Q4 2021 Ardagh Metal Packaging SA Earnings Call
Welcome to the Argos metal packaging fourth quarter 2021, Investor call. Today's conference is being recorded at this time I would like to turn the conference over to Mr. Oliver Graham CEO of argon metal packaging. Please go ahead Sir.
Thanks, Phil and welcome everybody.
And thank you for joining today for other metal packaging fourth quarter 2021 earnings call, which follows the earlier publication the E&ps earnings release for the fourth quarter and the full year.
I'm joined today by David Bourn, A&P as Chief Financial Officer.
Hi, Stephen Lyons, Amt's Investor Relations Officer.
Before moving to your questions I will first provide some introductory remarks and A&P is performance and outlook.
Remarks today will include certain forward looking statements. These reflect circumstances at the time, they're made and the company expressly disclaims any obligation to update or revise any forward looking statements.
The results or outcomes may differ materially from those that may be expressed or implied due to a wide range of factors, including those set forth in the A&P A&P SEC filings and news releases.
A&P as earnings release and related materials for the fourth quarter and the full year can be found on <unk> website at <unk> Dot com 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 A&P statutory forward looking statements disclaimer can be found at IMTT SEC thought.
I'll now provide an overview of A&P is full year and fourth quarter results.
A&P recorded full year 2021 revenue of $4 $1 billion.
And adjusted EBITDA of $662 million, representing annual growth of 15% and 19% respectively on a constant currency basis.
Underlying cash flow generation with adjusted free cash flow before growth investment capital expenditure for the year of $389 million.
Resulted in a net debt leverage ratio of under three seven times. There was modestly ahead of expectation.
These results exceeded the plan sets out to a year ago, when otter announced its intention to list the shares in A&P.
Were achieved against the backdrop of a highly inflationary environment.
Global supply chains, and Covid related challenges.
I would like to express our thanks to our colleagues across the business, but are unswerving commitment as.
As well as the support of our customers suppliers and other business partners.
These results also marked a year of significant achievement for A&P as an addition to lifting A&P on the New York stock exchange as a leading pure play beverage category.
Number of other key milestones were achieved including progressing very well the value creating business growth investments. These contributed strongly to 2020 one performance and the program has been enhanced by additional project announcements.
It reflects the strong market outlook.
And significantly advancing our sustainability agenda during the year issuing a $2 8 billion green bond to support a lowering of A&P as carbon footprint and publishing updated ambitious target in A&P sustainability report.
Looking in more detail into the fourth quarter and focused on constant currency exchange rates revenue at 1.9 billion increased by 22%, reflecting increased shipments and the pass through of higher aluminum and other input costs.
Adjusted EBITDA increased by 19% to $165 million compared with the same period last year driven by strong advance in the Americas.
Total beverage can shipments in the quarter was 6% higher than the prior year. Despite the demanding prior year comparable when shipments rose 7%.
Growth was driven by strong performances in both Europe and North America.
With Boeing customer demand reflected in tight supply conditions.
Favorable demand backdrop underpins planned new capacity additions in 2022 and beyond.
Specialty cans represented 48% of global shipments in the quarter.
Up from 46% in the prior year quarter and are set to rise to over 50% of our mix in 2022.
If you include 50 liter cans in Europe in that calculation as to some industry players.
He makes his highest stood at 62% in the fourth quarter and 61% for the year.
The business is contracted on a very high 90% of planned volumes for 2022.
Close to 90% out to 2024.
Growth in the mid to high teens percentage in total shipments in 2022 as anticipated.
Daily earnings accretive growth investments continue that ramp ups or commenced production.
Now looking at <unk> results by segment and at constant exchange rates.
Revenue in the Americas increased by 28% to $632 million, mainly due to the pass through of higher input costs shipments are 1% higher than the fourth quarter of 2020 with a strong performance in North America, partly offset by principally weather related softness in Brazil.
In North America shipments grew by 6% for the quarter demand remains strong across the broad mix of characters to with JMP has exposure with particular strength in energy and fitness drinks ready to drink cocktails in carbonated soft drinks.
The beverage can market remains capacity constrained illustrated by over 14 billion of input imported cans into North America in 2021.
Underpinning ongoing and planned new capacity additions.
In Brazil fourth quarter shipments declined by a low teens percentage measured against the tough comparable which have grown by almost 20% ship.
Shipments in the quarter impacted by adverse weather conditions as well as by Covid restrictions on social gatherings.
Volumes were flat for the full year.
Fourth quarter adjusted EBITDA in the Americas increased by 26% to $111 million.
Growth reflected higher volumes and a strong cost performance and a favorable sales mix compared with the prior year.
Supported by the contribution from investments made in the latter parts of 2020 and through 2021.
Looking forward 2022 shipment growth of over 20% in the Americas as anticipated led by North America as customer contracted new capacity additions come on line and support strong broad based category growth.
Recent softness in Brazil is expected to continue in the first half of 2010 to two but A&P remains very competent on prospects for the Brazilian market.
As a longstanding driver to weigh to one way packaging continues to drive demand for beverage cans.
In Europe fourth quarter revenue increased by 16% at constant currency to $455 million.
Compared with the same period in 2020.
Shipments increased by 11% compared with the prior year, despite the strong prior year comparable at 8%.
Growth was broad based across the alcoholic and non alcoholic beverage categories with notable strength in energy drink.
Fourth quarter adjusted EBITDA in Europe increased by 6% on a constant currency basis to $54 million.
The impact of strong shipments in the period was partly offset by input cost inflation with high European energy costs well documented.
Looking to 2022 full year shipments are expected to grow almost 10% benefiting from the addition of new capacity in Germany, and the U K during the first half of the year.
Europe remains a capacity constrained market and dialogue with customers continues to confirm our positive demand outlook for the medium term.
Turning to A&P growth initiatives.
Excellent progress was made on the business growth investment program during 2021 underpinning projected growth in 2022.
Total investment on these growth projects during the year was almost $700 million.
This was despite the increasing impact in the final quarter of delays due to global logistics pressures and selective component shortages.
Entering 2022, these pressures remain evident and project teams continue to navigate these challenges well.
To recap on some of the larger growth investment projects in North America, two new high speed sleep lines in Olive branch, Mississippi ramped up successfully from early 2021.
The first of two new lines in Winston Salem, North Carolina began production in early 2022 with the second new high speed lines commenced production in the next quarter.
Now here on Ohio, Brownfield expansion began to produce ends in November one year. After the <unk> acquisition with can lines beginning to ramp up in the first half of this year.
In Europe , new capacity in Germany, and in mainland U K also starts up in the first half of 2022.
And in Brazil additional capacity came online in <unk> in the last quarter and will continue to ramp up through 2022.
Brazil and capacity was also expanded in 2021 and additional investments planned for 2022.
In October we set out plans for a new kind of facility in the U S southwest this.
This multiline plan will be based in Arizona and without an initial $3 5 billion of capacity to support customers grabbed.
Construction will begin later this year with production commencing in the first half of 2024.
We'll have space for further expansion as we continue to contract customer volumes for 2025 and beyond.
The Northern Island Greenfield expansion is progressing three planning it will be the only can making plants on the island of Ireland and will benefit from Northern Islands unique trade status. This plant is expected to start producing cans in the second half of 2023.
All of these investments are well contracted impact by a diverse mix of customers and importantly, expand the strategic reach of Amc's network within attractive market.
Investment of over $1 billion on business growth investments as planned during 2022.
Including initial outlays on these two new projects.
All of which generate significant earnings and free cash flow accretion.
In summary, the investment program has made significant progress in 2021 project team has done an excellent job in managing execution risk.
They are a focus where possible on expansion within existing facilities, thereby leveraging an established skill base community presence and scale.
While not immune to the short term challenges presented by the global supply chain, our plan set out a year ago to more than double the plan set out a year ago to more than double adjusted EBITDA from 'twenty to 'twenty to 'twenty to 'twenty four remains well on track.
The outlook for medium to long term demand in each of our markets remains very positive based upon long term secular growth trends supporting the beverage can which continued to strengthen.
These include sustainability convenience and innovation.
A&P continues to partner with global customers to support their introduction of new categories premium amortization as well as playing an integral role in our customers' sustainability agenda.
Secondly, demand <unk> continues to outpace supply globally.
A&P faces shortages and supplying customers across the north American and European market and.
And the business is mostly sold out into 2024.
Finally current demand levels have resulted in abnormal and uneconomic product flows most starkly imports into the U S market continued to run at elevated levels.
[noise] over 14 billion cans in 2021 and equivalent to over 10% of market demand.
Ports and now expect it to continue into 2022.
Furthermore, inventories remain at low levels and operating rates continue to be elevated.
These demand drivers are expected to continue over the medium to long term and A&P expects to take advantage of additional investment opportunities that meet our strict return criteria and offer attractive paybacks in line with the existing growth program.
Turning to sustainability, which is at the heart of everything we do in A&P and our strategy based around the three key pillars of emissions ecology and social sustainability.
A&P is committed to achieving science based targets see the science based target initiative.
And approval is expected later this year.
And to delivering zero waste to landfill by 2025.
Ambitious targets have been set to 2030 that include a 100% renewable electricity at 20% reduction in water usage and a 10% reduction in <unk> emissions.
Other sustainability efforts are further affirmed by the recent award of a gold rating from <unk> for the sixth successive year, which places us in the top 5% of companies assessed by <unk>.
They're also again received a supplier engagement rating of AA from the global sustainability not for profit CDP ranking in the top 8% of the company's supervisory disclosures.
<unk> also has an a minus rating from CDP for both climate change and water management.
And in the next few months the allocation and impact report to be published is committed to and the green bond framework with the proceeds that were raised last year.
A&P has an important role to play to elevate the sustainability agenda across the value chain.
In this regard A&P as a leading participant across industry groups and regularly engages with local authorities and government bodies.
As an example through our participation in C&I A&P is engaged in a significant program with recycling facilities to increase the capture of beverage cans in the revenue stream in North America.
Employees, well being and safety is of great importance to us the business is operated under the highest standards to mitigate COVID-19 risks and through our <unk> initiative is constantly striving to improve employee safety with continuous training and education.
During the year, a new hybrid working policy was rolled out in A&P continues to reinvest in its people through learning and leadership development as well as an employee wellness initiative.
Deep community connections are vital to <unk> continued success, particularly in securing talented people from the communities in which A&P upgrades.
Last year at our announced a $50 million investment in stem education across all of those locations in the U S to date partnering project lead the way to fund the 276 schools and 47 school districts.
Currently working to expand this initiative into Europe and Brazil.
Moving now to the financial position and capital allocation framework.
As well as delivering adjusted EBITDA of $662 million in 2021, A&P generated strong cash flows and maintain a strong liquidity position.
Strong underlying cash generation with adjusted free cash flow before growth investment capital expenditure for the year of $389 million represented a conversion ratio of 59% of adjusted EBITDA.
Underlying cash generation is projected to grow significantly over the medium term as the pipeline of growth projects come on stream and fully contribute to earnings.
Total liquidity at year end was $788 million.
Of which over $463 million was in cash and the balance by way of an Undrawn ABL facility.
Net leverage ended the year under three seven times adjusted EBITDA.
In terms of our capital allocation framework.
We recognize the importance of regular cash returns to shareholders in tandem with growing earnings and cash flow through the substantial investment program.
To enable A&P to pursue these twin objectives in future, we intend to maintain net leverage in the range of $3 75 to four times 12 months forward looking adjusted EBITDA.
This leverage range will govern cash returns to shareholders and in 2022, we plan to return $400 million to shareholders.
We intend to grow future annual returns of capital to shareholders progressively in line with business and cash flow growth.
In 2022, A&P envisages paying a quarterly dividend for the first three quarters of <unk>.
<unk> per share costing approximately $180 million.
With the balance of $220 million being paid before year end as a fourth quarter distribution.
Dividends on our preferred means to return cash to shareholders, thereby avoiding a reduction in the public float.
To enable us to achieve our important objectives, firstly implementing and if appropriate increasing a significant and profitable development program and secondly, returning substantial amounts of cash to shareholders and thirdly, maintaining leverage within the range outlined above we plan in the near future to launch an issue of non converts.
A preference shares to raise $600 million.
A&P continues to favor organic expansion opportunities over M&A.
There's ample opportunity to strengthen the network and our existing attractive end market.
Before moving to take your questions I'd like to recap on A&P performance and key messages.
Today, A&P reported strong growth in fourth quarter, and full year earnings, reflecting our focus on sustainable metal packaging A&P diverse customer base in attractive end market.
Over the last five years A&P is growing EBITDA at a double digit annual growth rates and by 32% in the past two years.
In the years since the business time was presented to the market medium term demand prospects driven by sustainability and other secular trends have strengthened and the beverage can continues to win as the packaging of choice for exciting new product categories.
A&P as a clear customer back plan to grasp this opportunity in inflammation implementation to date is progressing very well with additional growth opportunities expected to arise.
The amended capital allocation framework outlined today enables A&P to address shareholders desire for both the secular growth offered by beverage can packaging as well as the significance and regular cash returns whilst at the same time, maintaining leverage at appropriate levels A&P.
<unk> plant is expected to deliver on customers growth ambitions and to provide very strong returns for shareholders.
A&P as experienced team continues to actively manage the highly inflationary environment and tight global supply chain.
Tax structures are characterized by multiyear agreements with cost pass through provisions, which provide resilience against an uncertain the inflationary environment.
Subjects, some occasional timing lag.
Looking to 2022 demand in North America, and Europe remained strong while Brazil has experienced softer demand in recent months.
<unk> expects to deliver accelerated growth in shipments and mid to high teens percent at a group level for the year with some second half weighting as new capacity continues to come on stream and ramp up through the year.
Our confidence in the strength and resilience across our end market is underpinned by further expanding the current growth investment program.
Full year 2022, adjusted EBITDA is projected in the order of $775 million, which is after taking account of a 20 million dollar currency translation headwind relative to the exchange rates in the business plan filed with the SEC in February 2021.
In terms of guidance first quarter adjusted EBITDA is anticipated to be brought in line with the prior year at constant currency out.
Now the $144 million.
Having made these opening remarks, we will now proceed to take any questions that you may have there are lots of people on the line. So could we ask that participants please limit themselves to one question and one follow up.
Thank you.
Thank you and if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to a lighter signaled to reach out to reach our equipment.
Again, everyone. Please press star one if you would like to ask a question and we'll pause for a moment to assemble the queue.
Once again as an additional reminder, that is star one if you would like to ask a question.
And we will first hear from George Staphos with Bank of America. Please go ahead.
Alright. Thank you thanks for all the details guys.
Congratulations on the progress in the year.
Two questions. The first one relates to margin.
If you can give us a bit of color in terms of what was driving the SG&A reduction in <unk> and then broadly for Europe .
Should we think about that from an EBITDA standpoint relative to your 775 guide and then secondly, if you could give us a bit more thoughts on how you think about the preference shares.
<unk> relative to the value return and the dividends equally ruling.
$100 million in total for 2002, some additional thoughts here would be great. Thank you guys.
Sure. Thanks George.
So I think the costs.
Proven in Q4 was really about probably about the growth. So we were covering SG&A.
In a more effective way and I think that we've obviously kept very tight cost control through Q4, recognizing some of the challenges in the global environment and we see.
European margins I think are progressing well.
The plan so we don't see any.
Immediate shift to the medium term guidance on that I think as we signaled in the Q3 results and weird.
Signaling today, there are some minor lagged and inflation recovery in Europe for 2022.
And that's one of the reasons, we we adjusted guidance by about $20 million.
After the $20 million.
Foreign exchange translation.
And then on the preference shares and the value of a tie in I mean, I think the overall points were made in the remarks that we we recognize that.
Returns to shareholders are important.
We want to continue with our growth investments and this is the second generation that we also discussed during our Investor Roadshow last year that we're into now and we want to keep leverage at appropriate levels and so we felt this was the right way to go with the preference shares in the <unk>.
If it doesn't return.
Okay. Thank you I'll turn it over.
Thanks Bill.
And up next we'll hear from Minoshe Shah with BMO capital markets. Please go ahead.
Hi, good morning.
I was wondering if there's any way for you to outline the financial lift do you expect in 2020 two from from the new capacity coming online.
And also if you assume any startup costs in your EBITDA guidance.
Yeah, I'll pass it to David Yeah.
Cost exceptional was for this year, the startup cost of $30 million.
Prospectively, we expect that to be around about 60 million Mark in FY 'twenty.
And then I think in terms of the lift.
From the capacity additions I mean, we've got some $67 billion of capacity addition, coming on this year.
I don't think we'll give you an exact breakdown of the EBITDA linked to that versus the underlying business, but that's the level of growth and I think we gave the.
The overall percentage growth by by region. So obviously, a big driver in the growth of EBITDA.
2021 to 2022.
Yeah.
Finally Ali point on start ups of course under life of that.
Each state with an EBIT they sit in the exceptional category.
So just say okay on that one.
Okay. Thank you for that.
And then for my second question I, just wanted to ask a bit more about Brazil. It sounds like you were flat in 'twenty, one, but you're still optimistic about long term growth there and Youre building a new plant in this year can you just talk about the growth that you expect for 2022, and then also your medium term growth expectation.
Yes, so we're very positive about the market I mean, Brazil has been one of the best markets in the world for the last 25 years I think we only had one year without growth.
In 2016.
When you know there was some quite severe financial stresses on the economy in that year.
So does it very long term trend of two way.
Glass into one way packaging and today, one way glass has been very short and so that packaging is gone one way packaging has gone into cans plus.
Plus you've got growth in the underlying categories of beer in particular is.
As the economy grows so.
It's a very attractive market and we're very positive about it at the market did grow 5% last year, but that growth was taken by one of the customers.
And can plant, so that's where that growth last.
Last year as opposed to in the traditional can makers, but thats obviously now.
In the market. So now we expect the growth to go back.
Among the can makers nothing we have a long term projection that we talked about last year that we hold by which is a 6% to 10% growth market now this year does look.
A little weak in the first half so we got two or three things going on we had a very exceptional weather.
In the summer season that we're in at the moment very rainy and cold we.
We do have COVID-19 impacts, so carnival, which is coming up soon nominee has a good event for the can.
That's essentially being restricted by by Covid and then there is some economic.
Downturn caused by the devaluation and we also do is ourselves have a slight mix disadvantage.
In our results from from customer mix, which will will.
<unk> as we diversify our customer mix over the next few years so.
We're predicting.
<unk>.
Low teens growth for the year, but it will be definitely.
Weighted to the second half why we see a strong Q3 Q4, we've got the World Cup.
She is always very positive in Brazil, and then just to clarify what we have coming up this year actually is a new line not the greenfield.
The Greenfield comes later, so we have jakafi, which is in Sao Paolo.
He came up with the back end of last year and is now ramping and then we have an additional line at the back end of the year in our plant in the northeast of Brazil.
Great. Thank you very much.
Thank you. Thank you.
Alright, and our next question will come from Arun Viswanathan with RBC capital markets. Please go ahead.
Great. Thanks for taking my question.
I guess I wanted to delve into the volume growth a little bit.
Just confused a little bit why you said, 6% in North America, but.
And then 6% overall, but it sounds like you had a 11% in Europe . So I guess, maybe if we could understand that a little bit more that'd be helpful. And then similarly, I guess going forward how.
How are you thinking about volume growth in the two regions.
Yes, maybe you can just touch on that first.
Yes.
The math to get to your six overall is that we had negative low teens.
Volume volumes in Brazil. So your Americas number is the mix of those two.
The strong Europe , you get to your 6% full year. So what we were seeing in Q4 was the.
The poor performance of the Brazilian market, which is well documented in the industry.
Data.
Confirmed by our peers.
And then going into this year I think we signaled in the remarks.
Over 20% growth in Americas, and just showed a 10% growth in Europe for the year.
Okay. Thanks for that and then I guess I also wanted to follow up on.
The European market a little bit.
So again, yes.
Gross would you characterize that market as you.
You know running relatively full haul are sold out potentially.
And if so is there an opportunity for.
Pricing and potentially live in some of those contracts up is that necessary within your European business.
Yes, so the market is definitely short.
And then capacity constrained at the moment and we're getting a lot of inbound.
Our request.
This year and for future years so.
Stephanie.
<unk> definitely an imbalance there on the supply and demand and as a result over the last few years, we have seen contract strengthened in Europe .
Similar way to the strengthened in North America I think we've said before on these calls we're happy with our European contract situation.
The only thing we flagged in the Q3 s and flagging again today has some legs in the way that the inflation pass through works.
You will have an impact in the first half, particularly this year.
But otherwise.
With our contractual situation in Europe .
And then just lastly.
I also wanted to just ask about the import situation. So it looks like 'twenty one.
It's gonna see double digit.
Yeah.
Tens of units of imports into the into the North American market.
Is that is that the right range and I guess.
How did you see that evolving over the next couple of years as new capacity comes on.
Would it be the case that ultimately you wouldn't see any imports maybe three or four years out and if that's the case.
Which markets would that really hurt us at Brazil, and Mexico I E are all much of the imports now into North America coming from those two markets.
Yes, so I think the number we've seen as you know around $14 billion of inputs for 2021.
And what we hear and I think we saw it on some of the other calls is that those imports will persist into 2022, probably not at that level, but the inputs will persist into 2022 now they don't come from us, but they have been coming from all over the world.
Thank.
Obviously, there will be some long term imports from Mexico.
<unk> can travel down from Canada.
They seem to have been coming from really all over the world and to into north.
America Middle East South Africa, China.
Our observation is we do not see those.
Replaced imports is stabilizing in the markets. We're in so as far as we concerned but we're not in those markets. But also these inputs are very very uneconomic. So they're not just going to appear in other markets.
And those markets are also growing so well.
They'll get grown into overtime as well so so we don't see any negative from that.
And obviously, it's not a very compelling prospect from a sustainability or an economic position that youre shipping empty cans all over the world.
Sure Alright, thanks, a lot.
Thank you.
And up next we'll take a question from Kyle White with Deutsche Bank. Please go ahead.
Hey, good morning, Thanks for taking the question I wanted to go to the Brazil capacity expansion plan I guess.
Correct me, if I'm wrong, but I thought initially you were planning to bring up the Greenfield plant in the southeast this year with the additional line in <unk> right now coming up until 2023.
Suicide switch those two items.
Is that because of the weaker weather the economy or whats kind of the reasoning for that.
No actually we did that maybe we thought we flagged it in the Q3 s, we actually took that decision six to nine months ago, and it's not actually.
What we actually did was we did <unk> as planned in 2021, and what we pulled forward or does that change the investment in <unk>, which is a plant in the northeast where we're putting on line three on to an existing facility and we actually had that in the plan, but after the Greenfield and we just switch them. So we pulled forward line three because it was the most straightforward project.
We had some time delays in getting hold of land and.
And so we pulled forward the line three project and upscale that in fact.
<unk> thousand 22, and pushed the greenfield back into the second half of.
2023, so so that was a decision we already took before there was any issues in the market.
We're looking at the market situation, but obviously, we remain confident about the long term prospects for Brazil.
Okay got it and then in Europe are you able to give us a sense of where you're at from a price cost standpoint in terms of what headwind you're expecting for 2022 from higher input costs and the higher energy costs, and then any kind of strategy, you're proactive and as you can do to kind of recover those costs.
Yes.
In the $20 million and we flagged.
It's then changed.
2022 guidance after the FX is it makes it that inflation lag the Brazil softness in some some project issues in the UK and the U S. In the first quarter. So it's a part of that 'twenty.
And we have been very proactive already about that with customers, who have had a lot of very positive dialogue with customers about things like the magnesium.
Costs that have been coming into the supply chain and other exceptional costs. So I think thats been going very well some of those recovery efforts.
Hit the P&L until later in the year.
But overall, yes, we are being very proactive around that to make sure in partnership with our customers to make sure. We shed some of what's coming down the supply chain in terms of additional costs and particularly with the volatility of today's environment. It is critical that we work on that in partnership with our customers.
Got it thank you I'll turn it over.
Thank you.
Alright, and our next question will come from Gabe <unk> with Wells Fargo. Please go ahead.
I'll, let David good morning.
First I wanted to.
Point of clarification did I hear you say.
Spending $1 billion on the business expansion plan. This year, so sort of implying $1 1 billion of total spend.
And then I guess can grow with that.
As we rollout into 2023 and think about your leverage target and what that implies for potential capital return I am coming up with.
650 plus million dollar figure.
Should we assume that there's potential for either increased spending or another I'll call. It special dividend if that's the case.
Yes Gabe.
We're probably not going to give guidance on the 2023 dividend today, but then we were clear that it is progressive.
From the 400.
We are evaluating other investment opportunities I think we signaled very clearly that we think the market remains attractive that the investments we do are highly value creative cash.
Cash generating and.
And so we are evaluating other opportunities I think this year, we are slightly over $1 billion of business growth investments. So you're right with the maintenance. That's another 100 110 on top so those numbers are correct. So yes look progressive dividend was clearly what we're saying, but we are also evaluating additional investment opportunities in line with the.
The $1 4 billion that we laid out in the in the spec process.
Okay. Thank you and then I guess appreciating that some of the inflation that we.
We're seeing today might be somewhat transitory.
Has there been any inbounds or discussions around the absolute cost of the Cannes relative to maybe competing substrates given where L.
Hello Me aluminum is plus premium I mean, I think it's probably seven to eight sense just on the on the cost of raw material costs.
Let alone conversion.
Curious how customers are thinking about that yet.
Yes, I mean, absolutely no feedback that the substitution occurring because of that impact as we say most of the inbound conversations about strengthening demand nothing thats because gabe, it's we're not alone right.
Every substrate at the moment has its challenges whether it's <unk>.
<unk> energy or the cost of recycled material.
Oil prices, so I think that.
Everybody is suffering just everything is suffering from this inflationary environment and therefore, it's not that the counties, particularly standing out in the mix and then the advanced at the cannot definitely.
From what we can see standing out in the mix in terms of convenience sustainability the efficiency through the supply chain, which is very important when you have these very high freight costs. So.
Yes.
Negativity.
Any positivity from what we can see.
Okay. Thank you.
Thanks, Ken.
Our next question will come from Paul Brennan with Goldentree. Please go ahead.
Hi, Thanks for the call.
To provide some color on your hedging policy for energy costs and to what extent you're exposed to jump in gas prices, we're seeing in Europe . This week.
Yes.
We don't take risk on energy as the policies that we have a rolling hedging program.
That comes into the year, typically 70, 580% hedged.
So we have some exposure in the running year.
I think in.
In the case of very very exceptional costs, we would again.
Talk to customers and in the spirit of partnership but overall at this point, it's very hard to know.
Clearly we're in day one.
Completely unusual situation.
And we don't really know where that's going to land. So at the moment, we're not a typical place.
Our risk management, it's a small percentage of our costs remains low single digits.
Of our overall cost base.
We're going to have to see how the situation evolves over the next few weeks.
Hi.
Thanks, Tom.
Alright, and we're moving on to Curt Woodworth with Credit Suisse. Please go ahead with your question.
Yeah. Good morning, Thanks for taking my questions.
I was just hoping you can provide a little bit more color on kind of the <unk> guide I mean, if we look at.
The business performance the last two quarters, you've put up incredibly strong EBITDA growth in the case of third quarter on negative volume so.
To be flat on EBITDA appears somewhat conservative.
And kind of specific to <unk> I know, you've kind of called out maybe more acute inflation pressure on some of the startup costs, but just any more color on why <unk> would be helpful.
Yeah sure I mean, I think the three things we are calling out.
Softness in the Brazilian market, which we see persisting.
Through Q1.
We called out the inflation lag.
In Europe .
Which we see lending also firmly in Q1 with some recovery later in the year.
And then the third thing we had a couple of bumps project bumps over the Christmas New year period in the U K caused by Covid. So the omicron wave came just as we are starting up the projects, we couldnt get engineers.
And we have a couple of equipment pieces in North Carolina that again, because of Covid and some subcontracting didn't come in at the quality level, they needed to and had to be reworked so.
We do see that impact in Q1, Americas, which is where North America, where we had some offsets in <unk>.
Previous quarters. So yes, I think we are just recognizing that those three factors that we're calling out on the full year guidance weigh more heavily on Q1, and then we see recovery in all three of those factors.
Through the year.
Okay.
And then with respect to Europe .
And more discussion in terms of can sheet availability getting tired I can.
See pricing going up.
One of your peers has kind of highlighted a mismatch between pricing in Latin.
That costs flow through so can.
Can you give us any more color on I guess a your.
Confidence in that you will have enough can sheet availability to ramp your business and then with Europe , how should we think about the 10% volume growth translating into EBITDA growth given all the moving pieces between cost startup cost and things like that thank you.
Yes no.
There's no question that can sheet in North America Europe is tight.
And what we're seeing to address that as imports coming in from regions, which are less tight.
And the industry is geared up around that significantly in recent years and has.
Some good processes and procedures and some and some supplies from other regions that are used to that now.
And there are specific to the hotspot and certain.
Specs.
And alloys.
Managing through but if we take it in the round we've done a lot of work on this in the last year to underpin the growth program and we're pretty comfortable that we've got that covered.
And we don't see.
<unk> mismatch there in the next few years, obviously, we are seeing PPI rates rise.
In Europe , which is what we will then help address that price cost mismatch.
Because most of our contracts are on general PPI posture. So.
I think the way the inflation curve has gone in Europe in the last six to nine months is addressing some of those issues.
And we therefore don't C diff.
Difference between our volume growth in our EBITDA growth when we look at the figures for this year and the years beyond.
Okay, and then just a clarification on the capital return. So you said the $400 million is progressive.
And that you would look to I guess scaling in line with credit Suisse.
The expectation that.
You would have you would continue to return.
Beyond 400 million in the 'twenty three because you also had a comment that.
You Wouldnt really say, whether you would have another onetime dividend as opposed to where the basis. So it seems like what you're saying is you would.
I just want to kind of clarify how you're thinking about capital return into 'twenty three.
No absolutely that's what we're saying that it's progressive annual returns from the 400 million. This year, so you've interpreted it correctly.
Great. Thank you.
Thank you.
Alright, and our next question will come from Herman with from <unk> Capital. Please go ahead.
Hi.
Question on <unk>.
Just to understand in terms of what the growth outlook might be philosophically, if you grow EBITDA by $200 million in 2023, and you keep the leverage at four <unk>.
Conceptually can we think about $800 million of capacity.
Yes, I think we're not going to.
Give exact guidance at all but it's not a linear thing, we're obviously going to be evaluating as we go versus.
Overall investment program and the cash returns of the business I think today, we're sticking with what we said which is its starting at 400. It is going to be progressive when we say in line. We don't mean sort of straight line and we just mean in line with business growth and in.
And cash flow delivery, but but obviously, it's very significant returns and we think shareholders will be very pleased with that balance of of cash return and Greg.
We have seen.
It seems very significant it seems like if you look at a few years and you could potentially get a third of the cat back.
Through through dividends plus the actual free cash that you'll generate a couple of years out so thank you.
No pleasure and I think it's absolutely right to dwell on the cash flow generation of the business. It has very high cash flow generation, particularly when these projects come online.
Alright, and we will take a follow up question from George Staphos with Bank of America. Please go ahead.
Thanks, very much for taking the follow up hi, guys. Just a quick one on the machinery side. It didn't sound like you are terribly concerned about the machinery outlook on your ability to underwrite.
Your growth plans through 'twenty four.
You did have a couple of COVID-19 related issues. It sounds like in the fourth quarter can you give us a bit more detail in terms of why you feel good about your where you stand in line in terms of getting all the equipment, having the engineers in place.
Any color around that would be very helpful. And then from that I will turn it over thanks very much.
Yes look I think sort of working backwards to that I think in terms of engineers and the support structures, we've invested a lot in that.
We saw this coming when we first put the growth program together.
In the summer of 2020.
And so we have over invested in those structures and support and particularly in North America, where obviously the ramp up was was particularly rapid.
On equipment I think Fortunately, we've got some great suppliers and some great relationships with them.
As one of the big three.
I think we.
We recognize that they are supporting us and we are supporting them.
And so we've not had major issues. There we do have specific issues on specific projects and there are some delays.
Delays emerging in certain areas, but overall, if we look at the capital program, we remain where we were which is its overall on track through 2024 and as you say, we just had some some very specific issues on the turn of the year.
Linked to Covid.
If any luck with them.
Some of that then then we don't see anything in the program that should materially Disruptors.
Hey, just a quick follow on that you said delays in certain areas I assume that's just the U K.
The Carolinas Youre, referring to.
Exactly yes, the two I mentioned, so the U K and North Carolina.
And do you have a dedicated project management group within the organization now or do you tend to contract that out thanks, guys I'll turn it over.
We do both so we have a dedicated project management groups in each region. We also have some global oversight and global management and then we also contract out specific parts of the project.
It's a very experienced third party contractors. So we do a bit of both to get the best of both worlds.
Thank you very much.
Thank you.
Alright, and we will now take a follow up question from Gabe <unk> with Wells Fargo. Please go ahead.
Thank you guys just one and I appreciate it's early in the year.
But you guys were kind of able to hit your figures for 2021.
With some of the puts and takes obviously with respect to Brazil, slowing down a little bit et cetera.
Could you maybe tell us how you feel I guess.
Is there any contingency if you will built into 2022 as you sit today, let's say Oh, if we have some hiccups or more hiccups in and over the course of the year with getting equipment in.
Or inflation continues to ramp higher and again I mean, obviously today is a little volatile day, but just.
Anything that you would give us in terms of guideposts, if thats you feel conservative today, or maybe a little bit of a stretch it to hit that 70 75.
Yes look I think it is exactly what we said right. It's in the order of 775 Thats, our best estimate today with the opportunities and risks we see in the business and I think Thats a fair picture so yeah.
Yes. It is a volatile operating environment. There's no question about that it's got a lot more volatile today.
But the business is very resilient to different conditions as we've seen through COVID-19 typically in recession in the beverage can does relatively relatively quite well.
We have lots of.
Strong relationships with customers and suppliers to help us navigate through so so look I think the guidance is the guidance is in the order of 70 75, and that's the balance of the opportunities and risks in the business.
I appreciate that.
Thanks.
And currently we have no additional questions in the phone queue.
Okay.
Thanks, a lot. Thank you very much everyone I appreciate your time.
And we look forward to talking to you again in April .
And ladies and gentlemen. This concludes today's call. We do thank you again for your participation you may now disconnect.
Yeah.
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