Q1 2021 Ardagh Group SA Earnings Call
Please standby we're about to begin.
Good day, everyone and welcome to the <unk> group first quarter of 2021 Investor call Today's conference is being recorded.
At this time I'd like to turn the conference over to Mr. Paul Coulson. Please go ahead Sir.
Yeah.
Thank you welcome everybody. We hope you all remain safe and well and we thank you for joining us today for our first quarter 'twenty, one earnings call, which follows the release earlier today of our results for the quarter.
I'm joined today on the call by David Matthews, our CFO Shaun Murphy our COO.
All of our Grand the CEO of Art Ahmed with packaging and John Sheehan, our corporate development of Investor Relations Director.
Okay.
As always our remarks will include certain forward looking statements. These reflect the.
Circumstances at the time they are made of the company expressly disclaims any obligation to update or revise any forward looking statements.
The results or outcomes may differ materially from those that may be expressed or implied due to a wide range of factors, including those set forth in our SEC filings and in our news releases our earnings release financial report and related materials for the first quarter can be found on our website at <unk> Dot group Dot com information regarding the.
The use of non-GAAP financial measures May also be found in the notes section of our release, which also includes a reconciliation to the most comparable GAAP measures of adjusted EBITDA and adjusted earnings per share.
Details of our statutory forward looking.
Statements disclaimer can be found in our SEC filings.
So before discussing results for the quarter I'd like again to acknowledge the dedication of our colleagues right across our group as well as the support.
Of all of our business partners.
Remains a challenging pandemic impacted environment for many of our communities.
If I move to the first quarter, we have made an excellent start for the year revenue for the first quarter increased by 9% to $1 8 billion.
Reflecting higher volumes of the pass through of increased input costs and also favorable currency effects. The constant currency revenue increased by 5% with growth of 9% in metal packaging and 1% in glass Shipman.
Shipments increased in both metal and glass packaging during the quarter adjusted EBITDA increased by 10% to $300 million in the quarter constant currency growth was 5% compared to the same period last year.
This increase was driven by a 23% increase in metal packaging.
We look at more detail and again I'm talking here about constant currency movements with metal packaging. This accounted for 53% of group revenues of 49 percentage of adjusted EBITDA of the quarter revenue increased by 9% to $939 million compared to the same period last year.
Beverage can shipments increased by 8% in both the Americas and Europe as demand remained strong across all categories.
Growth was strongest in the specialty can whereas the shipments increased by 16% compared with the same period last year specialty cans represented around 45% of our global shipments for the quarter.
Reflecting our strong footprint and continued investment on our part in the specialty capacity.
Metal packaging EBITDA grew by 29% at reported rates and of 23 by the percentage at constant currency in the quarter.
And looking at the segments of our metal business the metal packaging Americas revenue increased by 13% to $503 million in the quarter total shipments increased by 8% led by strong growth in Brazil for a new capacity came online in late 2020.
North American shipments increased by 8% from the quarter compared with the same period last year.
First quarter, adjusted EBIT increased by 34% to $82 million due to strong shipment growth of favorable product and end market mix on a strong performance right across our network.
Revenue for the quarter of $436 million in metal packaging Europe reflected direct shipment growth of 8% compared to the same period last year again demand across all regions and end markets remained strong and our end market mix and bias towards northern Europe was the positive for us.
Adjusted EBITDA in Europe was increased by 12% to $66 million of the quarter, reflecting higher shipments and strong operating performance.
The demand drivers in metal packaging that we have regularly highlighted continued to be seen during the quarter.
And we expect the situation to continue for the foreseeable future. Our inventories remained very low on our 2021 out for this fully solved.
Execution of our $1 8 billion, 21% to 20 for business growth investment plan in metal packaging, which is principally focused on specialty kind of expansion remains on track in the quarter.
Among the largest investments are two new high speed lines in Olive branch, Mississippi have now been installed on our ramping up on the schedule of similar expansion is underway at our Winston Salem plant and the new capacity there will come on stream later this year.
Also work on our new fewer on the Ohio Brownfield plant is well underway on the plans is to be expected to be part of the operational in Q4 of this year.
These three major projects in North America will together provide us with over 10 billion units of additional capacity.
In Brazil, we will expand our three existing facilities, starting this year with jakafi in the southeast before building of new Greenfield plants of <unk> stake on.
All to support our customers very strong growth in that market.
In Europe, the focus of our business growth investment is the high growth markets of the UK and Germany, and we are bringing on significant additional capacity in 'twenty, two and 'twenty three.
All of our new capacity has been placed with customers under long term agreements.
And as I said earlier, our one 8 billion investment program and methods on the our metal packaging business is fully on track.
Turning to glass packaging.
Total shipments increased by 2% for the quarter with a 4% increase in North America on an in line performance in Europe compared to the same period last year and Europe shipments were in line with our strong first quarter of 2020 performance. Despite continued lockdowns across most of our markets adjusted EBITDA last year.
Europe of $97 million was unchanged against the demand in 2020 comparable on this was the strong out of turn on the current environment, we achieved a strong operating and cost performance across our network on the glass.
A glass Europe EBITDA margin margin improved by 50 basis points to 23, 7% in the quarter.
In North America revenue of $425 million increased by 4% compared to the same period last year shipment growth was strong at 4% and was broad based as the U S economy began to reopen ahead of most others.
Adjusted EBITDA in glass North America of $55 million was the few million dollars below our budget for the decrease was as a result of increased operating costs, principally due to freight and severe weather events in parts of the United States of the quarter.
The demand outlook. However, in North America is good.
And more positive than for some time on our focus there remains on driving operating and cost efficiencies to converge.
Improved volumes into increased profitability.
In our glass packaging business overall, our business growth investments are focused on customer backed growth initiatives in Europe and on performance on cost efficiency improvement in North America on these business growth developments of projects are all on track.
Turning to the yard on metal packaging transaction.
You'll recall that last February we announced an agreement to combine our beverage can business AMD with the GOR has five holdings back.
Gores holdings number of five specs on to apply for the business to be separately listed on the New York stock exchange under the ticker <unk>.
<unk> comprises all of our beverage can business and is the second largest player in the European Bev can market on the third largest in each of North America and Brazil.
The A&P had revenue and adjusted EBITDA of two <unk> in 2020 of $3 5 billion.
On $545 million respectively.
And under its growth investment plan.
Adjusted EBITDA is projected to double by 2024.
And as I've mentioned, our beverage can business of performed very well on the first quarter with adjusted EBITDA growth of 23%.
Under the terms of the transaction with doors, which values. The A&P at approximately 10, five times 2022 estimated EBITDA or dial will receive up to $3 4 billion in cash and will retain an 80% stake in A&P, we will be of committed long term majority shareholder from the transaction VAT.
<unk> are down 80% stake in AMD on approximately $5 billion.
The A&P will continue to be led by out of our growth.
Rationale for this transaction it releases previously unrecognized value in our data on the newly listed A&P is ideally positioned to deliver excellent returns to stakeholders over the medium and long term for many reasons, firstly A&P as the pure play and one of the world's leading producers of Bev cans.
And as a producer of sustainable infinitely recyclable packaging A&P is very strong ESG credentials.
Each of the M. Anp's markets are projected to deliver strong growth over the medium and long term horizons driven by trends such as convenience innovation of the sustainability as one of the structure of shifts such as the Brazilian beer markets moved from returnable glass packaging to one way packaging.
On the A&P as I mentioned earlier has the clear roadmap to organically double adjusted EBITDA by 2020 for under a program that has been de risked commercially and operationally and as I outlined earlier of this program is fully on track.
A&P will also operate with moderate leverage.
It to be in the three to three five times adjusted EBITDA ZIP code and will require no further equity to fund its operations or indeed, it's development.
The A&P three growth will be of meaningful 20% on completion of the combination with gores.
With the likely increase to over 25% following a planned offered to our job for shareholders to exchange there are diagnosed the chairs for A&P for chips.
And of course, the A&P will continue to benefit from our leading global the glass packaging presence with the metal and glass businesses continuing to enhance each other's customer relationships.
Just an update on where we are with the transaction.
In February A&P price and upsize, the offering of $2 8 billion equivalent a day.
All of our equivalent of Green bonds.
Leaving our current plans and A&P fully funded.
In April of the separation of A&P from our Dod took place with $2 3 billion in proceeds paid to arda on a.
<unk>, becoming an unrestricted subsidiary.
Our filings with the SEC are well advanced and we anticipate closing the transaction before the end of the second quarter.
Mentioned earlier following the completion of the spec transaction on <unk> plans to offer of shareholders of its class a common shares of the opportunity to exchange their class a common shares for a consideration which will include a portion of our das holding in A&P, the timing and terms of any such exchange transaction if affected at all on Snapchat.
Been determined at this point.
If I could turn to environmentally our environmental and social sustainability strategy, we made further progress.
And advancing the implementation of our science bake.
The emissions reduction of the social sustainability strategies during the <unk> during the quarter.
In metal packaging, we issued our inaugural Green bond in connection with the A&P transaction and we were very pleased with the response to this offering which we were very happy to upsize.
In glass packaging the furnace for the future initiative, which aims to significantly decarbonize. The glass production process is advancing and we will report on these and other initiatives spanning all aspects of environmental and social sustainability regularly and of course, our next form of sustained.
The Bill review report will be issued in the third quarter of this year.
On liquidity, we ended the quarter with cash and available liquidity of $1 6 billion with net average of approximately five times adjusted EBITDA. This was almost unchanged from year end. Despite the strength the seasonal first quarter working capital outflow on our ongoing investment program.
And as we look for the full year, we have made an excellent start the year, where extreme seeing very good momentum in the business beverage can beverage can demand remains strong in all our regions on our output is as I said fully sold for the year glass packaging has demonstrated the high degree of resilience, especially in Europe for the past year on this.
Spectrum to progress for the full year.
Uncertainties, which we face include the pace of reopening of some of our markets. However, our bias to off premise consumption and our focus on single serve packaging continues to favor our businesses.
We are also seeing material inflation in many of our inputs and we remained focused on the recovery of these costs in line with our customer contractual arrangements.
For the full year, we reiterate our guidance of adjusted EBITDA of $1, two 8 billion to $1 $3 billion we.
<unk> net leverage to stay around current levels, and we expect second quarter adjusted EBITDA to be in the range of $325 million to $330 million.
So as we look to the long term our substrates in particular beverage cans are well positioned to benefit from most of the multiple mega trends on our near term focus is to conclude the A&P transaction on separately list. This business later this quarter.
Secondly, the implementation of our growth investment program with the spend of approximately $900 million. This year and continued pursuit of operational and commercial excellence across our businesses to drive stakeholder value.
So having made these opening remarks, we will now be very pleased to take any credit.
Thank you.
Thank you, Sir if you'd like to ask a question. Please signal at this time by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure that your mute function is turned off to allow your signal to reach on our equipment.
Again that is star one if you would like to ask a question.
We will take our first question from Mike <unk> with Barclays.
Great. Thanks, good morning.
Good day guys.
First question just on the outlook I appreciate the guidance is unchanged, but it would be.
Link through your different.
Substrates or regions has the composition of earnings generation changed at all or would you say, it's fairly similar to how we started the year.
I think it remains obviously method perform of metal packaging is performing well.
Don't think we want to break out the guidance anymore than we have done already.
Got it fair enough.
And then Paul I think you mentioned again today the potential for an exchange offer that could involve some switching of people from D shares in the <unk>.
M P shares.
My question is following the close of the A&P transaction would there be some sort of lockup period that would need to pass or expire before you can make such an offer could you theoretically make such an offer.
Fairly quickly after the A&P transaction closes.
There's no lockup of such and we could make such an offer for.
The <unk> sooner for the A&P transaction closes.
Great. Thank you.
Thank you.
The next question comes from Arun Viswanathan with RBC capital markets.
Yeah.
Yes. Thanks for taking my question. Good morning, I guess I just wanted to catch up on glass, maybe could you elaborate a little bit on how you see that market evolve over the next couple of quarters and are there any nuances in different categories. We have seen it will trail off in line.
Because of the growth on the Seltzer side have you seen that as well.
I think right across our glass business, we're seeing good demand.
So Ali.
In glass North America, we're seeing very good market conditions in terms of demand.
And we're selling all of the glass we can.
And as I said in my earlier remarks, so what we wanted to do is focus on.
Converting strong demand into increased profitability.
Yes.
Okay, and then what about the cost side are there any cost pressures that you guys would point out.
Metal is obviously, a pass through but anything else as far as logistics or raw materials.
Well I think the main one we'd highlight on glass has been in North America has been the logistics and price, which in common with the number of other people.
Okay. Thanks.
Alright next question will be from our notes of <unk> Shah with BMO capital markets.
Hi, good morning.
Just wanted to build on that just to build on that last question. You did mention an improving demand outlook on glass North America better than you've seen in a while can you dig into maybe why that is on went for any specific end markets or just any more color you can give around that.
Well I think it's right across the piece.
Seeing good demand.
I mean, obviously the.
The pandemic has increased.
<unk> food consumption and glass as well as in in food cans, but right across the piece we are seeing good good market conditions.
On our certainly our network is.
The certainty and balance probably.
We are aware of.
We really probably very tight on capacity so.
We.
Looking forward we are for this year anyway, we are seeing pretty good market conditions.
So as I say, it's right across the piece.
Okay, great. Thank you and over in Europe for glass can you give us some more details on the lower engineering activity that you called out.
John would you like to comment on that.
Yes, sure and we have an engineering business for many many years at quarter to quarter. It can be a bit lumpy. So it impacted our revenue line by five or $6 million in the quarter, but the with minimal impact on EBITDA you can see the EBITDA in glass Europe results for eight or 9%.
Adjusted it tends to be just a little bit of Lumpier book.
Negligible impact on that on earnings.
Okay.
Great. Thank you very much.
Thank you.
The next question comes from the line of Roger Spitz with Bank of America.
Alright, thanks, very much and good afternoon.
Both of us the.
Amounts of the for $23 million of off balance sheet securitization in Q1 'twenty. One line that was attributed to A&P in December 2020, you'll put that at $300 million.
David.
Roger it's at about the same level. The overall, it's around 400 for 23 course of that too on the metal side of the house.
95%.
Some semblance of the proportion.
Perfect.
The.
The.
Currently who are now 2021 outlook cash flow of items.
On the reconfirm, the the EBITDA of $1 towards the $1 three would.
Would you be reconfirming the other items for instance, that's really the main.
Since Capex 90 lease payments et cetera.
Yes.
Yes.
Maybe I could just run through that I think what we said last call on this working capital outflow day.
Maintenance Capex.
Leases around the 100 and then the Pgi is 900 and I think what we said the interest to <unk> and tax.
<unk> thoughts with you at that low that Couldnt take built the mid points of the.
EBIT EBITDA guidance, you get on free cash flow flow Graham.
For the year.
Okay.
Great and then.
Lastly.
Would you be.
Thanks for taking in providing M. P's Q2, 'twenty, one EBITDA and 2021 EBITDA update on guidance.
No it will start to give separate guidance Roger when the companies are.
Oddly the merger is formalized.
What we can say is <unk>.
The <unk> trading.
Trading performance as well.
While on track.
In relation to the numbers that we published.
With the SEC as part of.
As part of the transaction so the the.
The 650 million plus the EBITDA. This year is on track.
Great. Thank you very much.
Thank you.
And as a reminder for everyone that is star one if you would like to ask a question.
We will take another question. This one from Bob Amenta with Jpmorgan asset management.
Yeah. Thank you just following up a little on Rogers line of questioning so from.
Not counting the proceeds from the bond deal you had about $7 billion of of debt.
Now you say.
I'm a little confused on the April one comment in the in the release you got $2 3 billion are you still getting another $1 1 billion to get to that three four hours to three I'm just wondering how we got here.
Right right, we get the other one one when the transaction closes so it's still $3 for.
Okay. So if I take out the the metal bonds of and the cash that's held off of that you had about 7 billion of debt and you got about $3 4 billion of cash coming in against that in addition to the 900 odd million of cash you had on the books.
Yes, Thats correct, Okay and is there.
Maybe you Havent discussed this yet but is there any limits or any plans to send some of that cash.
What I would say up to the Mic Arda finance is to those other bonds or have you discussed that yet or do you have a target.
The leverage with $600 million of glass EBITDA of LTM on I'm sure you feel thats going to go higher given last year was kind of an aberration, but do you have a target debt level of what kind of net leverage you would like to have so on.
On that $600 million of EBITDA.
But it's more than 600 million, but.
Let me, let me first of all say that in regard to.
Use of proceeds as we indicated on our call in February of last when we announced the transaction.
We intend to repay from $2 billion of our existing $2 billion of existing debt.
With the balance.
Some of which will be two <unk>.
The remaining $800 million of our 6%.
<unk> 25 on secured notes with the balance of probably expect it to be applied for mainly reduced the U S dollar of secured debt.
And then the balance of $1 4 billion that will be retained for general corporate purposes, including shareholder distributions, but we haven't made any decisions on that yet and what we will do is we will.
With.
The stage of our Q2 results come forward with guidance on leverage.
In the separate businesses or in NHTSA going forward and what we intend to do cash flows.
But do remember that not alone you have the.
On a GSA you will have the.
On the glass EBITDA, but you will also have the trivium the stake the 42% from Trivium and more importantly, you will have the 80% stake of.
But currently as the transaction value of $5 billion.
In the A&P itself okay.
Right, Yeah, I guess I was focused more on initially on cash flow I know youre planning on the dividend from <unk>, maybe not this year, but down the road, but and then just lastly for 2021 of all of the Capex. You mentioned can you just for the glass business roughly what what is just the glass business EBIT or I'm, sorry of Capex for this year.
David.
Yes.
Capex of three HCA back $2 50 of the.
The loss of the business growth investments.
Spend that will happen by the hungry disasters lawson's eight hundreds of assets beverage.
Okay perfect. That's all I had thanks.
Thank you.
Alright, and next we'll go to Travis Edwards with Goldman Sachs.
Hey, good morning, and thanks for the color I just had a quick question on mind refreshing US can you on any of your more of a bias towards off premise consumption on the glass side, but can you refresh us on what your mixes.
On Europe, and North America, just between sort of the off premise on on premise.
John.
Yeah, obviously, we supplied the containers, we don't book.
The ability where they go look we would reckon that 80% plus of what we do with into the off premise sector on.
On.
Okay.
It's probably the highest patents in terms of glass Europe book.
Our volumes there even against the pre pandemic period in the first quarter, where they were slightly up year on year. So given that Europe was locked down for much of the first quarter of this year.
<unk> been very resilient.
Somewhere around 80% is off premise.
That's really helpful. On as you think about sort of the path to recovery there.
I was just on volume strength still but do you have any sort of expectation when you get to pre pandemic levels of you generally there.
Again hard to say with a lot of moving pieces, but any color on on sort of your path too.
Please pandemic levels.
Well I think we're I think we're very pleased with the as the demand while the one obviously the demand in beverage cans is growing very strongly and we're completely sold out as our peers.
That side of the house as well, we're very we're very happy with what's happened in glass Europe. So far on its recovery on the also with the demand in the U S.
Got it. Thank you good luck with group.
Alright, and it looks like we have no further questions at this time, so I'd like to turn the call back over to Mr. Paul Coulson for any additional or closing remarks.
Well. Thank you everyone for joining us today, and we look forward to talking to you again.
With our Q2 results in late July Okay. Thank you everyone for joining us bye bye.
And that does conclude today's conference we thank everyone again for their participation.
Okay.
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