Earnings Call Transcript - BALL Q4 2020

Operator, Operator

Greetings, and welcome to the Ball Corporation Fourth Quarter 2020 Earnings Call. This conference is being recorded on Thursday, February 4, 2021. I would now like to turn the conference over to John Hayes, CEO. Please go ahead.

John Hayes, CEO

Great. Thank you, Dmitra, and good morning, everyone. This is Ball Corporation's conference call regarding the company's fourth quarter and full year 2020 results. The information provided during this call will contain forward-looking statements. Actual results or outcomes may differ materially from those that may be expressed or implied. Some factors that could cause the results or outcomes to differ are in the company's latest 10-K and in other company SEC filings as well as company news releases. If you don't already have our earnings release, it's available on our website at ball.com. Information regarding the use of non-GAAP financial measures may also be found in the notes section of today's earnings release. The release also includes a table summarizing business consolidation and other activities as well as a reconciliation of comparable operating earnings and diluted earnings per share calculations. In addition, the press release financials include description of new segment reporting for our EMEA and other nonreportable segments. Now joining me on the call today are Dan Fisher, our new President; and Scott Morrison, Executive Vice President and Chief Financial Officer. I'll provide some introductory remarks; Dan will discuss packaging and aerospace performance and trends; Scott will discuss key financial metrics, and then I'll finish up with comments on the outlook for the company. First, let me begin by thanking our employees. Together, we were able to adapt, work safely, serve our customers and hire thousands of new colleagues amidst unprecedented growth and external challenges. Your empathy, flexibility, adaptability and can-do spirit are remarkable. So thank you. I also want to thank our customers, suppliers and the communities in which we operate as well. This past year has put a profound challenges on all of us and our ability to work with each of you for the betterment of all is not taken for granted by us. We're truly blessed as an organization and as a family of all employees to work with you all. And together, we have persevered. 2020 finished strong with full year comparable diluted earnings per share up 17%. Full year comparable net earnings up 14% and EVA dollars up 25%. Momentum continues across our businesses with full year and fourth quarter global beverage volumes up 5% and 12%, respectively, and won net book backlog in aerospace is up 30% year-over-year. The growth trajectory in our packaging and aerospace businesses, our strong balance sheet and financial flexibility and our execution on growth capital investments give us even greater conviction in our ability to significantly grow diluted earnings per share, EVA dollars and cash from operations. Together, these elements will enhance a significant return of value to shareholders in 2021 and beyond. Our focus remains on working safely, executing on capital investments, leveraging our product portfolio and technologies, enhancing the customer experience and investing in talent, training, processes and systems to deliver long-term value. Before I turn it over to Dan to discuss our business performance, we've had a variety of well-deserved promotions since our last earnings call, and I want to congratulate everyone, including but not limited to: Dan, Scott Morrison, Lisa Polly, Ron Lewis, Kerry Cozy, Dave Kaufman, Charles Johnson and Jay Billings on their well-deserved promotions as well as to Stan Platt on his upcoming retirement and many contributions to Ball. Our long-standing succession planning process is thorough and thoughtful. In 2020, our employee base is up over 3,500 people to serve the sizable amount of growth in front of us. With our once-in-a-lifetime opportunity happening as I speak, this is a perfect time to further engage our rising leaders while leveraging long-standing Ball mentors to support their success to create equal opportunities for each and every one of us at Ball. Other highlights in 2020 include: our global beverage business has completed or is completing the start-up and speed up of numerous lines in the U.S., EMEA and Brazil as well as announcing additional projects to install at least 25 billion units of contracted capacity by the end of 2023. Our aluminum aerosol business successfully closed on the aluminum aerosol manufacturing plant acquisition in Brazil. Our cups team constructed and started up our first dedicated aluminum cups manufacturing facility in preparation for our expanded 2021 retail launch, which we expect shortly. Our businesses have significantly increased employee training and development to ensure smooth startups of our various projects as well as hosted a variety of virtual programs to help our new folks get up to speed on who we are, where we're going and what's important, whether it be behaving like true owners to our EVA mindset or providing inclusivity programs to help foster immersion into the Ball culture. And we further drove our sustainability leadership to ensure that the aluminum packaging continues to be the most sustainable package in the world, whether it be publishing third-party reviewed life cycle analysis that independently verified aluminum packaging as the best substrate relative to its carbon footprint; finalized approval of our science-based targets that's in alignment with the 1.5-degree Celsius targets of the intergovernmental panel on climate change; implemented several renewable energy programs; achieved system-wide performance of GANA custody ASI certification in our EMEA business or launch plans to achieve ASI certification in our remaining regions. In summary, Ball continues to operate from a position of strength, and our future is getting even brighter. Despite the rise in global COVID-19 cases in the geographies where we operate, nothing is slowing us down in our businesses, and we are excited to bring additional capacity and infrastructure online as quickly and as safely as possible in 2021 and beyond. To everyone listening, best wishes to you and your family for good health and continued safety. And with that, I'll turn it over to Dan.

Daniel Fisher, President

Thanks, John. It is certainly humbling to step into my new role as President. This is a company that means a great deal to me and has for the last 11 years. In my estimation, the future of Ball has never been brighter, and I look forward to continuing that trajectory with our over 22,000 team members for years to come. Transitioning to how we ended the year, I echo your thanks to our employees, customers and suppliers. We all became closer during 2020, a silver lining for sure. Our HR and environmental health and safety professionals and packaging and aerospace continue to keep our team safe and vigilant. And in certain regions outside of the U.S., our teams have facilitated access to additional health care services for our employees and their family members impacted by COVID-19. Thank you again. You are saving lives. First, I'll spend some time discussing global beverage and then move on to our aerospace performance and outlook. In 2020, global beverage volumes were up 5% despite the difficult second quarter in South America and EMEA. Specialty mix increased to 46%, operating earnings were up 8%, and we increased EVA dollars 40%. We also secured new customer and supply chain contracts; refocused on customer experience with the new customer portal, The Source; began manufacturing the aluminum cup at scale; expanded our team to ensure our growth is properly resourced; elevated a diverse group of leaders across management, engineering, commercial and procurement. And as John mentioned, we made significant progress in commercializing sustainability. The team truly delivered amidst challenging circumstances. As we discussed throughout 2020, growth in our global beverage business is accelerating, and every day is leading to even more opportunities as consumers and customers continue to leverage sustainable aluminum packaging with their brands and product extensions. It is vital in 2021 that we effectively manage complexity, support a resilient and agile supply chain, deliver a great customer experience and through sustainability in our product portfolio, continue to broaden the addressable market for aluminum cans, bottles and cups. And though it is only February, I'm very positive about our ability to achieve these goals and deliver low double-digit global volume growth and global specialty mix in excess of 50% in aspiration we first discussed at our 2018 Investor Day. By 2025, we continue to believe that the industry will go by at least 100 billion units, and Ball is well positioned to capture at least 45 billion units given our scale and capabilities in the world's largest can markets. By the end of 2023, we will have installed 25 billion units of capacity to support our customers' filling capacity expansions and product portfolio growth. Contractual terms and conditions are favorable. We have primed the supply chain by entering into multiyear contracts for equipment, next-gen coatings and metal supply. And of course, adhere to our EVA discipline in every facet of these preparations. Now we execute. At present and despite 7 billion units plus of annual run rate capacity coming online, demand continues to outstrip supply across North America, South America and our EMEA business. Therefore, the timing and size of capacity additions coming online will influence quarterly year-over-year growth rates. So let's not get distracted by any short-term data points. Simply put, this is a significant multiyear growth story from a highly cash-generative company that has an established proven growth rate with the wherewithal and flexibility to invest more and return a lot of value to fellow shareholders along the journey. We are thankful to be able to add skilled manufacturing jobs in the U.S. and elsewhere to help the global economy recover. As we look forward, to minimize startup costs and provide our customers the best experience with Ball, execution will be key. I'm happy to report that our new lines in Fort Worth and Rome are running at speed, that our new Glendale, Arizona plant started up its initial line recently, and that incremental lines have already been installed in Glendale to support our customers' successful filling operation startup located adjacent to our facility. Also in our new Pittston, Pennsylvania plant, preparations are being made to ramp up much needed capacity in the second half of 2021. In addition, we will be executing additional investments across our North American footprint, including construction of a new in-manufacturing facility in Bowling Green, Kentucky, to align can and end availability. We anticipate the end facility coming online in 2022. As we look out across our global plant network outside of the U.S., we announced this month our intention to open a new 2-line beverage can plant in the Czech Republic, and our new 2-line beverage can plant in Frutal, Brazil will supply additional cans to the fast-growing Brazilian can market in late 2021. In North America beverage, full year and fourth quarter volumes were up 11% and 6%, respectively. Specialty mix improved to 34%. Going forward, we see volume growth greater than 6% over the next 3 to 5 years and continued growth in specialty, all supported by longer duration contracts. In the fourth quarter, given the scale of new capacity coming online and labor to support them, start-up costs offset the benefit of improved volume and mix. In 2021, start-up costs will continue throughout the year, given the continued pace of growth and are expected to be North American-centric and in the range of 50 million, with volume growth supported by new capacity improved contractual terms and mix will more than be offsetting their impact. We continue to prioritize growth opportunities in North America and look forward to discussing additional plans throughout 2021 and 2022. Despite the industry capacity coming online, we see the demand continuing to outstrip supply well into 2023. And depending on our customers' rate of capacity expansion, possibly beyond. In EMEA, segment volume for the full year and fourth quarter was up 5% and 20%, respectively, and specialty mix increased to 54%. Across all EMEA business, demand trends improved throughout the year, and positive momentum has continued into 2021. Additional capital projects completed across the region provided needed capacity, and we foresee European beverage can volumes up mid-single digits in 2021 and beyond. Future growth will be supported by new categories utilizing cans and projects like the new Czech plant as well as other regional opportunities. Tight supply/demand continues, and we will assess all future opportunities through the lens of EVA. In South America, full year and fourth quarter volumes were up 12% and 11%, respectively, driven by increased package mix for aluminum cans in the beer category, resulting in our specialty mix growing to 62%. Following a difficult second quarter, beverage cans have been very resilient, with store owners leveraging recyclable aluminum cans over other substrates and package mix on the shelf remains in the 60% range versus a rate of 50% at the end of first quarter 2020. Similar to our prior commentary, we anticipate can growth in the mid to high teens and can mix on the shelf remaining high beyond 2020 and supported by investments like our new Frutal facility. In summary, our global beverage team, now led by Ron Lewis, navigated a dynamic and challenging year through sheer will and controlling the things we can control. We also thank our teams in India, Saudi Arabia and global joint ventures for supporting our global regions and much-needed support during 2020 and beyond. Sticking with global packaging. Our aluminum aerosol team did an amazing job during a challenging year. Earnings increased slightly despite a 3% decline in global volumes due to diminished use of deodorants and hair care products during global challenges. The team pivoted to new categories, managed costs, integrated an acquisition and positioned our infinity refillable, reclosable sustainability solution for personal care lotions and shampoos, now in plastics. And as John mentioned, our cups team continued to execute and prepare for an exciting 2021. Following the company's 20 million plus investment to stand up the business, we expect our cups business to turn a profit starting in 2022. Turning to aerospace. Full year and fourth quarter operating earnings improved 9% and 5%, respectively. Impressive results given a variety of inefficiencies brought about by operating the business during the current COVID environment, which I'm happy to address during Q&A. Rest assured, there is no change in our ability to grow. Our team persevered and has not lost any momentum, winning new work and bringing on new talent to support our growth. We also executed on new infrastructure, won new study contracts, upgraded tools and systems and increased our unfunded backlog, 30% year-over-year. We continue to be very excited about the long-term prospects of this business as well. And on a personal note, I look forward to leveraging Dave Kaufman's extensive industry knowledge as we both assume our new roles. Thank you again to all of our teams around the globe. Your leadership has been nothing short of remarkable. Keep it up and stay safe. It's going to be another amazing year. With that, I'll turn it over to Scott.

Scott Morrison, CFO

Thanks, Dan. I'll focus my comments specifically on the fourth quarter and key metrics to keep in mind for 2021. Comparable fourth quarter 2020 diluted earnings per share were $0.81 versus $0.71 in 2019, an increase of 14%. Fourth quarter comparable diluted earnings per share reflects strong global beverage and aerospace segment results, a lower share count and lower interest expense, offset by higher corporate costs and start-up and labor costs related to our new cups business and new U.S. beverage can facilities. Ball's balance sheet is very healthy with ample liquidity and flexibility in the current environment. Taking into account the dynamic growth in our businesses and the necessary speed to market for ongoing initiatives, we invested $1.1 billion in CapEx in 2020, while also returning $275 million to our shareholders. All in, an excellent year. The business and balance sheet are strong. EVA dollars are growing, and we're ready for the next stair-step in growth. As we sit here today, some additional key metrics to keep in mind for 2021. Our full year effective tax rate on comparable earnings will be in the range of 19%. Full year interest expense will be in the range of $275 million, roughly flat with the past year. And full year corporate undistributed costs recorded in other nonreportable is expected to be in the range of $80 million as we support our larger and growing businesses. Our 2021 cash from operations will continue to grow, in line with the earnings trajectory. And longer term, we see a path to doubling our cash from operations by 2025. As we discussed at last year's Investor Day, we'll be investing even more growth CapEx to expand aerospace facilities, beverage can production capacity in North America, EMEA and South America, while also investing in our aluminum cups business. And currently expect 2021 CapEx to be in excess of $1.5 billion. Beyond 2021, multiyear internal investments to serve organic growth and that returns well above our 9% after-tax rate will continue. Ball continues to be good stewards of our cash and will prudently balance real-time growth opportunities, with consistent return of value to our shareholders. Given our growing operating cash flow, we're managing the business appropriately for the long term, investing capital with an eye on EVA returns, managing our balance sheet effectively, and with the flexibility of returning even more value to our long-term shareholders in 2021 and beyond. And with that, I'll turn it back to you, John.

John Hayes, CEO

Great. Thanks, Scott. In summary, our Drive for 10 vision served us very well over the past decade and indeed in 2020, whether it be broadening our geographic expansion, developing new customers, markets and products and doing so with a commitment to being close to our customers and with uncompromising integrity. Ball continues to be uniquely positioned to lead and invest in sustainable growth while delivering significant value to our shareholders as we embark upon our 141st year in operation. As we sit here today, our ability to grow comparable diluted earnings per share greater than our long-term goal of 10% to 15% and achieve or exceed our EVA dollar growth goals of 4% to 8% per year in 2021 and beyond is certainly our expectation. Our teams working together will do everything possible to outperform, work safely and execute on capital investments. Our time is now, and we are thankful to look at 2021 as a year of promise and great opportunity. And with that, Dmitra, we're ready for questions.

Operator, Operator

Our first question comes from Neel Kumar at Morgan Stanley.

Neel Kumar, Analyst

In North and Central America, we just adjust out the $25 million of start-up costs, margins and incremental sales are still a bit lower than what you've seen in prior quarters. Can you just provide some color on why the incremental margins were lighter this quarter? And then in general, can you just give us a sense of how we should think about the potential growth in North America earnings in 2021 based on the various moving pieces, like higher volumes, better contractual terms and higher start-up costs?

Scott Morrison, CFO

Sure. This is Scott. I'll take that. If you look at the $25 million of incremental cost, about half of that is for start-up and the other half is due to increased labor to support the overall growth of the business. From that perspective, also keep in mind that we were importing a significant number of cans in the fourth quarter, and the margins on those additional cans aren't as favorable as usual. As we increase our capacity, we will rely on imports less, which will lead to improved margins. In 2021, we expect profitability to grow, but there will likely be around $50 million in start-up costs that might affect those margins. Most of those costs will be seen in the first half of the year as we ramp up our large facilities, including Glendale, Pittston, and start on Bowling Green as well. However, in the long run, we believe these investments will be beneficial because they are performing significantly better than our 9% after-tax target.

Neel Kumar, Analyst

Great. That's helpful. And then in Brazil, you talked about can shelf mix from an elevated at 60% versus 50% in the first quarter. Could you just give us a sense of like what one point of shelf mix in the cans means in terms of Brazilian demand? And you talked about achieving mid- to high-teens growth in the region, is that a Ball-specific comment or your general expectation of Brazilian demand?

Scott Morrison, CFO

Yes, that's a great question. This trend reflects the current demand in the market. To provide some context, there has traditionally been a major player in Brazil that has favored returnable glass bottles. However, several competitors have entered the market and have had significant success, particularly in the beer sector with their canned offerings. Over the past three to five years, we have observed an increase in can penetration, which seems to be favored by consumers as well as grocery stores and retailers who prefer not to stock returnable glass bottles. As a result, the larger incumbent is also adapting to meet consumer preferences. During discussions earlier this summer and at our Investor Day in 2020, we anticipated growth, estimating can penetration could rise from the low 50s to the mid-50s. The increase could equate to an addition of 4 to 5 billion cans over the next three to five years. The figure we mentioned today in our prepared comments for the third quarter was in the high 60s, indicating we are now in a period that may reflect a more stable run rate. However, due to the ongoing effects of COVID and other factors, we'll need to observe how this evolves in the coming quarters and years. We remain optimistic about continued growth potential. Even at a 60% penetration rate, compared to North America where the can penetration in the beer market exceeds 70%, there is a strong opportunity for us to reach and possibly exceed that 60% threshold. We will need to monitor this situation on a quarterly basis.

Operator, Operator

Our next question comes from the line of Arun Viswanathan with RBC Capital Markets.

Arun Viswanathan, Analyst

Congrats on the progress in '20. I just wanted to ask about CapEx and I guess, long-term growth. So you've guided to some increases here just given some of the recent announcements. Where do you see CapEx maybe in '23 and '24? Do you expect that to come down to maybe $1.1 billion? And what do you see as your long-term maintenance CapEx with all these new facilities?

Scott Morrison, CFO

Yes. Maintenance CapEx, if you think about it per facility, I think a couple of million, $2 million, $3 million per facility, probably a year is a good number on the beverage side. We'll spend over $1.5 billion this year. We have a lot of opportunities and really nice EVA-generating returns. I think we could be at an elevated level in '23 as well. And then my crystal ball is not that great. But I would see it's starting to moderate some, but I think we're going to be at elevated levels here for at least the next couple of years.

John Hayes, CEO

The strength of our business lies in our ability to adjust quickly based on market conditions. Over the past 25 years, we have consistently identified opportunities even in challenging times. During the COVID pandemic, we seized the chance to accelerate our efforts, and that's exactly what we did. Looking ahead to 2023, 2024, and 2025, we believe we will continue to find opportunities to either accelerate or slow down our growth, and we have numerous options at our disposal. Historically, our maintenance capital expenditures have ranged between $275 million and $300 million; while this figure is gradually increasing, it remains below $500 million. We have significant growth capital available and expect to utilize it moving forward, but we can reduce spending if the market requires it.

Scott Morrison, CFO

That's a good point. I would also add that we spent around $250 million more in 2020 than we initially anticipated. I view this as positive because the sooner we can get these assets operational, the sooner we can produce cans and sell them at strong margins.

Arun Viswanathan, Analyst

Okay. And then also just wanted to ask real quickly on some of your markets outside of the U.S., have you seen any emerging trends that we've seen in the U.S. develop elsewhere, like seltzers or anything else in any category growth that you're excited about?

Daniel Fisher, President

No, that's a great question. It will be interesting to see how seltzer performs in Europe, particularly since it's starting to appear in the U.K., which has a significant can market. How it translates to other areas in that region will also be intriguing to observe. I expect to see it in South America as well. The key factor will be how successful it becomes, which we will need to assess using the scanning data.

John Hayes, CEO

In addition to the new categories that Dan mentioned, we should also consider sustainability, where can penetration in Europe is likely the lowest compared to other major regions globally. I discussed life cycle analysis and other aspects in my prepared remarks. You will see Ball Corporation actively promoting this message to not just customers and consumers but also to NGOs and government officials, as it truly represents the most sustainable packaging option available.

Operator, Operator

Our next question comes from the line of Mike Leithead with Barclays.

Michael Leithead, Analyst

I guess first, I want to follow-up on one of the answers around imported cans in North America. I guess, first, could you maybe just give us a sense of how many cans you ended up importing this year? And second, if I heard you right, as you start to kind of, over the next couple of years, replace imported cans with domestically manufactured cans. Is it fair to say that, that should give you some sort of margin uplift just on a mix benefit there?

Daniel Fisher, President

I'll address the second question first. Yes, it will. A couple of things are happening. In the fourth quarter, we were in the range of $400 million to $500 million concerning the cans specifically about what was imported. We're collaborating with customers for the long term, so they're willing to pay higher freight rates and similar costs. We're working with our third-party joint ventures, etc. Our goal is to make this process as smooth as possible for them to get those cans on the shelf and maintain the momentum with the can. As Scott mentioned, as this capacity becomes available over the next couple of years, we should see a normalization, and we will return to a typical twofold volume growth on the leverage side.

Michael Leithead, Analyst

Got it. That's helpful. If I could ask about the capital expenditure outlook from a different perspective, you mentioned this year you're planning a record $1.5 billion, which is approximately 2.5 times the capital expenditure from 2019, and you talked about a significant number of new hires. Can you elaborate on your capability to logistically manage all of that? Have you had to alter any of your procedures or processes to enhance your capacity to efficiently manage these various tasks?

Daniel Fisher, President

Yes, absolutely. We've been working on this for about 2 to 3 years, especially as we began to focus more on new product introductions in North America, which has become a key performance indicator for us compared to larger consumer packaged goods companies that are increasingly moving toward cans, supported by sustainability trends. I mentioned in my opening remarks that we’ve made longer-term supply agreements to ensure that capacity is maintained in the supply chain. We’ve also reviewed past challenges we faced in new plant start-ups, which were often due to not hiring in advance, inadequate training, and failing to plan for employee turnover. As a result, we've increased our hiring of engineers and expanded our talent acquisition and training capabilities. These are significant investments in large facilities, and I believe we’ve changed how we approach the operation and start-up of these plants. Hopefully, you’ll notice these improvements reflected in our start-up performance.

John Hayes, CEO

As it pertains to capital spending, we are investing significantly more than we used to. To Dan's point about adding engineers, we have enhanced our capabilities to accomplish this. It's important to think differently as a growth company compared to 5 or 6 years ago. We have focused on these investments over the past couple of years to realize these benefits. Overall, I believe we are performing much better now than we were one or two years ago.

Operator, Operator

Our next question comes from the line of Phil Ng with Jefferies.

Philip Ng, Analyst

With the capacity you're going to bring on this year in North America and perhaps maybe you're building a little more inventory, if you can, do you feel good about meeting all demand this year in North America? Since last year, you kind of had to walk away from some business.

Daniel Fisher, President

Great question. Building up inventory is more of an ideal scenario for us right now, and we are not close to achieving that. It may take a couple of years before we get there. Currently, we are operating on a very tight basis and are heavily dependent on increasing our capacity to fulfill customer needs. We aim to meet the extra demand, similar to what we experienced in the fourth quarter. Wherever we can source cans within our global network, we will ensure they are shipped to support our customers with their product launches and initiatives that will contribute to the long-term growth of cans. As I mentioned in my prepared remarks, our focus is not on short-term results; we are looking at significant growth over multiple years. Our priority is to provide our customers with what they need, exactly when they need it, to encourage continued engagement with cans and to foster growth in that category.

John Hayes, CEO

Yes. And Phil, that's one of the reasons why we spent more in even 2020 than we were anticipated, and that's why the it's even that much more elevated in 2021 because as we sit here right now, to Dan's point, we are scrambling to service our customers. And we don't see that changing, and that's why we're putting our foot to the pedal to make sure that we're not leaving our customers short.

Philip Ng, Analyst

That's an exciting situation to be in. You mentioned that start-up costs are approximately $50 million. How did that pan out in 2020? Additionally, with inflation on the rise, I would like to understand how you plan to manage that and your approach to passing costs along. I know that 2018 posed some challenges, but I believe your current contract terms are more favorable for managing freight and related expenses. Can you elaborate on those two aspects?

Daniel Fisher, President

Yes. The start-up costs were around $50 million in 2020, but we have also increased our labor force. Our business is expanding not only through new start-ups, but we are also filling numerous positions. Year-over-year in the fourth quarter, this resulted in an increase of approximately $13 million to $14 million. We are working hard to keep pace and prepare ourselves for this growth. Compared to the time of the Rexam acquisition, I believe our current situation regarding contracts and terms is much stronger in relation to inflation. We are very aware of the changes in freight rates and feel well protected overall.

Philip Ng, Analyst

Okay. Super helpful. And just one last quick one for me. The $40 billion of growth that you've kind of mentioned through 2025, and you reiterated that today. How much of that secured contractually? And then any color on the shape of the ramp of the next few years?

Daniel Fisher, President

I have a clearer view for 2023 now that we've completed our strategic planning process. We are contracted for the $25 billion through 2023, and when that capacity becomes available, around 80% to 85% of it will be secured. That's our current position in terms of demand. The remaining 15% may not be formally contracted, but there are many interested parties ready to take on that capacity.

Operator, Operator

Next question comes from the line of Ghansham Panjabi with Baird.

Ghansham Panjabi, Analyst

I wanted to revisit the CapEx question from earlier. During the Analyst Day just four months ago, you mentioned over $5 billion of cumulative CapEx planned from 2020 to 2025. I'm curious if the increase in 2021 is simply a matter of timing in relation to that $5 billion figure, or should we anticipate that total CapEx through 2025 will exceed that amount? Additionally, you projected $700 million of incremental EBIT through 2023. Is that still the appropriate figure to consider, or could it be higher due to the acceleration in CapEx for 2021?

Scott Morrison, CFO

No. On the Capex, I think a lot of it is just, to Dan's point, it's solidifying those contractual relationships with our customers that solidify our belief that the volume is going to be there. And so it's putting capacity in to meet those needs. So I wouldn't say it's dramatically different other than things are pulling forward probably from where we were before.

Ghansham Panjabi, Analyst

And for $700 million of EBIT?

Scott Morrison, CFO

So yes, that should still be a good number. Remember, when you start up a plant, you have a ramp-up curve, and it will take some time to reach a full run rate. When you establish something new, especially with a new plant, it will take longer to see the full returns from those investments. If you're adding an additional line, like in Fort Worth and Rome where we added lines last year, that process happens much faster. However, with a new workforce that hasn't produced cans before, it will take more time to achieve optimal returns. Investments made in 2021 are expected to improve in 2022 and 2023, and there will be a compounding effect as we move forward beyond 2023 for all this capital.

John Hayes, CEO

Ghansham, this is John. Let me answer your question a different way. And the question is, what has changed since the Investor Day? Nothing has changed other than we have greater conviction than what we talked about 4 months ago. And so what you're seeing is an acceleration of capital to take advantage of that. And to Dan's point is I wish I could tell you what 2024 looks like, I can't. It's too far out there. But these trends are the strongest I've seen in my 20-plus years at Ball Corporation by far.

Ghansham Panjabi, Analyst

Thanks for clarifying that. And then I just want to ask a different question. I mean...

Daniel Fisher, President

Operator, maybe we should go to the next question.

Ghansham Panjabi, Analyst

Can you hear me now?

John Hayes, CEO

Yes, we can hear you now.

Ghansham Panjabi, Analyst

Hello? I was asking about the...

Daniel Fisher, President

Go ahead.

Ghansham Panjabi, Analyst

Okay. So I was asking about the chemical industry and CapEx being allocated towards chemical recycling and trying to replicate a circular economy dynamics similar to aluminum. There's also several bioresin alternatives being commercialized. And many CPG customers are very public with their interest in recycled plastics. So as you kind of reconcile all of that? How do you sort of think about those variables as it relates to the growth?

John Hayes, CEO

Yes, that's a great question. Here's how I would address it. It's important to remember that aluminum containers are currently the only type of container in the recycling stream that holds economic value. When it comes to adding chemical recycling to plastics, it primarily introduces additional costs. Many of our customers are aware that they have profit opportunities within the plastic sector, and they are understandably trying to safeguard those interests. I completely see their perspective. However, the harsh reality is that the amount of usable recycled plastic material remains very low, still in the single digits. Could chemical recycling improve that? Yes, it has the potential, but not on a large scale due to associated costs. Moreover, it won't fundamentally resolve the single-use plastic issue we face globally. With beverage can recycling rates exceeding 70%, and our industry publicly aiming to increase that to above 90%, it indicates that we aren't contributing significantly to aluminum waste in landfills or environmental pollution. It seems quite challenging to expect plastics to reach similar achievements anytime soon.

Operator, Operator

Our next question comes from the line of Anthony Pettinari with Citi.

Anthony Pettinari, Analyst

John, you indicated I think COVID walk downs haven't, for the most part, negatively impacted global growth. I'm just wondering, as you look at the last 12 months, do you have any thought or concern that the very strong demand that you and your customers have seen has been boosted by at-home consumption that might roll off to some extent, hopefully, as COVID becomes less of an issue? Or just any kind of thoughts you can give on that kind of at-home versus on-premise dynamic over the last year?

John Hayes, CEO

Great question, and my comments will be more qualitative because I can't point to specific data. But we've been spending much more time at home. And I think the consumer were at large, and we have done some research on that, is much more aware of the waste that we are creating because we have to throw it in our garbage cans every day. We're no longer, as we sit here today, as much of an on-the-go society than we were, and we didn't worry about that. So that's one data point that's important to point out. The other one is kind of the on-premise, off-premise because the off-premise has benefited at the expense of the on-premise. But our conversations with the on-premise suggest that when we go back, the question is, for example, in beer, how much draft is going to be there when you have glasses sitting there, and people are going to have concerns about the sanitization thereof. And so what we've been hearing and is that a lot of the on-premise is looking to go to much more single-use beverages, meaning cans and bottles. And so I don't know, Dan, if you have anything else to add, but those are 2 big data points we've been focused on.

Daniel Fisher, President

Yes. One important point that John mentioned is the significant shift towards flexible work and work-life balance, which is very real and something we are addressing. Historically, 80% to 90% of our employees worked in the office, but we've recognized that we can perform our roles from virtually anywhere thanks to technology. Whether working from home, an apartment, or a studio, people will be consuming packaged goods, benefiting the can market for the foreseeable future. Additionally, the current market conditions are extremely tight. Consequently, many of our customers are postponing their innovation releases in cans. While there has been an influx of new canned products, numerous others have not been launched due to can shortages. Even if there are shifts in consumption patterns when bars reopen, we believe there remains significant pent-up demand and innovation that should help balance this out. Overall, this aligns with our previous statements at Investor Day, suggesting we are doing well and may even exceed expectations, depending on consumer behavior as we emerge from COVID.

Anthony Pettinari, Analyst

Okay. That's very helpful. And maybe just following up on that comment on innovation. There were a few trials of still water in cans slated for last year. They got a lot of attention before COVID kind of disrupted everything. Is it possible to talk about how the can is doing with still water? Is that something that's been maybe pushed back or maybe capacity constrained with fewer cans available? Just any kind of broad comments on that opportunity?

Daniel Fisher, President

The existing products are performing well, showing double-digit growth from a low starting point. The main challenge, as you mentioned, relates more to the retailers. They have consistently delayed the adoption of new products quarter after quarter to manage the increased demand and ensure their supply chains remain strong. We are having very promising discussions and look forward to emerging from the COVID situation, at which point you will see many of these innovations introduced along with several well-known brands.

John Hayes, CEO

Yes. And to Dan's point, we are capacity constrained right now. So if you're a still water company thinking about going into cans, it's very tight. That's one of the reasons why we've been accelerating our investments to kind of free up some capacity to really kind of push those things because right now, the reality is we don't have the cans to supply those people that are looking to go into it.

Operator, Operator

Our next question comes from the line of George Staphos with Bank of America.

George Staphos, Analyst

I wanted to revisit the question about start-up costs from a different perspective. I know you’re eager to hear more about this. Looking ahead to cash flow projections for next year, we’ve discussed start-up costs over the past few quarters. You mentioned efforts to minimize their impact while managing the challenge of expanding capacity. What strategies do you have in place to reduce that impact? Should we anticipate a persistent start-up cost of around $50 million annually, considering how much capacity is increasing? Given the capital expenditures this year, shouldn’t we expect a quicker recovery in operating cash flow as we start to see returns in 2022? What are your thoughts on these issues?

Unidentified Company Representative, Company Representative

No, I think you're exactly right, George. We'll see the acceleration in operating cash flow. We will have significant start-up in '21 because we're starting really 2, 2.5 with Bowling Green, large facilities. So the start-up costs will be elevated when we're doing greenfield facilities, really in North America. The costs become less. The Czech Republic launch will be less because the labor is a heck of a lot less. So you can break people and South America is a lot less with Frutal. That will be less because the labor base just isn't as expensive. And to Dan's point, we found through previous startups, bringing these people in earlier, getting them trained, having redundancy is really important to make sure that then you kind of hit your start-up curve. So I would say it will track with greenfield facility that will be elevated with greenfield facilities in North America, but you're still going to get more than that benefit through the growth in operating cash flow and earnings as these things ramp up.

John Hayes, CEO

Another way to think about it is in relation to our beverage can segment. For every 1 percentage point increase in volume, we should expect a 2x flow through on the margin over time. Dan mentioned that we expect to see low double-digit growth, so for discussion, let's say 10%. This implies that we should aim for a 20% earnings growth in an ideal scenario. However, we must account for start-up costs, which should be considered when thinking strategically about this situation.

George Staphos, Analyst

Next question I had, there's been a couple of questions on innovation. One, are you seeing any sign of exhaustion? I'm guessing the answer is going to be no, but from your consumer studies, any exhaustion on the whole spiked delta category? And as you bring on this next wave of cans, are we going to see just more new flavored spike seltzers? Or are there other categories to the extent that you can comment that will perpetuate the innovation angle? How would you think about that? How would you have us think about that?

Daniel Fisher, President

Yes, that's a great question. We touched on this in a little detail at Investor Day. When we think about alcohol innovation, spiked seltzers are part of that. There is a lot of innovation happening in that space. Do we believe that spiked seltzers will continue to grow at 200%? No. There's a point where we expect it to stabilize, and many have pointed to the market share of light beer as a reference. Perhaps that's accurate. However, we remain very optimistic about the alcohol sector, especially with spirits moving into cans, which was unprecedented for over a decade. As more innovation appears in cans within the alcohol industry, I believe we will start to see new trends, whether we call it spiked or something else. More innovation in cans should benefit us.

John Hayes, CEO

Yes. Just to think about the teas, the spike teas that are likely to see a big surge in 2021. Is that a spike seltzer or not? I think that's Dan's point. It doesn't matter. It's in the alcohol space and it's innovation in the can.

George Staphos, Analyst

Understood. My final question is about the capacity announcements for Southeast Asia. Despite our efforts, that market seems quite constrained. What insights can you provide on Ball's perspective regarding this region and its appeal? Additionally, if you continue to operate in South America at 10% to 15% capacity, you'll likely need another plant there soon. I know this topic has been central to our discussion, with the recurring theme of being out of capacity. How should we view the potential for a new plant in South America?

John Hayes, CEO

Yes. George, you just said South America, but I think you mean Southeast Asia? Well, to be honest, it's a bit of an apple and a pear for Ball Corporation. As you know, we're very big in South America. We're not all that big in Southeast Asia. We are I think our ability to grow, in some ways, limited by our resources. And it's not just the capital, it's the people, all the things that Dan has done a great job and really redefining our processes and reimagining to the onboarding of people, to the capital equipment and everything in between. I think so it gets down to a prioritization issue. And we see the returns in the places where we have the greatest leverage, which is North and Central America, EMEA and South America to be greater than Southeast Asia. Does that mean we're not looking Southeast Asia? Of course not. But we have partners in Southeast Asia, and we just think the greatest bang for the buck for us as shareholders are doing what we're currently doing right now.

Operator, Operator

Our next question comes from the line of Mark Wilde with Bank of Montreal.

Mark Wilde, Analyst

I wondered, first, Dan, if we could just talk about what drove that 20% volume growth in Northern Europe in the fourth quarter? And if we're seeing an acceleration in growth in Europe, whether there's an opportunity to start to improve some of the European contracts in the way that you've done in North America over the last few years?

Daniel Fisher, President

Thank you for the question. Let me summarize the fourth quarter performance, and I can assure you these numbers are accurate. In the U.K., we experienced 17% growth in can sales in the fourth quarter. Germany also saw a growth of 17%, while Spain recorded 15% and Italy 13%. France had a 10% increase, and Russia continued to grow by over 15%. This growth is widespread across Europe. As for the situation in Northern Europe, the dynamics in Europe are changing compared to North and South America, which have tightened considerably over the last 18 months. We are starting to see similar trends in Europe. This shift is necessary for us to reassess our contracts. I can share that we perform very well at the gross profit level in Europe. It's likely that the tightening of terms and conditions, similar to what we have achieved in other regions, is contributing to our focus there. We are on the verge of having a market in Europe that resembles other regions regarding tightness, which could allow us to influence it effectively. I hope that provides some clarity.

Mark Wilde, Analyst

That actually helps a lot, Dan. I wanted to turn our attention back to Brazil for a moment. From my trips there, it seemed that most of the canned market in Brazil consists of beer. Here in North America, about 60% of the canned market is nonalcoholic. What is the opportunity in Brazil and Latin America more generally to shift the nonalcoholic beverage market further toward cans?

Daniel Fisher, President

Yes, that's a great question. In Brazil, there are specific tax structures and the duration of expected changes regarding package mixes largely depends on where profits are generated and the related profit pools. However, sustainability is increasingly becoming a priority across all South American countries, and this trend will exert pressure to facilitate the transition. A neutral tax structure for the various profit pools, combined with sustainability trends, is essential for ongoing improvement. Notably, the outlook is very positive, as the beverage market for cans in beer is significant and the shift towards cans in pack mixes is continuing. There's also a wave of new innovations in the alcoholic beverage can market, similar to what has happened in North America over the past decade. Even if carbonated soft drinks don't undergo a transition, we are positioned for strong growth over the next five years and beyond.

Mark Wilde, Analyst

Okay. Last one for me. Just briefly on can sheet. I wondered if you can talk about what you're doing with suppliers to ensure a supply of can sheet? And whether you're doing this more on a regional basis that might be a little more amendable to kind of developing circular recycling structures?

Daniel Fisher, President

Yes, it's a great question. I mean, again, similar to a number of data points, where we saw this kind of tailwind and growth trajectory several years ago. And learned through difficult times with the previous administration and tariffs that we needed a more robust and a more global surety of supply chain as it relates to rolling mills. We have north of 20 different contracts around the world with mills. And so we're in a good spot. It may not be localized exactly where we want it, depending on performance of all the mills, but we have access to metal, which is the most important thing right now. And all the conversations we're having with the supply base, to your point, it's get it where we're making the cans, get it close to the facilities, get it close to where the recycling and scrap stream is because all of that going to enable us to step into all these tremendous attributes of the can. We need it local. We want it to be circular. And I think we'll start to see some more investment in North America, in particular, as it relates to that.

John Hayes, CEO

Dmitra, maybe we'll take one more question.

Operator, Operator

Certainly. Our last question comes from the line of Kyle White with Deutsche Bank.

Kyle White, Analyst

I just want to follow-up quickly on Mark's. The regional growth in EMEA is tremendous, but can you dig a bit more into what beverage categories drove this? And why did we all ascendancy this level of growth in 4Q, not necessarily 3Q or even 2Q?

Daniel Fisher, President

Well, the second quarter and parts of the third quarter were significant. There are still many countries involved, and it's not just about Europe. COVID definitely affected the freight side and which channels were accessible. So, I believe the fourth quarter reflected a more typical consumption pattern. In the U.K., the ready-to-drink segment and beer saw growth. However, in countries like Italy, Spain, and Russia, there was substantial growth in beer consumption. Overall, although beer is predominant in the market, you did see some positive growth in other categories in specific areas like the U.K. Thank you.

John Hayes, CEO

I want to thank everyone for your participation. Stay safe, be well, and we look forward to talking to you in a few months. Take care.

Operator, Operator

Thank you. That does conclude the conference call for today. We thank you all for your participation and ask that you please disconnect your lines.