Greetings. And welcome to the Ball Corporation Second Quarter 2021 Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, August 5, 2021. I would now like to turn the call over to John Hayes, CEO of Ball Corporation. Please go ahead.

Thank you, Kathy, and good morning, everyone. This is Ball Corporation’s conference call regarding the company’s second quarter 2021 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. Now joining me on the call today are Dan Fisher, our President; and Scott Morrison, our 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. To all of our global employees, thank you for your hard work and for staying safe. We know the past 16 months have been trying on everyone and it’s not lost on us that we are not out of the woods yet. COVID is still with us and the science of the vaccine speaks for itself. Please get vaccinated if you can, if not for yourself, but for your loved one and coworkers. In addition, I also want to thank our packaging and aerospace customers, suppliers and their employees. Collectively, we continue to navigate our supply chains, COVID related restrictions in certain regions due to the ongoing Delta…

Thanks, John. I echo your thanks to our employees, customers and suppliers. Our global HR environmental health and safety professionals, and our own personal actions continue to keep our team safe and vigilant. The teams are doing a great job managing accelerated growth, large scale capacity additions and intermittent supply chain challenges. We’re entering the second half with a lot of momentum, a few manageable challenges and a visible path to strong performance throughout 2021 and beyond. Second quarter global beverage volumes up 13% versus 2020 and ongoing strength in EMEA and South America, offset startup costs in North America, retail marketing investments for our retail cup launch, the later than anticipated award timing for a new aerospace contract and higher year-over-year costs. Demand for aluminum beverage cans continues to outstrip supply around the globe. Our global engineering and operations teams are executing at a high level. We’re on track to exit 2021 with an additional 12 billion units of new installed capacity and we recently announced global projects all of which underscore our Investor Day commentary. Cans are in high demand, contracts are in place and Ball is well positioned. Our focus on speed the market, talent, training, systems and operational readiness is paying off as we continue to ramp up new capacity on time and on budget. To all the teams listening, our time is now and you are making this happen. Keep up the great work. As John mentioned, we have hired an additional 1,600 colleagues year-to-date with the majority of them located in the United States. Our investment in talent, training and development, and emerging into the Ball culture and EVA mindset is a vital part of near- and long-term success. We are blessed as an organization to attract this talent in the current environment and…

Thanks, Dan. Comparable second quarter 2021 diluted earnings per share were $0.86 versus $0.65 in 2020, an increase of 32%. Second quarter comparable diluted earnings per share reflects strong global beverage results, slightly lower interest expense and a lower effective tax rate, offset by previously discussed higher year-over-year corporate costs, as well as labor and startup costs to support business growth and marketing costs to drive the aluminum cup launch. Ball’s balance sheet is very healthy with ample liquidity and flexibility. 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 now be in the range of 17%. Full year interest expense will be in the range of $270 million. And full year corporate undistributed costs recorded in other non-reportable are now expected to be in the range of $95 million. We continue to see a path to doubling our cash from operations by 25. Our 2021 cash from operations will grow in line with earnings trajectory and be aided by a source and working capital. We expect 2021 total CapEx to exceed $1.5 billion and returns on capital beyond our 9% after-tax hurdle rate will flow through as new growth projects become operational later in the year and in the years to come. Ball continues to be good stewards of our cash, as fellow owners and in alignment with our EVA discipline, we will prudently balance real time growth opportunities with consistent return of value to our shareholders via dividends and share repurchases. Given the second quarter’s strength and net leverage in our target range, we will return significant value to shareholders via dividends, as John mentioned earlier, and our ongoing 2021 share repurchase program of at least $500 million. In 2021, we will return approximately $1 billion to shareholders, including dividends and buybacks, and we intend to double that total return to shareholders in 2022. With that, I’ll turn it back to you, John.

Great. Thanks, Scott. In summary, our Drive for 10 vision serves us very well, 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. Following our strong year-to-date results and outlook for the remainder of the year, we are even better positioned to exceed our comparable diluted earnings per share long-term goal of 10% to 15% and exceed our EVA dollar growth goals of 4% to 8% per year in 2021 and beyond. We will work safely together to execute on projects, support our customers’ growth, drive the circular economy and generate significant earnings, cash, EVA and return even more value to our shareholders. And with that, Kathy, we’re ready for questions.

Thank you. [Operator Instructions] And our first question comes from the line of Ghansham Panjabi with Baird. Please proceed.

Thank you. Good morning, everybody.

Good morning.

So, Dan, maybe we can pick up on the hard seltzer comment. Obviously, the narrative of the market has changed quite a bit. Maybe you can give us a sense as to how many units you think hard seltzers will total for beverage cans in North America for -- as we exit 2021? What does that number look like for 2022? And then what gives you confidence that the momentum will continue in context of companies like Molson Coors already rationalizing some of their brands? Thanks.

Thanks, Ghansham. I think for -- how we looked at that category is and I think I’ve made this comment before. We look at sort of the ready-to-drink alcohol space. And maybe just to give you some context, for Ball Corporation, hard seltzers of our unit volume make up less than 5%. We’ve seen -- obviously, we participated in the growth of that space. But it is not the underpinnings for the things that we’ve been talking about in terms of long-term securitization of contracts, EVA accretion. It’s not on the backs of that category specifically. And so I think it will continue to grow, it’s clearly not going to grow at the rate it has been. I think what’s been clear in that space is, the folks that continue to innovate and innovate effectively, are the ones that are taking share. And so from that perspective, we’re -- we believe that we have a right to play in the innovation space and I think we’d benefit from those customers in particular. And so that’s where our focus is. I’m leery to comment on unit volumes across the entire space for the back half of the year. But maybe that gives you a sense of how we at Ball kind of view that category. We’re continuing to bet on the long-term trajectory of the can and can wins in every channel. This is one that has done really well over the handful of years, but we like a lot of other categories and a lot of other spaces equally.

Okay. That makes sense. And then if we switch to Europe and the big improvement versus 2019. I mean, obviously, at energy cup last year, but really, what is driving the margin improvement versus 2019, even with aluminum costs that are much higher, and obviously, dilutive. What’s driving that improvement there?

This may be too simple an answer, but our team is executing really, really well, in some instances, a little ahead of our expectations even. We’ve got a really stable footprint over there. We’re on the forefront of major greenfield expansions. But that’s a stable. We’ve had the benefits of incremental speed ups and incremental line extensions and that’s a much easier operating environment, coupled with the fact that the team over there is doing a terrific job. So, I think, solid contracts that we’ve leaned into and talked about globally, the team performing extremely well. And the fact that they’ve benefited from the incremental growth expansion as opposed to some of the large greenfield footprint. So I think the combination of those three and that team just continuing to perform exceedingly well.

Perfect. Thank you.

And our next question comes from the line of Jeff Zekauskas with JPMorgan. Please proceed.

Thanks very much. Of your 12 billion can capacity expansion by the end of the year, how much of that volume is already committed?

Overwhelmingly, it’s committed. Well, we haven’t -- I think we’ve been pretty consistent on the capacity we’re putting in the ground, whether you’ve heard from Scott or John at other Investor Days and outlets. We haven’t deviated from that position. The long-term contracts are committed. They effectively in many instances have take or pay clauses in them. Good terms and conditions and equilibrium of risk. That’s improved over the course of the last four years to five years in terms of the contract integrity. But, yeah, they’re overwhelmingly contracted. I’d say, 85% to 90% of each one of the facilities is contracted.

Okay. Great. And to follow up, I think, your long-term projection for the growth in North American can market is 4% to 6%. So call it 5%. Of the 5% growth you expect on a normal basis, how much of the growth comes from alcoholic beverages and how much from non-alcoholic beverages to get to the 5%?

Yeah. Good question. I think going back to 2019, when we had an Investor Day and we laid out the growth trajectory and we’ve been pretty consistent that, I believe it’s going to be somewhere in the neighborhood of two-thirds alcohol, one-third other. It may be shifting a little bit more to 60% alcohol and 40%, and the reason for that is energy, the energy market continues to absolutely be on fire. And so that’s the only fundamental change I see in like the underlying architecture. The good news is that means volumes more than what we anticipated a couple years ago, but that segment in particular and there’s more fitness energy drinks coming online. You are a consumer, you see all of this and we’re obviously going to benefit from it.

Yeah. I’ll just add, let’s not forget that that 4% to 6% did not include any water, any still water and we are even just driving in the car today, I actually heard a radio commercial about still -- a new still water brand coming in. And so I think that provides, it was delayed about a year because of COVID, but we are starting to see it. A little bit less so here in North America, but certainly in Europe and we expect that to be upside to that 4% to 6% volume growth.

Great. Thank you very much.

And our next question comes from the line of Anthony Pettinari with Citi. Please proceed.

Good morning.

Good morning.

John, Dan, after bringing up and ramping the additional lines in North America in 2Q, 3Q, would you expect to still be importing cans at year end? Can you just kind of give a snapshot of where your global footprint stands from import/export standpoint? And when you get to a point where you no longer need to import into North America?

I think we’ll be importing far less in the back half of the year. And having said that, the can growth, we’re still in the early innings of growth, so as all our channels and all our markets continue to open up and we’d lean more into new innovations, et cetera. Those could spur some inputs, but we’re not planning on near as much to the extent that we saw in the first half of the year.

Yeah. But having said that, even going into 2022, we still expect some imports as we kind of catch up with all this. If you go back probably, I’ll call it, 18 months ago and asked us, we would have probably said the amount of imports in 2022 would be negligible, if any, but we’re seeing more just because the overall demand growth and we want to be prudent in our investments. And as Dan mentioned earlier, we make the investments based upon secured contracts. And so as those come through, that provides an underpinning, but I would expect that we’re still doing some level of importing in 2022.

Absolutely.

Okay. That’s very helpful. And then with the Delta variant, we’re seeing some renewed lock downs, I guess, maybe in some Asian markets where you don’t participate as much. I’m just wondering if you’re seeing or does your guidance anticipate any impact on-premise demand in any of your global markets from renewed lockdowns?

No. No. It doesn’t. Because as you know, I think, it’s actually only upside. The kegs seldomly, certainly, here in North America, less than in Europe, but is very -- does not skew towards the on-premise. And so I think as the on-premise comes on, I think, they’re upside, because of the anecdotal evidence that we have seen and heard is that as the on-premise does begin to open up, the kegs are the ones at risk, because they had to flush so much bad product because of the lock downs. And so, bar owners and restaurant owners are looking at much more flexible and adaptable supply chains within their own walls and I certainly think that favors a can So in fact, I think, as things open or close, there’s little downside, but more upside.

Maybe just adding a comment to John’s good take on on-premise, I think, we’re also seeing the continued investment into the direct channel and there have been behavioral changes. That’s…

This is the Operator. The main line has disconnected. They will be dialing back in. So please stay on the line. The main line has disconnected, but they’ll be joining shortly. So please remain on the line. So be on silent until they rejoin. I will let you know once they have joined. Thank you for standing by. I do have the main line connected. Please go ahead.

Yeah. Apologies for that. I did we seem somehow dropped off. But we’re back. So, Kathy, if you can, perhaps, like take the next question.

Certainly. Thank you. And the next question comes from the line of Neel Kumar with Morgan Stanley. Please proceed.

Hey. Great. Thanks for taking my question. You mentioned several supply chain disruptions in the aerospace and Northern Central America segments. Can you just quantify for us the impact in the quarter and what impact you expect from these issues in the second half of the year?

Yeah. On the aerospace side, I think, we saw continued struggles early in the quarter, got much better in the back half of the quarter. We think going -- we feel much better going forward that we’re kind of beyond the challenges that we have in the supply chain. In North and Central America, we’re seeing increased costs as it relates to warehousing, coatings, all kinds of things. I think everybody’s seeing that across their supply chain. So we’ve been able to -- our teams have done a great job of making sure that we have metal to run our operations. So we haven’t had any issues from that standpoint. But it’s a challenging environment, but one that we’re navigating through pretty well.

I think in total, I think, in aerospace, we think it costs in the range of probably $5 million in the quarter. And I think in North America beverage, our startup costs were in the $11 million to $12 million, excuse me, $12 million to $13 million range. And then all the other inefficiency costs that, Scott alluded to, and don’t forget, we entered the quarter with the lowest inventory we had. And so as you’re going into a seasonally high period of time in North America, that’s what created the disruption, but that costs is probably in the range of $20 million $25 million. And as Dan talked in this prepared remarks, a big focus in the second half of this year is new capacity is coming online, is getting our inventories back to a more normalized level, so that we are not making to order, but we’re making to stock, which is very important from a whole supply chain efficiency perspective.

It’s important to add to that. When we talk about we’re doing an effective job, controlling what we’re controlling, especially within the four walls of our plants, it’s exactly the John’s comment, when you have historically low inventory levels that just promotes more label changes and more turnover. So our folks are operating incredibly well. They’re just doing it in challenging inventory level circumstances.

Great. That’s helpful. And you mentioned, aluminum cups being profitable in 2022. I was curious what the drag is in 2021 and how much CapEx has been invested so far? And can we just generally expect a greater than 10% return on that investment on an ongoing basis?

So I’ll answer a couple or add a couple comments and then maybe turn it over to Scott. Number one, we’re having to see the market in terms of promoting and building the brand. And so you can see commercials and traditional media, you can see an awful lot of activity in that arena. So we’re spending that money as we launch, we only have one time to launch in these 20,000 stores. So we’ve leaned in heavier in the second quarter even than probably what you see in the back half of the year in terms of investment to build the brand. And then it’s a function of volume against the fixed cost, right? So as we’re seeing volume continue to pick up and seeing some nice velocity turns on this retail. We have pretty good line of sight into where we’re going to be exiting the year and that real good line of sight in terms of this is going to be able to transition into a profitable business in 2022.

Yeah. We’ve invested about $250 million so far just the start -- it just in the realm cups plants so far and we expect to have returns, yes, well in excess of that 9% as it matures. To Dan’s point, I think the team has done an amazing job, given kind of COVID restrictions of getting into 20,000 retail locations in a really short period of time. That doesn’t come without some additional investment. But we expect that investments to be well worth it as we get into 2022 and beyond and start to see those returns.

Yeah. And then one thing I’ll just add on that is, let’s also not forget the food service side, the sports and entertainment venues, they’re just in earnest over the last month or so, just starting to open up even on the concert side, they’re just starting as we speak. And so as we go into the second half of the year, that’s going to be a big focus. And then assuming normal, no restrictions or very limited restrictions in 2022, that’s where we see the road to profitability.

[Operator Instructions] And our next question comes from the line of George Staphos with Bank of America. Please proceed.

Thanks. Hi, everyone. Good morning. Hope you’re doing well.

Good morning.

Thanks for taking the question. So I wanted to hit again on innovation. And I think sometimes it’s good to remember six years, seven years ago, I think, you all were talking about how, especially on the alcohol side, there wasn’t innovation, relative CSD and that’s obviously changed a lot and churn is good. When you look at your customers new product pipeline, especially in alcohol, are you more or less confident looking out a year to two years then you were a year ago, in terms of the innovation and what it’ll mean for your growth and return and why or why not?

I’ll give a very high level view. I’m probably a little bit more excited why. It’s not only just because of innovation. It seems like every new brand that’s coming out in cans. And so the amount of the number, sheer number of new product inquiries we get from big, big customers, regional customers, small customers has been the greatest I’ve seen in my 20 plus years at Ball Corporation.

I was building on that George versus three years or four years ago, every large CPG company now is getting into the alcohol space. So just by virtue of that, we’re seeing a lot more innovation on that side. And as John said, almost everything is going into cans. So I’m more bullish. I don’t know which one’s going to win. But we know that the can is going to win and we continue to place our bets on that.

Are you seeing any innovation pipeline, any sort of mixture between previously separated categories? So energy drinks and alcohol, energy drinks and coffee, and what that might mean for your can business going forward?

I think, yeah, you’re probably just scratching the surface on the hybrid. Anything you can get alcohol into is being contemplated. Yeah, just same thing on the, sorry, same on the fitness side, anything that can have fewer calories to give you energy or some benefits, there is no shortage of innovation there.

Yeah. George, just give you a context. People have been talking a lot about spike seltzer. What we’re also not talking about is the ready-to-drink that is just totally booming as we sit here right now. As Dan mentioned, energy is going very strong, and we’re seeing more and more coffee going in, with all sorts of functional benefits, whether it’s various oils being put into it or other things like that. And so, again, across the spectrum, that’s what we’re seeing.

Okay. Thanks for that. Hopefully, no alcohol and milk drinks. But we’ll see. I guess the last question…

There is such a…

I know.

… thing in wide production, George.

I forgot. I forgot. We’ll look for that in the can at some point, if it’s not already out there. So, you mentioned that you’re going to look to double the value return next year versus this year. And I was wondering what is ultimately driving that, recognizing it’s going to be a combination of things, is that the confidence in the return that you’re generating from your investments giving you the wherewithal to do that. Is that the implicit, higher cost of equity now being put on Ball stock, because the way the stock has been performing and so maybe it’s time to pull back and reward shareholders or is it -- doesn’t sound like it lack of confidence in the growth outlook and so maybe it’s time to start redeploying that capital and I recognize it’s going to be probably something totally different. But what are your thoughts there and I’ll turn it over from there? Thanks, guys, and good luck in the quarters.

Thanks, George.

Sure, George. I think it’s more conviction and confidence in our business, and the prospects of our business longer term. I think it’s -- we’re in a comfortable leverage, we said, we wanted to be 3 times to 3.5 times year end debt-to-EBITDA. We see our earnings growth over the next several years growing at a pretty good clip and so we have the ability to basically borrow more money and keeping the leverage flat and returning a ton of that value to shareholders kind of like what we’ve done in the past historically. So I think its conviction about all of those things that gives us the confidence to do -- to raise the dividend 33% a week ago, and to ramp up the share buyback. And I think this year will be a good start and I think we did a lot more as we as we go forward.

Yeah. And people have been around for long enough over the last 20 years, 25 years know that this lather rinse repeat strategy of making good investments, getting your debt down to the optimal capital levels and then giving it back to shareholders. That is a tried and true model. And we’re -- the key point that I was making in my prepared remarks is we had planned on really doing that in 2022. But we have enough conviction in the growth of cash flow, the growth of earnings and our balance sheet, as Scott said, that we’re going to be accelerating that.

And we don’t have to sacrifice growth investments. We’re still going to -- we’re able to invest heavily in the growth supported by those long duration contracts that Dan talked about. We’re going to flow a lot of cash and a lot of that extra cash is going to go back to the shareholders.

Appreciate the thoughts. Thank you very much.

Thanks, George.

And our next question comes from the line of Mike Leithead with Barclays. Please proceed.

Great. Thanks. Good morning, guys.

Good morning.

I want to circle back to the inventory conversation. So can you maybe just touch on kind of how far inventory levels currently are below where you want them? And relatedly, I assumed just given the demand strength over the past couple years, your North America plants have been running and producing, I would rather says, probably, almost unsustainably high rates. So is it fair to say in a more normalized environment, when you get all your plants up and running? You would ideally like to dial some of those operating rates back just to keep things smoothly running or just -- how should we think at a plant level, how you would like to operate to steady state versus kind of how you’re operating today to kind of make deal?

Yeah. At a high level we are essentially running this business during peak season as it makes the order instead of make the stock business. And because of that, you see very different behaviors from in consumers in North America. So the volatility of what products win and what products win at a lesser degree, if you don’t have safety stock available to lean into that, that manifests and the more label changes and more conversions. And that’s what our plants are up against right now. We have known we’ve got some significant footprint investments coming online here. As I think both, John and I mentioned in our prepared remarks, three lines came on in North America this quarter. They’ll start to gain efficiency and then we’ll have built out into facilities, eight lines by the end of this year. That will give us a much needed breathing room. And as those come online and we can build the stock in, the traditional December, January time periods, we will see the benefits in peak season next year in North America. And we’re not done on expanding, obviously, to continue to make sure that we’ve got the appropriate asset utilization. And you’ll see the efficiency levels pick up in our plants because they’ll actually have five years to do what we’re planning to do.

Yeah. Just to give you some numerical context around that, historically, meaning over the last, I don’t know, five years, seven years, we would run on average inventory days in North America in the mid-20s, call it. We’re down this summer in the mid single digits. To Dan’s point, you can’t efficiently run a system a network like that when your inventory levels are so low. What we’re planning on doing in the second half of this year is get them back to the mid-teens, call it, 15 plus or minus, because that’s where we think more optimal levels can be. I don’t think we’ll get back to the 25, because I think the world is a bit different and the velocities, to Dan’s point of label changes is different, but certainly…

And this is the, Operator, unfortunately, it did disconnect again. I will wait for them to dial back in. So please just remain on the line. Please go ahead.

Yeah. Sorry about that. I’m not sure what -- we got dropped off again. But I think I was in finishing up, and saying, in this summer, we’ve been in the mid-single digits and we expect to get back by the end of this year, hopefully, to the 15 days, which we think is a much more optimal level, because otherwise, we’re just stressing our system too tightly.

And our next question comes from the line of Adam Samuelson with Goldman Sachs. Please proceed.

Yeah. Thank you. Good morning, everyone.

Good morning.

Good morning.

Maybe first, just hoping to get some just color on the aerospace business. And you alluded to some of the kind of subcontractor and supply chain challenges labor issues there, but a much more constructive revenue outlook for the back half of the year and you talked about margins are expanding in 2022. Is there been any change in terms of the revenue outlook for the business for this year, is anything slipping into next? And then I got a follow-up just after that?

No to the revenue and a little on the profit that negligible. What two things that influenced it, as Scott already indicated. Number one and I think I’ve made a comment in a prior call, we were operating pre-COVID, with about 80% of our employees, colocated on campus. We exited Q1 at about 50%. We’re exiting Q2 about 65%. So we’re trending in a way that’s allowing us to be a heck of a lot more efficient and collaborative in terms of our efforts. The same phenomenon is happening with our subcontractors. So the combination of that gives us great confidence in the back half of the year. And why we’re bullish on the revenue outlook and why it’s in line, and in reference to John’s comments of, nothing has changed. We did secure a significant project kind of last week of the quarter and that will give us the ability to continue to execute in line with our previous comments and expectations on the business.

Yeah. To that point, we had expected to put that in the backlog in the beginning of the second quarter is really more towards the end of the second quarter. And so that was in some part relative to our expectations a little delay, but it was the right thing to do for a variety of reasons, but nothing has changed as we go forward. We’re really excited about that business.

Okay. That’s really helpful. And then to the earlier question point on the acceleration in cash return next year and it’s a big step up, you announced, the 33% dividend increase last week. Should we be thinking that dividend is a even bigger kind of component of that or do we think this goes with where the dividend payout is now that’s comfortably north of $1.5 billion of buyback next year is the kind of base plan for at the moment?

Yeah. We, I mean, we have -- we look at the dividend all the time and we don’t adjust it on a regular basis. We look at it from time to time and then make larger, I guess, adjustments. Most of that returns obviously going to come in the form of share buyback, but we’ll keep a balance between dividends and share buyback. But you’re right, we’re kind of at the front end of acceleration of both of those, as we see, have more confidence as we look out into the future about our cash flow and EVA generation.

Yeah. That color is really helpful. I’ll pass it on. Thanks.

And our next question comes from the line of Adam Josephson with KeyBanc. Please proceed.

Thanks. Good morning, everyone. Hope you’re well. I think, Neel, asked earlier about the cup launch and the costs associated with it. And Scott, I think, you address the capital costs, but not necessarily the P&L costs. So could you just give us a sense of what perhaps the swing could be, if you turn a profit next year, compared to whatever drag you’re experiencing this year?

Well, I think, this year we’ll invest probably in total, close to $30 million in the startup of the plant of getting it into retail and all of that. I think the marketing costs that we’re experiencing this year mostly in the second quarter, but some also in the third quarter. We will reduce greatly next year. And I think our volumes will grow quite a bit next year. As John mentioned kind of, on-premise food service, stadiums, venues, those kinds of things come back. We’re having nice success on the retail side, nice success on the online. And so I don’t think it’d be a nice contributor year-over-year, I would expect it to be a nice swing.

Okay. Appreciate that, Scott. And Dan, I think the Jeff was asking earlier about the composition of the long-term -- expect a long-term growth in the North American beverage can market, and you mentioned, perhaps, now you’re thinking it’s about 60% alcohol and you’ve talked about hard seltzer and beer and ready to drink cocktails. Can you just talk about what is informing your view of how each of those categories will contribute to that growth? I mean, how -- what kind of foresight your customers would have about the rate at which each of those products is likely to grow over that period?

Sure, I mean, in the most -- in the simplest of terms, that’s roughly the construction of our revenue now. And we’re seeing it grow consistently across all product lines and channels at this point and so we see that continuing. We’re seeing equal number of innovations across all categories in all channels. I think the fact that a couple of the larger beverage companies are leaning into alcohol gives you some belief that it will -- alcohol will continue to represent a majority position of our volume concentration. But as, I think both John and I commented on this call, that 40% -- the wildcard within the 40% is going to be still water and the accumulation of that in the marketplace. So if the 40% grows at a higher clip, we’re all going to like that. Because we still believe everything’s going to grow in line with our expectations. It’s been consistent. That just means that we’re seeing further entrenchment and growth of new still water categories.

Great. Thanks a lot, Dan.

And our next question comes from the line of Arun Viswanathan with RBC Capital Markets. Please proceed.

Great. Thanks for taking my question. I guess, I wanted to go back to the market development around seltzer and just the whole ready-to-drink alcohol market. A lot of us are under the impression that the market is sold out until 2023 here in North America. And so when the seltzer market, I guess, moderates, how does that kind of affect the other categories? Do you think that there is a lot of new products that are pent-up that maybe get some cans? Does that give you a little breathing room? Just given the tightness that you’ve experienced for the last couple years? Is that something that’s potentially welcomed? Maybe you can just kind of square away how to interpret this slowdown and the impact on other categories?

Yeah. Thanks for that. I would say, first off, I think you’re hitting on an element that is still lost the followership. But every single category, every single customer and every channel is on allocation in our three biggest markets. So there is an impact to growth. I don’t know if it’s disproportionate to one category, because I don’t know what the ultimate sell-through of those products are. But we are contributing to some of the end customer growth targets and rates just by virtue of the fact that if we had more capacity, we’d be selling it through. To the second question, maybe I’ll turn it over to John…

Yeah.

… to add commentary to that, but…

Yeah. What I was going to say is, don’t forget, we’ve always taken a portfolio approach to this. And as Dan mentioned earlier, that hard seltzer itself represents 5% or less of our North American volume. And so we’ve always played on the mainstream beer side. We played on the import beer side. We played on the spike seltzer. We trade wine on ready-to-drink alcohol, all of those. You have to look at it from a portfolio theory. And to Dan’s point, from a portfolio theory perspective that we’re on allocation and all these things are growing. And so I do think the focus on hard seltzer is probably a bit overstated here, because people are still drinking more alcohol from can products period.

Great. Thanks. And if I could, similar question just outside of the U.S., what’s the penetration and I guess momentum that you’re observing in similar new products? Maybe you can just touch on Europe and Brazil? Have you seen any potential increase and some of these new categories in those regions at all? Thanks.

Yeah. The new entrants that are coming into South America are 100% can entrance and that’s been happening over the last handful years. And so their influence and maybe, more importantly, how the end consumer is consuming products through the smaller retail channels and the mini marts in that part of the world. They like hands a lot more than they liked the historical return of returnable glass offerings and so we’ve seen a manifestation. To your point, if a new products coming out, it’s disproportionately coming out in cans. In Europe, that’s the lowest can penetration market in terms of substrate penetration anywhere in the world, for us outside of Mexico. And much the same, I think, there’s ample growth and away from plastic, from glass, from on-premise kegs through direct channels. So we’re seeing that, we’re seeing the can win. I don’t know that I could point to one particular category because we’re seeing it across every category. So there’s a heavier lane in terms of cans, and the thing that emboldens us and continues to sort of echoes John’s comments at the outset that, we are right in line with our expectations. Nothing has changed. We continue to see the filling operators, overweight to manufacturing can filling lines and that’s what’s getting purchased and that’s what’s getting implemented and installed everywhere around the world.

Yeah. To Dan’s point on that, let me just amplify, because not four years ago, one-third of all new filling lines going in were for cans. Now it’s closer to two-thirds of all new filling lines going in for cans. And that’s a -- to Dan’s point, it’s across all categories, whether it’s beer, soft drink, energy water, craft wine, FMB’s, you name it, it’s across the Board.

Thanks.

And our next question comes from the line of Salvator Tiano with Seaport Research Partners. Please proceed.

Yes. Thanks for taking my questions. So firstly, very quickly, if I understood correctly from the very beginning that you mentioned $1 billion in capital returns this year and I think the dividend is $200 million. So does this imply the excess of $500 million buyback is actually $800 million or did I miss any figures there?

The dividend is a little bit high -- with the dividend bump that we just did, the dividend will be a little higher than that. But the share buyback is kind of in that $700 million to $800 million range. Yes, that’s correct.

Okay. Perfect. And in Europe, can you provide us a little bit with come color on each market, U.K., Russia, continental Europe, how we performed during the quarter?

Yeah. I mean they’re all consistently up in that mid-to-high single digits. I think ever since the third quarter last year when things started to reopen, not as much as in the U.S., but folks have figured out a way through the direct channel or other avenues to get their beverage of choice and so we’ve seen consistent growth across the continent.

Yeah. And I just…

Okay.

I think a lot as you think about the growth in Russia that, we were on allocation, unfortunately, as we don’t have enough cans for the market. Think about the U.K. for all the things we talked about that Dan mentioned to earlier. This whole sustainability we haven’t talked much about this today. But you can clearly see in Europe, a strategic mind shift changing as we speak. Let’s not forget in 2025 the European packaging directive comes into full force in terms of recycled content and other things. And I think we’re seeing changes in behaviors by not only the consumers, but also our customers in anticipation of that.

Thanks.

And our next question comes from the line of Phil Ing with Jefferies. Please proceed.

Hey, guys. John you mentioned that Russia, you’re on allocation? So curious with the capacity you’re adding on, one, do you have an anchor customer and then I noticed one of your bigger competitors in the region is adding more capacity. Does the market have enough demand to support that incremental supply?

Without question. I’ll turn it over, Dan. He can answer it more succinctly.

Yes. We have long-term contracts with all the major players there, especially on the brewery side. And those contracts were entered in alignment with adding this capacity. And so, the challenge is going to be the markets growing faster than when we were negotiating those terms a while ago. So we’re constantly monitoring that marketplace.

Got it. And Dan, you mentioned that, really great execution and running full out in Europe, given some of the investment you’re going to be making in ramping up. Is that going to have an impact on your margins when we look out to next year for Europe into a meaningful fashion?

The U.K. and the Russia facilities, they can’t come online fast enough. I got tremendous confidence in the team’s ability to ramp those up. In terms of the Czech Republic, that market can sometimes be a little bit more volatile. But we’ve got again long-term contracts and a really good team executing there. I don’t anticipate the weight of startup costs to be in line with what we’re experienced in the U.S., simply because those facilities are a little smaller and the cost profile obviously in the Czech Republic in Russia are far different than the U.S. wage rate.

Got it. That’s helpful. And in North America, really solid growth, but certainly lagging some of the other markets, was that largely a function of you didn’t have enough capacity and then when some capacity you’re investing ramp up in the back half, you expect to run a little fuller. Any color on how strong that volume could look like, if you run full out in the back half this year?

Yeah. Almost 100% capacity and then not to belabor at this point, but we were less efficient just simply because we didn’t have any inventory to buffer when things took off and a product was outpacing, some of our anticipated projections. So we left a couple -- I would imagine we’ve left a couple points of growth on the table in the second quarter, because of the combination of that. In the back half as these lines ramp up, we’ve got really good contracts there. We are in constant conversations with the customers. And they’re -- they can’t wait to get those cans. So I would expect accelerated growth in the back half of the year because of the capacity we put in place.

Okay. Thanks a lot, guys. Appreciate it.

Okay. Thanks. Kathy, we have time for one more question if there is one.

Certainly. Thank you. Our last question comes from the line of Alton Stump with Longbow Research. Please proceed.

Great. I have a quick question. Just want to ask about South America, there’s a lot of talk about your capacity tightness here and also over -- of course, in Europe as well. But how is the capacity your situation that you see currently over the next 12 months, 18 months, particularly as it pertains to South America?

It’s tight. Yeah. During, obviously, they’re -- in non peak season, getting ready to enter into peak season and everything that we’re seeing is going to put us in incredibly tight scenario. So that team is doing a marvelous job, trying to build inventory right now in anticipation of that growth. But we’re -- as I’ve commented in my prepared remarks, we’re obviously starting up a new plant in Brazil in this quarter probably back half of this quarter. There are other line extensions and investments all throughout the region that we continue to invest in and it’s going to continue to be tight and we’re adding we’re adding volume and capacity for our strategic players. We’ve got, I guess, we’re signaling high to middle-teen growth in that region and a lot of that is coming from this returnable glass, the can shift, the can continues to win across all categories and we will benefit from that here as this capacity comes online.

Okay. Great. Thanks John. That’s all I have.

Okay. Well, thank you, all for your participation. As you can tell, there’s a sense of excitement here that we are -- we really do believe we’re on the front edge of a meaningful capital allocation strategy to return it to shareholders. We see as we sit here today nothing has fundamentally changed from our Investor Day nine months ago and we’re just excited. I do wish and hope that everyone stays very safe and healthy. This Delta variant is a concern. But I think strategically we’ll be as a globe be able to get beyond it. So thank you all for your participation and we look forward to continued engagement.

Thank you. That does conclude the conference today. Thank you for your participation. Have a great day.