Our team has built a position in a leading metal beverage can packaging company over the past two years, as we believe the company could be a major beneficiary of the trend toward environmental sustainability by consumers and packaged-goods companies. More than 75% of all aluminum ever produced is still in use, while approximately 90% of plastics have never been recycled. We believe that producers of metal could have tremendous runway to take market share from plastic packaging as recyclable beverage container demand grows.
Over time, we engaged with the company on a range of ESG-related issues including aluminum recycling, plastic waste and pollution, supply chain improvement, manufacturing footprint and energy usage. As is typical with our process, we also sought the views of competitors, suppliers and customers to gain perspective. We learned that the company was more focused than its peers on promoting environmental sustainability, and had more insights on the role aluminum cans may play in the evolving landscape.
Although the company’s priority was to return substantially all of its free cash flow to shareholders, we believed that its forward-looking orientation would make it amenable to new ideas for profit generation. In our discussions with the company, we emphasized that investing in high-return, long-term initiatives would have the potential to create more value than dividends and buybacks—a position that was quite different from the narrower focus of many shareholders. As its plans evolved, we supported the company’s decision to reinvest in its core business by enhancing specialty can production, which would align with customers’ increasing demand for more sustainable products.
Over the past year, two dominant beverage manufacturers have announced that they will begin to package water in aluminum cans. With our support, management is taking advantage of this robust demand environment with the development of a new facility, line expansions, faster throughput and conversions, in North America, South America and Europe. The company continues to innovate and has announced meaningful investments to create new “infinitely recyclable” lightweight aluminum cups. Leveraging an extensive patent portfolio, the company could prove to be a disruptive force in a world that is increasingly focused on sustainability. All these elements, coupled with our ongoing engagement, has reinforced our confidence in its business plan.
- Turning Metal into Gold