Graphic Packaging Holding Co., an Atlanta-based provider of packaging solutions to food, beverage, foodservice and other consumer products companies, has announced that its board of directors has approved a $600 million investment in a new coated recycled board (CRB) machine in the Midwest with annual capacity of approximately 500,000 tons. According to a news release from Graphic Packaging, the company plans to make the investment in either Ohio or Michigan, subject to a number of conditions, including environmental permitting and negotiations currently underway relative to government incentives and labor relations.
The CRB machine is designed to be the largest and lowest cost producer of CRB in North America, Graphic Packaging reports in the news release announcing the investment. Upon completion of the project, the company says it believes the CRB machine will produce the highest quality coated recycled board product in North America with the lowest caliper capabilities in the industry.
“We are very pleased to announce our intent to proceed with this significant investment into our integrated CRB platform,” says Michael Doss, president and CEO of Graphic Packaging. “This is a unique opportunity to make a highly strategic investment in sustainable packaging, exceptional product quality and an unmatched cost position for producing CRB. Importantly, the investment will be capacity neutral as we expect to reduce production at other higher cost CRB facilities after we ramp up production of this highly productive CRB machine starting in early 2022.
“Increasing consumer preference for sustainable packaging is expected to drive steady, long-term demand for packaging solutions manufactured from 100 percent recycled fiber,” Doss continues. “We are confident the investment will deliver returns well above our cost of capital and remain fully committed to executing our balanced approach to capital allocation as we continue to build a growing, highly integrated, low-cost paperboard packaging platform.”
The company expects the investment will be capacity neutral by eliminating higher cost production at other facilities and will deliver an incremental $100 million in annualized earnings before interest, taxes, depreciation and amortization (EBITDA) upon full ramp-up in 2022. Graphic Packaging reports that the increase in EBITDA will be driven by cost savings from significantly increased scale production, reduced raw material consumption, and lower fixed costs. The investment will be funded from cash flow and existing credit facilities with most of the spending occurring in 2020 and 2021.
Graphic Packaging expects to complete final negotiations and provide an update on the status of the investment, including the location, in late September. The company also has scheduled an Investor Day for Sept. 26 in New York City at the New York Stock Exchange where it will discuss the strategic and financial rationale for the investment in more detail, as well as other key strategic and financial priorities.