Q2 2021 Ardagh Group SA Earnings Call
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Welcome to the R&R group second quarter, 2020, 1 Investor call. Today's conference is being recorded at this time I would like to turn the conference over to Mr. Paul Coulson, Chairman and CEO of RTL group. Please begin your call.
And welcome everybody.
Hope you remain safe and well and thank you for joining us today for our second quarter.
Earnings call. This follows the release earlier today of our results for the quarter.
I'm joined the usual today by David Matthews, our CFO, Shaun Murphy, RFP flow and John Sheehan, our corporate development and Investor Relations director.
Our remarks will include certain forward looking statements.
These reflect circumstances at the time, they're made and the company expressly disclaims any obligation to update or revise any forward looking statements actual 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.
SEC filings and news releases.
Our earnings release financial report and related materials for the second quarter can be found on our website at Argo group.
Information regarding the use of non-GAAP financial measures May also be found in the notes section of the release, which also includes the reconciliation to the most comparable GAAP measures of adjusted EBITDA and adjusted earnings per share.
The details of all of our statutory forward looking statements disclaimer can be found in our SEC filings.
As you probably know earlier today, our non metal packaging A&P for short hosted its second quarter earnings call. On this call can be accessed on www are down depth of the packaging dot com and on.
On this call, we will not be providing any additional information on.
Pes performance.
So before I move to the second quarter results.
And to update you of that in May.
Please standby.
Right and you're done.
Hello, and do we have.
You back.
Okay, sorry about that.
And so in May we.
And we experienced the cyber security incident and wait.
And we.
Taken preemptive action and brought our systems back on my broader system offline and then brought them back on line.
Production continued and all of our 57 facilities during the period, though the.
Interest and gave rise to some logistical disruptions and delays as well as the incremental costs.
I'd like to acknowledge the dedication of our teams as well as the support of our customers suppliers and the other business partners and.
And.
Managing through the Simpsons.
As you will have seen in our early June filing key systems were brought back on line in accordance with our plan. The external forensic investigation of the fed suggest is continuing and ahead of its completion, we have implemented additional measures to further enhance our already robust.
Protections.
Second quarter, EBIT EBITDA of $325 million the stages after and cardiac 18.
$18 million of costs in relation to the cyber incident.
Has the appropriate insurance cover in place and we expect to recover these and other costs related to the cyber incident in the coming quarters.
As we mentioned the group provides and the dermis, each way and thereby leaving its earnings on it.
Got it.
So turning to the results of the second quarter ROIC performance of strong revenues increased by 17% on a reported basis. The 1.9 billion and grew by 11 percentage of constant currency, reflecting increased shipments from the pass through of higher input costs, notably aluminum.
Adjusted EBITDA for our reportable segments before the cost of the A&P indemnity grew by 25% the $340 million driven by excellent growth and A&P and the glass.
Packaging, Europe, which recorded increases of 24% and 50% respectively.
On a constant currency basis adjusted EBITDA for these reportable segments increased by 19% compared with the same period last year.
And this strong growth was attributable to increased year on year shipments and particular in glass Europe. The positive contribution from our business growth investments and lower levels of COVID-19 related costs.
Turning to our segments.
Firstly briefly recap.
And the packaging, which you heard on the call earlier today shipments by ANP increased by 3.
And 3% and the quarter led by 9 percentage growth and the Americas, The cyber center and to reduce A&P and shipments by approximately 4 percentage and the second water.
Largely in Europe, as a reminder of our global beverage kind of shipments have increased by 3% and the second quarter 2020 significantly outperforming the industry, which declined by low to mid single digits.
And principally reflected the A&P as the end markets and our geographic bias to northern Europe, which made for them.
Which made for a more challenging comparable.
Specialty can demand remained very strong and shipments increased by 16% specialty cans represented 46% of shipments and the current quarter compared to 41% same period last year, reflecting our ongoing investment and specialty can capacity.
Demand in the second quarter remained strong across all of our markets supported by the Mega trends, including new beverage innovation and share gains by the beverage and.
From other forms of packaging and growing sustainability awareness.
And then the addition to the secular drivers and implementation of all of our business growth investment program and the lower level of Covid the relationship drove growth and A&P as the adjusted EBITDA of 24% to $173 million and 18% of the balance of cost at constant currency.
As reported earlier.
Currency adjusted EBITDA grew strongly and both in A&P and Europe, and the A&P and merit, it's increasing by 10% and 27% respectively compared to the same period last year.
Okay.
<unk> LTM adjusted EBITDA has increased to $613 million net charges. The June from $545 million of Turkey..1 December 2020, and is expected to generate full year 2000 of 21 of the adjusted EBITDA of at least $654 million.
Turning to glass packaging and.
And with the focus on constant currency movements total shipments increased by 7 percentage on the quarter substantially recovering the decline seen in the second quarter of 2020, when the onset of Covid related restrictions severity impacted on premise Dubai.
Total revenues and glass packaging increased by 8% at constant exchange rates and by 14% on a reported basis compared with the same period last year.
Adjusted EBITDA increased by 27% on a reported basis and by 19% at constant current constant exchange rates adjusted EBITDA margin increased by 170 basis points to 18, 9%.
Looking at each of our <unk>.
<unk> businesses and Europe shipments increased by 10% with strong growth across all end use of cash result, and food, great demand and normalized as healthy, but lower levels and the patent.
And that makes the second quarter 2 of the twice revenues.
The increased by 8% to 438 million for the quarter operating performance was strong as we work to enable our customers respond to actual and planned reopening across many of our markets increased year on year on utilization and tight cost control net.
And adjusted EBITDA for the quarter of 36 per se to $114 million adjusted EBITDA margin and glass Europe for the quarter was 26 per cent.
The North American glass revenue of $445 million increased by 9 per site.
Paired with the same period last year.
And so we're 3 percentage of ahead of the prior year with.
With growth led by beer spirits and other beverages more than offsetting the moderation include the moat.
Adjusted EBITDA of 53 million was 5% below second quarter 2020 levels, this reflected reductions and efficiencies and increased costs, including $3 million related to the cyber security incident referred to above which happened in the quarter.
And the year to date, our shipments in glass North America of increased by 4% and demand conditions remain favorable and this improved volume performance has yet to be reflected in earnings and our continued focus is on implementing targeted investments and efficiency initiatives to drive sustained profitability improvement.
In parallel with the strong underlying volume and and the earnings performance across the group during the quarter execution of our business growth invest in the program continues and remains fully on plan.
And to date and 2021, it's been over $270 billion of which 90% was and AMD with the balance and glass packaging.
No the 2 new high speed <unk> added and Olive branch, Mississippi earlier this year of continued to ramp up well and in line with our plan and later this year, we will begin producing cash from a similar expansion and our Winston Salem, North Carolina plant and we will also be producing nature of this year and from our new album.
Ohio the citizen.
Multi multiple customer back to growth initiatives, and Europe, and Brazil are also progressing well and glass packaging the continued to pursue targeted and cost.
And we're back to growth initiatives in Europe, the cost efficiency and performance improvement the primary focus and.
The America.
So if I could move on to the proposed.
Transaction.
And as stockholders of Gores holdings, 5 up to dispose of the today to approve the business combination with completion expected tomorrow. The fourth of August on trading and our packaging will commence on the New York stock exchange on the fifth of August under the ticker a and B P.
We look forward to completing the transaction and we now anticipate receiving $3.3 billion and cash and holding on to a stake of approximately 82% and A&P and this stake is valued at over $5 billion.
A&P will be well positioned to deliver excellent returns for stakeholders over the medium and long term.
A quick reminder, on all of its strength, it's the second largest player and the European beverage kind of markets and the third largest and each of North America and Brazil.
It will also be of pure play on the strong secular demand growth for beverage guidance, driven by convenience innovation and sustainability as well the structural pack mix shifts and certain markets. All of these attributes underpin A&P is exceptional.
<unk> appeal.
A&P as set out of a clear roadmap to deliver strong organic growth over the medium term. This program, which is operationally derisk by its focus on largely under the roof expansions and just can.
Partially underpinned by long term customer agreements and made strong progress to date and 2021.
LTM adjusted EBITDA has increased to $613 million at June 30th from $5.45 million December guidance, you're trying to.
We expect further strong progress over the remainder of the year and beyond.
A&P will also operate with targeted modest leverage will have a meaningful pretty close and will require no further equity to the.
The liver is.
Gross flat.
Turning to our environmental and social and sustainability strategy.
Made further progress during the quarter and driving social sustainability across our business.
As the provider of skills quality of employment to over 16000 colleagues, we recognize the importance of recruiting developing and retaining appropriately skilled individuals.
We were therefore delighted to enter of long term agreement with project needs of the way the U S organization dedicated to promoting the provision of stem education right across the United States. The group's 10 or does 10 year agreement with project leads the way involving a total of commitments on our part of $50 million with.
And the stem initiative to cover all schools in the communities and which we operations right across North America.
We expect that over the 10 year life of the program is going to provide education and skills development to upwards of half of million students.
And ensuring the developments of the employees of the future is key to the long term future of our group and we are actively working on similar initiatives in Europe, and South America, We will update on this in June of course.
Turning to our liquidity net leverage ended the quarter at 5 times little changed on the end of the 2020 level. Despite the seasonal working capital outflow and elevated levels of growth investments.
Cash and available liquidity of Hershey's the June totaled over $4 billion, including $2.3 billion received on the structural separation of the A&P and April.
We anticipate calling our 800 million, 6% senior notes due 2025.
The other premium.
And is that pretty much 1 O..3 therefore shortly after the completion of EBITDA.
The transaction.
We have no other debt currently callable and we will update you further once we have assessed the business's cash requirements. This assessment will include evaluating investment opportunities go by the partners to develop our glass business by bolt on or by organic development and that.
As we indicated in February we also envisage allocating up to $1.4 billion for general corporate purposes, including the potential return of capital and for shareholders and the relationship Holdco cash repayments.
So we enter the second half of the year with good momentum, we see continued strong demand for all of our products and our output and both metal and glass packaging. It's for the allocation for the remainder of 2021 and into next year second half 'twenty, 1 performance, we'll face more demand and Comparables and glass packaging given the opening of the reopened.
<unk> seen in the third quarter of 2020.
Broad based inflationary pressures of also increased over the course of the quarter and recovery of these costs in line with our contractual arrangements remains the key focus for us.
Our business gross investment program has progressed, well and we will see the ramp up of significant new capacity and the Americas and Europe and the second half, particularly in a M T.
We therefore are happy to reiterate our full year 2021 of the adjusted EBITDA guidance of 1 point to $8 billion to $1.3 billion and others.
And this is despite the modest currency headwinds since our Q1 results in late April.
Full year net leverage is expected to remain around current levels of 5 times adjusted EBITDA, reflecting strong earnings growth and continuing high levels of gross investment and we expect third quarter adjusted EBITDA to be and the range of 335 million the $345 million.
You can close the groups performed very well and the first half. According broad based regional sector growth, we remain ideally positioned to invest the benefits from the mega trends driving demand for our products. The expected completion of the A&P listing is an important step of the group, creating a leading pure play global business and on block.
And significant value for shareholders.
And while the further progression of the pandemic remains on certain vaccinations have been widely rolled out and many of our regions and our businesses have demonstrated their strong resilience and the last 18 months and we therefore look to the remainder of the year and beyond the pulp mills.
So having made these opening remarks, we'll now be pleased to take any questions that you may have thank you.
Thank you.
Ask the question please signal by pressing star 1 on your telephone keypad.
You are using the speaker phone. Please make sure you're on mute function is turned off sort of biased to the chocolate net voice prompt on the phone line of indicate when your line is open. Please state your name before.
Once again that star 1 to ask the question well pause for just a moment to allow everyone an opportunity the signal for questions.
And we'll go to our first caller.
Hi, good morning, everyone and so noticed Shah from BMO capital markets and.
And I just wanted to ask about glass North America, you've been working to improve margins there over a number of the errors and and you just noted today that you're working on efficiency initiatives, what what's the reasonable target levels from margins in the segment as you see it and and maybe can you give a timeline for getting there.
Well I would think that we're disappointed the progress in that area and we're working very hard to accelerate the progress.
I think in the in the past security we were we were up at about 20% sometimes over that.
We'd like to target to get back to that level.
We have a lot of work to do.
And both investment and improvement and facilities and manufacturing.
And.
I I would hope that by the back end of next year, we'd start to see significant improvement and what's going on there. The good thing about North America glasses that the market is very strong it's very strong demand and there was a shortage of glass so.
And we are confident we have the right size in terms of portfolio of the cans of capacity.
But we're not happy with the performance on the manufacturing side.
Alright, Thank you very much and I'm, just thinking about leverage and it sounds like you're still evaluating your options. Once the M. P transaction is completed but do you and if I could have a.
Our leverage target for our dog once that's done.
Well I think I've indicated that we expect leverage to be around the 5 times at the end of the year. So that's.
And that's where I would see it as such.
Great. Thank you very much.
Okay.
Well go to our next caller.
Hi, Thank you good morning, good afternoon.
So.
Again, just on if.
And if you had the off balance sheet receivable. So now Virginia. This is for the entire group, including A&P. This time.
David.
Yes, that's the ban for fifth day.
That's the entire group.
Perfect and.
Is any of the Opco cash risk.
The restricted.
As reported in June of or was that all effectively unrestricted.
Well, let me and we of various different pockets of its unrestricted the various different pockets of the.
All right.
We're weighted I would make distributions et cetera. So you can take up and its unrestricted.
Perfect, Okay and.
And I, just maybe most of the comment about.
And the dividend are.
Finance is that to come and you haven't made the decision yet on how much you plant the pressure there.
And we have made the decision yet no, but we haven't made a decision of our focus and stayed on to close the A&P deal with the goal of ours Tomorrow.
And in June of course will look the part we do that we haven't made any decisions on.
Got it and and lastly.
And you gave them.
So some cash.
Cash flow item guidance was there any material differences, obviously, you gave the EBITDA, but that's any other differences and and what you gave from last quarter or is it the same.
David.
I think I think is broadly the same the interest might be a little bit higher depending on how much debt, we pay down and in the second half clearly weak.
Talks about the bonds with cooling and but if we pay down more debt will.
We will be in line with the 300 that we indicated previously.
Yeah.
Thank you very much.
Yeah.
Well go to our next question.
Hi, Good morning. This is Travis Edwards from Goldman Sachs sort of question structurally.
And.
And what's your new 82% ownership of the A&P, but if all of the Argos shareholders exchange, how you share of expressed with the pro forma ownership and.
The hard on metal packaging would be for auto group.
No we havent too because the I mean, I think it's look at somewhere in the and the early seventies depends on what the exchange ratio is if everybody took it up.
And if there you know and we haven't yet made the final decision was the weather would be and exchange offerings all of its something that we flagged of are likely to do.
So I don't think until we know until it we set up the exchange ratio will be if it's the happen.
It's hard to be precise as to what the.
The shareholders would be of probably be a little bit bigger now than early seventies, given that we're going to out of slightly more shares that were kind of age.
The 2% to start with and then.
Obviously all of that will come from whatever shares of exchange with.
With the HSA shares okay.
Kind of I appreciate it and that's helpful and then.
Is it a little bit nuanced I appreciate it.
And maybe too specific but curious if you can share of differentiated sort of of the the <unk>.
Cash flow of work for just the remain co glass business I know in the past you've split out, Quebec, Capex, but curious as far as the other cash flow items go is there a are you able to split out sort of what the remain co and legacy glass business generates as far as free cash flow of stripping out the debt.
Thanks.
I think thats the so many moving parts at the moment, that's what we plan to do is give guidance on the sort of things later in the year, because you've got a stop moving all over the place with the <unk>.
Transaction and we'll come back to you on that guidance and as you roll.
Got it I appreciate it and then just 1 clarifying question I think you've mentioned the earlier just want make sure I understood it but on the Arda.
North American glass sounded like do you expect more positive inflection point and you say later next year I just wanted to confirm that.
Yes, I would hope that we will start to see improvement by the back end of next year.
A lot of work going on there, it's not satisfactory, we're not happy with it and.
The good thing is we've got a good market backdrop.
We got very good demand.
We've got the we've.
We are doing very well with the new cloud, we have and Houston that's.
Ben.
We've got the guys who've done a great job, there and getting production up there again, it's lumpy ball from Abi.
But there are other plants, where we need to affect the significant improvements and we're working on that.
Got it appreciate it thanks for the time and best of luck this quarter.
Thank you.
And once again to ask a question on today's call that the star 1 on your telephone keypad.
We'll go to our next caller.
Paul David Good morning.
Hum.
1 of the 2 part question for North American Glass, 1 is I think pre pandemic you had talked about.
They're even being a little bit of of overcapacity and the market and now.
You're talking about things being and it sounds like pretty tight and the pretty good demand trajectory I know some things have changed in terms of of imports. Yeah, obviously profitability of isn't where you want it to be so the first part of the question is what changed in terms of demand.
And you talked about food starting to normalize but beer doing well.
And if you can talk at all I guess, what's happening and the immediate term and then maybe where you expect to see growth.
Going forward and then 2 was this more internal inefficiencies or supply chain disruptions in terms of ability to get raw materials.
On the freight inbound freight just trying to understand where the bottlenecks are.
I'll take the second part first and I'll ask John Sheehan to comments on the first part of your question and the second part it's the mixture of internal things that external items such as freight.
And the internal inefficiencies can sometimes lead to freight patterns nothing is the ideal as they should be or freight patterns of the contracted for and that can lead to excess freight costs and as you know there's the big shortage.
Great capacity and the use of the wallets of all of the.
Shortage of drivers et cetera, so set of difficult area.
And so it's it's a it's a mixture of factors I would describe it internal and external but a lot of which are our internal little bit.
The supply chain, but more and more freight and supply chain.
John do you want a day with the first bit.
Yes, sure Gabe the.
And as we said you know we saw a good quarter and our.
Shipments growth of around 3% and that was fairly broad based across beer and.
The spirits of the beverages and wine was fairly stable and food just normalize, but it normalized the high levels and.
The other way of the pandemic selling and we feel very good about the outlook for food. So we have a balanced portfolio and.
Sure the demand over the years the recent years has been declining.
And it's been trending positively for the last several quarters and.
You know it's been quite broad based.
I think we were pretty comfortable.
Comfortable that we have the right the capacity balance of the both of them for ourselves and get out the market is very tight.
Alright, Thank you gentlemen.
As there are no further questions at this point I will hand, the call back to Mr. Paul Coghlan.
Any additional or closing remarks.
Well, thank you everyone for joining us today.
And we look forward to joining you laser and the year when the.
We present, our Q3 figures and thank.
Thank you very much and day bye bye.
This concludes today's call. Thank you for your participation you may now disconnect.
Yeah.
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