Andres Lopez : Yes, let me answer first the question on the margin expansion initiative. So there are three rockets, revenue optimization, factory performance, and cost transformation. They enabled year-on-year margin expansion in a multi-year period. So that’s what we intended to do when we created this initiative. And our goal at the time was to have a solid process and capabilities in place, bottoms up and top down well articulated globally and all the way down to the shop floor. Now, we wanted to do that to be able to quickly and effectively identify projects, execute on them, and then replicate them across life. We have successfully on that, and that is what gives us the confidence that this is not only a multi-year program going forward, but that we can achieve the target that we find for this year of $150 million of revenue.
John Haudrich: And George, on your first comment, as far as the market appetite given the higher level of inventories in there right now, that’s what we’re specifically addressing right now. If you take a look in the fourth quarter, our capacity was down, our temporary curtailments equated to about 20% of our total global capacity. And in fact, it was probably skewed higher to that in Europe, where you see those longer supply chains such as wine and spirit. I think we are taking a category by category view and taking a look at that trying to understand the commercial components and considerations there to make sure that we’re addressing things to get our inventories down in the right place by market by category going forward.
George Staphos: John, your fourth quarter inventory management basically is trying to keep in mind that your customers may go below normal, is that the right takeaway?
John Haudrich: Yes, exactly. I mean, we don’t know exactly whether people are going to land, right, where they want to be, whether they will overshoot or undershoot, right? We had to be very dynamic and we would rather be quite aggressive on the front end like we were doing here in the fourth quarter to make sure that we’re managing the inventories appropriately.
George Staphos: And within the [inaudible] and this is what I was getting at, what’s in each of those three buckets that comprise 150 this year?
Andres Lopez : So in revenue optimization is primarily improving the quality of our revenue, making sure that we capture all the value as defined of our — in our agreements. In the factory performance is all the productivity that goes up with the asset base and in the cost transformation is reorganization. It’s changing organization structure is making it simple, more effective, more agile and there is still a lot of potential in those three offices.
John Haudrich : And George to build off that specifically on some of the numbers there for the $150 million, we have about more than a $100 million in the factory performance component that Andres was talking about, that’s the shop floor improvements and things like that. Understanding, probably half of that is restructuring activity, mostly focused in north, and that’s substantially done, okay, or very late stages. So we’re very comfortable with that. The next biggest bucket is what we call the cost transformation, which is the OpEx reduction. And we did complete a reduction in the force program in the fourth quarter. So that’s providing the majority of that call it $30 million improvement. And so again, very comfortable with executing and achieving that.
And then, the last component is a little bit on the revenue optimization. It’s a little skewed differently in the past where maybe there’s a little bit more revenue optimization going on when we were seeing that the stronger gross price realization in initiatives.
Andres Lopez : George, there is something I would like to highlight in previous calls, your adopted point of manufacturing operations, the strength of those operations, could we elevate performance. And when I look at the manufacturing operations of O-I, I can say to you that I’m seeing the best performance capability — ability to execute in more than two decades. So our capability such that it give us the confidence we can deliver on performance improvement, we’ve been doing so for the last few years and there is still room for improvement, and we have very good plans in place to do that.
Operator: The next question comes from Anthony Pettinari with Citi.
Anthony Pettinari: Good morning, Andres, John. Can you give any detail on the current NatGas hedging position now, you were obviously able to hedge well ahead of a NatGas spike in Europe that’s lapsed. Can you talk about your current position and then maybe somewhat related, you know, there was another glass producer who talked about Mexico Energy as a major headwind in ‘24 that they expect to recover contractually in ‘25. I’m not sure if that’s specific to that producer or if there’s anything you’d call out from the Mexico side as well.
John Haudrich: Yes, I can address both of those, thanks Anthony. First on our NatGas, it’s not a hedge, it’s long-term contracts just for some detailed clarity there. Again for everybody’s benefit, we had entered into very favorable long-term energy agreements before the run up in natural gas, before the Russia-Ukraine engagement or confrontation. So that’s when the natural gas prices were, call it EUR20 to EUR25 per megawatt hour. And those contractors were long term, as we included in our public filings. They continued through at a very high level of coverage through the end of 2025, okay. So as we stand here, we got two years left of those very favorable energy positions. Now, the best case scenario for us is that those contracts shielded us from very high energy prices that clearly spiked over the last two years and allowed us to benefit from that.
And the best solution also is that energy prices actually trail off to more historic levels when those contracts roll off at the end of 2025. As you take a look at the forward curve, right now, granted anything can change in any given day, but you look at it right now, the forward curve for natural gas in ‘25, I mean, ‘26 and ‘27 is pretty close to what those contracts are. So we are at a pretty good advantage position right now of having to had those contracts when the prices were high, and then the timing of them rolling off right now kind of syncs up with what’s — at least how the market seeing right now is a little bit more normalization of energy prices. And then on the Mexican side, yes, you know, I think everybody’s facing the same situation with the higher prices in Mexico.
That is part of our total net price position that we’ve laid out here. And again, yes, our PAS would look to pick that up in the next year. So it’s part of the natural cycle that we see.
Anthony Pettinari: And then just one quick one, if I could. There was a trade case on imports of I think wine bottles from LATAM and China into the U.S. I’m just wondering, if that’s impactful to you at all, and if you could just generally talk about import dynamics into North America and any impact to O-I.
John Haudrich: Yes, I mean, obviously that’s out there. We continue to monitor and look at that assertion. We can’t really comment on that much further. What I would say is that North America has always faced a large amount of imports coming in from different markets, primarily Asia being one of them. And from time to time, the competitive elements of that have been challenging. So that’s probably as far as we can go right now with that one.
Andres Lopez: Yes. And the — something that we’re seeing in the market is a growing concern with regards to imports of empty glass by our customers due to potential supply chain disruptions which should favor local supply and that’s all primarily in the wine space.
Operator: Our next question comes from Gabe Hadji with Wells Fargo. Please go ahead.
Gabe Hadji : I wanted to talk about maybe capital intensity of the business and this year CapEx being a little bit — thus cash flow may be a little bit depressed, but just when I look at your $400 — excuse me, $400 million to $450 million of maintenance CapEx. And then later on in your slide presentation, you talked about $75 million to $150 million of CapEx to fund profitable growth or maintain market share, I think is what you’d call it there. I guess picking midpoint there we’re talking about $500 million or so of CapEx that would be expected. And so, I guess maybe is that the right or wrong conclusion to draw from that? And then a peer announced something yesterday, they obtained financing for a pretty substantial investment here in North America.
And again, just maybe as you look across your system, do you feel like it’s well capitalized? I mean, I think, you probably default to yes, because your operating performance has been pretty impressive here of late given the market conditions. But just trying to think about medium term cash flow generating capability for the organization.
John Haudrich : Yes. But Gabe, this is John. I can address elements of that. First of all, in the last few years, our maintenance spending activity has ebbed and flows. Part of it has been a function of the pandemic and the ability to execute maintenance. And then more recently here with the softness that we experienced in the downtime, we’ve kind of been able to defer some maintenance. Because if facilities are down, you don’t need to spend the maintenance dollars. So I think a more normalized one, at least for the next few years is somewhere between $400 million and $500 million of maintenance capital as we come throughout of this cycle. And it could just really depend on the timing and the health of the — any particular asset that needs — group of assets that need to be addressed in any given year.
