O-I Glass, Inc.
Q4 2020 Earnings Call Transcript

Published: 10 Feb 2021

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the O-I Full Year Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. . Please be advised that today’s conference is being recorded. . I would like to hand the conference over to your host, Mr. Chris Manuel, Vice President of Investor Relations. Thank you. Please go ahead.

[Chris Manuel:]

Thank you, June. And welcome everyone to the O-I Glass fiscal year and fourth quarter 2020 earnings conference call. Our discussion today will be led by Andres Lopez, our CEO; and John Haudrich, 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 call are available on the company’s Web site at o-i.com. Please review the Safe Harbor comments and disclosure of our use of non-GAAP financial measures. Some of the financials we are presenting today relate to non-GAAP measures such as adjusted earnings per share, free cash flow, segment operating profit and leverage ratio, which exclude certain items that we consider not representative of ongoing operations. A reconciliation of GAAP to non-GAAP can be found in our earnings press release and in the appendix to this presentation. I'd now like to turn the call over to Andres who will start on Slide 3.

[Andres Lopez:]

Good morning, everyone. We appreciate your interest in O-I Glass. Let me begin by thanking the O-I team for its dedication and agility as we contend with the pandemic and service the critical food and various supply chains. Likewise, we are grateful for so many in our communities who are working every day through very challenging circumstances, especially medical and other frontline workers. 2020 really tested our organization. As we concluded the year, I'm proud of how O-I have navigated all the short-term implications of the pandemic, while advancing long-term initiatives that included several bowls and structural improvements. As a result of these efforts, there was a tangible improvement in our ability to execute. As we reported last night, our fourth quarter adjusted earnings were $0.40 per share, which exceeded guidance of $0.30 to $0.35. Additionally, we generated free cash flow of $146 million in 2020, a solid improvement from the prior year and ahead of our expectations. Our fourth quarter achievements were flat with the prior year, and full year volumes were down 4%. The dip in demand was concentrated in the second quarter when the initial wave of the pandemic drastically impacted the supply chain. Otherwise, quarterly demand trends were fairly stable. A strong operational performance and cost performance boosted our earnings and cash flows above our original guidance. Despite a disruptive environment, we continue to advance our strategy and I'll expand on this in a minute.

[John Haudrich:]

Thanks, Andres, and good morning, everyone. I plan to cover full year and fourth quarter 2020 results as well as our business outlook for 2021. I'll start with a review of our full year performance on Page 9. O-I reported adjusted earnings of $1.22 in 2020, down from $2.24 in the prior year. Like most companies, our results were significantly impacted by the global pandemic, yet very good operating performance and cost management helped mitigate the full impact of lower volumes.

[Andres Lopez:]

Thank you, John. Let me conclude with a few comments. We all faced unique challenges in 2020. O-I was no different. I'm proud to say we navigated the pandemic well with a high level of agility and resiliency. At the same time, we advanced our strategic conditions. We are squarely focused on our 2021 priorities of margin expansion, revolutionizing glass and optimizing our structure. Fortunately, we are well positioned for the future given the advanced capabilities built over the past several years. Consumers have repeatedly indicated their preference for food and beverage packed in glass. This is true regardless of the sales channel. So we are not surprised that our volumes have stabilized and recovered over the second half of 2020. While demand trends will likely remain choppy given the ebbs and flows of the global pandemic, shipment leverage should improve as markets gradually reopen. As a result of volume and cost position, we look forward to significantly improved earnings and cash flows in 2021. Let me again reiterate what I have said in the past. We remain focused on creating long-term value and confident the steps we have taken have placed O-I in a stronger position, a position that will benefit the company and its stakeholders in 2021 and beyond. Thank you for your interest in O-I Glass. We welcome your questions.

[Operator:]

. Your first question comes from the line of Ghansham Panjabi from RW Baird. You may now ask your question.

[Ghansham Panjabi:]

Hi, guys. Good morning. Thank you. I guess first off, Andres, in your prepared comments, you were talking about January volumes being down slightly, skewed lower by Europe. Just kind of -- what kind of embedded operating backdrop do you have baked into your volume assumptions of 2% to 4% in context of the 4% decline last year, and the fact that 2Q is just going to have a very easy comparison? I'm just kind of curious as to the phasing of volumes as the year progresses by region.

[Andres Lopez:]

Thanks, Ghansham. So looking at Europe, we had a solid demand in Q3. We had a pretty solid demand through most of Q4. At the very end of December, demand had slowed down. And I think it was because the lockdowns accelerated. Now, they remain high in January. We believe the January performance is primarily driven by a correction in inventories, because we're seeing an improved position in February. We’re now back to where we were in Q3, Q4. So, most likely, at this point in time as these lockdowns are removed or lifted, we're going to see a better performance in Europe. Now very important to have in mind that demand in Europe for beer is very strong. And if we look at Nielsen statistics, which reflect the retail performance, there is a very strong performance in Western Europe for glass. And I'll give you a couple of examples. France, glass is up 10% which outpaces any packaging alternative. If you look at Italy, glass is up 8% for the year -- sorry, I’m talking about full year numbers. So Western Europe is quite as strong. This supports the investment we made in Gironcourt, which is going to give us incremental volume too. Food is very strong. Now, what's happening in Europe is the result of the lockdowns right now and is impacting primarily one category of products, which is the sparkling water. So as soon as consumer go back to our hotels and restaurants, we're going to see water back on the table, and this volume is going to rebound. So it's a pretty resilient volume as the lockdowns are removed. The order category that we are having softer is French wine, which has been softer along the way. So that's not new. Now, Americas are very strong. And we mentioned that Mexico and the United States are leading that volume performance. The performance in the U.S. has been solid that we've been diversifying our product mix. And the performance in food, in NABs, in spirits and in wine was strong; wine and spirits driven by premium performance. And the year is performing better than before. So it declines, but at a slower rate and that's driven by premium beer. The performance of premium beer in retail has been quite strong. It's been up around low teens or very high single digits. So that's the situation in the Americas. Mexico; very strong, is driven by local demand. Local consumption is high as well as exports. And categories like beer, food, spirits and NAB are very strong in this country. And then the performance of the Andean and Brazil, while they're limited by being fully utilizing capacity, the performance of beer in those two markets is very strong. And there is something very important to have in mind. Performance of glass in those markets is driven by the focus on premium, is driven by localization of global brands, is driven by the conversion of returnable containers into one-way containers. Those are very solid trends. So we're counting on those two markets to be sold out for the year. And then we’re evaluating opportunities for expansion and ways to fund it, while we keep our priorities of free cash flow and debt reduction.

[John Haudrich:]

Hi, Ghansham. This is John. I can add a little bit on the assumptions of the range between 2% and 4%. So 4% would be your scenario that we exit from these lockdowns here in the next few weeks, a month or something like that, and then we randomly get better. And then 2% is if we see some periodic resurgence of the virus, have to go through some periodic lockdowns in different markets and things like that, which institutes more choppy demand and inevitably some level supply chain corrections that follow from there. So those are kind of the book end assumptions on the 2% to 4%.

[Ghansham Panjabi:]

Very clear. Thanks, John. And just a quick follow up on the – perhaps in terms of quantification of the impact on '21 versus '20. And then also you mentioned accounts receivables, performance there that boosted free cash flow into 2020. Is there a partial reversal in 2021 as well? Thanks so much.

[John Haudrich:]

Yes. I can discuss a little bit of the price adjustment formula component. So, we had about $60 million of inflation in 2020, and that this business historically averages $100 million to $125 million inflation per year or something along that line. What we really saw was that natural gas, in particular, became deflationary in many economies. And that started to reverse as the markets got better. And we would anticipate in all likelihood that will continue to move in that regard. So the price adjustment formulas are working through this kind of switchover of, say, if inflation was $60 million last year, we think it might go back up to $90 million, not back to historic levels, but still some type of improvement. So you're talking about $30 million or so worth of price adjustment formula pass through. And that's kind of the spread differential, maybe $20 million to $30 million that we're talking about this year that will be absorbed, again, just a temporary timing item. We work through that pass through and we get back. If you look at the business over the past four years, we've been able to successfully pass through inflation consistently to some level or another. We think this business is capable of doing that. This is just a timing issue.

[Operator:]

Your next question comes from the line of George Staphos from Bank of America Merrill Lynch. You may now ask your question.

[George Staphos:]

Thanks very much. Hi, everybody. Good morning and thanks for all the details.

[Andres Lopez:]

Good morning.

[John Haudrich:]

Good morning.

[George Staphos:]

I wanted to piggyback -- my first question was similar to Ghansham’s and it seemed to me from our research and even what you're saying here, that if we were having this conversation back a few months ago and in recognition of what the normal inflation is for your business, up to 125 million that you discussed, that there was a fair amount of work, for lack of a better phrase, in terms of trying to close that gap relative to what the lag would normally be on the price adjusters. To the extent that it's possible to talk about this live mic, can you talk about what you might have been doing in that regard to cinch up that gap that probably could have been a bigger number going into the year? And then I had a quick follow on?

[John Haudrich:]

Yes. So, George, I think in general, you're right. And that's consistent with the commentary that we made last quarter when we kind of first flagged this issue, we were looking at a gap there that was bigger than this gap that we're talking about now, $20 million to $30 million. Obviously, we go into -- this time of the year is the price in the negotiation period for a lot of different markets that we serve that, in particular that aren't served by the multiyear long-term contracts. So obviously, that's a big focus. Obviously, we are seeing a little bit of inflation picking up right now, as I mentioned before, which creates a little bit of a better dynamic for those discussions. And I would just say that we talked about our margin expansion initiatives, and we have a price and revenue optimization initiative within our commercial optimization that is solely focused on value pricing, and really extracting the value that we get out of our business. And that's an account by account basis. And you see some of those benefits coming through and starting to be able to mitigate some of that, what would otherwise be spread pressure.

[Andres Lopez:]

As you say, George, there is a strong focus in the organization to close that gap.

[George Staphos:]

Understood. A quick sort of point of clarification on that comment, John, and then the second question. So, if you're in this process now where you're really selling value-based pricing, where would you say the organization is in terms of implementing this? Are you in the proverbial second inning, ninth inning, we should be heading to the parking lots? Where do you stand in terms of using that tool? And then on my second question, when we think about the $155 million impact from the 7.5% lower production, how much of any of that can you get back if you don't actually produce at levels above shipments and build inventory? Thank you guys and good luck in the quarter.

[Andres Lopez:]

So with regards to the value-based pricing, George, there’s been an implementation now for two, three years. So it’s quite mature in the organization. And we mentioned in the opening remarks that many of the capabilities we were developing over the last few years are now available to us, which improve our ability to execute. This is one of them. So we're very well organized in the commercial organization. This approach is well understood. The tool is widely used. And that's why the initiative that John mentioned, revenue optimization as part of the margin expansion, is going to help us to close this gap between price and inflation in the year.

[John Haudrich:]

On your other question, George, how much of the $155 million impact of say the decremental margin on production that we saw this last year, how much can we get back kind of volume neutral? Well, first what I would point to is, is we have those margin expansion initiatives. The $50 million that we're targeting is really fundamental cost savings, efficiency improvements, productivity, looking at every corner of the company to find those opportunities. So that happens irrespective really of the value movement of the company. So you can point to that. Then the question is, as we bring capacity back, and we've been doing that, and we're pretty much back to where we need to be, what can we do to improve our pack, our efficiencies in that regard? There are opportunities, and generally speaking, we have about 0.5% to 1% kind of creep capacity opportunities per year just by continuing to reengineer better. That factors into the situation. One thing I would point out is, we were down 7.5% of volume last year. We expect that to recover in tandem with the improvement in sales volume. Now the increase in production volume will be above the rate at which we are increasing sales volume, because we won't have the impacts of the lockdowns and everything, the drastic lockdowns in the second quarter. So anywhere between 2% to 3% higher production recovery above the rate of what we're seeing on sales volume. So let's say they we're up 4% on sales volume, we probably should be up 7% or so on the production volume side, and it would slide with that scale.

[Operator:]

Your next question comes from the line of Anthony Pettinari from Citigroup. You may now ask your question.

[Bryan Burgmeier:]

Hi. This is actually Bryan Burgmeier sitting in for Anthony. Is it possible to quantify the potential benefit to O-I if tariffs on spirits were to be lifted? And can you remind me how much O-I was impacted by tariffs when they were initially put in place?

[Andres Lopez:]

Well, we don't have any number that we can offer to you at this point. This is all evolving right now. And we're tracking it closely, but we don't have any position to give you right now with regards to expected impact on that.

[John Haudrich:]

I would say that tariffs affected us in two different directions, right? In one is you have like the spirits you were referring to, but you also had the tariffs on Chinese goods. And so glass is imported from China to the U.S., in particular on the West Coast. And the tariffs did impact that demand. Now what we're also seeing is there's probably been a little bit of a structural shift. And where supply chains have moved in particular on the West Coast of the U.S. and avoiding those in particular, we've seen an incredible increase in transportation costs coming from Asia to the U.S., which will probably keep a lid on some of those pressure points. But as Andres mentioned, it's very hard to quantify and it's very early to understand what could happen with things moving.

[Bryan Burgmeier:]

Got it. Thanks. That’s helpful. And then e-commerce and e-grocery, both done very well during the pandemic. Do you have an idea of how much of O-I’s product ends up being sold through e-commerce channels? And what are some of the strengths and weaknesses for glass trying to compete in an e-grocery environment?

[Andres Lopez:]

Yes. So we've seen very good performance in off-premise for glass in 2020, a lot better than we anticipated. Now fulfillment of e-commerce orders is being highly biased towards local fulfillment. And in those circumstances, that's quite favorable to glass. What we see is glass is preferred by consumers. They want to see their preferred brands in glass. There is a convenience factor that has been discussed before with regards to the use of glass. Now e-commerce solves this issue, because e-commerce is taking the product to the consumers’ door. Now if it is primarily driven by local fulfillment, which is happening in multiple categories, it is going to be from our perspective quite favorable to glass.

[Operator:]

Your next question comes from the line of Mike Leithead from Barclays. You may now ask your question.

[Michael Leithead:]

Great. Thanks. Good morning, guys.

[Andres Lopez:]

Good morning.

[Michael Leithead:]

First question on MAGMA. From the commentary, it appears to be moving forward quite well as you expect, but sometimes from the outside and we get questions from investors, it can be a bit hard to track. So can you maybe help us with a few mile markers we should look out for over the next year or so, maybe when we should start being able to see the success of MAGMA either in the results or the CapEx, just kind of the timetable investors should start seeing concrete numbers there?

[Andres Lopez:]

Okay. So we are making very good progress in Holzminden. The line is expected to going to heat up at the end of the month and be in operation in March. We expect that line to give us validation of R&D assumptions, very important R&D assumptions. And then we're going to move into training the plant personnel and transferring the line to them over the next three months or so, in such a way that by the middle of the year, this line is going to go commercial. Now with that, we open opportunities for further deployment of Gen 1 starting in 2022. We're actively developing the pilot for Gen 2 and we are expecting that pilot to go into operation in the second half of this year. So that's another important milestone. With that and with Gen 1, those deployments in '22 and '23 should combine capabilities from Gen 1 and Gen 2. The R&D team is highly focused on developing Gen 3 at this point. The expectation is that we are going to conclude the invention and development by 2023. We are going to start deployment by 2024. Now, at this point, we are engaged with third party advisors. And we're working on defining the business model for MAGMA, defining the business case and the deployment plan. And our plan is to get together with the Street and with all of you to present our approach to MAGMA going forward, all those critical milestones and the value that we expect will be revealed through MAGMA for the shareholders and other stakeholders.

[Michael Leithead:]

Great, that was super helpful. And then maybe just a follow-up question on sustainability. Andres, I think you phrased it in one of your slides about rebalancing the packaging dialogue. I assume that means you don't think glass is getting its fair recognition today. So I was hoping you could expand upon that and maybe frame where you think glass isn't getting its fair credit in the sustainability conversation today?

[Andres Lopez:]

Yes. We're actively focused on rebalancing the dialogue because we have a great product. That's the reality. We have a great product. It is made of three pure and inert natural ingredients. It can be recycled indefinitely. You can see that it has the highest recycling rate of any packaging in Europe. Those rates are low in the United States, that's a fact. But we are squarely focused on working on improving that. And there are ways to do it because the product itself is highly recyclable. And we're learning the experiences that we have in Europe and other markets. If we look at the consumer perspective and the integrity of products, glass is the only factor that doesn't have any plastic material or any plastic liner inside that is in contact with the product. So that's extremely relevant. Now, we've been quite positive in our communications about the attributes of glass. And we believe we have a great product. So we're going to take an active stance to rebalance that dialogue, because it's been somehow – it’s skewed over the years and we really -- we have a fair place to have in the sustainability world. Now, this is not a binary discussion. It's not an either/or. I think we have the very important characteristics that make the product highly sustainable. And we intend to take an active role communicating that.

[Operator:]

Your next question comes from the line of Gabe Hajde from Wells Fargo. You may now ask your question.

[Gabe Hajde:]

Andres, John, Chris, good morning. Hope you guys are all well. My first question was on I guess building off sustainability and thinking about the infrastructure that might be necessary in the United States. So I'm curious, number one, if you've kind of had initial discussions and explored, whether it's co-investments or otherwise, how you can kind of expand recycling rates here in the U.S. and ensure that cullet does in fact find its way to yourself? So that's kind of question number one. And then, is it baked into sort of the CapEx levels or would it be some other form of I guess investment? Because looking at it relative to some peers, it looks like you guys are spending around 6% of revenue on CapEx versus maybe 8% for others.

[Andres Lopez:]

Yes. So we are actively engaging with partners to develop recycling in the United States. The product has the characteristics. We believe we can put together a separate stream and we're going to move forward first with one pilot that then we can use to leverage in future experiences. We can put in place a system by which not only will recycle glass, but we create a positive impact in the communities in which we recycle that glass. Now, we also believe that MAGMA will change the possibilities of glass recycling. We believe that it will create the ability to be more circular. And we're also focused in that dimension. So we are working on multiple avenues. It is not an easy problem to solve or is not something that we're going to elevate from one day to the next. But the most important part is we have a product that is 100% recyclable without any loss of product or quality. No product can do that, right? So we are intending to leverage the great product we have and we're taking all the actions to do that.

[John Haudrich:]

One thing I can add on that, Gabe, is just as an example, and you take a look at that, call it recycling value stream in the U.S. here. Probably one of the areas that is – where we're short on overall is in cold treatment capability. So taking the cullet and treating it so they can go into the furnace correctly. And so there's just a handful of pockets in the United States. If you expanded that capability, you would be able to have access of good quality cullet that can go into the furnaces. That's not to say that there's a lot going on in the value stream, but that's a particular example. And clearly we've been in dialogue with the people in the organizations that run and operate those. Could it take the form of small JVs or investments or co-investment or something? Yes, I think these are relatively small investments overall to unconstrained this. But, of course, that's just one example across the whole value stream.

[Gabe Hajde:]

All right. Thank you guys for that. And the second one, can you remind us maybe quickly, John, the tactical divestitures where you're at on the 400 million to 500 million. And then really more importantly, you talked about potentially funding some expansion capital, I'm assuming that's in Latin America, Brazil specifically. Just timing, if you're expecting to be done with the 400 million to 500 million by the end of 2021? I'm assuming you can kind of redirect that pretty quickly such that you can expand capacity in 2020 to any kind of just order of magnitude and would that be line additions or a greenfield project?

[John Haudrich:]

Yes, sure. So where we stand right now is we – for our $400 million to $500 million, call it the original tactical divestiture program, current tactical divestiture program, we are about $220 million completed on that. That's included that Soda Ash JV that we sold a while back plus the $25 million of additional projects that we've done here in the last few months. So call it halfway in the overall number, so to speak. We do have irons in the fire on a few more items that we think are around the corner hopefully. So we feel confident about wrapping that up in 2021 here. Okay. Now on the other side of the fence, the expansion – and let me just be clear. All of those proceeds on that are going to be used for debt reduction to continue on our deleveraging path. Now the other side is more of looking at tactical divestitures as a way through optimizing our structure portfolio to exit either, again, some shutdown facilities, properties that still need to be sold, or some other smaller discrete operations that are just non-core and redirect those funds into the expansion. And you're right. It's mostly in the Latin America market where we had already indicated we're capacity constrained in many ways. The good news is that we have the pipeline of those tactical divestitures identified and stage to go, and we're working through the business cases right now on the expansion initiatives. So while it might ultimately be lumpy, the timing of the actual proceeds on divestitures versus the timing of money going out the door for the expansion, we think that we can execute on those simultaneously. As far as the scale of these it's kind of hard to know. We're working through the business case right now. But I would say the scale of the expansion is probably more on the greenfield side rather than on a line extension per se, given what we’re looking at from demand in those particular marketplaces. But again, we don't anticipate any of this activity interfering with our debt reduction plan because we would use the proceeds from one to fund the other.

[Andres Lopez:]

Gabe, something that is very important to look at that I mentioned before, but I would like to highlight it again, is the trends that we're seeing in premium across markets that are driving several product categories, including beer, the localization of brands as well as the conversion from returnable glass to one-way containers where glass has a share and other alternative packaging have a share too. Those are driving what we're seeing. Greenfield is an option. There are options too for brownfield, and there are options for line additions. Now, in Mexico as an example, demand is taking place as we speak. And what we're doing here is that we're relocating some lines to increase output. And that's something that is ongoing, because it's minor investments. But as John described, we are taking a look at all these. We’re evaluating the business cases. We'll make the choices. We tend to be flexible in the solutions we put in place and also we’re very proactive to be able to support the customers properly.

[Operator:]

And your next question comes from the line of Adam Josephson from KeyBanc Capital Markets. You may now ask your question.

[Adam Josephson:]

Thanks. Good morning, everyone.

[Andres Lopez:]

Good morning.

[Adam Josephson:]

John, one -- good morning, Andres. John, just two for you. I want to follow up on Ghansham’s first question about your shipment expectations through the year? I'd like to ask just about the first quarter specifically. So if you're down too in January, you're thinking it will be flattish for the quarter? How quickly are you expecting the European situation to improve such that you would get back to flat for 1Q?

[John Haudrich:]

Yes. So what we're hearing is some of the lockdown -- the initial lockdowns were more pronounced in the UK and Italy, and my understanding is that that’s coming to later stages or is already done. There's some talk about some additional markets maybe doing a little bit more here in February, but we're really not hearing anything beyond that window. It's not for me to judge, but obviously the number of cases are starting to come down, which is obviously a good sign for so many things in the world. So ideally, you get out of this January, February window and then March is a little bit cleaner. Keep in mind, for our business, January and February are generally pretty light months. So March is probably a much bigger window for us from a total volume standpoint. And keep in mind, just from a comp standpoint is that starting in mid-March last year, things really fell off in Europe given the start of the pandemic. So, when you look at the overall trajectory in those elements, that gives us the confidence you're looking at to kind of return to flat.

[Adam Josephson:]

Yes. I appreciate that. And just on some of the costs that you mentioned for fiscal '21, John, so you'll have benefit obviously from higher production and volumes. And then you have your net margin expansion initiatives, and partially offsetting those are higher depreciation, maintenance, insurance, pension, R&D, incentives. Can you quantify some of those costs and just explain why some of those are up, specifically pension, insurance, R&D, incentives, et cetera?

[John Haudrich:]

Yes. So to give you an idea, kind of other costs like depreciation, incentives, insurance, whatever is about $30 million -- it's about $10 million each for depreciation, incentives, and insurance in those buckets. The depreciation increase is mostly FX and as well as -- and we do have Gironcourt coming online. Okay. Incentives, given the performance in 2019, there wasn't any incentives. This year in 2020, we expect a modest incentive. So we're modeling in kind of return to kind of a normalized incentive structure in 2021. And then on the insurance side, I don't know if you heard it from other companies, but it's pretty much a hard market for insurance right now, given everything that's been going on, natural disaster wise, whatever in the world over the last several years. And so there is just overall increases in insurance costs. So those are the big buckets going through the operating cost line. One thing I would say is depending on where those volumes end up, whether more short term, belt tightening would be done. I think that kind of depends on whether you're in the 2% range or the 4% range. Obviously, we're trying to be conservative coming out of the gate here in the beginning of the year to make sure that we're keeping a lid on some of those temporary items. And then on the retained corporate side, we do have obviously the Holzminden commissioning costs. That's primarily going to be centered here in the first quarter. So that's probably $5 million to $10 million there alone, and we're probably also having our glass advocacy costs kind of maybe a little bit elevated in the beginning of the year. So those are some of the big moving pieces to be mindful of.

[Adam Josephson:]

Got it. Thanks a lot, John.

[Operator:]

And your next question comes from the line of Arun Viswanathan from RBC Capital Markets. You may now ask your question.

[Arun Viswanathan:]

Great. Thanks for taking my question. Congrats on the progress in '20. And I guess just first off real quickly, you guys, you went over the asset sale program. I guess what do you expect to finish fiscal '21 from a leverage standpoint, including those assets sales and maybe any others?

[John Haudrich:]

Yes, exactly. So, I think in the high 3s. Again, I'm using BCA leverage calculation, okay. So probably in that 3.8, 3.7 range, that would be kind of within the zip code, depending on the scope and scale and timing of the divestitures, things like that.

[Arun Viswanathan:]

Okay, great. And then --

[John Haudrich:]

And that's going down from 4.4 to 3.7, 3.8.

[Arun Viswanathan:]

Great. And then just real quickly on that 20% to 25% of your volume that is on-premise, where do you -- how do you see the evolution there? I know that you expect some recovery as vaccinations roll out, but where are you now versus normal? You say 20% below normal there or maybe 40% and get back to kind of normal levels by the end of the year. Thanks.

[Andres Lopez:]

Well, the channel itself has been down 15% to 20% and it remains at that level. Now remember that over the last year, we've been -- with lockdowns and with very strict lockdowns, and we’ve been in all, let’s say, in all conditions so far. So as that channel recovers, we're going to have some positive volume impact there. But I think there are some emerging trends that are to stay too when it comes to what's going to retail. So at- home consumption and cooking is something that is going to create some changes in demand from our perspective. They focus on premium has been very early in this past year, and that's going to impact also demand. So we're looking at all those trends closely. But as markets reopen, we should have a boost in volume.

[Arun Viswanathan:]

Thanks.

[Chris Manuel:]

Thank you. I think that wraps up our call. Please note that our first quarter call is scheduled for April 29. And, as always make it a memorable moment by choosing safe, sustainable glass. Thank you.

[Operator:]

Thank you, presenters. And thank you, ladies and gentlemen. That concludes O-I full year fourth quarter 2020 earnings conference call. You may now disconnect.