Q3 2021 Ardagh Metal Packaging SA Earnings Call

October 28, 2021

Operator: Please stand by. We're about to begin. Welcome to the Ardagh Metal Packaging Q3 2021 investor call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Oliver Graham, CEO of Ardagh Metal Packaging. Please go ahead.

Please standby were about to begin.

Welcome to the Argos metal packaging third quarter 2021 investor call. Today's conference is being recorded at this time I'd like to turn the conference over to Mr. Oliver Graham C E O of art all metal packaging. Please go ahead.

Oliver Graham: Thank you, Jen. Welcome, everybody, and thank you for joining us today for Ardagh Metal Packaging's Q3 2021 earnings call, which follows the release earlier today of our results for the quarter. I'm joined today by David Bourne, our Chief Financial Officer, and by John Sheehan. Our remarks today will include certain forward-looking statements. These reflect circumstances at the time they are 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 in our SEC filings and news releases. Our earnings release and related materials for the third quarter can be found on our website at ardaghmetalpackaging.com.

Thank you Ken.

Welcome everybody and thank you for joining us today.

<unk> third quarter 2021, and this is cool which follows the release earlier today of our results for the quarter I'm joined today by David Cohen, Our Chief Financial Officer, and John Sheehan.

Our remarks today will include certain forward looking statements. These reflect circumstances at the time. They are 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 in our SEC filings and news releases.

Our earnings release and related materials for the third quarter.

Can be found on our website at other metal packaging don't come into.

Oliver Graham: Information regarding the use of non-GAAP financial measures may also be found in the notes section of the release, which also includes a reconciliation to the most comparable GAAP measures of adjusted EBITDA, adjusted operating cash flow, and adjusted free cash flow. Details of our statutory forward-looking statements disclaimer can be found in our SEC filing. If I now move to our third quarter results, AMP performed well in the quarter, delivering strong earnings growth despite softness in the hard seltzer market and the pressures of a highly inflationary environment with tight global supply chains. Across the group, our teams demonstrated considerable operational agility to deliver this performance, and I want to record our appreciation of our 5,000 colleagues for their dedication and commitment in supporting our customers' growth.

Information regarding the use of non-GAAP financial measures May also be found in the notes section of the release, which also includes a reconciliation to the most comparable GAAP measures of adjusted EBITDA.

Adjusted operating cash flow and adjusted free cash flow.

Details of our statutory forward looking statements disclaimer can be found in our SEC filings.

If I now move to our third quarter results.

<unk> performed well in the quarter delivering strong earnings growth despite softness in the hard seltzer market.

And the pressures of a highly inflationary environment with tight global supply chains across the group our teams demonstrated considerable operational agility to deliver this performance and I want to record our appreciation of our 5000 colleagues for their dedication and commitment and supporting our customers' growth.

Revenue of one point over $4 billion increased by 15% on a reported basis and by 14% at constant constant exchange rates.

Oliver Graham: Revenue of $1.04 billion increased by 15% on a reported basis, and by 14% at constant, constant exchange rates, principally due to the pass-through of higher aluminum and other costs. Adjusted EBITDA for the quarter increased by 17% to $176 million, a 15% increase at constant currency rates, driven by a strong advance in the Americas. LTM adjusted EBITDA has now increased by 17% to $637 million at 30 September 2021, and we expect further progress over the remainder of the year and into 2022. Total beverage can shipments in the quarter were 6% lower than in the prior year, and we estimate that approximately half of this reduction is attributable to the residual impact of the cyber incident.

Principally due to the pass through of higher aluminum and other costs.

Adjusted EBITDA for the quarter increased by 17% to $176 million.

A 15% increase at constant currency rates driven by strong advance in the Americas.

LTM adjusted EBITDA has now increased by 17% to $637 million.

At September 30, and we expect further progress.

Over the remainder of the year and into 2022.

Total beverage can shipments in the quarter was 6% lower than in the prior year and we estimate that approximately half of this reduction is attributable to the residual impact of the cyber incident.

Oliver Graham: Excluding this, shipments fell by approximately 3% compared with the same period last year, reflecting softness in hard seltzers in North America, as well as strong comparables in both Europe and Brazil. However, we managed these market conditions well, grew earnings strongly, and are slightly raising our full-year outlook. Specialty cans represented 44% of our shipments in the quarter. Looking at our results by segment and at constant exchange rates, revenue in the Americas increased by 16% to $555 million, mainly due to the pass-through of higher input costs. Can shipments were 6% lower than Q3 2020, with reductions in both North America and Brazil. In North America, we were impacted by softer demand in the hard seltzer market.

Excluding this shipments fell by approximately 3% compared to the same period last year.

<unk> softness in hard Seltzer in North America, as well as strong comparables in both Europe and Brazil.

However, we manage these market conditions well grew earnings strongly and are slightly raising our full year outlook.

Specialty cans represented 44% of our shipments in the quarter.

Looking at our results by segment and at constant exchange rates revenue in the Americas increased by 16% to $555 million, mainly due to the pass through of higher input costs can shipments were 6% lower than the third quarter of 2020.

With reductions in both North America and Brazil.

In North America, we were impacted by softer demand in the hard seltzer market.

Oliver Graham: In response, we redirected production to satisfy continued strong demand, primarily from the non-alcoholic categories in CSD, sparkling waters, energy, and other drinks, as well as the RTD market. This operational agility served us well and drove earnings growth despite the lower volumes. Our response was hindered to some degree by the residual impact of the cyber incident on our capacity, as reported in Q2, the impact of which has now passed. In Brazil, shipments in the seasonally less important winter quarter were lower than the prior year. The market is estimated to have declined by approximately 15% in the quarter, compared to an estimated 25% growth in the same period last year, which was due to COVID recovery. AMP outperformed the market trend.

In response, we redirected production to satisfy continued strong demand.

Primarily from the nonalcoholic categories in CFT sparkling water energy and other drinks.

As well as the RTD market.

This operational agility has served us well and drove earnings growth despite the lower volumes.

Our response was hindered to some degree by the residual impact of the cyber incident on our capacity as reported in the second quarter.

The impact of which has now passed.

In Brazil shipments in the seasonally less important winter quarter were lower than the prior yet the market is estimated to have declined by approximately 15% in the quarter compared to an estimated 25% growth in the same period last year.

Which was due to COVID-19 recovery.

<unk> outperformed the market trend.

Oliver Graham: Despite elevated inflation, including the impact of a weaker real on domestic consumer spending power, we are optimistic for the upcoming summer season in Brazil, as the long-standing driver of pack mix conversion continues to drive demand for beverage cans. Adjusted EBITDA in the Americas increased by 28% to $100 million. Growth reflected favorable production volume and sales mix shifts compared with the prior year, as we further diversified our customer base and benefited from the investments made in the latter part of 2020 and the first half of 2021. The development of and prospects for the hard seltzer market have been a matter of significant discussion recently. AMP's business in the Americas is well diversified across multiple end markets, including CSD, beer, hard seltzers, sparkling waters, energy drinks, coffees, RTD cocktails, and newer categories, including wines, functional and infused drinks.

Despite elevated inflation, including the impact of a weaker rely on domestic consumer spending power. We are optimistic for the upcoming summer season in Brazil as the longstanding drive our patents conversion continues to drive demand for beverage cans.

Adjusted EBITDA in the Americas increased by 28% to $100 million.

Growth reflected favorable production volume and sales mix shifts compared with the prior year as.

As we further diversified our customer base and benefited from the investments made in the latter part of 2020 on the first half of 2021.

The development of and prospects for the hard seltzer market have been a massive significant discussion recently.

A&P business in the Americas is well diversified across multiple end markets, including CSD, the heartfelt to sparkling water energy drink coffees, RTD cocktails in newer categories, including lines functional or infused drinks.

Oliver Graham: This represents a significant change to the profile of the business we acquired in mid-2016, which was highly concentrated by customer and end markets. This diversity, coupled with our ability to react to changing market trends, has delivered resilience and underpins our confidence in future performance. We expect to announce shortly a growth initiative to further enhance our flexibility and ability to serve smaller to medium-sized customers. Returning to hard seltzer, in Q3, the category represented a mid-single-digit percentage of our North American business and just one of many long-term growth opportunities we see in the North American market. In the context of the AMP Group, it accounted for a low single-digit percentage of total volumes. Commentary generally points to hard seltzer remaining a significant beverage sector category, albeit with more modest growth than in recent years, supported by several long-term megatrends.

This represents a significant change the profile of the business. We acquired in mid 2016, which is highly concentrated by customer and end market.

Diversity, coupled with our ability to react to changing market trends, that's delivered resilient and underpins our confidence in future performance.

We expect to announce shortly a growth initiative to further enhance our flexibility and ability to serve smaller to medium sized customers.

Okay.

Returning to hard seltzer in the third quarter. The category represented a mid single digit percentage of our North American business and just one of many long term growth opportunities, we see in the North American market.

In the context of the A&P group it accounted for a low single digit percentage of total volumes.

Commentary generally points to hard seltzer remaining a significant beverage sector category.

With more modest growth than in recent years supported by several long term megatrends.

Oliver Graham: We therefore view it as an important and attractive end market, but note that our growth is well diversified by customer, region, and beverage category. In Europe, Q3 revenue increased by 11% at constant currency to $483 million, compared with the same period in 2020. Shipments declined by mid-single digits compared with the prior year, being partly impacted by the cyber incident early in the quarter, as well as by an exceptionally strong Q3 of 2020, when shipments increased by 10%. The widespread reopening of hospitality across Europe during the quarter has also provided a modest headwind in some markets, particularly the UK, as consumers resumed on-premise occasions, favoring draft over packaged product consumption. Q3 adjusted EBITDA in Europe increased slightly to $76 million....

We therefore is an important and attractive end market.

But note that our growth is well diversified by customer region and beverage category.

In Europe third quarter revenue increased by 11% at constant currency to $483 million.

Compared with the same period in 2020.

Shipments declined by mid single digits compared with the prior year being partly impacted by the cyber incident earlier in the quarter as well as by an exceptionally strong third quarter of 2020 when shipments increased by 10%.

The widespread reopening of hospitality across Europe during the quarter as also provided a modest headwind in some markets, particularly the U K as consumers resumed on premise occasions favoring dropped over packaged product consumption.

Third quarter adjusted EBITDA in Europe increased slightly to $76 million.

Oliver Graham: Looking forward, our near-term growth is constrained in Europe, pending two significant growth projects, which add to our capacity in the UK and Germany in the first half of 2022. First half growth in 2021 was largely achieved through reducing inventories, and we expect full year 2021 volumes to be in line with 2020, following a very strong final quarter of 2020. Turning to our growth initiatives, these continue to make good progress over the course of the Q3 and are materially on target. In the first nine months of 2021, we have invested capital expenditure, including lease additions, of $450 million on these projects, with a full year outturn of approximately $700 million expected. Despite some delays in the delivery of equipment, mainly a consequence of global logistics pressures, implementation to date is largely on plan.

Looking forward, our near term growth is constrained in Europe pending two significant growth projects, which add to our capacity in the UK and Germany in the first half of 2022.

First half growth in 2021 was largely achieved through reducing inventory.

And we expect full year 2021 volumes to be in line with 2020, following a very strong final quarter of 2020.

Okay.

Turning to our growth initiatives. These continued to make good progress over the course of the third quarter and are materially on target.

In the first nine months of 2021 way of invested capital expenditure, including lease additions of $450 million on these projects with our full year outturn of approximately 700 million.

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Despite some delays in the delivery of equipment, mainly a consequence of global logistics pressures.

Implementation to date is largely on plan.

Oliver Graham: To recap on some of our larger growth investment projects, in North America, our 2 new high-speed sweet lines in Olive Branch, Mississippi, continue to ramp up during the quarter. Our expansion at Winston-Salem, North Carolina, is well advanced, and we anticipate producing cans from the first of these 2 new lines around the end of the year, with the second high-speed line commencing production in Q1 2022. In Huron, Ohio, our new brownfield expansion will begin to produce ends next month, with can lines beginning to ramp up in Q1 2022. Labor markets across the US remain tight, but we have made good progress with hiring and continue to add well-qualified candidates to support our growth plans.

To recap on some of our larger growth investment projects.

In North America, our two new high speed sleek lines in Olive branch, Mississippi continue to ramp up during the quarter.

Our expansion at Winston Salem, North Carolina is well advanced and we anticipate producing cans from the first of these two new lines around the end of the year with the second high speed line commencing production in the first quarter of 2022.

And Kieran, Ohio, our new brownfield expansion will begin to produce and next month with can lines beginning to ramp up in the first quarter of 2022.

Labor markets across the U S remains tight, but we have made good progress with hiring and continued to add well qualified candidates to support our growth plans.

In Europe, our new line in Germany will start up in the first quarter of 2022 and with a significant UK investment also coming online in early 2022.

Oliver Graham: In Europe, our new line in Germany will start up in Q1 2022, and with a significant UK investment also coming online in early 2022. In Brazil, the expansion project at our Jacareí plant is progressing well, with startup expected around the end of this year. We are also adding capacity at our Manaus ends plant. Finally, planning and development work on our greenfield expansion in Ministro Andreazza is also progressing. We continue to minimize execution risk across the spread of projects, primarily by focusing our expansion on existing facilities, thereby leveraging our established skill base, community presence, and scale. Equipment supply has tightened, and shipping has recently given rise to some delays, but our projects remain largely on track and will deliver significant capacity growth in 2022.

In Brazil, the expansion project at our <unk> plant is progressing well with startup expected around the end of this year.

We are also adding capacity at <unk> and spot.

Finally planning and development work on our Greenfield expansion administered <unk> is also progressing.

We continue to minimize execution risk across the spread the projects primarily by.

Focusing our expansion on existing facilities there.

Thereby leveraging our established skill based community presence and scale equipment.

Supply has tightened and shipping has recently given rise to some delays.

But our projects remain largely on track and will deliver significant capacity growth in 2022.

Oliver Graham: Our expectation for medium to long-term growth in beverage can demand has led us today to set out two further strategic expansions. We intend to build new multi-line beverage can production facilities in the UK and the southwestern US to support our customers' growth. The UK investment will build on our leading presence in one of the strongest performing beverage can markets in Europe, while the US expansion represents an important strategic enhancement of our geographic footprint in that market. Operations are scheduled to commence in 2023 and 2024, respectively, with full production achieved in the next phase of our growth plan beyond 2024. These projects were envisaged in the pipeline of potential growth opportunities we had previously detailed.

Our expectation for medium to long term growth in beverage can demand has led us today to set out to further strategic expansions.

We intend to build new multi line beverage can production facilities in the UK and the southwestern United States to support our customers' growth.

The UK investment will build on our leading presence in one of the strongest performing beverage can markets in Europe.

While the U S expansion represents an important strategic enhancement of our geographic footprint in that market.

Operations are scheduled to commence in 2023 and 2024, respectively with full production achieved in the next phase of our growth plan beyond 2024.

These projects were envisaged in the pipeline of potential growth opportunities. We have previously detailed they.

Oliver Graham: They will be built out on a phased basis in response to market demand, as is the case with our 2021 to 2024 growth plan. Investments will be fully backed by customer agreements. They will also require no new equity. We will provide further detail on these new projects in due course, but see demand underpinned as follows: firstly, long-term secular growth as the beverage can take share of the pack mix due to its convenience, appeal, and, in particular, sustainability. Innovation remains skewed to the beverage can, and while COVID has resulted in a backlog of new product introduction, customer feedback confirms the strength of their forecast for beverage cans in all our markets.

They will be built out on a phased basis in response to market demand.

And as is the case with our 'twenty to 'twenty, one to 2024 growth plan.

Investments will be fully backed by customer agreements.

They will also require no new equity.

We will provide further detail on these new projects in due course, but see demand underpinned escalates.

Firstly long term secular growth as the beverage can take share of the pack mix due to its convenience appeal and in particular the sustainability.

Innovation remains skewed to the beverage can and while Covid has resulted in a backlog of new product introduction.

Customer feedback confirms the strength of therefore costs for beverage cans in all our markets.

Oliver Graham: Secondly, imports into our core markets have continued to run at elevated levels, with well over 10 billion cans imported to the US market by the end of August, compared with over 8 billion units in the full year of 2020, which was itself a record. Thirdly, continued very low inventory levels, as well as unsustainable operating rates, are expected to normalize across the beverage can industry over time. Moving to our financial position, liquidity totaled in excess of $0.8 billion at the end of Q3, including $0.5 billion in cash and the ABL entered into during the quarter. Net leverage ended the quarter at 3.8 times. Subsequent to our Q2 earnings call in early August, we completed the SPAC transaction and following completion of the exchange offer earlier this month, the free float of AMBP has increased to 25%.

Secondly, inputs into our core markets have continued to run at elevated levels with well over 10 billion cans imported to the U S market by the end of August compared with over 8 billion units in the full year of 2020.

Which was itself a record.

Thirdly continued very low inventory levels as well as unsustainable operating rates are expected to normalize across the beverage can industry over time.

Moving to our financial position liquidity totaled in excess of $1 8 billion at the end of the third quarter, including $5 billion in cash and the ABL entered into during the quarter.

Net leverage ended the quarter at three eight times.

Subsequent to our second quarter earnings call in early August we completed the spec transaction and following completion of the exchange offer earlier. This month the free float of A&P has increased to 25%.

In parallel with our investment in new sustainable packaging facilities, we are more generally executing a leading sustainability strategy.

Oliver Graham: In parallel with our investment in new sustainable packaging facilities, we are more generally executing a leading sustainability strategy, concentrating on environmental and ecological barriers to a greener planet, but also focusing on the social agenda of our people in the communities in which we operate. The board of AMP is passionate about sustainability in all its dimensions, and as we have said before, we believe it represents a long-term tailwind for our business. When we invest in new facilities, we have set an 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 have developed detailed 10-year plans across our business to ensure that we achieve our ambitious 2030 target for CO₂, VOC, waste, and water...

<unk> environmental and ecological barriers to agreement planet, but also focusing on the social agenda of our people and the communities in which we operate.

The board of A&P is passionate about sustainability in all its dimensions and as we've said before we believe it represents a long term tailwind for our business.

When we invest in new facilities, we have set an 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 have developed detailed 10 year plans across our business to ensure that we achieve our ambitious 2030 target for CA to BSC.

BSC waste and water.

Oliver Graham: We are actioning those plans, including focusing on increased renewable electricity usage, starting in North America, and we are moving forward on light weighting, energy efficiency, and a host of other initiatives. Our community connections are vital to our success, particularly in securing talented people from the communities we operate in. To that end, Ardagh announced earlier this year a $50 million investment in STEM education in those communities. We are delighted to report that the initiative has captured the imagination of our people and their neighbors, and is progressing very well. We will shortly issue our 2021 sustainability report, setting out our 2030 targets. As outlined earlier, we are also progressing initiatives to enable us to better serve smaller to medium-sized customers with sustainable metal packaging.

We are actioning, those plans, including focusing on increased renewable electricity usage, starting in North America.

We are moving forward on light weighting energy efficiency and a host of other initiatives.

Our community connections are vital to our success, particularly in securing talented people from the communities we operate in.

To that end other announced earlier this year, a $50 million investment in stem education in those communities.

We are delighted to report that the initiative has captured the imagination of our people and our neighbors and is progressing very well.

We will shortly issue our 2021 sustainability report setting out our 2030 target.

And as outlined earlier, we are also progressing initiatives to enable us to better serve smaller to medium sized customers with.

With sustainable metal packaging.

Oliver Graham: So to conclude, before moving to take your questions, today, we reported strong growth in Q3 earnings, reflecting our focus on sustainable metal packaging, our diverse customer base, and end markets, and our operational agility in responding to market changes. This has demonstrated the transformation we have made in the diversification and resilience of our business in the last five years. On an LTM basis, adjusted EBITDA has now increased by 17% or $92 million year-over-year to date to $637 million. We expect further growth over the final quarter and are modestly raising our guidance for 2021 adjusted EBITDA of at least $660 million, finishing ahead of the 2021 targets set out in the business plan, which we published in February of this year.

So to conclude before moving to take your questions. Today, we reported strong growth in third quarter earnings, reflecting our focus on sustainable Metro packaging, our diverse customer base and end markets and our operational agility in responding to market changes.

This is demonstrated the transformation we have made in the diversification and resilience of our business in the last ideas.

On an LTM basis, adjusted EBITDA has now increased by 17% to $92 million.

Year to date to $637 million, we expect further growth over the final quarter and modestly raising our guidance for 2021, adjusted EBITDA of at least $660 million.

Finishing ahead of the 'twenty, one 'twenty one targets set out in the business plan, which we published in February of this year.

Oliver Graham: Under this plan, we will significantly increase our manufacturing capacity so as to achieve our objective of more than doubling EBITDA to over $1.1 billion by 2024. We expect the beverage can to continue to gain share in each of our markets, and AMP, as a pure play beverage can manufacturer with a strong platform in each of its markets, is very well placed to benefit. Our contract structure is characterized by multi-year agreements with cost pass-through provisions provide significant resilience in an inflationary cost environment, albeit subject to some occasional timing lags. Execution of our business plan has been strong to date, and we remain firmly on track to achieve our 2024 objectives, despite well-publicized delays and cost pressures in parts of the global supply chain. Under the plan, free cash flow conversion will also be strong.

Under this plan, we will significantly increase our manufacturing capacity so as to achieve our objective of more than doubling EBITDA to over one 1 billion by 2024.

We expect the beverage can to continue to gain share in each of our markets and A&P as a pure play beverage can manufacturer with a strong platform in each of its markets.

He is very well placed to benefit.

Our contract structures characterized by multiyear agreements.

The cost pass through provisions to provide significant resilience in an inflationary cost environment.

Subject to some occasional timing lags.

Execution of our business plan has been strong to date and we remain firmly on track to achieve our 2024 objectives, despite well publicized delays and cost pressures in parts of the global supply chain.

Under the plan free cash flow conversion will also be strong we.

Oliver Graham: We estimate it at 75%+ before growth CapEx, given our modest level of maintenance CapEx, low cost of finance, and efficient working capital model. We therefore have a very strong and highly visible growth platform, which is both value creating and free cash flow accretive for our shareholders. Having made these opening remarks, we will now be pleased to take any questions that you may have.

We estimated at 75% plus before growth Capex.

Given our modest level of maintenance capex low cost of finance.

And efficient working capital model.

We therefore have a very strong and highly visible growth platform, which is both value, creating and free cash flow accretive for our shareholders.

Having made these opening remarks, we will now be pleased to take any questions that you may have.

Operator: Thank you. If you'd like to ask any question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We'll go first to George Stathos with Bank of America.

Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using the speaker phone. Please make sure your mute function is turned off.

<unk> equipment again press star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.

Yes.

And we'll go first to George Staphos with Bank of America.

George Staphos: Hi, everyone. Good morning. Thanks for taking my question, and thanks for the details. I just wanted to make sure I understood on Europe, what are you looking for, for the Q4 in Europe, both in terms of volumes and earnings? I want to say... I thought I heard you say something about even, but I just want to make sure that I didn't catch that incorrectly, and then I had a couple of other questions.

Hi, everyone. Good morning, Thanks for taking my question and thanks for the details.

I just wanted to make sure I understood on Europe. What are you looking for for the fourth quarter in Europe. Both in terms of volumes and earnings I wanted to say I thought I heard you say something about even but I just want to make sure that I didn't.

Cash I didn't correctly in that a couple of other questions.

Sure George No. We actually I don't think you said it that way, we think it will be mid single digits in volumes.

Oliver Graham: Sure. Hi, George. No, we actually, I don't think, said it that way.

George Staphos: Okay.

Oliver Graham: We think we'll be mid-single digits in volumes for the final quarter. And then obviously we've--I guess we signaled at least $660 million on the EBITDA, which is therefore another $176, I want to say. We'll chat with David in a minute. But yeah, so volumes up in Q4 is the forecast.

For the final quarter.

And then obviously we've.

As we signaled at least $660 million on the EBITDA.

It is therefore.

176, I want to say with the chat with David in a minute but.

Yes, so volumes up in the fourth quarter as the as the forecast.

George Staphos: And the mid-single digits, that's for Europe and, overall for the business as well?

In the mid single digit that's for Europe, and overall for the business as well.

Yes.

Oliver Graham: Yeah, that's our AMP overall, and then it's, yeah, it's in the same ballpark for Europe and the Americas.

That's very A&P overall, and then it's yes, it's in the same ballpark of Europe and the Americas.

George Staphos: Excellent. Thanks for going through that. The second question I had, could you talk a little bit about the new facilities and new projects you announced today, both in the UK and the Southwest? I realize it's a little bit tough to talk about these things live, Mike, but any highlights about the facilities, the capacity that's being added, and in particular in the Southwest, you know, there have been a few other facilities announced by peer companies in the region. What's so attractive about the Southwest these days? Is it that we're seeing more filling locations going there, or are the states and municipalities making it more attractive? Is it a great place to hit California? If you can give us a bit more detail on those two new facilities, particularly around the Southwest, we'd be interested.

Excellent. Thanks.

Thanks for going through that.

And the second question I had could you talk a little bit about the new.

<unk> facilities, a new project that you announced today both in the U K in the southwest I realize it's a little bit tough to talk about these things.

Mike, but any highlights about the facilities the capacity that's being added and in particular in the southwest.

Been a few other facilities.

Announced by peer companies.

In the region, what's so attractive about the southwest. These days is it that you were seeing more filling location is going in there are the states municipalities, making it more attractive is it a great place to hit California. If you can give us a bit more detail on those two new facilities, particularly around the southwest would be interested.

Sure Yes.

Oliver Graham: Sure. Yeah. So look, I think we will come with more details on the capacity and the investment levels. So they'll both be multi-line facilities, they'll both be serving a whole range of customers, and as we said in the remarks, they'll be backed fully by customer agreements. In terms of the Southwest, I think all of the above that you mentioned. So I think our analysis and obviously that of our peers and customers is that the West Coast is very undersupplied at the moment in terms of capacity. I think that's because of, certainly California, a big market. You'll know with your experience in the industry, that capacity has been removed from California over time. But it continues to grow in a very healthy way. And, you know, you do have particular-...

I think we will come with more details on the capacity and the investment levels. So that both the multiline facilities.

They'll both be.

Serving a whole range of customers and as we said in the remarks there'll be back fully bye bye.

By customer agreements.

In terms of the southwest I think all of the above the EBIT you mentioned, so I think our analysis and obviously that of our peers and customers is that the the.

The West Coast is very under supplied at the moment in terms of capacity I think thats because of certainly, California, a big market you will know with your experience in.

And the industry that capacity has been removed from California over time.

But it continues to grow in a very healthy way and you do have particular policies and consumers choose to plastics on the west coast. So I think thats, a big market with them with a very significant growth trajectory in years ahead.

Oliver Graham: policies and consumer attitudes to plastics on the West Coast. So I think that's a big market with a very significant growth trajectory in years ahead. And then we also have, to your point, big filling locations going into the Southwest of the United States, including, you know, one, as you know, that is actually not incremental sales volume to the US, but is actually the replacement of volumes that were being produced in Europe. So we also have to take that into account when you consider the capacity going in. So yeah, I think, you know, when we look at it and when our customers are looking at it, there's clearly still room for growth. This, for us, is a very strategic long-term investment.

And then we also have to your point big filling locations going into the southwest.

Of the United States, including loan as you know that is actually not incremental sales volume to the U S. But it has achieved a replacement.

Volumes that were being produced in Europe. So we also have to take that into account when you consider the COO.

Capacity going in so.

So yes, I think when we look at it and when our customers are looking at it is clearly still room for growth. This for US is a very strategic long term investments. If you look at our geographic footprint. We don't have a southwest location, we only have five field on the west coast.

Oliver Graham: If you look at our geographic footprint, we don't have a Southwest location, we only have Fairfield on the West Coast, and so we see this as a very long-term play in the market, not just a short-term reaction.

So we see this as a very long term play.

In the market not just a short term reaction.

George Staphos: And so, Ali, you won't give us capacity on these for the time being. Would that be fair?

And so all of you.

Won't give us capacity on these for the time being would that be fair.

No that is by the way we have it anchored with enough customer volume and enough contracts to know that we can announce but we're still going through some conversations to detail out the final.

Oliver Graham: No, that is fair. We have it anchored, you know, with enough customer volume and enough contracts to know that we can announce, but we're still going through some conversations to detail out the final volumes, capacity, and investment.

Volumes capacity and investment.

George Staphos: My last question. You know, hard seltzers are now about 5% of your mix in North America. Recognizing this is not scalpel-like precision, I think prior quarters, you said it's been 10% to 15%. So would that suggest hard seltzers in the quarter were down, you know, multiple tens in terms of percentage points of volume declines, or was it a less negative effect in the quarter in terms of volume shipment declines? Thank you, and I'll turn it over.

My last question Hartzell throughs are now about 5% of your mix in North America.

Recognizing this is not scalpel like precision I think prior.

Prior quarters, you said, it's been 10% to 15%.

That suggests hard filters in the quarter were down.

Multiple tens in terms of percentage points of our volume declines or was it a less negative effect in the quarter in terms of volume declines.

Declines thank you I'll turn it over.

Oliver Graham: Thanks, George. Yeah, so look, obviously, there was a correction in hard seltzers in Q3. It's very public, it, you know, out there about the inventory build that took place, and therefore the reduction in fresh production that was needed. We'd expect it to trend back into the historic norm once that inventory is flushed through the system. I think we said it in the remarks. I think, you know, hard seltzer continues to be a great segment. You know, if you look at what our customers have done to build that segment, it's been an extraordinary story. And once this phase is over, I think both the big two have made some pretty compelling arguments for why there should be growth in the years ahead, clearly not at the levels it's at now.

Thanks, Joe.

Obviously, there was a correction in hard Seltzer is in Q3, it's very public out there about the inventory build that took place.

And therefore, the reduction in fresh production as needed.

We'd expect it to trend back into the historic norm once that inventory is flushed through the system I think we said it in the remarks I think hard seltzer continues to be a great.

Segment.

If you look at what our customers have done to build that segment has been an extraordinary story.

And once this phase is over I think both the big two have made some pretty compelling arguments for why there should be growth in the years ahead clearly not at the levels. It's at now so so we we never bet the growth plan on hard Seltzer.

Oliver Graham: So, we, you know, we never bet the growth plan on hard seltzers. We've always been a very diversified play, both in North America and obviously in the other two regions. We expect some growth in that segment going forward, once the inventory is washed through. I think it's clear the category got pretty complicated this year for the consumer, and I think the analogy has been made with the energy category that went through a similar kind of high growth, then over complication, lower growth, and then returned to growth once it simplified and clarified for the consumer. So I think it's fair to expect something similar to happen with hard seltzers.

We've always been a very diversified play both in North America, and obviously in the other two regions, we expect some growth in that.

Going forward once the inventories washed through.

I think it's clear the category got pretty complicated this year for the consumer.

I think the analogy is being made with the energy category that went through a similar kind of high growth than over complication.

Lower growth and then returned to growth once it simplified and clarified to the consumers. So I think it's fair to expect something similar to happen with heartfelt.

George Staphos: That's very helpful. Thank you, Ali.

That's very helpful. Thank you Ali.

Oliver Graham: Thanks, George.

Thanks, Doug.

Operator: Well, the next to Michael Leithead with Barclays.

We'll go next to Mike <unk> with Barclays.

Michael Leithead: Great. Thanks, guys. Congrats. I wanted to pick up or follow on to the North America discussion. I guess, first, can you just talk about your ability or flexibility to pivot some of those sales away from hard seltzers, like you talked about? Do you simply find other customers to buy those cans? Are the hard seltzer customers having to pay some sort of recourse for not hitting projected levels? And secondly, just the broader question of, I appreciate hard seltzer is only a small piece of the pie, but does this alter at all how you think about further investment in the US?

Mike Leithead: Great. Thanks, guys. Congrats. I wanted to pick up or follow on to the North America discussion. I guess, first, can you just talk about your ability or flexibility to pivot some of those sales away from hard seltzers, like you talked about? Do you simply find other customers to buy those cans? Are the hard seltzer customers having to pay some sort of recourse for not hitting projected levels? And secondly, just the broader question of, I appreciate hard seltzer is only a small piece of the pie, but does this alter at all how you think about further investment in the US?

Great Thanks, guys and congrats.

I wanted to pick up or a follow on to the North American discussion I guess first can you just talk about your ability or flexibility to pivot some of those sales away from hard Seltzer is like you talked about do you simply find other customers to buy those scans are the hard seltzer customers, having to pay some sort of recourse for not hitting projected levels.

Secondly, just a broader question I appreciate hard Seltzer is only a small piece of the pie.

Does this alter at all how you think about further investment in the U S. I know youre going to say you still find the market attractive since you announced the new plant, but just given the market may have overestimated itself. There is a bit here that we didn't expect to say one or two quarters ago does it give you any pause or any need for added risk buffers for uncertainties.

Michael Leithead: I know you're gonna say you still find the market attractive since you announced the new plant, but just given the market may have overestimated seltzers a bit here that we didn't expect, say, 1, 2 quarters ago, does it give you any pause or any need for added risk buffers for uncertainties as you're investing for growth projections 2, 3 years out here?

Mike Leithead: I know you're gonna say you still find the market attractive since you announced the new plant, but just given the market may have overestimated seltzers a bit here that we didn't expect, say, 1, 2 quarters ago, does it give you any pause or any need for added risk buffers for uncertainties as you're investing for growth projections 2, 3 years out here?

Youre investing for growth projections to three years out here.

Okay. Thanks, Mike.

Oliver Graham: Yeah. Thanks, Mike. So just the last part of your question first. I think one thing that's happened in the 12 months since we first put our growth plan together, has been the strengthening of forecast by other customers, you know, outside the hard seltzer space. And, you know, I'd remind everybody that, you know, CSD is 10 times the size of the hard seltzer category. So, you know, 10% in hard seltzers is 1% growth in CSD, and some of the big CSD customers are predicting, you know, significantly more than that now. So, I do think it's important, you know, that overall, the market has strengthened in terms of their forecast for the out years, underpinned by the mega trends that we talked about in our investor communications.

So just the last part of your question first I think one thing Thats happened in the 12 months since we first put our growth plan together has been a strengthening of <unk>.

Forecast by other customers.

Outside the hotel space.

I would remind everybody that.

CST is 10 times the size of the hard Seltzer category. So.

10% in the hotels is a 1% growth in CSD and some of the big CSD customers are predicting significantly more than that now so.

It's important.

Overall, the market has strengthened in terms of that forecast is underpinned by the Mega trends that we talked about in our Investor Communications, So that will be.

Oliver Graham: So that'll be sustainability, you know, the issues on plastics. That's also portion size control, smaller portion size favoring the cans. It's the image of the can and the way it's been associated with certain categories. So I think, you know, I think that's a very important part of the story, that as we said all along, I mean, we like the hard seltzer category. We've got some fantastic customers there, but we never, you know, bet the growth plan on that. And so when we look forward in North America with the projections that we've got, and we're not at the higher end of the market projections in terms of growth, we still see significant gaps of capacity in it. It is worth remembering how many cans are getting shipped in empty from all over the world this year.

Sustainability issues on plastics, that's also a portion size control.

Smaller portion sized favoring the cans, it's the image of the can and the way it's being associated with certain categories. So I think.

That's a very important part of the story.

We said all along I mean.

We like the hard Seltzer category, we've got some fantastic customers that but we never.

The growth plan on that and so when were looking toward in North America with the projections that we've got and we're not at.

And at the higher end of the market projections in terms of growth, we still see significant gaps of capacity in it. It is worth remembering how many cans are getting shipped to an empty.

I'm all over the world this year.

Oliver Graham: You know, I think one of our peers predicted it could be 13 or 14 billion cans by the end of the year, and that is an extraordinary amount of very uneconomic and very unsustainable cans to come into the US. So the first thing that has to happen is we have to put that domestic capacity in place, and then we have to put capacity in to service the growth in the market. So as I say, all our modeling and the many other categories is in, we're in, and when we look at the capacity that's been announced, we think there's still certainly space. I think we noted, you know, this, the facility in the Southwest will come up during 2024. We will phase it with demand. So it's a very, I think, appropriate-... We scale the investment to the market conditions.

One of our peers predicted it could be 13 or 14 billion cans.

By the end of the year and that is an extraordinary amount of very uneconomic and very unsustainable cans to be coming to the U S. So the first thing that has to happen is we have to put that domestic capacity in place and then we have to book passed in to service the growth in the market. So.

As a sale of our modeling and many other categories within we're in.

And when we look at the capacity that's been announced we think there's still certainly space I think we noted.

The facility in the southwest will come up during 2024, we will phase it with demand. So it's a very I think appropriate.

<unk> scaled investment to the market conditions.

Michael Leithead: Great. That's helpful. And then just on CapEx, I think in some of the previous documents, you talked about $900 million spending this year on CapEx. It looks like the last few quarters you're running at something like $500, $600 million annualized run rate. So can you just update us on the CapEx spending trajectory? And then in the medium term, would the new plants today be additive to the 2022 and 2023 CapEx provided in some of the earlier documents, or was that already contemplated with some of the projections you have out there? Thank you.

Mike Leithead: Great. That's helpful. And then just on CapEx, I think in some of the previous documents, you talked about $900 million spending this year on CapEx. It looks like the last few quarters you're running at something like $500, $600 million annualized run rate. So can you just update us on the CapEx spending trajectory? And then in the medium term, would the new plants today be additive to the 2022 and 2023 CapEx provided in some of the earlier documents, or was that already contemplated with some of the projections you have out there? Thank you.

Great. That's helpful. And then just on Capex I think in some of the previous documents you talked about $900 million spending this year on capex. It looks like the last few quarters you are running at something like 500 $600 million annualized run rate. So can you just update us on the Capex.

Spending trajectory and then in the medium term with the new plant that would be additive to the 'twenty two 'twenty three capex provided in some of the earlier documents or was that already contemplated.

With some of the projections you have out there. Thank you.

Yes, no that is additive to that 'twenty two 'twenty three.

Oliver Graham: Yeah, no, that is additive to the 22 and 23 guidance we gave in the investor communications during the SPAC process. It is contained within the communication we made in that process, that we were discussing projects, you know, further projects of up to $1.4 billion of capital. It was signaled, but we signaled that we were having customer conversations that would lead eventually to further announcements. It is additive to the specific numbers in the documents. I think I'll pass to David in a second. Yeah, we're running slightly behind on the CapEx, it's mainly just cash flow management and a few delays on certain pieces. It's not materially impacting our overall project progress. I'll just ask David to comment on that.

Guidance, we gave in the Investor communications during the spot prices, but it is contained within the communications. We made in that process that we were discussing projects.

The projects.

One 4 billion of capital. So it was signals, but we I think we signaled that we were having customer conversations that would lead eventually to to further announcements, but it is additive to the specific numbers.

In the in the documents.

And then I think I'll pass to David in the second, but yes were running slightly behind on the Capex, but it's mainly just cash flow management and a few delays.

Certain pieces, but it's not materially impacting our overall project progress, but I'll just ask David to comment on that.

David Bourne: Yeah. So I guess your 0.9 figure takes in 0.1 of maintenance CapEx, where actually we're running slightly better than expectations, which is very pleasing. On our business growth investments, we had a $0.8 billion number in the market. That was always a rounded up position we think will come in at 0.7, which will be a rounded down position. What we have done is transfer some of what would have been CapEx cash flow into leasing arrangements. So you'll see our lease additions year to date at $89 million. And so we're just, you know, making sure we've got efficient finance structures around the business growth investment that we're putting in.

Yes.

Nine figure it takes in 0.1 of maintenance Capex, we're actually we're running slightly better than expectations, which is very pleasing.

Business growth investments, we had a point billion number in the market that was always around adult position, we think will come in.

Kevin.

Be it rounded down position.

What we have done is transfer some of what would have been capex cash play.

Leasing arrangements. So you will see on lease additions yes.

Year to date to $89 million.

Sorry, we're just making sure we could efficiently financed structures around the business great investments that we're putting in.

Michael Leithead: Great. Thank you.

Mike Leithead: Great. Thank you.

Great. Thank you.

Oliver Graham: Thanks, Mike.

Thanks, Mike.

Operator: We'll go next to Kyle White with Deutsche Bank.

We'll go next to Kyle White with Deutsche Bank.

Kyle White: Hey, thanks for taking the question. I wanted to just talk about the supply chain and just see how overall the pressure points you may be feeling. Is the supply chain having any impact on customers meeting demand or your ability to bring up the capacity on time?

Hey, Thanks for taking the question I wanted to just talk about the supply chain and to see how overall the pressure points you may be feeling.

As the supply chain, having any impact on customers meeting demand or your ability to bring up the capacity on time.

Oliver Graham: Hi, Kyle. Yeah, no, great question. It's definitely putting pressure on our, on our teams and our customers. So you've, you'll have seen, you know, in the UK, we had freight shortages that meant our customers were struggling to get products to, to the supermarkets, which, you know, we think is part of what happened to us in the UK in this quarter. Other than that, I don't think it's significantly affecting the sales line. On the project line, we do have sort of bumps, you know, from parts that don't show up, that you'd have always expected to show up. But when we take it in the round, you know, as we said in the remarks, the projects remain materially on track, and they're not changing our, our view of 2022 or the track through to 2024.

Great question.

It's definitely putting pressure on our on our teams and our customers.

And so you will have seen in the U K, we have trade shortages that our customers are struggling to get product to the supermarkets, which we think is part of what happened to us in the UK in this quarter.

Other than that I don't think its.

The affecting the sales line on the project line, we do have sort of bumps.

The parts that don't show up that you would always expect it to show up but when we take it in the round as we said in the remarks the projects remain materially on track.

And I'm not changing our view of 2022 or two to 2024.

And if I could just follow up given the labor situation in labor availability should should investors expect maybe I know you've done a lot to derisk, the capacity additions and bringing them online or existing facilities, but should we expect maybe a slower ramping of the new additions just given the labor environment there.

Kyle White: If I could just follow up, given just a labor situation and labor availability, should investors expect maybe a slower ramping of the new additions, just given the labor environment there? I know you've done a lot to de-risk the capacity additions and bringing them online at existing facilities, but should we expect maybe a slower ramping of the new additions, just given the labor environment there?

Oliver Graham: Yeah, not with us. I think that, you know, to the extent we have any minor delays in ramp up, it's not due to labor. You know, I think we, and the industry generally, has got ahead of it significantly on these projects in the last few years, and we've certainly front loaded it. So, no, we don't see any ramp-up delays on our side because of labor.

Yes.

I think to the extent they have any.

Minor delays in ramp up is not is not G to labor.

I think we and the industry generally has got ahead of it.

Significantly on these projects in the last few years.

We've certainly from noted it so so no we don't see any ramp up delays on our side because of labor.

Kyle White: Got it. And just following up on kind of the supply chain overall, can you just provide any details regarding the magnesium situation? I know it's very dynamic and fluid, but what are you hearing from your can sheet suppliers on this? How big of a concern is this for you for next year, and what are you doing to try to manage the situation right now?

And just following up on kind of the supply chain. Overall can you just provide any details regarding the magnesium situation I know, it's very dynamic and fluid, but what are you hearing from your suppliers on this how big of a concern is it for you for next year. What are you doing to try to manage the situation right now.

Oliver Graham: Yeah, I think the messages that came out in the market the last week or two, you know, we're broadly aligned with those. So it's more of an issue for ends, a metal and can sheet, because of the recycled content in the can and the different alloys. It's probably more of an issue in Europe than North America, but nevertheless, it is clearly a significant issue. We think we're fine on availability, you know, talking to our suppliers through the end of the year and into next quarter. But then, you know, clearly the situation needs to be monitored very carefully, and we're doing that with our suppliers. It is leading to significant cost spikes, which we're talking to both our suppliers and our customers about, as those are, you know, pretty extreme.

Yes the.

The messages that came out in the market the last week or two broadly aligned with those so it's more of an issue for Ns and metal and Ken.

Sheet because of the recycled content in Mccann and the different alloys.

More of an issue Europe in Europe, and North America, but nevertheless, it is clearly a significant issue.

We think we're fine on availability talking to our suppliers through the end of the year and into next quarter.

But then clearly the situation needs to.

We monitored very carefully and.

And we're doing that with our suppliers.

It is leading to significant cost spikes.

Which we're talking to both our suppliers on our customers about.

As those are pretty extreme.

Oliver Graham: So yeah, we're monitoring the situation day to day. At the moment, we don't see a reason to call it as a significant availability or operational issue, but it's certainly got some cost issues in it.

So yes, we're monitoring the situation day to day at the moment, we don't see a reason to call it.

The significant availability operational issue, but it certainly got some cost issues in it.

Kyle White: Got it. Appreciate all the details.

Got it I appreciate all the details.

Oliver Graham: Thanks, Kyle.

Thanks, Ken.

Operator: We'll go next to Mark Wilde with Bank of Montreal.

We will go next to Mark Willoughby with Bank Bank of Montreal.

Mark Wilde: Good morning, Ali.

Good morning Ali.

Oliver Graham: Hi, Mark.

Hi, Mark.

Mark Wilde: Just coming back on these two new plants, is it safe to assume that they were not embedded in that 68 billion unit target that you'd put out there for 2024?

Just coming back on these two new plants as it.

Mark Wilde: Just coming back on these two new plants, is it safe to assume that they were not embedded in that 68 billion unit target that you'd put out there for 2024?

Is it safe to assume that they were not embedded in that 68 billion unit target that you put out there for 2024.

Yes, good question either additive to that.

Oliver Graham: Yeah, good question.

Mark Wilde: They were added into that?

Not completely actually so.

Oliver Graham: Not completely, actually. So, the UK plant is replacing some capacity that we had already planned in the UK in an existing facility. So that is not completely additive. And, you know, we'll be able to give more detail, obviously, when we give the specific announcement. The Southwest plant is additive to the US capacity build.

The UK plan is replacing.

Some capacity that we had already planned in the U K in an existing facility. So that is not completely additive.

We'll be able to give more detail obviously, when we give the specific announcements the southwest plant is additive to the U S capacity build.

Mark Wilde: Okay. And then also on the capital side, can you talk a little bit about, you know, some, sounds like some modest delays in timing. You know, any thoughts on just, changes in capital costs over the last couple of years in terms of adding new capacity?

Okay.

Also on the capital side can you talk a little bit about some it sounds like some modest delays in timing.

Thoughts on just.

Changes in capital cost over the last couple of years in terms of adding new capacity.

And yes, I mean there.

Oliver Graham: Yeah, I mean, there is some inflation in, obviously in steel and in concrete, you know, which we'll need to take into account on these new projects. You know, fortunately, we were well through the contracting and planning through the back end of last year and the early part of this year for our existing project portfolio. So we see much less impact there. But, but yeah, there clearly is some inflation on, on some of the underlying costs for the new project. They don't change the fact that they're still very, very free cash flow accretive and value, very value creating. So, you know, the paybacks are still extremely attractive. But, but nevertheless, there is some additional cost, it's fair to say.

There is some inflation and obviously in steel and concrete.

Which will need to take into account.

On these new projects.

<unk>.

Well through the contracting and planning.

Through the backend of last year and the early part of this year for our existing project portfolio. So we see much less impact there.

But yet there clearly is some inflation on.

Some of the underlying costs.

For the new project that doesn't change the fact that the.

Still very very free cash flow accretive and value very value, creating so.

The paybacks are still extremely attractive.

But nevertheless, there is some additional cost.

Thanks.

Mark Wilde: Okay. Can you give us any kind of just early color on the efforts that you flagged that serve small and medium-sized customers?

Okay.

US any kind of just early color.

The efforts that you flagged to serve small and medium sized customers.

Oliver Graham: Yeah, look, I think this is all about making sure that we can serve short runs, you know, with metal packaging. So, you know, it's a variety of initiatives, but one in particular that we hope to announce soon to meet the needs of either start-ups or big customers who just want to run trials, you know, and test things out in the market. Because, you know, we have built these lines for super efficiency. We've had to do that for our customers to meet their efficiency, and cost, and price targets. And that doesn't suit very well when you're trying to do small runs and, you know, start-ups and trial volumes. So that's what we're looking into. And as I say, we've got a range of initiatives there, but we've got one that we hope to announce very soon.

Yes look I think.

This is all about making sure that we can serve short runs.

With metal packaging, so it's a variety.

Variety of initiatives, but one in particular that we hope to announce soon.

To meet the needs of either startups or big customers, who just wants to run the trials.

And test things out in the market because.

We have built these lines the super efficiency, we have to do that for our customers to meet their efficiency and cost and price targets.

And that doesn't suit very well when you are trying to small runs and startups and trial trial volumes. So that's what we're looking into and as I say, we've got a range of initiatives that we've got one that we hope to announce very soon.

Is it possible that.

Mark Wilde: Is it possible, Ollie, that, you know, some of this might involve kind of a shift from traditional kind of printing technologies to, you know, perhaps more digital print in the beverage can market?

Some of this might involve kind of a shift from traditional kind of printing technologies.

Perhaps more digital print in the beverage can market.

I mean, you do see trends in that direction Mark.

Oliver Graham: I mean, you do see trends in that direction, Mark, so I think, you know, that's an interesting point. You know, it is obviously the printer that is causing some of these issues in terms of run length. So it's a range of things, and yeah, we'll be announcing very soon.

It's an interesting point.

And it is obviously the printer that is causing some of these issues in terms of online so.

The range of things and yes, we will be announcing very soon.

Mark Wilde: Okay. All right, and just finally, for me, just one more on this hard seltzer issue. Do you have some sense of the contribution of the hard seltzer category to sort of the overall North American volume growth over the last two or three years?

Okay, Alright, and then just finally for me just one more on this hard Seltzer issue do you have some sense of the contribution the hard Seltzer category is sort of the overall north American volume growth over the last two or three years.

Oliver Graham: I think the figure we had at Q2 was it 190% growth of hard seltzers, July 4, 2019 to July 4, 2021. But that was probably off a base of, you know, pretty small base, right? $1-2 billion. And I think we're measuring it around the $6 billion this year. So I think it's not, if you think that the market's gone from something like $100 to $120 billion, even less than $100, probably $97 to $120 billion, you can see that it's a key part. It's, as I said, in my remarks, I think, you know, it's a great category. We like it. We think there's amazing customers that have done, you know, some fantastic innovation there.

And I think the thing that we had a key to us.

Was it a 190% growth of hard Seltzer is.

July four 2019 to July for 2021.

But that was probably off a base of a pretty small base right one 2 billion.

So nothing we're measuring it around the six this year.

It's not if you think that the market has gone from something like $100 billion to $120 billion.

Even less than $100 97 to 120 billion you can see that it's a key a key part as I said in my remarks, I think it's a great category, we like it.

Amazing customers.

Some fantastic innovation that but when you look at the total market.

Oliver Graham: But when you look at the total market, the other growth is also very significant. And the latent filling capacity that is out there for cans, with these trends that are driving pack mix shifts, you know, that gives us a very, you know, significant tailwind for the beverage can. And that's what our growth plan is built around, is the diversity of end markets that are all in growth in beverage cans.

The other growth is also very significant on the latent filling capacity that is out there the cans with these trends that are driving pack.

Pack mix shifts that gives us a very.

And a significant tailwind for the beverage can and Thats what our growth plan is built around is the diversity of end markets that are all in growth in beverage cans.

Mark Wilde: Okay, that's really helpful, Ollie. I'll turn it over. Thank you.

Okay. That's really helpful Ali I'll turn it over thank you.

Oliver Graham: Thanks, Mark.

Thanks Mark.

Operator: We'll go next to Arun Viswanathan with RBC Capital Markets.

We will go next to Irene the Swanson with RBC capital markets.

Arun Viswanathan: Great. Thanks for taking my question. Good morning, Oliver. I guess, you know, so back to the magnesium question, I guess I wanted to get a little bit more details on. You know, you noted that the pressure is likely more in Europe. And you also noted kind of, you know, sufficient supplies through the end of the year and into next quarter. I guess that comment on sufficient supplies, is that a regional comment? How would you kind of comment on magnesium supply as it relates to North America, you know, Brazil, and Europe, your major regions?

Great. Thanks for taking my question good morning Oliver.

I guess, so back to the magnesium question I guess I wanted to get a little bit more details on and you noted that the pressures likely more in Europe.

And you also noted kind of a sufficient supplies through the end of the year and into next quarter.

Yes.

That comment on sufficient supplies is that a is that a regional comment how would you kind of comment on.

Agnathia supply as it relates to North America, Brazil, and Europe here at your major regions, Yes that was that just sort of a global comment.

Oliver Graham: Yeah, that was actually sort of a global comment. You know, it's less of an issue in Brazil at this point. So that was really referencing both North America and Europe. You know, we're in very close contact with our suppliers on this. The situation is extremely dynamic, as I think you know, as referenced in the other calls and notes that have come out the last two weeks. You know, we see some green shoots of improvement, but we can't call it yet, I think, to be absolutely sure. So yeah, that's about where we are at the moment. We're monitoring it every day. The supply base are very much focused on it. We're looking into alternative sources with them, of which there are some.

It's an issue.

In Brazil at this point, so that was really referencing both North America and Europe.

We are in very close contact with our suppliers on this that.

The situation is extremely dynamic is I think it was <unk>.

Referenced in the other in the other calls and notes that have come out of the last two weeks and we see some green shoots of improvement that we can call. It yet I think to be absolutely sure. So yes, that's about where we are at the moment, we're monitoring it every day.

The supply base are very much focused on it we're looking into alternative sources with them.

Of which there are some <unk>.

Oliver Graham: And as I say, I think it's a bit easier in North America, as referenced in the other calls and notes. There is domestic supply. So yeah, that was the context of my comment.

I think it's a bit easier in North America as referenced in the other any.

Any other calls and notes there is domestic supply.

So yes that was the context of my comment.

Arun Viswanathan: Great. And then, another question on this. You know, as it relates to pricing, you know, you guys obviously had signed up a number of contracts, as you referred to, on a long-term basis, as you were building out some of the greenfield, brownfield additions and, you know, extending your current contracts, I would imagine that they had assumptions in there for various, you know, items. Were there assumptions in there as well for magnesium, or is that a pure pass-through? Or how should we think about that? You noted significant cost pressure, so, you know, should we expect the cost of a can to go up significantly, and that potentially to impact demand in, you know, late 2022, or, you know, into 2023?

Great and then.

Another question on this.

As it relates to pricing.

You guys, obviously had signed up a number of contracts as you referred to on a long term basis. As you were building out some of the ground brownfield additions and.

Extending your current contracts I would imagine that they had assumptions in there for various.

You know items, where there are assumptions in there as well for magnesium or is that a pure pass through or how should we think about that you noted significant cost pressures so should.

Should we expect the cost of a can.

Go up significantly and that potentially to impact demand in 'twenty late 'twenty two or.

In the 23 or what's it going to be the impact if we do see a significant increase in cost as it relates to magnesium.

Arun Viswanathan: Or what's gonna be the impact if we do see a significant increase in costs as it relates to magnesium?

Yes, I don't think it's at the level, where youre going to hit consumer spending and especially when you think we've already had.

Oliver Graham: Yeah, I don't think it's at the level where you're gonna hit consumer spending, and especially when you think we've already had significant rises in LME and Midwest Premium, which are very material, you know, in the eventual can price through to the consumer. And we've certainly seen our customers, you know, can has been commented on putting some of those into the market. So I don't think it's magnesium that's driving or going to drive, you know, significant changes in the can price at retail. I just think within the context of our supply chain, it, you know, there's some pretty big numbers, if it carries on playing out the way it's currently playing out. And that would be a conversation that we'd have to have with suppliers and customers.

Significant rises in <unk> and Midwest premium.

Which are very material.

In the eventual comprise three to the consumer.

And we've certainly seen our customers.

As been commented on putting some of those into the market. So I don't think its mcnees him, that's driving we're going to drive significant changes in Mccann price at retail.

Within the context of our supply chain, there's some pretty big numbers.

Paragon playing out the way. It is currently playing out and that would be a conversation that would have to have the supplies and customers.

Oliver Graham: You know, I can't go into the details of contracts on the call, but we'd need to have conversations both ways.

Go into the details of contracts on the call that would need to have conversations both ways.

Arun Viswanathan: Just last one on this topic. You know, there's been significant innovation on sizes and just curious if there's any thought of alternative alternatives to, you know, 3004 alloys or whatever it may be, to reduce the consumption of magnesium. Is there any other material that would make sense to consider, just given the, you know, the concentration of supply coming out of China?

And just last one on this topic.

You know theres been significant innovation on sizes.

I'm just curious if there's if there's any thought of alternative alternatives to 3004 alloys or whatever it may be to reduce the consumption of magnesium is there any other material that would make sense to consider just just given that that's the.

The concentration of supply coming out of China.

Oliver Graham: Yeah, not that I'm aware of. I mean, there are discussions like that about recycled content into ends, and whether different alloys could be used, but it's extremely complicated, and obviously, the end is a critical component for the safety and functioning of the cans. You can't mess with it too much. So no, I don't think so, and it's not like magnesium is a scarce, you know, material, right, on the planet. It just happens to get very concentrated into supply from China, which now looks like a strategic mistake. So I don't see this as a long-term issue for the can.

Yes.

I'm aware of I mean, they're all discussions like that about recycled content into ends.

Are there different alloys could be used but it's extremely complicated and obviously the end is a critical component.

For the safety and functioning of the kenzie comp mess with it too.

Too much and so no I don't think so and it's not like magnesium is scarce.

Material right on the planet It just happened to get very concentrated into supply from China, which now that's not a strategic mistake. So so I don't see this as a long term issue for Ken.

And then just on the market in general So you referred to a resumption of growth in the CSD market.

Arun Viswanathan: Then, just on the market in general, so you referred to a resumption of growth in the CSD market, and maybe some other categories as well, new categories, which are potentially offsetting some of the moderation in hard seltzers. Or even, you know, more than offsetting, especially given the size of the CSD market. What would you kind of, you know, comment on as far as some of these shifts? Are they structural or not? Are you hearing from your customers that CSD is something that in cans is that something that they're willing to bet on? We're just curious because, you know, it seemed like their profitability in PET and other areas was a little bit higher.

And maybe some other categories as well new categories, which are which are potentially offsetting some of the moderation in hard seltzer.

Or even.

More than offsetting especially given the size of the CSD market.

What would you kind of.

Comment on as far as some of these shifts are they structural or not are you hearing from your customers that CST is something that in cans is that something that they're willing to bet on them, but just curious.

Because you know it seemed like their profitability and <unk> and other areas was a little bit higher.

Arun Viswanathan: Has that changed, you know, maybe because of a function of the multi-pack or, you know, price increases or whatever, but yeah. Would you say that some of this growth that you're seeing materialize in the last 6 to 12 months as being more structural, or is that transitory?

Has that changed.

Maybe because of a function of the multi pack or price increases or whatever but yeah.

Would you say that some of this growth that youre seeing materialize in the last six to 12 months as being more structural or is that transitory.

I think it's very structured so I think Kevin.

Oliver Graham: I think it's very structural. So I think, and then this piece about PET profitability, I think, was a very North American phenomenon. You know, it wasn't necessarily true in other markets, that it was that much more profitable, for our customers. Because I think it depends a lot on the way they priced it at retail, and what promotional strategies they were pursuing, and also the investments they'd made in PET blow molding and other assets in their line. So I think that the recognition that cans are a critical part of their pack mix and sustainability story going forward, and also, you know, working with consumers, means that they can start to change the way that they price at retail. And some of this was already happening pre-sustainability with the portion size pressures.

And then the piece about PT profitability I think it was.

Very north American phenomenon.

And it wasn't necessarily true in other markets that it was that much more profitable.

For our customers.

Because I think it depends a lot on the way they priced it at retail and promotional strategies that we're pursuing and also the investments they've made in PT.

Pro forming and other assets in the line. So I think that the recognition that cans are a critical part of their patent aches and sustainability story going forward and also working with consumers means that they can start to change the way that they price at retail and some of this was already happening pre sustainability with the Porsche.

<unk> size pressures. So we started to see that smaller can sizes were coming to market in CSD and the counties is advantaged versus BT when the when the the <unk> drops propulsion so.

Oliver Graham: So we started to see that smaller can sizes were coming to market in CSDs and, you know, the can is advantage versus PET when the literage drops per portion. So we'd already started to see that, and then they're starting to develop, you know, obviously, consumer strategies around that, that mean that the profitability of those portfolios is very good. So I think it's a very long-term structural shift. I think the filling capacity is there, the latent filling capacity, so that's available for this. And certainly, you know, to your question, they're absolutely coming to us with very strong forecasts and with a lot of confidence in the future of the can in their categories.

We had already started to see that and then theyre starting to develop obviously consumer strategies around that that means that the profitability of those portfolios is very good. So I think it's a very long term structural shift I think assuming capacity is there.

The latest filling capacity that's available for this.

And certainly to your question there absolutely coming to us with very strong forecast and with a lot of confidence in the future of the can in their categories.

Oliver Graham: And it does go beyond, you know, traditional CSD as well into the sorts of products you're seeing in the energy space, the sparkling water, mixed drinks, and the RTD cocktails, very strong at the moment. So, and, you know, wine in cans, we're very excited about. We're doing a lot of that in Europe already. And, you know, all of that without talking about still water, which, you know, is still out there, and we have a strong belief will come into cans. So yeah, it's a broad-based movement, and I think it's, it's very structural, not transitory.

And it does go beyond traditional CSD as well into the sorts of products you are seeing in the energy space the sparkling water maker strengths.

Cocktails very strong at the moment.

So wining cans, we're very excited about we're doing a lot of that in Europe already.

All of that without talking about still water, which is still out there and we have a strong belief will come into cans. So yes, it's a broad based movement and I think it's very structural not transitory.

Arun Viswanathan: Great. And then just last one for me. I appreciate the updated guidance for 2021. I was just curious on your comment about Europe. You know, you do have some capacity coming on there. You're constrained right now, but, you know, I think the perception is that North American growth is kind of mid-single digits for the next, you know, couple years. Would you, would you characterize Europe as similar to that or better or worse? Has it, has it incrementally gotten better in the last, you know, six months or so? You know, what would you say about Europe's kind of midterm growth prospects for you?

Great and then just last one for me.

I appreciate the updated guidance for 'twenty one.

Just curious on your comment about Europe.

You do have some capacity coming on there are you constrained right now but.

I think the perception is that north American growth as kind of mid single digits for the next.

Couple of years would you would you characterize Europe is similar to that or better or worse has it has incrementally gotten better in Alaska.

Six months or so.

What would you say about Europe's kind of midterm growth prospects for Ya.

Oliver Graham: ... Sure. Yeah, so I mean, Europe's always been growth, a growth market, with a combination of some liquid growth, particularly energy drinks and pack mix shifts. And it's got a lot of new category innovation, so it's always been good growth. And then, you know, we've communicated that we see it around the mid-single digits. It has been higher than that in some years recently, and I think that view is shared, you know, pretty widely, by commentators. I think in the last six months, we did see, and we'd always signaled that the UK in particular, did have a bit of a COVID bump in 2020, positive bump. And that did unwind in Q3, and you'll have seen with the Heineken results that they signaled that across, you know, a number of markets in Northern Europe.

Sure Yeah. So in Europe, though has been growth a growth market.

With a combination of some liquid growth, particularly energy drinks on patent mix shifts.

And it's got a lot of new category innovation. So it's always been good growth and then we've communicated that we stay at around the mid single digits.

Has been higher than that in some years recently.

I think that view is Chad pretty widely.

Commentators.

I think in the last six months, we did see I mean, it always signaled that the UK in particular, it did have a bit of a COVID-19 bump in 2020 positive bump.

And that did online in Q3, and you have seen with the Heineken results.

<unk> signaled that across a number of markets in northern Europe. So.

Oliver Graham: So, I think it, you know, the market as a whole didn't get better in the last six months. But if I take the market as a whole, looking from 2019 to 2021, it definitely strengthened. And again, looking forward, I think the sustainability credentials of the can and its relevance for certain key growth categories mean that we're very positive about Europe growth prospects.

So I think the market as a whole didn't get better in the last six months, but if I take the market as a whole.

Looking from 2019 to 2021, it definitely strengthened and again looking forward I think the sustainability credentials that can and its relevance with certain key growth categories mean that were very positive about about your growth prospects.

Mark Wilde: Great. Thank you.

Arun Viswanathan: Great. Thank you.

Great. Thank you.

Oliver Graham: Pleasure. Thanks, Arun.

Pleasure Thanks, Tom.

Operator: The next to Gabe Hajde with Wells Fargo.

We will go next to Gabe <unk> with Wells Fargo.

Operator: The next to Gabe Hajde with Wells Fargo.

Gabe Hajde: Hi, good morning. Thanks for taking the questions. I guess-

Oh, Hey, good morning, Thanks for taking the question.

I guess I wanted to hone in on a couple of topics and sorry to belabor the point, but.

Oliver Graham: Thank you.

Gabe Hajde: I wanted to hone in on a couple of topics, and sorry to belabor the point, but I guess maybe we'll start with Europe. Two-part question. One, can you give us a little bit more detail in terms of the earnings bridge over there? I think you talked about higher production levels helping you and favorable mix, and then obviously shipments were down. And I'm sort of asking in the context of what some others have talked about in terms of obviously pretty material inflation over there. And then two, I thought you were kind of adding a line in an existing UK facility. So to be clear, is that up and running and contributing, and you're still capacity constrained with that addition?

I guess, maybe we'll start with Europe.

Two part question, one can you give us a little bit more detail in terms of the earnings bridge over there I think you talked about.

Higher production levels, helping you and favorable mix and then obviously shipments were down.

I'm sort of asking in the context of what some others have talked about in terms of obviously pretty material inflation over there.

And then two I thought you were kind of adding a line in an existing UK facilities so to be clear.

Is that up and running and contributing.

Gabe Hajde: Or did that not happen, and that's why you're talking about the new factory not necessarily being additive?

No.

Oliver Graham: No. So, so I'll take the second one, and then I'll pass the first one to David. So that line, we have a line coming up in early 2022 in the UK, in our Rugby facility, and that is separate from the new capacity. Now, confusingly, that new capacity is additive to another line we'd planned, not the one that's coming up early in 2022, and so it's not fully incremental. So that's what we meant. And if you remember, in the investor communication we did in the first part of the year, we always had 1+ lines down for the UK. So that did strengthen into 2, and now it's strengthening further. If that makes sense.

I'll take the second one and then I'll pass the first one to David.

So that we have a line coming up in early 2022 in the U K and a rugby facility and that is separate from the new capacity.

I'm not confusing the that new capacity is additive to another line with funds not the one that's coming up early in 2022, and so it's not fully incremental so that's what we meant and if you remember in the Investor communication. We did in the first part of the year, we always had one plus lines down for the U K. So that did strengthen into two and now it's strengthening further.

If that makes sense.

Gabe Hajde: It does.

It does.

Gabe Hajde: It does.

Oliver Graham: Okay, then I'll pass the first question to David, because it's all about, for us, I think.

Okay, then I'll pass the first question today, because it's all about for US $50 I think.

David Bourne: Well, look, I, I guess European earnings for the quarter, you know, were just slightly additive. You've got, on a reported basis, a $3 million movement, but that two million of that is Forex translation. So it's mildly additive, that is caused by decent sales mix. We were lapping a quarter with higher COVID costs in the prior year, so our SGNA variance is positive, and that's part compensating for the volume miss. We do have the IFRS 15 adjustment that increases the contract asset for Europe. So the fact that we continue to run production through the period means that although there was a miss in terms of canned sales volume distributed, that production volume loss was lower than that, and that feeds through to that contract asset.

Well.

I guess European net earnings for the quarter.

Just slightly additive.

On a reported basis or $3 million.

$2 million is Forex translation say, so it's mark <unk>.

That is caused by sales mix.

Lapping a quarter with higher COVID-19 costs in the prior year.

SG&A variance is positive on.

And that's part compensating for the phone even miss.

We do have beyond for S 15 adjustment increases contract asset.

For Europe. So the fact that we continue to run production through the period.

There was a miss in terms of can sales for distributed.

That production volume was lost was lower than that.

On that page through to that contract.

Gabe Hajde: Okay. So that seemingly, the IFRS 15 also helped in the Americas as well, as you guys continued to produce at a certain rate versus what got sold through?

Okay. So that seemingly the ifr 16 also helped in the Americas as well as you guys continue to produce at a certain rate versus what got sold through.

David Bourne: Correct. So if you take the group picture, the balance sheet move on that contract asset was $22 million in total for the quarter.

Correct.

If you take the group picture of the balance sheet move on that contract asset was 22 million and tasteful for the court.

Gabe Hajde: Okay. Thank you for quantifying that for us. I guess the next question, your ability to pivot sales here in North America to other customers. I'm curious if you are willing to share if that did in fact go, if those cans, I guess, were sold to, you know, CPGs with filling capabilities for existing and branded products, or if this was, you know, I don't know how big of a mix you have for distributors, for smaller customers that you may not necessarily have direct relationships with, if you're willing to share that.

Okay. Thanks, Thank you for quantifying that for us.

I guess my next question your ability to pivot sales here in North America to other customers I'm curious if you are willing to share.

If that did in fact go at those cans I guess were sold to <unk>.

Cpg's filling capabilities for existing and branded products or if this was I don't know how big of a mix.

For distributors for smaller customers that you may not necessarily have direct relationships with it if youre willing to share that.

Oliver Graham: I mean, it is both. So we do have very strong co-packer relationships, and they took, you know, a good amount. They've been asking for more, you know, throughout the year and last year, and so we were finally able to fulfill that. And there is very strong growth there, which I think goes to the point we made in the remarks, that there's, you know, a backlog of innovation in the US market that has not been satisfied. And we certainly get a lot of inbound inquiries from people with new products and wanting more cans in order to be able to launch and grow. So that was definitely a part of it, and then it was also branded companies.

It is both so we do have very strong co packer relationships and they took.

A good amount they've been asking for more.

Throughout the year and last year, and so we will find and able to fulfill that.

There is very strong growth, there, which I think.

It goes to the point, we made in the remarks that there is a.

Backlog of innovation in the U S market has not been satisfied and we certainly get a lot of inbound.

Cars from people with new products and.

And one thing more cans in order to be able to launch and grow. So so that was definitely a part of it and then it was also branded Brendan.

Branded companies.

Gabe Hajde: Thanks. Thanks for the clarity there, Ollie. And then I guess the last one for me, the repatriation of cans, and this is something that, you know, we've asked your peers. You know, as these cans that are being imported now, and I appreciate they're not necessarily from yourself, you know, make their way into their market of origin, how does that work into your thinking in terms of your capacity additions? I suspect the answer is, you know, well, they're separate customers, and so, you know, we have contract relationships. But it just seems logical to us that those cans would then be available to those customers in that region and potentially be disruptive. So any thoughts there?

Thanks, Thanks for the clarity there and then I guess the last one.

For me.

The repatriation of cans and this is something that we've asked your peers.

As these cans that are being imported now and I appreciate they're not necessarily from yourself.

Make their way into their <unk>.

A market of origin.

Do you have how does that work.

Work into your thinking in terms of your capacity additions I.

And I suspect the answer is well, they're separate customers and so.

We have contracted relationships, but.

It just seems logical to us that those canceled then be available to those customers in that region and potentially be disrupted so.

Any thoughts there.

Oliver Graham: And Gabe, so to be clear, you mean in terms of where they came from, in that the capacity is then available?

Okay. So to be clear you mean in terms of where they came from.

The capacity is.

Gabe Hajde: Yeah, if we correct.

If we.

Oliver Graham: Yeah.

Gabe Hajde: If we import 13 billion units this year.

Correct, Yes, we import a 13 billion units this year.

Yes does that mean, you're freeing up a lot of capacity in the market and they came from I mean I think the.

Oliver Graham: Yeah. Does that mean you're freeing up a lot of capacity in the markets they came from? I mean, I think our perspective on that, and that we don't have all the details, is that many of those cans are imported from regions outside our core regions. So to the extent that there is available capacity there, when these imports get repatriated, we don't see them as disruptive to our core regions, plus those other regions are still in growth. So, you know, we think that will get soaked up. As I say, we don't have all the data, but that would certainly be our perspective on it when we look at where we hear it's coming from and when we look at those markets.

Perspective on that and we don't have all the all the details is that.

Many of those.

Cans are imported from regions outside coal regions.

So to the extent that there is available capacity the.

When these inputs get repatriation, we don't see them as disruptive to our to our core regions plus those other regions are still in growth. So.

We think that that will get soaked up.

As I say, we don't have all the data that would certainly be opposite on it when we when we look at when we hear its coming from them.

When we look at those markets.

Gabe Hajde: Okay. Thank you. I said it was my last, and I apologize. Anything that you could share with us, you know, the materials that were given as part of the SPAC process in terms of the EBITDA cadence into 2022. Anything you'd have us think about inflation or some of these project delays that might change that as we sit here today?

Okay. Thank you.

Starting with my last one I apologize.

That you could share with us.

<unk> that were given.

As part of the stack process in terms of the the EBITDA cadence.

Into 2022 anything you'd have us think about inflation or.

Or some of these project delays that that might change that as we sit here today.

No just I mean, just in the middle of our budget process, but.

Oliver Graham: No, we're just, I mean, we're just in the middle of our budget process, but, you know, I think when we look at our contract structures, we're pleased with how, you know, the resilience they're giving us. So no, nothing, nothing to change on that as we sit here today, but we obviously are going through the budget process as we speak.

I think when we look at our contract structures, we're pleased with how.

The resilience that giving us.

So no nothing nothing to change on that as we sit here today, but we obviously are going through the budget process as we speak.

Gabe Hajde: Thank you.

Thank you.

Oliver Graham: Thanks, Gabe.

Thanks Curt.

Operator: We'll go next to Roger Spitz with Bank of America.

We'll go next to Roger Spitz with Bank of America.

Roger Spitz: Thanks, very much. First, can you say what the September 2021 amounts for the off-balance sheet receivables, please?

Thanks very much first.

Can you say, what the September 2021 amounts for the off balance sheet receivables. Please.

Okay.

Oliver Graham: Carlos, do you want to-

David Bourne: Yeah, I'll bring that one up, if that's okay. So Supply Chain Factoring, $239, direct factoring $134, so a total of $373, which is about $40 up on June, reflective of the higher LME.

If that's the case so its supply chain factoring since <unk> nine.

Factoring one fleet for a total of three separately, it's about 40 up one gene reflective at the heart of MMA.

Roger Spitz: Perfect. For some, you've given the 2021 CapEx of $900 million, but perhaps you can update anything on the other cash items, like cash taxes had been $50 million last quarter, working capital, kind of neutral, cash transactions, $90 million for 2021. Any update on any of those items?

Perfect.

And for some.

Given the 2020 around Capex.

900.

Perhaps you can update anything on the other cash items.

Cash taxes had been.

50 last quarter working capital kind of neutral cash transactions 90 for 2021 any update on any of those items.

David Bourne: Yeah, look, I would say we're broadly on track with all of those topics, actually, Roger. So, yeah, I'm very comfortable that the guidance we've kind of given up structure all year and initially put out in our plan in February is where we see the free cash flow landing for the full year.

Yes, I would say we're broadly on track with all of those topics absolutely Walter.

I'm very comfortable with the guidance, we've kind of stopped so initially.

Initially put out in our plan in February is where we see the free cash flow lending portfolio.

Roger Spitz: Excellent, and lastly, you spoke about light weighting. Just to be clear, are you speaking about down gauging either the Bevcan body and, or the end tabs?

Okay, and lastly, you spoke about light weighting.

Just to be clear are you speaking about down gauging either.

Jeff can body <unk> and tabs.

Oliver Graham: I mean, we're -- we'll look at all ways of taking metal out of the can. So yeah, we have projects going on can body, on ends, on down gauging, and other, you know, other ways to lighten the can.

Alright.

We will look at all ways of taking that Ken. So, yes, we have projects going on and can fully on ends on.

<unk> and other.

Other ways to lighten the again.

Roger Spitz: Would you... I mean, even for some of the standard cans, I mean, it's probably— CSD is probably tougher to lightweight because of the impact on, you know, on can versus, say, perhaps something like beer. Would you look to have different cans, have different widths, if you will, depending on what it's... and attempt to hold, or is that just too hard to have a lot more SKUs like that?

I mean, even for some of the standard cans is probably CST is probably comparable.

Lightweight because of the.

Impact on on Ken versus say, perhaps something like beer.

Would you look to have different camps have different.

With if you will depending on what it's temporary.

Temporary hold or is that just too hard to have a lot more skus like that.

Yes, I mean, there has been talk about whether we could modify certain elements of the design for different genotypes.

Oliver Graham: Yeah, but I mean, there has been talk about whether we could modify certain elements of the design for different drink types, but up to now, we've, you know, I think you're right, the complexity has outweighed the benefit. But actually, as you go into more still drinks, you know, you could look at some different design parameters. So yeah, we do have some projects on that.

Up to now.

I think youre right the complexity has outweighed the benefit.

But actually as you go into most still drinks.

You could look at some different design parameters. So yes, we do have some projects on that.

Roger Spitz: Thank you very much.

Thank you very much.

Oliver Graham: Pleasure. Thanks, Roger.

Pleasure Thanks Richard.

Operator: We'll go next to Diego Silva with P Squared.

We'll go next to Thiago Silva with P squared.

Gabe Hajde: Hi, thank you very much for taking my question. I have two, actually. The first one is, if you could please comment a bit on the structure of your contracts in Europe, in what regards to pass-through of inflationary of inflation costs. And then the second one is, if you could please comment as well in terms of the impact that the much higher energy prices have on your costing, have on your cost, and in general, how much percent of your costs are related to the energy? Thank you.

Diogo Silva: Hi, thank you very much for taking my question. I have two, actually. The first one is, if you could please comment a bit on the structure of your contracts in Europe, in what regards to pass-through of inflationary of inflation costs. And then the second one is, if you could please comment as well in terms of the impact that the much higher energy prices have on your costing, have on your cost, and in general, how much percent of your costs are related to the energy? Thank you.

Hi, Thank you very much for taking my question I have two actually the first one is if you could please comment a bit on the structure.

Of your contracts in Europe, and watch regards to pass through inflationary.

I appreciate your costs.

And then and then the second one.

If you could please comment as well in terms of the impact to the much higher energy prices have on your on your coffee.

Do you have on your costs and in general how much percentage of your costs are related to energy.

So it's relatively small percentage of our cost means by Forbes.

Oliver Graham: Yeah, hi, Diego. Relatively small percentage of our costing, it's about 4%. And it is true that with the volatility we've got at the moment, particularly in Europe, that there are some spikes on energy costs that are coming in in this quarter. But they obviously get captured in the PPI indexes that we track and pass through to customers, which goes to answering part of your first question. So look, I can't go into too much detail on contracts on this call, but I think relatively simply said, we track a number of inflationary indexes, and we pass through, you know, proportions of those to our customers on an annual basis. And we're happy with those structures.

And it is true that with the volatility we've got at the moment, particularly in Europe.

That though there are some spikes in energy cost coming in in this quarter.

<unk>.

But they obviously get captured in the in the PPI indexes that we track.

Pass through to customers, which goes to answering part of your first question. So look I can't go into too much detail on contracts on this COVID-19 I think relatively simply said, we track a number of inflationary indexes and we pass through in April.

Portions of those to our customers on a annual basis.

And we're happy with the with those structures.

Oliver Graham: There can be some timing lags, and actually the energy one is quite a good example because it's all coming in Q4, and the index is tracked typically through September, October, in terms of pass-through timing. So you can get some timing lags, but overall, we're, you know, we're comfortable with the, the structures we have in the European market.

There can be some timing lags and actually the LNG one is quite a good example, because it's all coming in Q4.

The index has tracked typically through September October.

In terms of pass through timing. So you can get some timing lags.

But overall with.

We're comfortable with the structures.

<unk> in the European market.

Diogo Silva: Sorry, if I could just clarify on your last point in terms of the timing. Did I understand correctly that your adjustments to prices get done in the kind of September, October time frame, and so any inflation that you have after that period basically gets adjusted in the next year, September, October, is that correct?

Alright, if I could just clarify on your last point in terms of the timing did I understand correctly that youre adjustments that you are adjustments to prices getting done in the kind of September October timeframe, and so any inflation that you that you have after this period basically get suggested in the next.

Year September October is that correct.

Yes look it varies customer by customer, but you do have some of those structures.

Oliver Graham: Yeah, look, it varies a lot, customer by customer, but you do have some of those structures. It's not that you adjust then, to be clear. The adjustment's always in the following year, but the measurement period can be then to allow people to budget.

It's not that you adjust then to be clear the adjustments or the.

Following year, but the measurement period can be done to allow people to budget.

Diogo Silva: Understood. Thank you very much.

Understood. Thank you very much.

Oliver Graham: Pleasure.

Okay.

Operator: We'll go next to George Stathos with Bank of America.

We'll go next to George Staphos with Bank of America.

George Staphos: Hi, everyone. Thanks for taking the follow on. Ollie, David, just one quick question for you. So volumes were down for the reasons that you had mentioned, yet the EBITDA guidance moved up a bit. What in your estimation allowed for the increase in the guidance, and was any of it related to the benefits you got from a commercial standpoint in pivoting to markets that were maybe underserved? If you could provide some additional detail there, that would be great. And then a couple of quick follow-ons.

Hi, everyone. Thanks for taking the follow on.

I'll, let David just one quick question for you so volumes were down.

Down for the reasons I mentioned, yet the EBITDA guidance moved up a bit.

What.

Your estimation allowed for the increase in the guidance and was any of it related to the benefits you got from a commercial standpoint, and pivoting to markets that where maybe underserved. If you could provide some additional detail there that would be great and then a couple of quick follow ups.

Oliver Graham: Yeah, George, and I'll let David comment. I think that is the principal reason. So I think, you know, we were able to serve some markets that were feeling very underserved, and so that worked for both sides. We also have some other areas of improved efficiency and cost management in the business. So those, I think, were the two principal reasons. David, I don't know if there's something you'd want to add.

Yes George.

David I think that is the principal reason.

And so I think we were able to.

Some markets deliver them, keeping very underserved and so not work for both both sides and we also have some other.

Other areas of improved efficiency and cost management in the business.

So those I think that the two principal reasons, David other notes something you'd want to add.

David Bourne: I'd just add the impact of the indemnity of the cyber issue. So obviously that accounts for approximately half of the volume loss. But from an EBITDA perspective, it's neutral because we have the asset offset with Ardagh Group S.A.

Just on the impact of the.

So hope to see that accounts for approximately half of the volume loss.

From an EBIT perspective, it's neutral because we have the asset.

All right.

Right.

George Staphos: That's great, David. Helpful reminder on that. In terms of new products and innovation, you know, it's tempting to just think of these products as, you know, one unit can replace another unit, no problem, but there are different customer preferences, there are different ABVs with different categories. As you sit here, there's both opportunity and also challenges that sometimes occur when you have infused and mixed products. You know, as you sit here today, to the extent, again, that you can talk live mic on this, you know, which of the categories do you think could represent the most, either incremental in terms of volume unit wise or percentage wise to the industry, over the next couple of years?

That's great David Helpful reminder, on that.

In terms of new products and innovation.

It's tempting to just think of these products as well.

One unit can replace another unit no problem, but there are different customer preferences are different abv's with different categories.

As you sit here and there.

Both opportunity and also challenges that sometimes occur when you have infused in mixed products as.

As you sit here today to the extent again that you can talk like Mike on this which is the categories do you think could represent the most either incremental in terms of.

Volume unit wise or percentage wise to the industry.

Over the next couple of years, if you had a couple that we would really point to us to be looking to recognizing you have a diverse portfolio and diverse strategy and that's kind of how you run the business in the first place we're going to tell us there.

George Staphos: If you had a couple that you would really point us to be looking to, recognizing you have a diverse portfolio and diverse strategy, and that's kind of how you run the business in the first place. What, what would you tell us there?

Oliver Graham: I mean, I think we've talked over the last 6 to 9 months a lot about this space between still water and traditional energy drinks, and obviously traditional energy drinks are on fire at the moment as well.

I mean, I think we've talked.

Over the last.

Six to nine months.

A lot about this space between Stillwater in traditional energy drinks and obviously traditional energy drinks are on fire at the moment as well right.

George Staphos: Right.

Oliver Graham: But certainly the space that is sort of the mixture of sparkling flavored waters, sort of refreshment, rehydrate, reenergize, with that space. Then you have, you know, you have companies in that space with new types of energy drink, you know, quite scientific-based energy and refreshment-type products. And as I say, the sparkling waters, we have, you know, some great customers in that space. So I think that whole area that, and in our belief, there's some degree of still water and plastic substitution going on there, that's a bit hidden because it's not going still water to still water. And as I say, energy drinks generally are on fire, both sides of the Atlantic. So I think that's definitely a space to keep a close eye on.

I need a space that is sort of the mixture.

Sparkling flavored waters refresh instead of refreshment rehydrate re energize that space.

And you have you have companies in that space with new types of energy drink.

Quite scientific based energy and refreshment type products.

And as I say, the Spartan Motors, we have some great customers in that space, So I think that whole area.

I believe there is some degree of Stillwater and plastic substitution going on there.

Hidden because it's not getting stillwater to Stillwater.

And as I say energy drinks generally your own.

Both sides of the Atlantic So I think thats definitely a space to keep a close eye on.

Oliver Graham: I think RTD looks pretty good at the moment, and there's some great brands and companies in that space who will, you know, I think, be very successful. And then as I said earlier in the call, I do think still water will come through. Yeah, go ahead, George.

RTD.

Pretty good at the moment and there's some great brands in the company.

Companies in that space too.

I think they're very successful.

And then as I said in the other.

<unk> Stillwater will will come through.

George Staphos: Ali, just to be clear, RTD, you mean cocktails or tea, or which RTD are we talking about there?

Joe just to be clear RTD, you mean cocktails or T R, which RTD are we talking.

Oliver Graham: I mean, yeah, I'm sort of also looking into the spirit space.

Yes.

So looking to the spirits space.

George Staphos: Okay.

Oliver Graham: You know, some of the products and brands there, I think you've got a lot of, a lot of runway. So yeah, we're excited by those as well.

Some of the products and brands that I think you've got a lot of a lot of runway.

So yeah, we're excited about those as well.

George Staphos: Okay. My last one, and I'll turn it over. You know, again, tough comps, we understand. Certainly, Brazil's had its other issues as well from a political standpoint, and economic standpoint. Recently, we've seen from some of our other sectors, some moderation and growth in the region. Why are you comfortable, or are you comfortable that this slowdown that you're seeing is just nothing more than comps and seasonality and isn't reflective of, you know, maybe a bigger retrenchment in the consumer? Recognizing that, you know, beverage cans have been a growth category in Brazil for many, many years. We know from our data, but, you know, why are you comfortable this isn't something that maybe is a little bit deeper that we have to worry about for the next, you know, whatever, two to four quarters? Thank you, and good luck in the quarter.

Okay.

Last one and I'll turn it over.

Again tough comps, we understand certainly Brazil has had its other issues as well from a political standpoint.

And economic standpoint recently, we've seen from some of our other sectors some moderation in growth in the region.

Why are you comfortable or are you comfortable that this slowdown that youre seeing is just nothing more than comps since seasonality and isn't reflective of maybe a bigger retrenchment.

And the consumer.

Recognizing that beverage cans have been a growth category in Brazil for many many years, we know from our data, but why are you comfortable this isn't something that maybe is a little bit deeper that we have to worry about for the next whatever two to four quarters. Thank you and good luck in the quarter.

Oliver Graham: Thanks, George. Yeah, look, I think partly because things do seem to be ticking up on the, on the latest data, so that gives us reassurance. I think because there is this big structural shift out of two-way into one-way. So I think it's fair, there is some inflationary pressure there. You know, if you think of the way our costs go through, you know, the whole industry's costs go through, then there's some inflationary pressure there, which clearly was part of what happened over the winter. But I think that the overall picture remains very strong in terms of the benefits of the can and the way, the way it's growing. So like you say, I think it's had 25 years of growth.

Thanks, Josh, Yes look I think partly because things do seem to be picking up on the latest data that gives us reassurance I think because there is this big structural shift to weigh into one way.

So there is some inflationary pressure there.

Do you think of the way.

Costs go through.

The whole industry costs go through them with some inflationary pressure there.

Which.

Clearly was part of what happened over the winter.

But I think that the overall picture remains very strong in terms of the benefits of the can and the way.

The way it's growing so like you say I think it's at 25 years of growth. It's had a couple of bumps.

Oliver Graham: It's had a couple of bumps, but the underlying structural factors are so strong that we're comfortable it'll be in good growth in the next 6, 9, 12 months.

The underlying structural factors are so strong we're comfortable it'll it'll be and good growth in the night.

Six 912 months.

Mark Wilde: Thank you, Ali. Good luck in the quarter.

George Staphos: Thank you, Ali. Good luck in the quarter.

Thank you Ellen and good luck in the quarter.

Oliver Graham: Thank you.

Thank you.

Operator: The last question comes from Michael Leithead with Barclays.

The last question comes from Mike <unk> with Barclays.

Michael Leithead: Hey, guys, just a quick follow-up. David, I was wondering, could you help us with the $230 million exceptional item in SGNA? Just what was that, and can you give us the cash impact associated with that? Thanks.

Mike Leithead: Hey, guys, just a quick follow-up. David, I was wondering, could you help us with the $230 million exceptional item in SGNA? Just what was that, and can you give us the cash impact associated with that? Thanks.

Hey, guys just a quick follow up David I was wondering could you help us with the 230 million exceptional item in SG&A, just what was that and can you give us the cash impact associated with that thanks.

Yeah Okay.

David Bourne: Yeah. Okay. So, I think probably with the exceptional thing to say is, yeah, what I would term operational exceptional, so normalized business activities, got about $8 million of startup costs within it and, you know, $4 million of SGNA transformation type activity. So, $12 million there. The rest is all transaction related, the predominant one being the recognition of the share-based payment charge under IFRS 2. So that's the service listing fee, that arises on the difference between the net assets at the 4 August transaction date and the fair value of the shares and warrants at that particular date. So had this been a business acquisition, yeah, a pseudonym for goodwill, really. So, it's that and the associated transaction fees and redemption premiums that make up the rest of that.

I think probably with the exception of little thing to say is what.

What I would term operational exceptional.

<unk> business activities go to about 8 million of startup costs within that and <unk>.

4 million of SG&A transformation type activities.

The rest is all transaction related.

Dominant one being the recognition of the share based payment charge and that's too.

So that's the service listing fee.

That arises on the difference between the net assets.

A possible transaction date.

And a fair value of <unk>.

Sure.

At that particular site.

It's been a business acquisition.

See the NIM for goodwill Lily.

So its fast and the associated transaction fees and redemption premiums that make up the rest of that.

Operator: As there are no further questions at this point, I will hand the call back to Mr. Oliver Graham for any additional or closing remarks.

As there are no further questions at this point I will hand, the call back to Mr. Oliver Graham for any additional or closing remarks.

Oliver Graham: Thank you very much, everybody. We look forward to talking to you at the full year results.

Thank you very much everybody and look forward to talking to you at the full year results.

Operator: This does conclude today's conference. We thank you for your participation.

This does conclude today's conference we thank you for your participation.

Oh.

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