Gordon Hardie
CEO at O-I Glass
While this performance is well below what the business can deliver, we expect significantly better results in 2025, as our Fit-to-Win measures improve our competitive position and markets gradually recover. Let's now move to page five and further discuss the actions we are taking to increase the value of the company. We believe O-I has significant potential and are taking meaningful actions to advance the company. Our focus is on driving near-term returns by enhancing our competitiveness and capital discipline. This approach will position us well to achieve profitable growth when markets turn. We will execute this over three horizons. In horizon one, we will focus on our Fit-to-Win program, which we expect will drive a step-change improvement in profitability, cash flow generation, and the competitive position of the company. We see significant earnings improvement that is within our control by improving the profitability of the volume we have, and not dependent on the level or timing of a market recovery or incremental volume. In horizon two, we intend to accelerate profitable growth by leveraging a much more competitive cost position enabled by our Fit to Win program. As we seek to grow the business, we plan to align our CapEx with strategic customers' long-term plans, particularly in large and developing markets. Finally, in horizon three, we expect to have strategic optionality, which may include geographic expansion into new markets with potentially large profit pools. This plan is different from past efforts. We are conducting a comprehensive review of our entire business and value chain. This holistic approach aims to reshape our company and streamline our operations, optimize our network, and reduce our cost of doing business significantly. In order that we boost our competitiveness and drive profitable growth. While it is early days, we have established initial three-year targets that span both horizon one and horizon two, as captured on the slide. Specifically, by 2027, we expect to generate sustainable Adjusted EBITDA of at least $1.45 billion, free cash flow of at least 5% of sales, and an economic spread that is at least 2% above our cost of capital. We expect our results will improve by $300-$350 million in 2027, which represents around a 30% increase from the 2024 EBITDA levels. Let's now turn to page six. While near-term performance is under pressure given sluggish market conditions, we are rapidly implementing our Fit-to-Win priorities in two phases. In Phase A, we are streamlining the organizational structure. In Phase B, we are reshaping the supply chain to enable profitable growth. From these first steps, we expect to deliver at least $300 million in savings by 2027. We are making rapid progress and anticipate achieving at least $175 million in savings in 2025, which is 60% of our three-year target. Key milestones achieved in the past 90 days include three focus areas: reducing excess inventory, driving productivity, and reshaping SG&A. With regard to reducing inventory, we have cut 18% of our capacity in Q3, reducing IDS by 17% to 59 days, with further improvement in quarter four to come. With regard to driving productivity, we are working to take out all redundant and low profitability capacity. Significantly increasing productivity is the cornerstone of the turnaround of the business. We are evaluating the closure of at least 7% of capacity by mid-2025 to reduce the fixed cost base of the network. The closure of unprofitable and redundant capacity should generate more than $100 million of annualized savings. As part of this evaluation, we have already announced the closure of approximately 4% of capacity, which should benefit 2025 results. With regard to reshaping the organization, we are moving to de-layer the structure, shift accountability to local markets, and reduce central operating costs significantly. These actions should reduce SG&A expense to no more than 5% of sales by early 2026, saving over $200 million on an annualized basis. The first steps are well underway, with more than half of the targeted savings expected in 2025. Overall, initial Fit-to-Win actions should generate over $300 million in savings and underpin delivery of our 2027 EBITDA target. Additionally, in Phase B, we expect to generate additional value through total supply chain optimization by driving productivity across the fleet, closing high-cost operations, and transferring profitable volume into our remaining network. Efforts will also include procurement productivity, operational improvements, and a more disciplined salesforce management. These new ways of working should deliver further savings and higher margins, helping us achieve our 2027 performance targets. We will provide more details on Phase B at our March 2025 Investor Day. Let's now turn to page seven and discuss the commercial environment. As we quickly implement our Fit to Win priorities, we do see some green shoots in most geographies, evidenced by modest sales volume growth during the third quarter. On the left, we have illustrated our volume trends. Following several quarters of lower demand, shipments increased by 2% in the quarter. Volumes in the Americas increased by 7%, with shipments rising across all geographies, including a double-digit increase in Brazil. All categories showed improvement except for spirits, which continue to face challenges, particularly in North America. Shipments in Europe were down by 2%. However, we noted solid growth in Southeast Europe and in the U.K., while shipments were down in Southwest Europe given softer beer and wine demand, including slower export activity. Although market conditions remain uncertain, consumer demand trends seem to be slowly recovering, as illustrated on the right. While all categories have shown improvement over the course of the year, consumption of beer, wine, and spirits in glass containers is still lower, while food and non-alcoholic beverages are up from prior year. Our shipments trends now align with consumption trends, as destocking recedes in most categories except for spirits. Rather than the modest U-shaped recovery we expected earlier in the year, actual trends indicate an L-shaped recovery, given a more gradual improvement in consumer demand. It has been a challenging year for O-I, along with the broader food and beverage marketplace, to accurately forecast consumer trends given complex macro factors. In particular, there is considerable uncertainty and lack of clarity regarding the levels of in-home pantry stock and the rate at which it is depleting. This remains a significant unknown, particularly in the U.S. To address these forecasting challenges, we are working more closely with customers on integrated business planning. We have also made targeted investments to improve our market understanding and predictive analytics capabilities. Over the balance of the year, we remain cautious and expect sales volumes to be about flat in the fourth quarter, with October shipments up 2% from last year on a same-day basis. Let's now turn to page eight. While we have navigated sluggish market conditions since mid-2023, we believe this is largely cyclical and demand will return, but more slowly than originally expected. The two charts on this page show the overall consumption trend by category for products in glass packaging. We have separated the trends between mainstream and premium products. Over time, glass demand is increasingly influenced by key mega trends such as health, wellness, sustainability, and premiumization. As you can see, the trend over the past 25 years is clear. Premium products tend to grow faster than most mainstream categories, even if at times they are temporarily impacted by macroeconomic cycles or events. Further, the growth of premium products is expected to continue, supported by customer strategies and investments. As a result, we are confident that demand across mainstream categories will stabilize, while stronger growth will reemerge across the premium categories in time. We are changing our operational and commercial focus to properly capitalize on this growth. Now I'll turn you over to John, who will review financial matters.
