Q4 2021 O-I Glass Inc Earnings Call

Headquartered in Perrysburg, Ohio, USA Oi is the preferred partner for many of the world's leading food and beverage brands.

We innovate in line with customers' needs to create iconic packaging that builds brand around the world.

Led by our diverse team of approximately 24000 people across 70 plants in 19 countries Oi achieved revenue of $6 4 billion in 2021.

[music].

Recognizing the tremendous benefits of glass the United Nations has designated 2022 is the international year of glass to celebrate.

Yeah.

Good day, and thank you for standing by and welcome to the O I glass full year and fourth quarter 2021 earnings conference call. At this time all participants are in a listen only mode. After prepared remarks, there will be a question and answer session to ask a question. During the session you will need to press star one.

<unk> on your telephone please limit yourself to one question and one follow up please be advised that this conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today, Chris Manuel Vice President of Investor Relations. Please go ahead.

Jerome and welcome everyone to the O I glass full year and fourth quarter 2021 earnings call. Our discussion today will be led by Andres Lopez, our CEO and John Hardrick. Our CFO today, we will discuss key business developments and review our financial results. Following prepared remarks, we will host a Q&A session.

Presentation materials for this earnings call are available on the Companys website. Please review the safe Harbor comments and our disclosure of the use of non-GAAP financial financial measures included in those materials I'd now like to turn the call over to Andreas who will start on slide three.

Good morning, everyone I appreciate your interest in Oi glass.

Let me start by thanking the team at <unk>.

Really appreciate your high level of engagement and agility and focus on execution over the past year, which helped us achieve our committed mentioned adviser wise strategy.

Last evening, we reported full year 2021, adjusted earnings of $1 83 per share and free cash flow of $282 million.

Both earnings and cash flow exceeded our original guidance and our most recent business outlook.

Fourth quarter adjusted earnings were <unk> 36 cents per share, which also exceeded our business outlook as we closed the year with an exceptionally strong note with sales volumes up more than 5% excluding divestitures.

Favorable 2021 results reflected a strong rebound from that from 2020, which was impacted by the onset of the pandemic.

Today's volumes.

Was up five 3% in production volume improved significantly.

Importantly, our 2021 shipments exceeded pre pandemic leverage, reflecting a strong consumer preference for premium and sustainable glass packaging.

Higher average selling prices offset around 80% of elevated cost inflation.

West quite a feat given inflation was nearly doubled what we expected heading into a year.

So there was good momentum passing through incremental inflation.

Earnings also benefited from our successful margin expansion initiatives, along with continued strong operating performance.

As we will review shortly we continue to take the ball the structural actions to advance <unk>.

This includes all facets of the business, including our structural actions to improve margin and investments to support organic growth.

Likewise, we are developing our proprietary micro solution addressing legacy liabilities and optimizing our structure.

On the right we have shared a dozen key financial measures.

As you can see we are making solid progress across all dimensions of the business.

This reflects a much more agile organization capable of effective execution, resulting in solid progress during 2021.

There is great momentum LOI and we are optimistic for 2022.

We expect to improve adjusted our newest in our strong adjusted adjusted free cash flow.

Adjusted earnings should improve to between $1 85.

Two $2 per share.

We expect higher adjusted earnings despite an anticipated 18 impact from the combination of unfavorable FX higher interest that we funded out of trust and dilution from divestitures as we optimize our portfolio.

Excluding funding the powder Frost, we expect free cash flow of at least $125 million.

Likewise strong adjusted free cash flow should exceed $350 million, which excludes elevated expansion capex that is fully funded.

As we redeployed proceeds from divestments.

Reflecting good momentum, we expect first quarter earnings will improve from prior year results.

John will expand on our financial performance and outlook later.

Let's move to page four as we review our recent sales volume trends adjusted for divestitures.

The chart illustrates our sales volumes over the past five years.

Which of course reflects days were option from the pandemic.

On a CAGR basis, our sales volumes have been stable over this period.

Keep in mind annual shipments have increased about one 5% on Paris.

Including <unk>, which is more indicative of underlying glass demand.

As I just noted shipments were up five 3% in 2021 as we recovered from the onset of Covid.

Importantly shipments improved one 1% from <unk> leverage in 2019, as we saw solid growth across nearly all markets and end use categories.

Stronger glass amount reflects flexibility Amit on volume challenged shift consumer preference for premium products.

<unk> preference for localization of supply and a favorable sustainability attributes of glass.

This was achieved despite ongoing supply chain challenges and reflects increase agility and improve commercial and operating capabilities.

Strong demand continued through the fourth quarter as shipments were up more than 5% from the prior year.

The Americas was down slightly reflecting peak asset project activity combined with record low inventory levels.

However shipments were up a robust 13% in Europe in.

In particular wind was very strong in southern Europe , as we exited the year.

Strong demand continued into a new year in January shipments were up more than 3% from the prior year period.

I mean, it's continued robust demand for glass containers, we expect life sales volume will grow up to 1% in 2022.

This growth will be served by increased productivity and asset projects that will add the equivalent of a partners across our enterprise.

Additionally, we are building new capacity should be online in early 2023 to serve premium categories in attractive growing markets.

For the next three years, we anticipate organic growth with our just 1% to 2% per year across our consolidated network.

That's the incremental capacity comes online.

Let's turn to slide five.

As we exceeded our financial commitments. We also made very good progress advancing our <unk> strategy.

In fact, we achieved all of our key objectives this past year.

Our highly successful margin expansion initiatives boosted earnings $70 million, which exceeded our target of $50 million.

With Magna, we aim to create new profitable business model that will revolutionize the glass market we.

We achieved critical milestones in 2021, as we validated our Mac My generation one line of Polish mainland and we are currently testing key generation two technologies at our St or pilot.

As we rebalanced the dialogue on glass, our glass advocacy digital marketing campaign generated $1 3 billion impressions, reaching more than 105 million people in the U S.

We are off to a great start in the first year of this much needed creative and effective programs.

Likewise, we advance our ESG agenda, and our efforts are being recognized.

Invite you to review the sustainability page in our appendix, which summarizes the meaningful ESG improvement at Oi noted by the likes of sustained <unk> and <unk> to name a few.

We also made great progress as we optimize our structure by rebalancing, our business portfolio and improving the balance sheet.

Our portfolio optimization program is advancing swiftly.

As discussed at Investor Day, we announced up to $680 million of future expansion initiatives, including up to 11 magma lines, which will be substantially funded.

Our portfolio optimization program.

We are also making greater strides resolving legacy liabilities.

In April we established an agreement in principle for paradox consensual plan of reorganization.

A few weeks ago that plan of reorganization was submitted to the court.

My wife's we have significantly reduced the unfunded position on our legacy pension plans.

As a result of our efforts, we nearly doubled our free cash flow and net debt is now at the lowest level since mid 2015.

Finally, we advanced our efforts to establish a simple agile organization as we completed the first two phases of our new strategic managed services partnership with Accenture.

I am firmly relief I firmly believe 2021 represents a step function improvement for Hawaii, and I am confident we will continue to accelerate our transformation in 2022.

On basics, we have laid out our key strategic objectives for 2020 to align with the six key priorities, we shared at our recent Investor day.

As we seek to expand margins, we intend to achieve higher selling prices that will offset last year, a favorable spread and recall the impact of 2022 cost inflation.

We will also continue our highly successful margin expansion initiatives, which should yield at least an incremental $50 million of benefits <unk>.

Next we intend to profitably grow our business in premium categories in key strategic markets. We.

We will substantially complete the expansion initiatives in Colombia, and Canada. This year, which are currently underway leveraging legacy technology.

<unk> financial will increasingly you realize our magnet technology, including the next wave of projects in Peru and Brazil.

Our expansion projects are substantially backed by long term customer agreements.

We will complete our current $1 5 billion.

Portfolio optimization program in 2022.

Remaining proceeds should be received prior to significant expansion reinvestment.

We also intend to resolve legacy asbestos liabilities in the first half of 2022 afforded the racecar pension plans.

We expect to complete our multi generation Maghemite development plan over the next few years.

In 2022, we will have <unk> fully optimized and plan to validate began to pilot. Likewise, we will continue to advance our generation three solution and the ultra lightweight and initiatives.

We aim to further enhance glass already attractive sustainability profile, we will reduce our greenhouse gas emissions by 5% to 10% in source, 30% to 35% of our electricity from renewable energy sources.

Along these lines, we will continue to expand our glass advocacy campaign with focus on multiple end use categories.

Through continued disciplined execution, we aim to deliver on these commitments and many more critical milestones in 2022 that we believe will increase the stakeholder value.

Now I'll over to you.

Thanks, Andrew and good morning, everyone I plan to cover a few topics today, including our recent performance progress on financial priorities as well as our 2020 to business outlook I'll start with a review of our 2021 financial performance on page seven.

As shown on the left a light reported full year 2021 adjusted earnings of $1 83 per share. This represented a 50% improvement from the prior year as the business recovered well from the onset of the pandemic.

Segment operating profit was $827 million up $157 million from the prior year adjusted for FX and divestitures net spread was a headwind reflecting elevated cost inflation on.

On the other hand sales volume was up five 3%, excluding divestitures as shipments exceeded pre pandemic levels. Likewise production levels, excluding divestitures increased seven 3%, which provided a significant earnings boost.

Our results also reflected continued strong operating performance as well as $70 million of benefits from our margin expansion initiatives as you can see on the right we recorded.

<unk> fourth quarter 2021, adjusted earnings of <unk> 36 per share segment operating profit was $177 million, which was down $21 million from the prior year adjusted for FX as expected net spread was a headwind due to elevated cost inflation and prior to sales price increases that began to take effect in January .

This year sales volume was strong up five 3% from the prior year Likewise production increased one 2%.

Higher production and the benefit of our margin expansion initiatives were more than offset by elevated logistics and higher maintenance expense in the fourth quarter.

The fourth quarter is that peak of our project activity in 2021.

Moving to page eight we provided more information on our fourth quarter performance by segment.

In the Americas segment operating profit was $99 million.

Down $27 million from the prior year adjusted for FX results benefited from favorable net price, reflecting timely pass through of energy costs, primarily in North America. As Anders noted same structure shipments were down about one 7%, reflecting low inventory levels in key growth markets and elevated asset maintenance.

<unk>, which was concentrated in the Americas as anticipated the impact of higher maintenance activity and elevated logistics costs more than offset the benefit of slightly higher production levels.

In Europe segment profit was $78 million up $7 million adjusted for FX.

Net price was a headwind pending price increases starting in January shipments increased 13% from the prior year, mostly reflecting robust demand in the wine category across France, Spain, and Italy Cigna.

Significantly lower operating costs reflected a 1% improvement in production levels benefits from our margin expansion initiatives and very good operating performance.

Turning to page nine we achieved all of our key financial priorities in 2021 free cash flow was $282 million, which exceeded our original guidance in most recent business outlook as illustrated on the top chart cash flow has improved significantly from recent periods.

Reflecting strong shipments our Ids was down five days from the prior year as we achieved record low inventory levels. We aim to maintain low inventories, although rebalancing will be required across the network committed liquidity.

Quiddity exceeded $2 3 billion significantly above our guidelines.

Net debt ended the year at $4 1 billion well below our 2021 target of $4 4 billion as you can see on the lower chart, we reduced net debt by around $500 million compared to last year and $900 million compared to 2019 levels, our leverage ratio as defined by our bank credit agreement ended the year around three.

Six times, which is favorable to our guidance of high threes.

Our balance sheet improvement reflected improved free cash flow and proceeds on divestitures, which totaled $180 million in 2021.

As <unk> discussed we have significantly advanced the paddock chapter 11 case, we also made very good progress, reducing our unfunded pension liability, which declined nearly $325 million from year end 2020.

Actions included a new <unk> liabilities and re balancing the asset portfolio to reduce future volatility overall, we continue to improve our cash flow and balance sheet position.

Let's shift to our 2020 to business outlook I'm now on page 10, we expect 2022 adjusted earnings will range from $1 85 to $2 per share.

As mentioned earnings will be impacted around <unk> 18 per share by a number of factors, including a stronger U S. Dollar net dilution from divestitures and incremental expenses, We fund the Paddock Trust.

Currently we have negotiated more than 90% of our open market sales agreement and we're implementing annual price adjustment formulas on long term contracts as such we are confident the benefit of price increases should recover last year's unfavorable spread and offset 2022 cost inflation.

We expect sales volume growth of up to 1% earnings will also reflect more than $50 million of benefits from our ongoing margin expansion initiatives. These benefits will be partially offset by some onetime cost attributed to our expansion initiatives as we seek to Debottleneck key markets. The chart includes other details.

Overall, we expect earnings will improve between 12 and 20% adjusted for the impact of FX divestitures Empatic shifting to cash flows on the right.

We expect 2022 free cash flow of at least $125 million and adjusted free cash flow should equal or exceed $350 million.

As the chart illustrates higher EBITDA and favorable working capital trends will boost cash flows $600 million of Capex compares to around $400 million in 2021, and the increase is due to investment in expansion projects as previously communicated.

Interest and taxes will be a headwind naturally we will incur higher interest upon funding the paddock trust, while elevated tax payments are attributed to higher earnings and resolution of tax matters.

These factors should yield free cash flow of at least $125 million adjusted.

Adjusted free cash flow is a new additional measure which excludes the impact of strategic capital investment going forward, we are breaking out our expansion investments, which should approximate $225 million in 2022 and includes projects underway in Colombia and Canada.

In mind, our expansion project will be substantially funded by proceeds from our portfolio optimization program. So adjusted free cash flow of at least $350 million reflects the cash available to return value to share shareholders through debt reduction share repurchases and the like please note that this cash flow outlook excludes the onetime $610 million <unk>.

Funding of the Paddock Trust.

On page 11, we share our 2022 financial priorities. This year, we will focus on funding our expansion projects and further improving our balance sheet.

As we just reviewed we intend to optimize our adjusted free cash flow, which should be at least $350 million in 2022, reflecting an EBITDA conversion of between 25 and 30% we intend to complete our $1 $5 billion portfolio optimization program in 2022, well ahead of original 2024 target.

To date, we have completed or announced transactions totaling $1 1 billion.

And other initiatives are in advanced stages, we've provided some additional details on timing of proceeds.

Mike Andres noted, we anticipate resolving legacy asbestos liabilities and will further derisk our pension plan in line with our goal of eliminating the unfunded liability by 2024.

Finally, we will further reduce our leverage as illustrated on the right. We are introducing a more expanded financial leverage measure, which includes net debt like the past as well as our legacy asbestos and pension liabilities. As you can see we have made significant progress reducing our financial leverage compared to recent years, we will further reduce our financial leverage in 2022.

While we will incur new debt to fund the <unk> Trust. The paddock support liability will be eliminated total leverage should decline from over four times last year to the high threes by the end of 2022.

This reflects strong adjusted free cash flow and proceeds on divestitures that will more than funded incremental investment and expansion initiatives. This year, we remain on target to achieve our total leverage objective of around three five times by 2024.

I'll wrap up with a few comments on our first quarter 2020 to business outlook I am now on page 12, we anticipate favorable net prices price increases take effect and we begin to offset the impact of prior year unfavorable spread and current year cost inflation, reflecting continued strong demand earnings should also benefit from higher sales volume as we expect shipments will.

Increase up to 2% from the prior year. Finally, we anticipate stable operating costs, we do expect higher production levels, especially since last year was impacted by severe winter weather Likewise earnings should benefit from our margin expansion initiatives. Yet we anticipate this will be offset by additional expense related to elevated project activity overall.

We expect higher first quarter earnings compared to the prior year now I'll turn it back to <unk>. Thanks, Sean Let me wrap up with a few comments on slide 13.

All we are pleased with our performance in 2021, our strong earnings and cash flows exceeded our original earnings guidance and most recent business update.

Likewise, we made great progress advancing our strategies last year.

We have great momentum entering 2020 tool as all key levers are pointing up supported by a strong fourth quarter sales volume that has continued into the new year.

We have a clear plan and set of ambitious targets for 2022, which are well aligned with what we articulated at Investor day.

Importantly, we are focused on a set of near term catalysts to create value. We have implemented most of our price increases effective early 2022, and expect a stable to improving sage volumes. After decades of litigation, we intent to establish a third and final resolution of our legacy asbestos liabilities by mid year, which have consume over.

40% of our cash flows in the last decade alone.

Otherwise our portfolio optimization program is moving swiftly and we expect to complete that program this year, which will support our expected expansion projects over the next three years.

Hawaii is a much more agile and capable organization as we have demonstrated over the past year through sound execution and consistently meeting or exceeding our commitments.

We are optimistic about 2022, and we expect higher adjusted earnings with strong adjusted cash flow and further balance sheet improvement I'm confident these efforts will improve shareholder value.

For your interest in Oi glass and we welcome your questions.

Ladies and gentlemen, as a reminder, if you would like to ask a question. Please press star one on your telephone keypad and still be draw. Your question press. The pound key please limit yourself to one question and one follow up your first question comes from the line of getting some Punjabi with Baird Your line fill.

Thanks.

Thank you and good morning, everybody good morning.

I guess, maybe for my first question can you give us more color on that build up to the 1% volume growth that you're referencing for guidance for 'twenty two.

In context of your customers a lot of your big customers talking about glass shortages.

Inventory seeming seemingly pretty light youre, adding more capex.

And yet we're at 1% in your first quarters that estimated at 2% or so so just give us more color in terms of the evolution and what would be the offsets relative to what I just went through.

So I can make a couple of comments and then John .

John can complement.

The growth of 1% is primarily driven by the Americas and the reason for that is last year, we had the Tex Mex event, which we expect not to repeat this year, we have incremental productivity, but we also took some actions for to put in place line extension and still be able to have incremental.

Production volume, even the good performance that we're seeing the demand for glass containers.

Now with regards to the glass shortages, we have been actively working with customers tools.

Serve them, Dave as we can.

The fundamental reason for these issues.

And for glass. He is very strong and in many cases chose up in peaks that are very difficult to follow but I think the strong relationships. We have created over the last few years are helping us to really.

Worked together plan together and improve those situations fairly quickly despite the challenging situations, we sometimes face.

Yes, I would add on that is the reference to the winter storm here last year that probably impacted volumes last year by about a half a percent production levels. So we'll get that back.

We are adding some incremental lines to the system. So that we can get some additional capacity out obviously creep capacity out of out of the production system.

But keep in mind, we're at record low inventory levels and the capacity adds the big capacity adds that we've been investing in this this next year here really don't go into effect until early part of 2023, so youll be able to see a step change increase in the production levels next year, which are great.

Let us get back to more of that 1% to 2% volume in 2023, and as we continue to add more production that should allow us to get maybe the 2% to 3% in the <unk>.

Out period from there.

Okay. That's very helpful. And then in terms of your comments on <unk>.

Price cost recovery I think.

On an EPS basis, it was about a <unk> 21 impact.

In 2021 does that.

What are you assuming for 2022, and then how have you sort of navigated these extreme weather conditions and shortages in Europe in terms of natural gas in.

The impact in the U S also from the Spike in natural gas recently and also just energy prices more broadly thanks.

Yes, so as we said.

Late last year.

We're squarely focused on.

Executing on price increases.

We got very well organized internally.

We've been able to implement and more than 90% of those price increases already so we know what the price increases will be for 2020 tool for the most part we've been tracking inflation very closely.

We're seeing that it's stabilizing for us so.

So we believe that with the information we have in front of us.

We will be able to fully recover inflation.

Yes, I could add on that is that in 2021, what we incurred was about $230 million of inflation inflation and we recovered about $180 million in price in that kind of gives you the negative spread that we had in 2021 were actually thinking that 2022 inflation will exceed what we saw.

In 2021, but we will get the prices above that.

In order to recover that to cover that plus the negative spread in 2021, and what we saw with inflation was last year in 'twenty. One it was really driven by energy and logistics costs and that inflation bubble is moving through the value chain and it's going to be more on the raw material and labor side in 2022 and we.

Continue to have very good procurement practices contracts coverage on through other tools. So we have a pretty good bead I believe on on where we stand on the cost inflation side and we're as we mentioned in the prepared comments or about 90% implemented on the local contract basis. So we believe we have a good view on what's happening next year at this point in time.

And with regards to the stream whether.

It is difficult to know what weather is going to do in the next couple of months. Nevertheless, if we look at the largest markets in which we operate in Europe . We look at the supplier base, we have for those markets on the contracts. We have in place. We're very comfortable we will be able to go to a winter with good supply now.

If any circumstance new circumstance emerge we will analyze that one and we will take action.

Language is presenting itself at that time, but at this point, we feel comfortable we're going to be able to operate well.

The highest pressures coming from natural gas supply are the markets, where we already are a smaller we are no pressure.

And your next question comes from the line of George Staphos with Bank of America. Your line is open.

Hi, everyone. Good morning, Thanks for the details.

Gratulation on concluding the year guys.

Two questions from me one on growth and the other on operations.

Far as growth goes.

What gives you comfort why should we be comfortable.

That's the growth that you saw in Europe in particular wasn't just pre buying ahead of the price increases that are going into place in 2022, which obviously if it was more of a pre buy would risk your volume on your volume forecast in 'twenty, two and beyond and Relatedly to that.

What benefit if any at all.

You could quantify are you getting from ready to drink cocktails.

Demand thats driving in glass. My second question is on operations. John <unk> can you talk about how you expect that project activity.

Headwind and operations to step down in <unk>, and so on that $30 million recognizing it was not just the project activity was a big not and certainly is a headwind for you to get over thank you.

Thank you George.

So let's.

Talk about Europe first.

We've been tracking closely.

Our demand and we didn't see any major reasons for indicating pre y.

In the previous quarter now that demand that we saw in the quarter continued on our price increases have been implemented. So we at this point believe that the pre buy activity. If it is there it is quite low.

Now what gives us comfort with regards to our demand in general.

At this point I'm going to talk about oil markets.

Is the favorable trends, we're seeing across markets some of them driven by consumer preferences of consumers are trading up their heightened focus on premium they are focused on sustainable products and health and wellness for which <unk> is a very good fee.

When we look at customers that are focused on branding philosophy is a very good fit for rounding tool and we're seeing an increased preference.

By customers for local supply and the reason for that is holiday.

Challenges they have experienced over the last two years with supply chains and supply change. So they are concerned about security of supply cost and sustainability and as a result of that they're localizing things. So we are seeing.

Localizing production of their brand so we're seeing more and more localization of global brands for example, which is impacting positively our volume.

<unk>.

Dimension of these trenches.

Glass has been performing really well in on premise and off premise both.

And these can be confirmed by looking at the lean soon need center studies for our <unk> Cta for on premise now all of this that I. Just mentioned has resulted in high NPV activity across markets and now because demand is solid for us we're taking the opportune.

<unk> toward can mix improvement to improve margins and improve reforms and the other.

Other dimension of that which is very helpful to us to help us define which businesses and assets we will focus on.

Now.

With regards to our TV cocktails.

Being able to develop some products already.

Starting to put them in the market, we believe that over time.

The sea of Sameness that is out there in these categories.

Customers will look for glass for to be able to strengthen their brands or to launch new products and that's starting to happen so that will be held.

With regards to project activity, obviously, it is a large level of project activity and what we've done is getting organized with the support of a third party.

For what we call capital excellence and that is all about analyzing risk and taking effective vaccines to the risk and the execution of projects. That's been ongoing we started that early fourth quarter.

Significant progress has been made and we are pretty focused on taking this issuance and actually pretty accurately put at risk the execution.

I'll bet all buildup on some of the other parts of your question there George first on the on the growth side I would say that we have a very strong commercial pipeline. In fact, we're oversold in multiple markets. So if we can make it we can sell it in that regard.

And then when it comes to the project activity or maintenance activity in 2022 will probably.

Be high in the first quarter and start to normalize and drop off after that now the expansion activity will be a little bit more backend loaded for the year just to give you a kind of a sense of that now it's playing through all of this is a sense, what's going on in the supply chain.

Obviously project activity it has been impacted by the ability to get <unk>.

Equipment and also contract labels labor services. So overall, we've seen a little bit of delay and we've had to re sequence of things out some across our system, but we're confident we can get the product just to complement the art expansions in 2020 tool, which will generate incremental volume in first quarter 'twenty three at all.

Based on legacy technology. So we know the technology well if all the practices are very clear operating practices are very clear for us that facilitates the implementation and the execution.

<unk> magnet technology, and the commissioning of that technology comps in the second half of 'twenty three.

So we have enough time to get organized to be able to get there. So I think your question is a very relevant one and we identified that as a.

Important area of focus for the organization and Thats why were taking all the actions that I described before now.

Now why do I can't angle George.

One final 0.1 of the largest pressures we have had in demand over the last few years has come from domestic beer in the United States and the.

The declining trend of that domestic beer is a slowing down but there is accelerated growth of local and international brands for beer, which is fully offsetting that decline of domestic beer. So one of the largest pressures we've had over the last three or four years. It is fading away and thats very positive for for our total volumes.

Thank you.

Yeah.

Your next question comes from the line of Anthony Pettinari with Citi. Your line is open.

Hi, This is actually Brian birchmeier sitting in for Anthony.

Looking at <unk> guidance, you have $40 million in non repeated storm costs positive price cost.

Positive shipment growth.

Some of the headwinds that I might be missing as to why <unk> could be even stronger is there anything you'd flag.

D costs equity earnings or supply chain headwinds.

So yes. Thanks.

On the spread side, we'll have double digit positive spreads probably have single digit.

Benefits from the volume that we talked about.

As you alluded to part of this spread is there because of the impact of prior year on the winter storm Yuri and some of the energy surcharges, our production will be up but I think the key thing. There is two elements that are out there is we did flag higher project activity, whether it's in our maintenance and starting to ramp up on some of the.

Expansion projects and then there was a one time $4 million insurance recovery last year that just as it is the thing that to identify out there other than that I think you kind of get.

Get where you need to be.

Got it thanks.

Just on the Capex guide for 2022 apologies if I missed this you lowered it by $50 million to $100 million from the guidance you gave at our conference in December .

What changed over the last two months and is the revised guide indicative of any supplier constraints or labor constraints that you may be seeing.

Yes, so I would say that the.

Planning numbers that we provided a few months ago. We're early in the project planning components as we pulled it together and fine tuning the actual project plans. So thats part of the differential and then yes, we have seen a three plus months delay in some of the project activity because of supply chain commerce.

Complications in particular the contract labor side, it's just hard to get people with all the level of construction that's going on out there in the world and whatnot. So it's all of those things coming together now what's the implications on this to our longer term outlook I think it is minimal.

And one angle, we may see a little bit more normalization over the three year period of time of the project activity rather than it being more front end loaded in that regard, but at the same token what we're seeing is that the.

Dilution from divestitures is more favorable.

The day than what we were thinking and so while we were originally guiding maybe 25% to 30 cents of headwinds for all of those items I think it's going to be probably closer to 20 or so so at the end of the day I think it all normalizes out in the guidance that we have for that 2024 periods. That's still makes a lot of sense.

Your next question comes from the line of Salvator Tiano with <unk> Research. Your line is open.

Yes, hi, good morning, good morning, so firstly.

I wanted to ask a little bit above.

Earnings dilution from portfolio divestitures and incremental debt from <unk>.

So you mentioned going to be Samsung this year, but clearly that's not happening the first day of the year. So how should we think about that diesel EPS headwind for 2023, what's kind of remain.

Yes, yes.

Simple answer than that and the easy answer is that if we have a 10 cents. This year there'll be an incremental 10 going into 2000.

2003, so the cumulative effect is that 2000 and since I just referred to on the previous question again, a little bit lower than what we were a little bit more favorable lower than what we were originally expecting.

This assumes paddock middle of the year as we kind of indicated and then kind of a sliding scale for some of the portfolio optimization activities.

Okay, Great and before you mentioned $4 million of insurance proceeds.

Just kind of remind us what is it.

Received in Q4 and also.

The weather headwind was around $40 million in Q1 last year.

You expect that your budget.

I'll set will manage with utilities or.

Lawrence providers.

We will help your earnings this year.

Yes, so on that last piece.

Obviously, we're working vigorously on the insurance side.

Potential recovery there that that process is very backlog given the number of the amount of disruption of the number of companies involved in that so that's still underway.

It's too preliminary to hang your hat on it but we're working on and that would represent an upside.

And as far as the insurance proceeds that was just.

The $4 million insurance proceed.

Recovered in the first quarter of 2021, it just wont repeat in the first quarter of 'twenty two.

What was your other question.

Alright, well I think we've lost.

Okay, we're ready for the next one.

Thank you. Your next question comes from the line of Mike Whitehead with Barclays. Your line is open.

Great. Thanks, Good morning, guys.

First question I wanted to circle back to <unk> question, and just make sure I understood it but it sounds like the shipments guidance this year.

Pretty much a function of your capacity running full out so even if your customers wanted to grow say, 4%, 5%. This year as an example.

Sounds like 1% kind of the upper limit what youre going to be able to serve until the new investments come on in 'twenty. Three is that correct way to think about it and then.

How are your customers handling that conversation because my guess is they wouldn't want to leave gross on the table for a year or so.

Okay. So the.

The shipments obviously are a function of.

This tranche that we mentioned before and the capacity available I think the good thing is we took some proactive action last year to implement some line extensions and also we have been emphasizing.

Now to work on productivity.

<unk> to be able to get more out of existing assets. So those together plus the you answered that won't repeat will give us some capacity to be able to serve this growth.

Now in Europe in particular.

We've been doing so tool we've been remember we added the year on court and we Havent seen a year normal year of operation with your encore.

In place 2022 will be the first one with that but we also had a number of line extensions that we had in Europe over the last two years Thats part of what he is helping.

Our supply right now for Europe and supports the higher numbers.

We are seeing everyone of the expansion that we presented to you are supported by long term agreements.

And those are the major drivers of our growth so from that perspective, the timelines of that are.

Well.

Aligned with the customer needs. So we really shouldn't be a problem now there is more potential yes. There is but I think we got to be very prudent with regards to the pace at which we go with these investments and we continue to analyze the pineland that pipeline is strong.

With the investment we already brought forward our focus right now is on the finding out opportunities for the following business plan period.

And I would just add the 1% growth is a function of the capacity of the elements that honors has it reflects the recovery from the winter storm urea and some of those additional line extensions of course. The team is working hard to continue to increase productivity and we will see whether that provides an opportunity on the upside, but I think it's too early to make that.

Yeah.

Great. Thank you for that and then for a follow up just maybe two quick ones for John on interest one what are you assuming today for incremental interest due to the product funding and then two can you just remind us of your fixed versus floating mix of debt.

Think about rates potentially rising this year.

Yes, so on the <unk> side, we're looking at about <unk>.

<unk> thousand $14 million at $600 million at our average borrowing rate starting kind of mid year as a place to sit.

We overall, where we're looking at right now is about 70 30 split between fixed and floating 30% floating maybe a little bit less than that but the important part is we don't have a lot of exposure to U S. Floating I think it's a half $500 million or so so right now we are.

Our assumptions include the forward curve as of a couple of days ago now.

They ended up being more rig rate hikes from there it might be a couple of million dollars, but we're not terribly sensitive to the changes in the fed policy over the shorter term here.

Your next question comes from the line of Mark Wilde with bank of <unk>.

Your line is open.

Thanks, Good morning, Andres Marni Jonathan.

Sorry.

Got it.

John .

<unk>.

You've answered a little bit of this already but can you give us some sense.

Paul.

Paula you saw from Micron.

And as we go into the first quarter here.

Yes, so the.

The.

<unk> was breaking a little bit, but I think you were asking about <unk> and potential impacts this quarter.

So.

Well, we've been very active in <unk>.

Implementing guidelines and all of the.

Procedures that are.

Behind.

And our recommended to protect the employees from this perspective as we know omicron has.

Trying to transmit a lot faster easier however, it has significantly less impact.

The previous variance so he's been putting more pressure on the <unk>.

<unk>, if you will for our factories. Nevertheless, we've been able to operate.

Pretty much normal across the global footprint, but thats an ongoing effort.

I think at this point the incidence is starting to drop so that should moving directionally.

Properly for us, but yes, we have been able to weather the storm.

And our factories are running at this point, 100% of wrongdoing.

And just maybe to comment on the broader impact supply chain impact of the ongoing pandemic one thing to keep in mind compared to other industries, our business is quite level.

90% of what we ship is shipped within 500 600 miles.

Over 85% of our supply base is very local to our facilities. So as such while you might hear a broader supply chain challenges our business in effect in of itself is fairly localized we've seen more with our customers' impact on things, but we've seen some smoothing out of that overall over the last several months.

Okay, and then for my follow up I wondered if you can just help us understand sort of your exposure to these high European gas prices I know you've got hedges in place that.

Protect you from some of that but I'm just curious.

As those hedges roll off how will that kind of interplay with kind of pricing.

So what I would say is we have a very mature process to manage energy across the business. The team does a fantastic job and <unk> have been doing for a period of time, it's not a new thing but.

We look out for the long term and continue to manage the long term of our contracts and also the financial tools that we use so we're quite confident about where we stand on the contracted and net cost of energy.

Your next question comes from the line of Kyle White with Deutsche Bank. Your line is open.

Hey, good morning, Thanks for taking the question.

Obviously, a lot of replacing with numerous price increases being passed to consumers can you just talk broadly about your price elasticity on some of your end market any concern here in terms of the higher value market with experience in Champaign, maybe any way to clarify characterize what percentage of your end markets are more sensitive to higher prices.

Well, what I would say is over time and I don't know if I have the numbers right on top of my head, but most of our business is moving more and more to the more value to the more premium categories. They tend to be do pretty well. It's some of the lower end value categories and we saw that.

10 years ago and during the last great recession, where there was a trade down to value on some of the mid tiers, but a lot of that in particular in the U S has been cycled out of the system. So.

We're in a pretty good state and especially in this in this world of.

Covid affordable luxuries have remained really important people are stuck at home and so to have a good bottle of wine or a nice scotch or whatever is something you can continue to do amid everything else and understanding youre, probably not traveling much and things like that even in a world of inflation.

Got it and then you mentioned record low inventory levels, particularly in the Americas, but just having an impact in terms of your ability to maybe serve some of your customers.

What are your inventory levels now here in February and we have the ability to get them to maybe more manageable or more efficient levels.

Yes.

The reason why we're seeing lower inventory levels is because we've been working extensively on the mine planning supply planning.

Sophisticated those processes, having those practices shared around the world.

We mentioned before in previous calls that we implemented integrated business planning or IBP. The company that has a significant influence on our ability to plan the business.

So all of that is coming together to help us perform well very well with lower inventories our expectation will be that we will be able to continue reducing the inventories further.

And we will be able to maintain them at those lower layers over time.

I mean, the team has done a great job I mean, our Ibs is down 25% over the last two years.

And as Andrew mentioned, we are going to be putting in new systems and tools to be able to continue to sustain that and continue to do better. We can do better it will take a little bit of time to to creep that down, but there's still opportunity.

Your next question comes from the line of Adam Josephson with Keybanc. Your line is open.

Thanks, Good morning, everyone hope you're well.

Morning, John .

Hi, Good morning, Andres John One question on your operating cash flow guidance of 725, plus can you just help me with working capital do you expect it to be a source or a use and how much and then with respect to some of the other items that lower pension and equity dividends I'm, just trying to understand relative.

Relative to I guess, a normalized level of operating cash flow. How we should think about that 725, plus given some of the moving parts I mentioned and anything else that I know.

Collected to ask about.

Yes, sure let me just give you a little bit of color there.

In 2021 here.

We ended up.

<unk> was a big use of cash right I mean, we were building up.

Receivables business is recovering and even the net effect of that in AP was a use of cash now that was offset because of the inventories going down very well right. So but going into 2022, we will be collecting on those receivables because of the volumes won't be growing.

Nearly as much as the big recovery year, So that gives us an opportunity to have a source of cash even amid a situation where inventories stay relatively flat or maybe we can make a little bit of progress on the inventory side.

We show in there the interest for the business will.

Be up a little bit primarily because of the paddock taxes will be a little higher mostly because of selling out some prior year matters.

And then the pension is a good story here because 2021 really was the last year of the big pension payments that we foresee also we had about $80 million of pension payments in 2021, and that probably will drop to between 20 and $30 million.

In 2022 and at that point in time, we really don't foresee.

A big Spike up in pension payments at this point in time, all the other things are pretty much pretty comparable on a year over year basis.

Okay. Thanks, John and ill address just on the volume issue I mean, you went into the fourth quarter, we're expecting flat shipments they turned out to be up five 4%.

What I mean, why would you say your visibility on volume seems as limited as it does.

Yes, because I'm just thinking about your 'twenty two so January was up three.

Seems like you have a pretty easy comp in February and March given winter storm, Yuri, but youre not in the less expecting a deceleration as the quarter progresses and then further deceleration later in the year. So I'm just trying to understand how much visibility you really actually have into demand and why it was so much different than what you were.

<unk> in the fourth quarter.

Yes, I think the.

The key driver of the incremental shipments that we saw.

Continuously improved demand for.

John Payne, and Bordeaux wine in France, and Prosecco and Italian wines.

Those categories were extremely strong and a lot more than we expected.

The interesting part of it continued economic coming into a first quarter. So remember that two years ago those categories has slowed down.

And they were soft.

What we are seeing at this point is the.

Full recovery of those categories so overtime.

<unk>, we will be able to incorporate it in our predictions better.

Factors that is driving significant incremental demand is very strong performance of beer in Europe in the largest in the.

The countries, where we have our largest presence.

Which is primarily in southern Europe .

<unk> is growing ahead of alternative packaging.

And is having a very strong performance when you combine the two we see the level of shipments that we're seeing in Europe .

And the other markets. They have very strong demand there just limited by capacity. So we've got to deal with that under pending on how mix moves we have the capacity available or not we have the inventory available or not.

So that influences.

Our planning that for the most part.

Demand is very healthy and as we go into the year.

We will be able to fine tune those predictions.

I mean to build off that I would say as Andre said that the demand profile has been strong and has been strong and we think it's going to remain strong.

The challenge has been looking at the supply chain and how that has been a.

Put a cap on things not necessarily in our system as I mentioned before but on our customer side. The third quarter, we were down and it was all because of supply chain related items, and it's kind of hard to read that going forward I think the wildcard is our ability to do more for and the production side creep it out and get more capacity out there to serve that strong demand and so it's really.

Those those variables on the demand side that we're trying to read through and Theres a couple of Wildcards there.

Your next question comes from the line of Mike Brooklyn, with <unk> Securities. Your line is open.

Thank you very much and congrats Andres John Chris on the year and the continued progress.

Cool.

Just a quick question.

Maybe John for you on the inflation.

You mentioned with respect to the contracts do you expect to recover not only 2021, but you expect by 2020 to inflation as well.

If 2022 inflation was higher than you expect on the contract structure is such that you can capture any incremental inflation above and beyond what you were expecting going into 2022.

Yes, what I would say is we know our contracts and we know what they stipulate.

And as well as our financial position that we use.

The line of sight on 2022 cost inflation is pretty good for the last few months.

I think if you've heard from us over the last couple of public appearances as that we believed has consistently that we're going to be able to recapture unfavorable spread in 2021.

And offset 2022 cost inflation.

So we're in a good position there.

Could could spread would be better than we anticipate I think it'll be if.

Our view on inflation proves to be conservative I think of that as that is where it's at and of course, we we still continue to do some marginal level of pricing out in the marketplace and so we'll see how those two dynamics play out.

And if inflation goes higher than we currently have it projected.

In our conversations with customers, we make clear that if that happens we'll be luck, because we won't be able to absorb ourselves.

The pressure of that inflation, but at this point with all the information we have.

We believe we are predictions are pretty sound.

Yes, I think that builds over the last kind of builds off what we had said in the prepared comments heading into 2021 inflation ended up being double what we thought it was going to be at that time, but we offset 80% of it and that just shows more commercial flexibility over the course of the year than maybe you have historically seen out of the business and so we've got a good capability there.

And Thats, how we are working through these dynamics.

Got it I appreciate the color and then just one quick question on inventories.

You mentioned.

It means growing 1%. This year you have this high demand you've limited capacity at least through time being but you want to keep inventories lean.

Given the current supply chain logistics issues, and obviously that could be transitory.

It could come back at some future quite well why do you think it is prudent to meat inventories at a very lean level coming out of the other side of this whether it be the pandemic supply chain why not.

Look at inventories evaluate maybe inventory is 40% higher 10%, what's the logic in saying well look to continue to run lean and risk maybe not being able to supply customers as you haven't been able to do recently.

While this business can be wrong with lower inventories than we have today.

If we have all the right.

Processes tools and practices in place.

Now the investments, we're making are the ones that are going to be able to take us to serve incremental demand. So we want the efficiencies of the supply chain, but.

But we need larger capacity to be able to meet the growing demand for glass containers.

So that's how we look at it we're moving forward with the expansion seen beyond the unearned, Canada and then we are in the early.

Planning stages of the oil projects that we presented to you as part of their business plan.

And your last question comes from the line of Arun. This one upon with RBC capital markets. Your line is open.

Great. Thanks for taking my question. So I just wanted to follow up on a couple of comments you made earlier about the.

The dollar impacts for 'twenty, two so it sounded like youre about $50 million behind on price cost that you fully expect to recover that in 'twenty, two and it sounded like your inflation for 'twenty two it would be above the 230 that you saw in 'twenty. One so assuming it's around $2 50, that's that looks like youll get about.

300 million or so of pricing I guess, a is that right and then.

Given your volume outlook of say, 1% it sounds like your EBITDA or your EBIT would be up in that $30 million to $50 million range for the full year is that.

Is that right.

Right way to think about it maybe 30% to $60 million is that right.

So.

On your point of the.

The pricing and the spread the way Youre thinking about it is right, but we're not specifically going to communicate what we're getting on the top of the topline price for competitive purposes, but.

Why youre doing the math is logical.

As far as the improvement on the on the EBIT.

EBIT side I think it will probably be on the high end of the range that you had indicated on the EBIT side EBITDA might be.

More like 30 million or something like that I'm, sorry, Let me, let me correct that.

Yes, youre right it might be in the kind of the mid part of the range that you are saying there mid to low range.

Okay. Thanks, a lot.

Thank you that concludes the question and answer session of today's call I will hand, the call back to Chris for any closing remarks.

Thanks, everyone for participating in our call that will conclude our events today. Please note that our first quarter 2022 call is scheduled for April 26th and remember to make it a memorable moment by choosing safe sustainable glass. Thank you.

Thank you and that concludes the <unk> full year and fourth quarter of 2021 conference call you may now disconnect.

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O I glass, we love glass and we're proud to be one of the leading producers of glass bottles of <unk> around the globe.

Glass is computable sure healthy and completely recyclable, making it the most sustainable rigid packaging materials.

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Headquartered in Perrysburg, Ohio, USA Oi is the preferred partner for many of the world's leading food and beverage brands.

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We innovate in line with customers' needs to create iconic packaging the builds brands around the world.

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Led by our diverse team of approximately 24000 people across 70 plants in 19 countries achieved revenue of $6 4 billion in 2021.

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Recognizing the tremendous benefits of glass.

<unk> has designated 2022 is the international year of glass to celebrate the past present and future.

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Good day, and thank you for standing by welcome to the O I glass full here in fourth quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. After prepared remarks, there will be a question and answer session to ask a question during the session you.

I'll need to press star one on your telephone please limit yourself to one question and one follow up please be advised that the this conference is being recorded if you require any further assistance. Please press star Zero I would now like they had the conference over to your Speaker today, Chris Manuel Vice President of Investor Relations. Please go ahead.

Thank you Jerome and welcome everyone to the O I glass full year and fourth quarter 2021 earnings call. Our discussion today will be led by Andres Lopez, our CEO and John Hodulik. Our CFO today, we will discuss key business developments and review our financial results. Following prepared remarks, we will host a Q&A session.

Resignation materials for this earnings call are available on the Companys website. Please review the safe Harbor comments and our disclosure of the use of non-GAAP financial financial measures included in those materials.

I'd now like to turn the call over to Andreas who will start on slide three.

Everyone.

Appreciate your interest in Oi glass.

Let me start by thanking the Whiting.

I truly appreciate your high level of engagement and agility and focus on execution over the past year, which helped us achieve our committed mentioned adviser wise strategy.

Last evening, we reported full year 2021, adjusted earnings of $1 83 per share and free cash flow of $282 million.

Both earnings and cash flow exceeded our guidance and our most recent business outlook.

Fourth quarter adjusted earnings were <unk> 36 cents per share, which also exceeded our business outlook as we closed the year with an exceptionally strong note with sales volumes up more than 5% excluding divestitures.

Favorable 2021 results reflected a strong rebound from that from 2020, which was impacted by the onset of the pandemic.

Sales volumes.

Was up five 3% in production volume improved significantly.

Importantly, our 2021 shipments exceeded pre pandemic levels, reflecting the strong consumer preference for premium and sustainable glass packaging.

Higher average selling prices offset around 80% of elevated cost inflation.

West quite a feat given inflation was nearly doubled what we expected heading into a year.

So there was good momentum passing through incremental inflation.

Earnings also benefited from our successful margin expansion initiatives, along with continued strong operating performance.

As we will review shortly we continue to take the ball the structural actions to advance our license strategy.

It includes all facets of the business, including our structural actions to improve margin and investments to support organic growth.

Otherwise, we are developing our appropriate already micro solution in addressing legacy liabilities and optimizing our structure.

On the right we have chaired a dozen key financial measures.

As you can see we are making solid progress across all dimensions of the business.

This reflects a much more agile organization capable of effective execution resulted in solid progress during 2021.

There is great momentum LOI and we are optimistic for 2022.

We expect to improve adjusted our new centers strong adjusted adjusted free cash flow.

Adjusted earnings should improve to between $1 85.

Two $2 per chair.

We expect higher adjusted earnings despite an anticipated 18 impact from the combination of unfavorable FX higher interest that we funded out of trust and dilution from divestitures as we optimize our portfolio.

Excluding funding the Paddock Trust, we expect free cash flow of at least $125 million.

Likewise, our strong adjusted free cash flow should exceed $350 million, which.

<unk> elevated expansion Capex that is fully funded.

As we redeploy proceeds from divestitures.

Reflecting good momentum, we expect first quarter earnings will improve from prior year results.

John will expand on our financial performance and outlook later.

Let's move to page four as we review our recent sales volume trends adjusted for divestitures.

The chart illustrates our sales volumes over the past five years.

Which of course reflects days were option from the pandemic.

On a CAGR basis, our sales volumes have been stable over this period.

Keep in mind annual shipments have increased about one 5% on Paris, when including <unk>, which is more indicative of underlying glass demand.

As I just noted shipments were up five 3% in 2021 as we recovered from the onset of Covid.

Importantly shipments improved one 1% from PREPA endemic levels in 2019, as we saw solid growth across nearly all markets and end use categories.

Stronger glass demand reflects flexi release made on volume challenged chips.

Tumor preference for premium products.

<unk> preference for localization of supply and a favorable sustainability attributes of glass.

This was achieved despite ongoing supply chain challenges and reflects increase agility and improve commercial and operating capabilities.

Strong demand continued through the fourth quarter as shipments were up more than 5% from the prior year.

<unk> was down slightly reflecting peak acid project activity combined with record low inventory levels.

However shipments were up a robust 13% in Europe .

In particular wind was very strong in southern Europe , as we exited the year.

Strong demand continued into a new year in January shipments were up more than 3% from the prior year period.

EMEA continued robust demand for glass containers, we expect <unk> volume will grow up to 1% in 2022.

This growth will be served by increased productivity and asset projects that will add the equivalent of a partners across our enterprise.

Additionally, we are building new capacity should be online in early 2023 to serve premium categories in attractive growing markets.

Over the next three years, we anticipate organic growth will erode as 1% to 2% per year across our consolidated network is.

That's the incremental capacity comes online.

Let's turn to slide five.

As we exceeded our financial commitments. We also made very good progress advancing our <unk> strategy.

In fact, we achieved all of our key objectives this past year.

Our highly successful margin expansion initiatives boosted earnings $70 million, which exceeded our target of $50 million.

With Magna, we aim to create new profitable business models that will revolutionize the glass market we.

We achieved critical milestones in 2021, as we validated our Mac My generation one lineup holds mainland and we are currently testing key generation two technologies at our Streator pilot.

As we rebalanced the dialogue on glass hourglass advocacy digital marketing campaign generated $1 3 billion impressions, reaching more than 105 million people in the U S.

We are off to a great start in the first year of these much needed creative and effective product.

Likewise, we advance our ESG agenda, and our efforts are being recognized.

Invite you to review the sustainability page in our appendix, which summarizes the meaningful ESG improvement at Oi noted by the likes of sustained Alex and <unk> to name a few.

We also made great progress as we optimize our structure by rebalancing, our business portfolio and improving the balance sheet.

Our portfolio optimization program is advancing swiftly.

As discussed at Investor Day, we announced up to $680 million of future expansion initiatives, including up to 11 magma lines, which will be substantially funded by our portfolio optimization program.

We are also making greater strides resolving legacy liabilities.

Back in April we established an agreement in principle for paradox consensual plan of reorganization.

A few weeks ago with a plan of reorganization was submitted to the court.

Likewise, we have significantly reduced the unfunded position on our legacy pension plans.

As a result of our efforts, we nearly doubled our free cash flow and net debt is now at the lowest level since mid 2015.

Finally, we advanced our efforts to establish a simple agile organization as we completed the first two phases of our new strategic managed services partnership with Accenture.

I am firmly believe I firmly believe 2021 represents a step function improvement for Hawaii and I am confident we will continue to accelerate our transformation in 2022.

On basics, we have laid out our key strategic objectives for 2020 to align with the six key priorities, we shared at our recent Investor day.

As we seek to expand margins, we intend to achieve higher selling prices that will offset last year, a favorable spread and recover the impact of 2022 cost inflation.

We will also continue our highly successful margin expansion initiatives, which should yield at least an incremental $50 million of benefits.

Next we intend to profitably grow our business in premium categories in key strategic markets.

We will substantially complete the expansion initiatives in Colombia, and Canada. This year, which are currently underway leveraging legacy technology.

This expansion will increasingly you realize our magnet technology, including the next wave of projects in Peru and Brazil.

Our expansion projects are substantially backed by long term customer agreements.

We will complete our current $1 5 billion portfolio.

Optimization program in 2020 to.

Remaining proceeds to be received prior to significant expansion reinvestment.

We also intend to resolve legacy asbestos liabilities in the first half of 2022 afforded the racecar pension plans.

We expect to complete our multi generation Maghemite development plan over the next few years.

In 2022, we will have gen. One fully optimized and plan to validate begin to pilot. Likewise, we will continue to advance our generation three solution and the ultra light weighting initiatives.

We aim to further enhance glass already attractive sustainability profile, we will reduce our greenhouse gas emissions by 5% to 10% in source, 30% to 35% of our electricity from renewable energy sources.

Along these lines, we will continue to expand our glass advocacy campaign with focus on multiple end use categories.

Through continued disciplined execution, we aim to deliver on these commitments and many more critical milestones in 2022 that we believe will increase the stakeholder value now I'll over to you.

Thanks, Andres and good morning, everyone I plan to cover a few topics today, including our recent performance progress on financial priorities as well as our 2020 to business outlook I'll start with a review of our 2021 financial performance on page seven.

As shown on the left a light reported full year 2021 adjusted earnings of $1 83 per share. This represented a 50% improvement from the prior year as the business recovered well from the onset of the pandemic.

Segment operating profit was $827 million up $157 million from the prior year adjusted for FX and divestitures net spread was a headwind reflecting elevated cost inflation on.

On the other hand sales volume was up five 3%, excluding divestitures as shipments exceeded pre pandemic levels. Likewise production levels, excluding divestitures increased seven 3%, which provided a significant earnings boost.

Our results also reflected continued strong operating performance as well as $70 million of benefits from our margin expansion initiatives as you can see on the right we recorded.

<unk> fourth quarter 2021, adjusted earnings of 36 per share segment operating profit was $177 million, which was down $21 million from the prior year adjusted for FX as expected net spread was a headwind due to elevated cost inflation and prior to sales price increases that began to take effect in January .

This year sales volume was strong up five 3% from the prior year. Likewise production increased one 2%, however, higher production and the benefit of our margin expansion initiatives were more than offset by elevated logistics and higher maintenance expense in the fourth quarter.

The fourth quarter is that peak of our project activity in 2021.

Moving to page eight we provided more information on our fourth quarter performance by segment.

In the Americas segment operating profit was $99 million.

Down $27 million from the prior year adjusted for FX results benefited from favorable net price, reflecting timely pass through of energy costs, primarily in North America. As Anders noted same structure shipments were down about one 7%, reflecting low inventory levels in key growth markets and elevated asset maintenance.

<unk>, which was concentrated in the Americas as anticipated the impact of higher maintenance activity and elevated logistics costs more than offset the benefit of slightly higher production levels.

In Europe segment profit was $78 million up $7 million adjusted for FX.

Net price was a headwind pending price increases starting in January shipments increased 13% from the prior year, mostly reflecting robust demand in the wine category across France, Spain, and Italy Cigna.

Significantly lower operating costs reflected a 1% improvement in production levels benefits from our margin expansion initiatives and very good operating performance.

Turning to page nine we achieved all of our key financial priorities in 2021 free cash flow was $282 million, which exceeded our original guidance in most recent business outlook as illustrated on the top chart cash flow has improved significantly from recent periods.

Reflecting strong shipments our Ids was down five days from the prior year as we achieved record low inventory levels. We aim to maintain low inventories, although rebalancing will be required across the network committed liquidity.

Quiddity exceeded $2 $3 billion significantly above our guidelines.

Net debt ended the year at $4 1 billion well below our 2021 target of $4 4 billion as you can see on the lower chart, we reduced net debt by around $500 million compared to last year and $900 million compared to 2019 levels, our leverage ratio as defined by our bank credit agreement ended the year around three.

Six times, which is favorable to our guidance of high threes.

Our balance sheet improvement reflected improved free cash flow and proceeds on divestitures, which totaled $180 million in 2021.

As Andrew discussed we have significantly advanced the paddock chapter 11 case, we also made very good progress, reducing our unfunded pension liability, which declined nearly $325 million from year end 2020.

Actions included a new <unk> liabilities and re balancing the asset portfolio to reduce future volatility overall, we continue to improve our cash flow and balance sheet position.

Let's shift to our 2020 to business outlook I am now on page 10, we expect 2022 adjusted earnings will range from $1 85 to $2 per share.

As mentioned earnings will be impacted around <unk> 18 per share by a number of factors, including a stronger U S. Dollar net dilution from divestitures and incremental expenses, We fund the Paddock Trust.

Currently we have negotiated more than 90% of our open market sales agreement and we are implementing annual price adjustment formulas on long term contracts as such we are confident the benefit of price increases should recover last year's unfavorable spread and offset 2022 cost inflation.

We expect sales volume growth of up to 1% earnings will also reflect more than $50 million of benefits from our ongoing margin expansion initiatives. These benefits will be partially offset by some onetime cost attributed to our expansion initiatives as we seek to Debottleneck key markets. The chart includes other details overall.

Overall, we expect earnings will improve between 12 and 20% adjusted for the impact of FX divestitures Empatic shifting to cash flows on the right.

We expect 2022 free cash flow of at least $125 million and adjusted free cash flow should equal or exceed $350 million.

As the chart illustrates higher EBITDA and favorable working capital trends will boost cash flows $600 million of Capex compares to around $400 million in 2021, and the increase is due to investment in expansion projects as previously communicated.

Interest and taxes will be a headwind naturally we will incur higher interest upon funding the paddock trust, while elevated tax payments are attributed to higher earnings and resolution of tax matters.

These factors should yield free cash flow of at least $125 million adjusted.

Adjusted free cash flow is a new additional measure which excludes the impact of strategic capital investment going forward, we are breaking out our expansion investments, which should approximate $225 million in 2022 and includes projects underway in Colombia, and Canada <unk>.

In mind, our expansion project will be substantially funded by proceeds from our portfolio optimization program. So adjusted free cash flow of at least $350 million reflects the cash available to return value to <unk> shareholders through debt reduction share repurchases and alike. Please note that this cash flow outlook excludes the onetime $610 million <unk>.

Our funding of the Paddock Trust.

On page 11, we share our 2022 financial priorities. This year, we will focus on funding our expansion projects and further improving our balance sheet.

As we just reviewed we intend to optimize our adjusted free cash flow, which should be at least $350 million in 2022, reflecting an EBITDA conversion of between 25 and 30% we intend to complete our $1 $5 billion portfolio optimization program in 2022, well ahead of original 2024 target.

To date, we have completed or announced transactions totaling $1 1 billion.

And other initiatives are in advanced stages, we've provided some additional details on timing of proceeds.

<unk> noted, we anticipate resolving legacy asbestos liabilities and will further derisk our pension plan in line with our goal of eliminating the unfunded liability by 2024.

Finally, we will further reduce our leverage as illustrated on the right. We are introducing a more expanded financial leverage measure, which includes net debt like the past as well as our legacy asbestos and pension liabilities. As you can see we have made significant progress reducing our financial leverage compared to recent years, we will further reduce our financial leverage in 2022.

While we will incur new debt to fund the <unk> Trust. The paddock support liability will be eliminated total leverage should decline from over four times last year to the high threes by the end of 2022.

This reflects strong adjusted free cash flow and proceeds on divestitures that will more than funded incremental investment and expansion initiatives. This year, we remain on target to achieve our total leverage objective of around three five times by 2024.

I'll wrap up with a few comments on our first quarter 2020 to business outlook I am now on page 12, we anticipate favorable net prices price increases take effect and we begin to offset the impact of prior year unfavorable spread and current year cost inflation, reflecting continued strong demand earnings should also benefit from higher sales volume as we expect shipments were.

Increase up to 2% from the prior year. Finally, we anticipate stable operating costs, we do expect higher production levels, especially since last year was impacted by severe winter weather Likewise earnings should benefit from our margin expansion initiatives. Yet we anticipate this will be offset by additional expense related to elevated project activity overall.

We expect higher first quarter earnings compared to the prior year now I'll turn it back to Anders Thanks, Sean Let me wrap up with a few comments on slide 13.

All we are pleased with our performance in 2021, our strong earnings and cash flows exceeded our original earnings guidance and most recent business update.

Likewise, we made great progress advancing our strategies last year.

We have great momentum entering 2020 tool as all key levers are pointing up supported by a strong fourth quarter sales volume that has continued into the new year.

We have a clear plan and set of ambitious targets for 2022, which are well aligned with what we articulated at Investor day.

Importantly, we are focused on a set of near term catalysts to create value. We have implemented most of our price increases effective early 2022, and expect a stable to improving sales volumes. After decades of litigation, we intent to establish a third and final resolution of our legacy asbestos liabilities by mid year, which have consume over.

40% of our cash flows in the last decade alone.

Otherwise our portfolio optimization program is moving swiftly and we expect to complete that program this year, which will support our expected expansion projects over the next three years.

Hawaii is a much more agile and capable organization as we have demonstrated over the past year through sound execution and consistently meeting or exceeding our commitments.

We are optimistic about 2022, and we expect higher adjusted earnings with strong adjusted cash flow and further balance sheet improvement I'm confident these efforts will improve shareholder value.

For your interesting eyeglass and we welcome your questions.

Ladies and gentlemen, as a reminder, if you would like to ask a question. Please press star one on your telephone keypad and Sophie draw. Your question press the pound key please limit yourself to one question and one follow up your first question comes from the line of getting some Punjabi with Baird Your line fill.

Thanks.

Thank you and good morning, everybody good morning.

I guess, maybe for my first question can you give us more color on that build up to the 1% volume growth that you're referencing for guidance for 'twenty two.

In context of your customers a lot of your big customers talking about glass shortages.

Inventories, meaning putting those seemingly pretty light youre, adding more capex.

And yet we're at 1% in your first quarters that estimated at 2% or so so just give us more color in terms of the evolution and what would be the offsets relative to what I just went through.

So I can make a couple of comments and then John .

John can complement.

The growth of 1% is primarily driven by the Americas and the reason for that is last year, we had the <unk>, which we expect not to repeat this year.

We have incremental productivity, but we also took some actions for to put in place line extension and still be able to have incremental production volume even the good performance that we're seeing the demand for glass containers.

Now with regards to the glass shortages, we have been actively working with customers tools.

Serve them there as we can.

The fundamental reason for these issues. These demand for glass. He is very strong and in many cases chose up in peaks that are very difficult to follow but I think the strong relationships. We have created over the last few years that are helping us to really.

Worked together plan together and improve those situations fairly quickly despite of the challenging situations, we sometimes face.

Yes, and I would add on that is the reference to the winter storm here last year that probably impacted volumes last year by about a half a percent production levels. So we'll get that back.

We are adding some incremental lines to the system. So that we can get some additional capacity out obviously creep capacity out of out of the production system.

But keep in mind, we're at record low inventory levels and the capacity adds the big capacity adds that we've been investing in this this next year here really don't go into effect until early part of 2023, so youll be able to see a step change increase in the production levels next year, which are great.

Let us get back to more of that 1% to 2% volume in 2023, and as we continue to add more production that should allow us to get maybe the 2% to 3% in the <unk>.

Out period from there.

Okay. That's very helpful. And then in terms of your comments on <unk>.

Price cost recovery I think.

On an EPS basis, it was about a 'twenty one impact.

In 2021 does that.

What are you assuming for 2022, and then how have you sort of navigated these extreme weather conditions and shortages in Europe in terms of natural gas in.

The impact in the U S also from the Spike in natural gas recently and also just energy prices more broadly thanks.

Yes, so as we said.

Late last year.

We're squarely focused on.

Executing on price increases.

We got very well organized internally.

And we've been able to implement and more than 90% of those price increases already so we know what the price increases will be for 2022 for the most part we've been tracking inflation very closely.

We're seeing that it's stabilizing for us so.

So we believe that with the information we have today in front of us.

We'll be able to fully recover inflation.

Yes, I could add on that is that in 2021, what we incurred was about $230 million of inflation inflation and we recovered about $180 million in price in that kind of gives you the negative spread that we had in 2021 were actually thinking that 2022 inflation will exceed what.

We saw in 2021, but we will get the prices above that.

Recover that to cover that plus the negative spread in 2021, and what we saw with inflation was last year in 'twenty. One it was really driven by energy and logistics costs and that inflation bubble is moving through the value chain and it's going to be more on the raw material and labor side in 2022, and we continue.

To have very good procurement practices contracts coverage on through other tools. So we have a pretty good bead I believe on on where we stand on the cost inflation side and we're as we mentioned in the prepared comments or about 90% implemented on the local contract basis. So we believe we have a good view on what's happening next year at this point in time.

And with regards to extreme weather.

It is difficult to know what weather is going to do in the next couple of months. Nevertheless, if we look at the largest markets in which we operate in Europe . We look at the supplier base, we have for those markets on the contracts. We have in place. We're very comfortable we will be able to go to a winter with good supply now.

If any circumstance new circumstance emerge we will analyze that one and we will take action.

Language is presenting itself at that time, but at this point, we feel comfortable we're going to be able to operate well.

The highest pressures coming from natural gas supply are the markets, where we already are a smaller we are not priced.

And your next question comes from the line of George Staphos with Bank of America. Your line is open.

Hi, everyone. Good morning, Thanks for the details.

Gratulation on concluding the year guys.

Two questions from me one on growth and the other on operations.

Far as growth goes.

What gives you comfort why should we be comfortable.

That's the growth that you saw in Europe in particular wasn't just pre buying ahead of the price increases that are going into place in 2022, which obviously if it was more of a pre buy would risk your volume on your volume forecast in 'twenty two and beyond.

Relatedly to that what benefit if any at all.

If you could quantify are you getting from ready to drink cocktails.

And then what demand Thats driving in glass. My second question is on operations. John <unk> can you talk about how you expect that project activity.

Headwind and operations to step down in <unk>, and so on that $30 million recognizing it was not just the project activity was a big not and certainly is a headwind for you to get over thank you.

Thank you George.

So let's.

Talk about Europe first.

We've been tracking closely.

Our demand and we didn't see any major reasons for indicating pre y.

In the previous quarter now that demand that we saw in the quarter continued on our price increases have been implemented. So we at this point believe that the pre wide activity. If it is there it is quite low.

Now what gives us comfort with regards to our demand in general.

At this point I'm going to talk about oil markets.

These favorable trends, we're seeing across markets some of them driven by consumer preferences of consumers are trading up their heightened focus on premium they are focused on sustainable products and health and wellness for which <unk> is a very good fee.

When we look at customers that focus on branding philosophy is a very good fit for branding tool and we're seeing an increased preference.

By customers for local supply and the reason for that is all day.

Challenges they have experienced over the last two years with supply chains and supply change. So theyre concerned about security of supply cost and sustainability and as a result of that they're localizing things. So we're seeing.

Localizing production of their brand so we're seeing more and more localization of global brands for example, which is impacting positively our volume.

Third.

Dimension of these trends.

Glass has been performing really well in on premise and off premise both.

And these can be confirmed by looking at the lean soon need CNS studies sticks for a premium CGA for on premise now all of this that I. Just mentioned has resulted in high NPV activity across markets and now because demand is solid for us we're taking the opportune.

<unk> toward can mix improvement to improve margins and improve returns and.

Other dimension of that which is very helpful to us help us define which businesses and assets we will focus on.

Now.

With regards to our TV cocktails.

Being able to develop some products already and starting to put them in the market, we believe that over time.

The sea of Sameness that is out there in these categories.

Customers will look for glass for to be able to strengthen their brands or to launch new products and that's starting to happen so that will be held.

With regards to project activity, obviously, it is a large level of project activity and what we've done is getting organized with the support of a third party.

For what we call capital excellence and that is all about analyzing risk and taking effective vaccine to the risk and the execution of projects. That's been ongoing we started that early fourth quarter.

If he can progress has been made and we are pretty focused on taking this issuance and actually pretty annually to address the execution.

I'll bet buildup on some of the other parts of your question there George first on the on the growth side I would say that we have a very strong commercial pipeline. In fact, we're oversold in multiple markets. So if we can make it we can sell it in that regard.

And then when it comes to the project activity or maintenance activity in 2022 will probably.

Be high in the first quarter and the start to normalize and drop off after that now the expansion activity will be a little bit more backend loaded for the year just to give you kind of a sense of that now it's playing through all of this is a sense, what's going on in the supply chain.

Obviously project activity it has been impacted by the ability to get <unk>.

Equipment and also contract labels labor services. So overall, we've seen a little bit of delay and we've had to re sequence things out some across our system, but we're confident we can get the product just to complement the art expansions in 2020 tool, which will generate incremental volume in first quarter 'twenty three at all based on legacy technology.

So we know the technology well.

All the practices are very clear of operating practices are very clear for us that facilitates the implementation.

The execution involving magnet technology, and the commissioning of that technology comps in the second half of 'twenty. Three so we have enough time to get organized to be able to get there. So I think your question is a very relevant one and we identified that as a.

Important area of focus for the organization and Thats why were taking all the actions that I described before now.

Now why do I can't angle George.

One final 0.1 of the largest pressures we have had in demand over the last few years has come from domestic beer in the United States and the.

The declining trend of that domestic beer is a slowing down but there is accelerated growth of local and international brands for beer, which is fully offsetting that decline of domestic beer. So one of the largest pressures we've had over the last three or four years. It is fading away and Thats really positive for for our total volumes.

Yes.

Thank you.

Your next question comes from the line of Anthony Pettinari with Citi. Your line is open.

Hi, This is actually Brian birchmeier sitting in for Anthony.

Looking at <unk> guidance, you have $40 million in non reputed storm costs positive price cost.

Positive shipment growth.

Some of the headwinds that I might be missing as to why <unk> couldnt be even stronger is there anything you'd flag.

R&D costs equity earnings or supply chain headwinds.

So yes, thanks on the on the spread side, we'll have double digit positive spreads probably have single digit benefits from the volume that we talked about.

As you alluded to part of this spread is there because of the impact of prior year on the winter storm Yuri and some of the energy surcharges, our production will be up but I think the key thing. There is two elements that are out there is we did flag higher project activity, whether it maintenance and starting to ramp up on some of the.

Expansion projects and then there was a one time $4 million insurance recovery last year that just as it is.

<unk> identified out there other than that I think you kind of get.

Get where you need to be.

Got it.

And.

Just on the Capex guide for 2022 apologies if I missed this you lowered it by $50 million to $100 million from the guidance you gave at our conference in December what changed over the last two months and is the revised guide indicative of any supplier constraints or labor constraints that you may be seeing.

Yes, so I would say that the.

Planning numbers that we provided a few months ago. We're early in the project planning components as we pulled it together and fine tuning the actual project plans. So thats part of the differential and then yes, we have seen a three plus months delay in some of the project activity because of supply chain.

Complications in particular the contract labor side, it's just hard to get people with all the level of construction that's going on out there in the world and whatnot. So it's all of those things coming together now what's the implications on this to our longer term outlook I think it's minimal.

And one angle, we may see a little bit more normalization over the three year period of time, the project activity rather than it being more front end loaded in that regard, but the same token what we're seeing is that the.

Dilution from divestitures is more favorable.

End of the day than what we were thinking.

While we were originally guiding maybe 25% to 30 cents of headwinds for all of those items I think it's going to be probably closer to 20 or so so at the end of the day I think it all normalizes out in the guidance that we have for that 2024 periods. That's still makes a lot of sense.

Your next question comes from the line of Salvator Tiano with Seaport Research. Your line is open.

Yes, hi, good morning good.

Good morning, so firstly.

I wanted to ask a little bit above the earnings.

Earnings dilution from portfolio divestitures and incremental debt from <unk>.

So you mentioned going to be 10% this year, but clearly that's not happening the first day of the year. So how should we think about that diesel EPS headwind for 2023, what's kind of remaining.

Yes, yes.

Simple answer than that and the easy answer is that if we have a 10 cents. This year, there will be an incremental 10 going into 2000 and.

'twenty three so the cumulative effect is that 'twenty since I just referred to on the previous question again, a little bit lower than what we were a little bit more favorable lower than what we were originally expecting.

This assumes paddock middle of the year as we kind of indicated and then kind of a sliding scale for some of the portfolio optimization activities.

Okay, Great and before you mentioned 4 million insurance proceeds.

Just kind of remind us what is received in Q4 and also.

The weather headwind was around $40 million in Q1 last year.

You expect your budget.

All said, we will manage with utilities or.

Lawrence providers.

We will help your earnings this year.

Yes, so on that last piece.

Obviously, we're working vigorously on the insurance side.

Potential recovery there that that process is very backlog given the number the amount of disruption in the number of companies involved in that so that's still underway.

It's too preliminary to hang your hat on it but we're working on and that would represent an upside.

And as far as the insurance proceeds that was just.

At $4 million insurance proceeds that were recovered in the first quarter of 2021. It just wont repeat in the first quarter of 'twenty two.

What was your other question.

Okay, well I think we lost.

Thank you were ready for the next one.

Thank you. Your next question comes from the line of Mike Whitehead with Barclays. Your line is open.

Great. Thanks, Good morning, guys.

First question I wanted to circle back to <unk> question, and just make sure I understood it but it sounds like the shipments guidance this year.

Pretty much a function of your capacity running full out so even if your customers wanted to grow say, 4%, 5%. This year as an example.

Sounds like 1% kind of the upper limit what youre going to be able to serve until the new investments come on in 'twenty three better correct way to think about it and then.

How are your customers handling that conversation because my guess is they wouldn't want to leave gross on the table for a year or so.

Okay. So the cheapness, obviously are a function of.

These trends that we mentioned before and the capacity available.

I think the good thing is we took some proactive action last year to implement some line extensions and also we have been emphasizing.

Now to work on productivity.

<unk> to be able to get more out of existing assets. So those together plus <unk> that won't repeat will give us some capacity to be able to serve these growth.

Now in Europe in particular.

We've been doing so tool we've been remember we added the year on court and we Havent seen a year normal year of operation we during the quarter.

In place 2022 will be the first one with that but we also had a number of line extensions that we had in Europe over the last two years, that's part of what is helping our suppliers right now for Europe and supports the higher numbers. We are seeing everyone of the expansions that we presented to you are supported by long.

Term agreements and those are the major drivers of our growth so from that perspective, the timelines of that are.

Well.

Aligned with the customer needs. So we really shouldn't be a problem now there is more potential yes. There is but I think we got to be very prudent with regards to the pace at which we go with these investments and we continue to analyze the pineland that pipeline is strong.

With the investment we already brought.

Forward, our focus right now is on the.

The finding out opportunities for the following business plan period.

And I would just add the 1% growth is a function of the capacity of the elements that honors has it reflects the recovery from the winter storm urea and some of those additional line extensions of course. The team is working hard to continue to increase productivity and we'll see whether that provides an opportunity on the upside, but I think it's too early to make that.

Great. Thank you for that and then for a follow up just maybe two quick ones for John on interest one what are you assuming today for incremental interest due to the product funding and then two can you just remind us of your fixed versus floating mix of debt as we just think about rates potentially rising this year.

Yes, so on the <unk> side, we're looking at about.

$14 million at $600 million at our average borrowing rates, starting kind of mid year as a place to sit.

We overall, where we're looking at right now is about 70 30 split between fixed and floating 30% floating maybe a little bit less than that but the important part is we don't have a lot of exposure to U S. Floating I think it's a half $500 million or so so right now we are.

Our assumptions include the forward curve as of a couple of days ago now.

If they ended up being a more rig rate hikes from there it might be a couple of million dollars, but we're not terribly sensitive to the changes in the fed policy over the shorter term here.

Your next question comes from the line of Mark Wilde with Bank of Montreal. Your line is open.

Thanks, Good morning address Marni Jonathan.

Sure.

Got it.

John .

Anders.

You've answered a little bit of this already but can you give us some sense.

Paul you saw from Micron.

And as we go into the first quarter here.

Yes sure.

<unk>.

So we're breaking a little bit, but I think you were asking about omicron and potential impacts this quarter.

So.

Well, we've been very active in.

Implementing guidelines and all of the.

So seniors that are busy.

Design.

And our recommended to protect the employees from this perspective as we know omicron has.

Turning to transmit a lot faster easier however, it has significantly less impact.

And then the previous variance so.

<unk> been putting more pressure on the <unk>.

<unk>, if you will for our factories. Nevertheless, we have been able to operate.

Pretty much normal across the global footprint, but thats an ongoing effort.

I think at this point the incidence is starting to drop shows that should moving directionally.

In.

Properly for us.

We've been able to weather the storm.

Our factories are running at this point, 100% of wrongdoing.

And just maybe to comment on the broader impact supply chain impact of the ongoing pandemic one thing to keep in mind compared to other industries, our business is quite level.

90% of what we ship is shipped within 500 600 miles.

Over 85% of our supply base is very local to our facilities. So as such while you might hear a broader supply chain challenges our business in effect in of itself is fairly localized we've seen more with our customers' impact on things, but we've seen some smoothing out of that overall over the last several months.

Okay, and then for my follow up I wondered if you can just help us understand sort of your exposure to these high European gas prices I know you've got hedges in place that <unk>.

Protect you from some of that but I'm just curious.

As those hedges roll off.

Kind of interplay with kind of pricing.

So what I would say is we have a very immature process to manage energy across the business. The team does a fantastic job and <unk> have been doing for a period of time is not a new thing but.

We look out for the long term and continue to manage the long term of our contracts and also the financial tools that we use so we're quite confident about where we stand on the contracted and net cost of energy.

Your next question comes from the line of Kyle White with Deutsche Bank. Your line is open.

Hey, good morning, Thanks for taking the question.

Obviously, a lot of replacing with numerous price increases being pushed to consumers can you just talk broadly about your price elasticity with some of your end market concern here in terms of the higher value markets that experienced the champagne, maybe any way to clarify characterize what percentage of your end markets are more sensitive to higher prices.

Well, what I would say is over time and I don't know if I have the numbers right on top of my head, but most of our business is moving more and more to the more value to the more premium categories. They tend to be do pretty well. It's some of the lower end value categories and we saw that.

10 years ago and during the last great recession, where there was a trade down to value on some of the mid tiers, but a lot of that in particular in the U S has been cycled out of the system. So.

We're in a pretty good state, especially.

Especially in this in this world of <unk>.

Covid affordable luxuries have remained really important people are stuck at home and so to have a good bottle of wine or a nice scotch or whatever is something you can continue to do amid everything else and understanding youre, probably not traveling much and things like that even in a world of inflation.

Got it and then you mentioned record low inventory levels, particularly in the Americas, which is having an impact in terms of your ability to maybe serve some of your customers.

What are your inventory levels now here in February and we have the ability to get them to maybe more manageable or more efficient levels.

Yes.

The reason why we're seeing.

Lower inventory levels is because we've been working extensively on demand planning supply planning.

Sophisticated those processes, having those practices share around the world.

We mentioned before in previous calls that we implemented integrated business planning or IBP. The company that has a significant influence on our ability to plan. The business. So all of that is coming together to help us perform well very well with lower inventories our expectation will be that we will be able to continue reducing the inventories.

Further.

We will be able to maintain them at those lower layers over time.

I mean, the team has done a great job I mean, our idea is down 25% over the last two years.

And as <unk> mentioned, we're going to be putting in new systems and tools to be able to continue to sustain that and continue to do better. We can do battery it will take a little bit of time to to creep that down, but there's still opportunity.

Your next question comes from the line of Adam Josephson with Keybanc. Your line is open.

Thanks, Good morning, everyone hope you're well.

John Hi.

Hi, Good morning, Andres John One question on your operating cash flow guidance of 725, plus can you just help me with working capital do you expect it to be a source or a use and how much and then with respect to some of the other items that lower pension and equity dividends I'm, just trying to understand relative.

Relative to I guess, a normalized level of operating cash flow. How we should think about that 725, plus given some of the moving parts I mentioned and anything else that I.

I collected to ask about.

Yeah sure. Let me just give you a little bit of color there.

In 2021 here.

We ended up.

It was a big use of cash right I mean, we were building up.

Receivables business is recovering and even the net effect of that in AP was a use of cash now that was offset because of the inventories going down very well right. So, but then going into 2022, we'll be collecting on those receivables because of the volumes won't be growing.

Nearly as much as the big recovery year, So that gives us an opportunity to have a source of cash even amid a situation where inventories stay relatively flat or maybe we can make a little bit of progress on the inventory side.

We show in there the interest for the business will.

It'd be up a little bit primarily because of the paddock taxes to be a little higher mostly because of selling out some prior year matters.

And then the pension is a good story here because 2021 really was the last year of the big pension payments that we foresee also we had about $80 million of pension payments in 2021, and that probably will drop to between 20 and $30 million in 2022 and at that point in time, we really don't foresee.

A big Spike up in pension payments at this point in time, all the other things are pretty much pretty comparable on a year over year basis.

Okay. Thanks, John and ill address just on the volume issue I mean, you went into the fourth quarter, we're expecting flat shipments they turned out to be up five 4%.

What I mean, why would you say your visibility on volume seems as limited as it does.

Yes, because I'm just thinking about your 'twenty two so January was up three it seems like you have a pretty easy comp in February and March given winter storm, Yuri, but youre not in the less expecting a deceleration as the quarter progresses and then further deceleration later in the year. So I'm just trying to understand how much visibility you really.

Do you have into demand and why it was so much different than what you were expecting in the fourth quarter.

Yes, I think that.

The key driver of the incremental shipments that we saw as the.

Continuously improve demand for.

Champagne and Bordeaux wine in France, and Prosecco and Italian wines.

Now those categories were extremely strong and a lot more than we expected the interesting part of it continued mccormick coming into first quarter. So remember that two years ago those categories slow down.

And they were soft.

What we are seeing at this point is the full recovery of those categories. So overtime.

<unk>, we will be able to incorporate it in our predictions better.

Other factors that is driving significant incremental demand is there.

Very strong performance of beer in Europe .

Largest opening day.

Countries, where we have our largest presence.

Which is primarily in southern Europe .

BRT is growing ahead of alternative packaging.

Is having a very strong performance when you combine the two we see the level of shipments that were seeing in Europe .

And the other markets. They have very strong demand there just limited by capacity. So we got to deal with that and depending on how mix moves.

We have the capacity available or not we have the inventory available or not.

So that influences.

Our planning that for the most part.

Demand is very healthy and as we go into the year.

We'll be able to fine tune those predictions.

To build off that I would say as <unk> said that the demand profile has been strong and has been strong and we think it's going to remain strong.

The challenge has been looking at the supply chain and how that has been a put a cap on things not necessarily in our system as mentioned before but on our customer side. The third quarter, we were down and it was all because of supply chain related items, and it's kind of hard to read that going forward I think the wildcard is our ability to.

To do more for and the production side creep it out and get more capacity out there to serve that strong demand and so it's really those those variables not on the demand side that we're trying to read through and Theres a couple of Wildcards there.

Your next question comes from the line of Mike Brooklyn, with <unk> Securities. Your line is open.

Thank you very much and congrats Andres John Chris on the year and the continued progress. Thank you.

Just a quick question.

Maybe John for you on the <unk>.

Felicia you expect you mentioned with respect to the contracts that you expect to recover not only 2021, but you expect <unk>.

22 inflation as well.

2022 inflation was higher than you expect on the contracts structured such that you can capture any incremental inflation above and beyond what you were expecting going into 2022.

What I would say is we know our contracts and we know what they stipulate.

And as well as our financial positions that we use.

The line of sight on 2022 cost inflation is pretty good for the last few months.

I think you've heard from us over the last couple of public appearances as that we believed has consistently that we're going to be able to recapture unfavorable spread in 2021.

And offset 2020 to cost inflation.

So we're in a good position there.

Could could spread be better than we anticipate I think it'll be if.

Our view on inflation proves to be conservative I think of that as that is where it's at and of course, we we still continue to do some marginal level of pricing out in the marketplace and so we'll see how those two dynamics play out.

And if inflation goes higher than we currently have it projected in our conversations with customers. We make clear that if that happens we'll be luck, because we won't be able to absorb ourselves.

The pressure of that inflation, but at this point with all of the information we have.

We believe we are projections are pretty sound.

And I think that builds over the last kind of builds off what we had said in the prepared comments heading into 2021 inflation ended up being double what we thought it was going to be at that time, but we offset 80% of it and that just shows more commercial flexibility over the course of the year than maybe you have historically seen out of the business and so we've got a good capability.

There and Thats, how we are working through these dynamics.

Got it I appreciate the color and then just one quick question on inventories.

You mentioned.

It should be growing 1%. This year you have a high demand you've limited capacity at least for the time being.

You want to keep inventories lean.

Given the current supply chain logistics issues, and obviously that could be transitory.

It could come back at some future quite well why do you think it's prudent to meat inventories at a very lean level coming out of the other side of this whether it be the pandemic supply chain why not.

Hey.

Look at inventories evaluate maybe inventory is 5% higher 10%, what's the logic in saying well look to continue to run lean and risk maybe not be able to supply customers as you haven't been able to do recently.

While this business can be wrong with lower inventories than we have today.

If we have all the right.

Processes tools and practices in place.

Now the investments, we're making are the ones that are going to be able to take us to serve incremental demand. So we want the efficiencies of the supply chain, but.

But we need larger capacity to be able to meet the growing demand for glass containers.

So that's how we look at it we're moving forward with the expansion seen beyond then Encana and then we are in the early.

Planning stages of the projects that we presented to you as part of their business plan.

And your last question comes from the line of Arun Viswanathan with RBC capital markets. Your line is open.

Great. Thanks for taking my question. So I just wanted to follow up on a couple of comments you made earlier about the.

The dollar impacts for 'twenty two so it sounded like you were about $50 million behind on price cost that you fully expect to recover that in 'twenty, two and it sounded like your inflation for 'twenty two would be above the 230 that you saw in 'twenty. One so assuming it's around $2 50, that's that looks like you'll get about.

300 million or so of pricing I guess, a is that right and then.

Given your volume outlook of say, 1% it sounds like your EBITDA or your EBIT would be up in that $30 million to $50 million range for the full year is that.

Is that right is that the right way to think about it maybe $30 million to $60 million is that right.

So.

On your point.

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The pricing and the spread the way Youre thinking about it is right, but we're not specifically going to communicate what we're getting on the top in the top line price for competitive purposes, but.

What youre doing the math is logical.

As far as the improvement on the on the EBIT side I think it will probably be on the high end of the range that you had indicated on the EBIT side, the EBITDA might be.

More like 30 million or something.

I am sorry, Seth let me, let me correct that.

Yes, youre right it might be in the kind of the mid part of the range that you are saying there mid to low rate okay.

Okay. Thanks, a lot.

Thank you that concludes that question and answer session of today's call I will hand, the call back to Chris for any closing remarks.

Thanks, everyone for participating in our call that will conclude our events today. Please note that our first quarter 2022 call is scheduled for April 26th and remember to make a memorable moment by choosing safe sustainable glass. Thank you.

Thank you and that concludes the <unk> full year and fourth quarter 2021 Conference call you may now disconnect.