Q3 2021 Ardagh Group SA Earnings Call
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Please standby were about to begin.
Welcome to the auto group third quarter 2021 Bondholder conference call today's conference is being recorded.
At this time I'd like to turn the conference over to Mr. Paul Coulson, Chairman and CEO of our group. Please go ahead.
Welcome everybody and thank you for joining us today for our does third quarter Bondholder call, which follows the release earlier today of our results for the quarter.
We hope you remain safe and well on the call today I'm joined by Shaun Murphy, our COO and John Sheehan, who has succeeded David Matthews as our CFO following Dave its decision to step down after the recent delisting of our Dot group I'll say.
Our remarks today will include certain forward looking statements. These reflect circumstances at the time. They are made 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.
Our third quarter financial report can be found on our website at <unk> Dot group Dot com.
As you know earlier today Arda metal packaging a M. P for short posted its third quarter earnings.
Reported growth in adjusted EBITDA of 17% to $276 million LTM adjusted EBITDA at September 30 has increased to $637 million and a M. P raised its full full year 2021 adjusted EBITDA outlook to at least 660 million.
The A&P call can be accessed at W. W. W dot or the metal packaging dot com and I should say that we will not be providing any additional information regarding a M P or its performance on this call.
So if I could move to the results for the quarter revenues for the group increased by 8% to $1 $9 billion, an increase of 6% on a constant currency basis revenue growth was principally attributable to the pass through of higher metal and other input costs and a N P.
Third quarter adjusted EBITDA for our reportable segments grew by 2% to 338 million compared with 330 million in the same period last year at constant exchange rates adjusted EBITDA for news report.
We're not in the prior year with strong growth in a teeny largely offset by a reduction in gearing.
Last night the chain.
So I'm not going to do our sandal performance I just briefly recap on our.
Okay.
And as you heard on the call earlier today as well.
Strong earnings despite softness are under.
I'm the pressures of the highly inflationary cost environment.
Well supply chains.
One $4 billion increased by 15% on a reported basis.
8%.
Constant exchange rates, principally due to the pass through of higher aluminum and other costs EBIT.
EBIT for the quarter increased by 17% to $176 million or 15% increase.
Constant currency rates driven by strong advance in the Americas on an LTM basis.
A M. P is adjusted EBITDA has now increased by 17% or 19 million year to date to $637 million with further growth coming over the last quarter.
And this means it will should finish the year. A 21 ahead of the targets set out in the business plan, which we published in February of this year, when we announced the business combination with Gores now under this business plan a M. P will significantly increase its manufacturing capacity.
So as to achieve our objective of more than doubling EBITDA to over $1 1 billion by 'twenty 'twenty four.
We expect the beverage cans continue to gain share in A&P as a pure play beverage can manufacturer with a strong platform in each of the markets where it operates is very well placed to benefit.
Contract structures characterized by multiyear agreements with cost pass supervision provides significant resilience sitting in an inflationary cost environment, albeit subject to some occasional timing lags.
Execution of the a M. P business plan has been strong to date and it remains firmly on track to achieve.
It's 28, 24 objectives, despite well publicized delays and cost pressures in parts of the global supply chain.
Under the a M. P plan free cash flow conversion will also be strong providing a very strong and highly visible growth platform, which is both value, creating and pre cash flow accretive for our shareholders.
If I turn now to glass packaging total shipments in the third quarter were 3% lower than the third quarter 'twenty 'twenty with broadly similar reductions in Europe and North America.
Revenues were unchanged on a reported basis and fell 1% at constant currency compared to the same period last year adjusted EBITDA of $162 million was 11% lower than the prior year at constant exchange rates, reflecting lower shipments and increased costs in both regions.
Looking at our glass packaging businesses.
Our glass shipments in Europe were 3% lower than the same period last year, you'll recall that the third quarter of 2020 benefit from the widespread reopening of hospitality after initial and often severe lockdowns in many of our markets and shipments and increased by 6%. This was a challenging comp.
And to put it in context shipments for the third quarter 'twenty, one are some 3% above 2019 levels.
By end market food and beer volumes were lower a function of weather impacted harvest and the resumption of the out of home hospitality respectively.
Contrast, strong international demand.
And the reopening of on premise consumption underpin growth in the spirits and nonalcoholic beverage categories revenue for the quarter in glass Europe, 12, 6% compared to the same period last year of which almost half was attributable to our engineering equipment business.
Adjusted EBITDA for the quarter of $104 million was 10% lower than the same period last year due to the impact of sharply higher energy and other costs, partly offset by a strong operating performance on a contribution from our growth investment program.
In glass North America.
Revenue of $444 million increased by 3% compared with the same period last year shipments were 4% lower than the prior year with growth in spirits more than offset by lower shipments in other categories as out of home dining and hospitality resumed justice EBITDA of 58 million.
It was a reduction of 13% on the same period in 2020, and reflected lower shipments and increased costs, including out of pattern freight costs.
Against a rather stable demand backdrop, we continue to address operational challenges and resulting inefficiencies in our glass North America business.
And we continue to address these issues to drive improved profitability there.
Third quarter also saw US progress our growth investment program group wide investment to date in 'twenty. One is in excess of 500 million, including some of these assets with an increase to cover over 800 million expected by year end.
700 million of this 800 million as an a M P and the balances in our glass business.
Find earlier a M piece growth investment projects remained materially on track despite the challenges of global supply chains.
The projects will deliver significant capacity growth in 2022.
Glass Europe has also been successfully pursuing targeted opportunities aimed at premium in faster growing segments of the market wide efficiency and operational enhancement.
It remains a priority in glass North America.
Earlier today, a M P sand out of its intention to build new multiline beverage can production facilities in the U K and in the southwestern United States with planned production startups in 'twenty to 'twenty, three and 'twenty 'twenty four respectively.
These projects as with all our existing growth projects will be strongly value enhancing and highly free cash flow accretion.
If I turn then to the A&P transaction, which was the combination was.
Completed on the fourth of August and trading in a M P.
Started on the New York Stock Exchange on the festival of August.
In September we launched an exchange offer of shares in A&P in return for the outstanding class a common shares of art a group and following 85%.
Acceptances onto the exchange offer the free float of A&P increased to 25% where it sits today.
The listing of A&P as a pure play Pos growing 10 producer is an important strategic move for the group and our data remains a committed long term majority owner of M. P. As it executes its multiyear growth plan.
As well as being focused on performance and our growth of our business. Our di is committed to executing a leading sustainability strategy concentrating on environmental and ecological barriers to a greener plants, but also focusing on the social agenda. We are passionate about sustainability in all its aspects and we believe it represents a long.
Term tailwind for our business when we invest in new facilities. For example, we've Saturn ambition that each of those facilities will be class leading in terms of sustainability. We continue to work with our customers suppliers communities and industry bodies to promote collection and recycling. We've developed 10 year plans across our business to ensure.
Sure that we achieve our ambitious 2030 targets for C O two the Oc wasting water.
These are now being actions, including focusing on increased renewable electricity usage, starting in North America, and then light weighting energy efficiency and other initiatives.
Our community connections are vital to our success on our previously announced 10 year $50 million investment in stem education in the U S has captured the imagination of our people and their neighbors and it's progressing very well.
We will shortly issue our 2021 sustainability report setting out our 2000 and Turkey sustainability targets.
Through the quarter, we continued to engage actively with our customers and supply chain to drive progress on the environmental and sustainability agenda.
If I now turn to our liquidity and capital structure net leverage at the end of the quarter was four two times, despite our having made growth investments in excess of 430 million in spite.
Seasonal working capital in the in the year to date.
Investment and seasonal working capital.
This reflected strong EBITDA growth on the pumps inflow from D. A N P spec transaction.
Cash and available liquidity at the end of September last amount over $4 $3 billion, including $3 five 5 billion in cash.
As previewed on our second quarter call, we called the remaining 800 million, 6% notes due in 'twenty five in August.
Following the calling of these notes we have no further callable debt.
We continue to evaluate the cash needs of Arda group on our strong and liquid balance sheet positions. The group well to take advantage of any value, creating growth opportunities that arise for our business.
In late September we declared a dividend of $1.25 per our group that they share.
Or a cost of $295 million, which was paid in mid October to $72 million of this dividend was paid towards the nonsense a in house with disarm is now held in escrow for the benefit of the toggle note holders at Holdco.
As previously indicated we have allocated up to $1 4 billion for general corporate purposes, including the potential return of capital to shareholders and related Holdco debt repayment.
This allocation of which the recent 295 million dividend Forest Park remains unchanged.
And if I turn to the full year outlook demand for our metal and glass packaging products remains relatively strong across our markets. Our business growth investment program has advanced well during the quarter and in the year to date materially on track in the past quarter, we've seen a broad based in sharp increase in inflation.
Cost pressures for medical services, including energy raw materials, and logistics, our business model and contract structures provide a high degree of resilience in the face of such input cost volatility and this will be a focus entering 2022.
And in the lives of the cost pressure seen in the quarter and the uncertain duration of some recent cost increases we now project full year EBIT EBIT.
EBITDA for 'twenty, one to be in the range of 1.25 billion to one point to seven basis.
So having made these opening remarks, we will now be pleased to take any questions, which you might have.
They can't if you'd like to ask a question. Please send them a pressing star one on your telephone keypad.
If you are using a speaker phone. Please make sure that your mute function is turned off to let your signal to reach our equipment. Once again that is star one if you'd like to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.
And we'll take our first question from Robert Spitz with Bank of America. Please go ahead.
Alright. Thank you very much on first off can we just go through some of the <unk>.
2021 are <unk>.
<unk> numbers are firstly, I mean, starting with EBITDA I don't know if you gave a Q4 consolidated EBITDA.
EBITDA guidance or have a consolidated 2021.
EBITDA last quarter was 12 90, I think are 1.28 to 1.3.
Yeah, John will you handle the guidance please.
Yeah sure Roger that's correct, but we said that today was that in light of the recent cost pressures.
Turning to you regarding the extent and duration of those that's the guidance now is that consolidated at 12 15 to 12 70 for the year.
And you know working down through the some of the other items no major change in our working capital probably it as well.
With higher input costs, maybe about 70 million topics.
Before I round about 380 for the year at leases about $100 million mm growth investments again consolidated be about 800 million.
And then tax of about 75 million.
Okay got it other than the EBITDA it looks like the gross Capex went down from 900 from last quarter given to 800. This quarter. So you took off 800, and then yeah. No I think that's really just a bit there was a bit of rounding previously you know we have them. We've done you know some more leasing and parts are that knows or you're just prudently.
The cash outflow.
As we said in the remarks here out of the projects are very large very firmly on track.
Got it.
The other question is you are in announced.
Up money.
Cash.
Yeah.
You know what are you prepared to talk about how much further cash you might push up to.
Hum.
They already finance.
Well, we havent Roger given any it made any decisions on that at all we did give guidance going back for us since the start of sincerity or way earlier this year, which we repeated again today that you know for general corporate purposes, and possible return of capital to shareholders could be as much as 1400 of which 300 has already been.
Paid I don't see it being a as much as the balance of that but there will I think be some upload funds. Yes is the answer to that but we haven't made any decisions on that because we've just recently as you know completed the exchange offering is Adidas thing I'll call Argo group I say, so no decision that was avia.
Got it thank you very much.
But as you know Roger any money that does not flow half of that goes to a to a pay off to reduce the holdco debt as has happened.
With the with the dividend that's been paid so far okay.
One O four right.
Yes, yes, that's a one O for you yeah. Thank you.
Thank you.
Thank you, we'll now take our next question from Richard Koos with Jefferies.
Hey, Thanks for taking my question. So just first one just looking at your contract structures you talk about the cost inflation, obviously going into 2022 with gas being a big portion of your cost base I know in the U S. You guys seem to be relatively well protected just in terms of how the contracts work, but can you maybe talk about your pass through mechanisms in Europe, how you expect that.
To work heading into next year and how exposed you may be.
John.
Yeah, Hi, Richard said as we said you know, it's a very inflationary environment and you correctly say that in the U S.
Yeah. The pass throughs are very very quick very plain.
Europe whereabouts.
You know our business split fairly evenly between multi year contract and at annual contract the multi year contracts.
Most of them will have good energy clauses I'd add that the others and it's a question of you know.
It's an annual disclosure.
Clearly the place that's evident to everybody and that will inform them you know yeah, the direction in which we need to tell us the new year.
Got it and how hedged are you on your gas needs for next year in Europe right.
Right now in terms of energy, where we aim to be about 80% going into the new year and we'd expect to be at around that level as we as we head into 2022.
Okay, and then you know I guess my second question.
In terms of RP capacity that you have at the Opco, where does that stand right now.
A $2 1 billion.
Richard $2 $1 billion.
Got it okay. Thanks very much.
Thank you.
Thank you we'll take our next question from Ruth well with Janice.
Hi, so for the remaining $1 1 billion earmarked for TCP, including shareholder dividends in the whole car that routine that is there any sense of timing on when we see those funds allocated.
I I there that we haven't yet made any decision on that it could happen in the next month or so I think in terms of a decision.
Okay. Thank you.
Thank you.
Once again Thats star one if you'd like to ask a question.
There are no further questions at this point I'll hand, it back over to Mr. Colson for any additional or closing remarks.
Well. Thank you very much everyone for joining us on the call today and we appreciate your support and we look.
Look forward to talking to you with our year end results. Thank you very much indeed.
Yeah.
Thank you that does conclude today's conference. We do thank you all for your participation and you may now disconnect.
Right.
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