very different from what it is in nonconsumables, which primarily are shipped to home, the Amazon model. In food and beverage, a lot of that online sort of shopping is happening with very different fulfillment methods. Some of it is click and collect, where you place the order online and you go and pick up the order at the store itself. A lot of it is through grocery delivery from your local store. Sometimes it's Instacart. Sometimes it's shipped, and we're seeing Uber Eats getting to that as well. And all of those methods of fulfillment are actually quite friendly to glass, and we continue to see glass doing well in those. I think the other place where e-commerce is growing pretty significantly is direct-to-consumer wines, and that is seeing pretty robust growth. But in that space, the vast majority of the products that are being shipped are glass products. And our customers have found ways through secondary packaging to make it easy to ship glass to avoid breakage, to make sure that supply chain works well for those glass products. The other reason why glass is very important in that channel is the opening experience is actually a box opening experience is a very big driver of product loyalty and repurchase. And glass is uniquely positioned to make that box opening experience very, very pleasant for consumers. And so yes, we see a lot of growth in e-commerce, but that growth is actually fairly beneficial for glass products as well within the food and beverage space.

Thanks, Asad. This concludes our 2021 Investor Day. On behalf of the leadership team and our 20-plus thousand employees around the world, we want to thank you for your interest in O-I Glass. Please join TEAMGLASS and make it a memorable moment by choosing safe, sustainable glass packaging. Enjoy the rest of your day.