Ardagh Metal Packaging(AMBP) - 2023 Q1 - Earnings Call Transcript

Financial Data and Key Metrics - Revenue for Q1 2023 was $1.1 billion, representing a 2$130 million, down 8% on a constant currency basis compared to the prior year, due to higher operating costs and timing of inflation recovery recognition [10] - Global shipment growth was 3%, with 5% growth in North America and 2% growth in Europe, offsetting a 1% decline in Brazil [10] - The company reaffirmed its full-year guidance, expecting global shipment growth in the mid to high single-digit percentage range and adjusted EBITDA growth of around 10%, weighted towards the second half of the year [22] Business Line Performance - In North America, shipments grew by 5%, driven by non-alcoholic categories, which represent the majority of the business. The hard seltzer category accounted for 8% of shipments but remained under pressure [11] - In Brazil, shipments declined modestly due to customer mix effects and destocking, with the market recording high single-digit growth against a weak 2022 comparator [13] - In Europe, revenue increased by 3% on a constant currency basis, with shipments growing by 2%, led by carbonated soft drinks. Adjusted EBITDA in Europe fell by 8% due to higher overhead costs and timing of inflation recovery recognition [16] Market Performance - North America saw strong volume growth and improved manufacturing efficiency, with early signs of promotional activity picking up, especially in non-alcoholic beverages [6][12] - Europe experienced resilient consumer demand, particularly in carbonated soft drinks, but the beer market saw softer performance in the off-trade segment [16] - Brazil's market is slowly recovering, with volumes expected to grow at a high single-digit percentage in 2023, supported by new capacity and easing input cost pressures [13][15] Strategic Direction and Industry Competition - The company is managing capacity through curtailment actions to moderate its footprint ahead of demand growth, positioning for investment-free growth [7] - The company is committed to sustainability, achieving a leadership A rating from CDP for supplier engagement and signing a PPA agreement in Germany to cover 20% of its electricity needs [8][9] - The company expects industry growth in 2023 to be supported by positive secular tailwinds, with low single-digit growth in the Americas and low to mid-single-digit growth in Europe [7] Management Commentary on Operating Environment and Future Outlook - Management noted that global demand remains restrained by retail price inflation but is encouraged by early signs of promotional activity in North America and a moderating outlook for consumer pricing [6] - The company expects adjusted EBITDA to accelerate through the year due to inflation recovery and volume improvement, with a significant increase in adjusted free cash flow anticipated in 2023 and beyond [7][21] - Management reaffirmed guidance for 2023, expecting global shipment growth in the mid to high single-digit percentage range and adjusted EBITDA growth of around 10%, weighted towards the second half of the year [22] Other Important Information - The company ended the quarter with a liquidity position of approximately $0.5 billion and incurred$90 million in growth CapEx and $36 million in maintenance CapEx [18][19] - Net leverage at the end of the quarter was 5.8x LTM adjusted EBITDA, with expectations of deleveraging by the end of the year and further improvement in 2024 [19][20] - The company announced a quarterly ordinary dividend of$0.10 per share, in line with its guidance and supported by improving cash generation outlook [20] Q&A Session Summary Question: Full-year guidance implies a strong second-half earnings inflection. What drives this? [24] - The acceleration in volume recovery and inflation recovery, with the drag from Q1 timing of PPI mechanisms no longer affecting subsequent quarters [25] Question: Sustainability of the dividend given the current yield [26] - The company expects a meaningful step-down in CapEx in 2024, leading to investment-free growth and sustainable dividend funding [27][28] Question: Confidence in promotional activity picking up in non-alcoholic beverages [32] - Management believes promotional activity will return due to the elastic nature of the categories and moderating inflation, with signals from customers indicating increased promotions in Q2 and beyond [34][35][36] Question: Customer dynamics and destocking trends [40] - In Europe, consumer demand is resilient but under pressure, with volatility in demand patterns. North America shows strength in soft drinks and energy drinks, while Brazil is recovering from a weak 2022 comparator [42][43][44][45][46] Question: European contracts and inflation recovery [51] - The company completed direct energy pass-through mechanisms with customers last year and expects over-recovery on inflation in 2023, with margin levels returning to 75-80% of 2021 levels [52] Question: Supply-demand balance in key markets [58] - The company is managing capacity to keep utilization in the 90s, with actions such as curtailments and closures to balance supply and demand [59] Question: Impact of new entrants on the market [81] - New entrants have some contractual coverage, but the company does not expect significant impact on its position due to its strong contracted position [82] Question: Long-term outlook for cans vs. glass in Brazil [86] - The company expects continued growth in cans due to consumer preference and retailer adoption, with a shift away from returnable packaging [87][88][89] Question: Working capital and payables [86] - The company is working to align inventory with demand, expecting a $100 million working capital inflow for the year, with payables adjustments being part of the transitional process [91][92] Question: CapEx guidance for 2023 [94] - The company's CapEx is front-loaded, with investments largely finishing projects started last year, leading to a step-down in CapEx in the second half of the year [95]