Q4 2021 Ardagh Group SA Earnings Call
Good day.
And welcome to the art of group fourth quarter 2021 Investor call.
Today's conference is being recorded at this time I'd like to turn the conference over to Mr. Paul Coulson, Chairman and CEO of Artur Group. Please go ahead Sir.
Welcome everybody and thank you for joining us for our fourth quarter.
Bondholder call, which follows the released earlier today of our results for the quarter.
We hope you remain safe and well and I'm joined today by Shaun Murphy, our COO and John <unk> our CFO .
Our remarks as always weather will include certain forward.
Eight months these reflect circumstances at that time, they're made and the company expressly disclaims any obligation to update or revise any forward looking statements actual results or outcomes may differ materially from those.
That may be expressed or implied due to a wide range of factors.
Our full year financial report can be found on our web site or Dot group Dot com.
I should also point out that earlier today, our non metal packaging A&P posted its fourth quarter earnings handheld. It has already held its earnings call.
A replay of this call can be accessed at our metal packaging dot com and on this call we will not be providing any new information or discussing <unk> performance.
So let me look.
Turning to the results for the quarter highlights of which were revenues of the group increased to $2 billion, an increase of 17% on a constant currency basis growth in revenue was broadly evenly attributable to increased volume and mix and the pass through of higher input costs principally in metal.
Fourth quarter EBITDA of $284 million was 1% higher than same period last year with strong growth in A&P as expected.
Which was largely off set by a reduction in adjusted EBITDA in glass packaging.
During the year, we continued to invest for growth across our business with total growth spending of approximately $800 million.
'twenty one we.
We ended the year with net leverage of four seven times, adjusted EBITDA and very strong liquidity.
For the full year 'twenty, one group revenue increased by seven.
Seven 6 billion.
With adjusted EBITDA growth of 5%.
212 5 billion.
Both at constant currency.
And I would like to thank my colleagues across all of our businesses for their commitment and dedication during the year.
Turning to segmental performance.
Just a quick recap on the metal packaging A&P A&P reported a strong fourth quarter today global beverage can ship.
6% led by advances of 11% in Europe .
Is that in North America.
Partly offset by principally weather related softness in Brazil.
Revenue of $1 9 billion increased by 22.
Constant currency, reflecting volume and mix growth in the pass through of higher input.
Aluminum and other input costs.
Adjusted EBITDA for the quarter increased by 19% to $105 million.
Constant currency rates, primarily driven by a strong advance in the Americas.
Full year 2021.
<unk> increased by 19% $662 million slightly ahead of the two <unk>.
'twenty one targets.
A&P continues to target a more than doubling of 2020 adjusted EBITDA by the year 2024.
A&P guided full year 2022, adjusted EBITDA of the order of $775 million. This represents 19% growth after a currency translation headwind, which was approximately $20 million.
A&P will in future operated with net leverage in the range of $3 reward for time 12 months forward adjusted EBITDA and it will also returned 400 million in cash to shareholders in calendar year 2022.
And we expect progressive growth and annual cash returns to shareholders as Amc's business and earnings growth.
A&P remains very well placed to deliver outsized growth as the beverage can continues to gain share across the <unk> mix.
This capital allocation framework that A&P will enable us to continue its value enhancing growth investment program in tandem with returning significant cash to shareholders and also at the same time maintaining leverage at.
Appropriate levels.
<unk> has also announced that it intends to issue $600 million of non convertible preference shares in the near future.
If I turn then to glass packaging total glass shipments in the quarter were strong increasing by 8% compared to prior year growth was led by Europe , but demand for glass in both of our markets remains very strong we are sold out everywhere and expect this to continue for the foreseeable future.
<unk> revenues increased by 11% to $900 million.
The same period last year, and adjusted EBITDA of $119 million, taking inventories in the prior year, reflecting sharply higher energy cost in Europe , and higher operating and other costs in North America.
And if I look at each of our glass.
Packaging businesses again talking in constant currency.
Glass shipments in Europe increased by 10% compared with fourth quarter of 'twenty one.
<unk> was.
Ah was broad based.
With notable advances in beer spirits and nonalcoholic beverages.
For the full year shipments increased by 4% with strong gains in most areas other than food, which performed ahead of plan despite the weaker harvest.
It was also measured against the pandemic boosted comparables.
Our operating performance for the quarter and year was strong and the glass Europe business has demonstrated the flexibility to work with our customers to manage the impact of fluctuating demand as consumption move between on premise and off premise at various points since 2020.
Our targeted growth investments principally in premium beer and spirits are on track from the demand outlook in Europe remain very strong as far as recognized deals and Brad Hansen effort by glass.
Revenue for the quarter in glass Europe .
15% for $76 million, reflecting double digit growth in shipments.
And a positive mix effect fourth quarter, adjusted EBITDA fell 15% to $78 million compared to the same period last year as strong volume and operating performance was more than offset by sharply higher costs, particularly in energy.
Glass North America revenue for the quarter of $44 million increased by 8% compared to same period last year shipments grew by 5% compared to the fourth quarter of 'twenty chiefly reflecting the acquisition of the Houston facility earlier in the year.
Underlying demand remained strongest in the service side of RTD categories, food demand somewhat lower compared to 'twenty to 'twenty.
Which has seen elevated demand due to COVID-19 .
As in Europe demand for glass in our well diversified end markets in glass North America was very good adjusted EBITDA of 24 million Tidewater were sharply lower as a result of continuing production issues, including a number of one off events, resulting in out of pattern freight costs as well as some inefficiencies in our contract arrangements.
We continue to address the production and cost challenges affecting our glass North America the business and.
And we are focused on initiatives to improve operating performance and commercial outcomes to restore appropriate profitability in a market where demand for glass is the strongest we have seen for many years.
On our investment program and updates we invested $800 million in gross investment project 21, principally in A&P with some important initiatives in glass Europe .
Amc's projects advance well in the year and its most recently announced investments comprising Greenfield multiline beverage can facilities in northern Ireland.
Arizona are progressing with production plant startup in 2023 of 2024 effectively.
In glass, we have been pursuing targeted growth initiatives of the premium beer segment in Europe by the North America. The focus has been on operating improvement and efficiency improvement.
Project implementation remain well on track despite the challenges of global supply tightness exacerbated in the latter period of 2021 by omicron related restrictions.
All of these investments are well contracted and backed by a diverse metal customers and importantly, expand the strategic reach of our network within attractive markets.
Our focus on infinitely recyclable and sustainable packaging in tandem with our ongoing dialogue with customers. How we can partner to meet their sustainability commitments and the expectations are then consumers leads us to expect additional growth opportunities in the future.
And we plan to pursue opportunities that meet our return criteria, and which generates attractive stakeholder value and cash flow accretion.
In 2022, we expect to invest.
Over $1 billion in group business growth investments across metal and glass.
And if I could turn briefly to key corporate developments in the quarter.
We list today MP is a pure play Bev can producer in August .
In October we completed the exchange offer of the class a common shares and R&R group for A&P shares and following 85% Acceptances are that group was delisted and the free float of A&P. Following the exchange offer was increased to 25%.
In November we agreed to acquire Consoler glass, the leading glass packaging producer on the African continent for an equity value of $607 million.
Together with existing net debit console, which we inherited with transactions the enterprise value of the transaction is some 1 billion U S dollar.
Headquartered in Johannesburg, and founded in 1946 console as the market leader in South Africa, operating therefore, well invested last production facilities in Johannesburg, and Cape town.
It provides a broad range of leading international.
It serves sorry, a broad range of leading international and domestic customers principally in beer wine spirits food and non alcoholic beverage sector.
And the year to June 30 of 'twenty, one as reported revenues of $566 million with South Africa, representing 90% of the total and the balance accounted for by smaller operations in Kenya, Nigeria and Ethiopia.
Consoles has a very experienced management team, which is constantly delivered strong results over many years.
And we believe that the combination of our two businesses.
As highly complementary.
With virtually all of consoles multinational customers.
Also being customers of Arda.
Glass consumption consoles markets is projected to continue to increase.
Given by long term trends, including population growth rising income levels and shifts to premium one way sustainable glass packaging.
Completion of the transaction, which is subject to certain conditions and that our Brewers is expected in the second quarter of the year and we look forward to working with the console team into partnering with.
Customers in Africa, as we invest in the long term growth of the African market.
In recent weeks art, and Ontario, Teachers' pension plan have initiated a process to sell trivium packaging in which <unk> holds a 42% rate.
Since the formation of Trivium and 2019 through the combination of arts or does food and specialty business and Ontario teachers exile.
Trivium has been engaged in a significant transformation program. It has invested in growth opportunities to service, leading customer base, whilst at the same time divesting or rationalizing non core assets.
The pandemic has highlighted the value resilience sustainability enhanced suite of the boot camp and trivium with leading positions across Europe , and the Americas is well placed to develop strongly against the backdrop of a significantly improved and improving market.
Under the sustainability banner, we have made significant progress in 2021.
We only produces you know infinitely recyclable packaging and we're well positioned to.
Gain from sustainability Mega trends and our focus is on overcoming the environment and ecological barriers to greener planet as well as actively driving our social sustainability agenda.
And we are committed to being a leader in sustainability in the packaging industry.
During the quarter, we published our 2021 standard ability report, which sets out in great detail, our commitment and leadership in sustainability and this report.
Is available on our website and I do encourage you to read it.
Turning to liquidity and capital structure group net leverage at year end as I said earlier was four seven times.
Cash and available liquidity was $3 7 billion, including $2 9 billion in cash.
And since the year end, we have renewed our 500 million ABL.
ABL facility out to 2027.
Our strong liquidity enables her to evaluation.
On attractive organic and other development opportunities such as the recent contracts console transactions and whilst we currently have no callable dash as always we continually monitor our capital structure and.
In December our finance assay launch tender offers are $485 million in 2027, Holdco toggle notes of 104 utilizing the funds has a natural arising from the dividends received from our <unk> group in October a trading one of January 22. This tender was fully taken up by Chaga noteholders.
Thereby reducing our Holdco <unk>, one 8 billion.
We turn to the outlook.
Underlying demand for our metal and glass packaging products remain very strong across Europe , and North America.
Founded on the increasing appeal of sustainable packaging to end consumers and its role in enabling our customers to meet their commitments.
Our organic and organic growth initiatives progressed, well over the year.
<unk> as well as a console acquisition is a very important to the attractive strategic development for our group.
Entering 'twenty to 2022 input costs are elevated our focus remains on their recovery.
<unk> demand fundamentals allied to our contract structures underpin our confidence in this recovery of cost regardless of near term lagged and positive.
In 2022, we expect full year adjusted EBITDA of the order of $1 $35 billion compared with $1 25 billion in 2021.
The guidance for 2022 is after a year out and current strategy.
Headwind of approximately $40 million.
So having made these opening remarks, we'll be very happy to take any questions you may have.
<unk>.
Thank you.
I'd like to ask a question. Please signal by pressing star one on your telephone keypad, if youre using a speaker phone. 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.
And our first question today comes from Richard <unk> with Jefferies.
Hey, guys. Thanks for taking my questions. So first one for me just I am curious as you look at and you had noted higher costs here in early 2022, and you gave full year guidance, which seems to me to imply that glass ends up being relatively flat I think for 2022, but maybe Paul you can correct me if I'm wrong, but.
Big picture, how are you handling the increase in energy costs, what type of price increase are you seeing on on your glass business, maybe both in North America and Europe .
Yes, how do you see further manage that if we get some additional increases here over the course of the next few months.
While you're correct Richard.
We do we are managing our costs.
And we are obviously, particularly with energy there is in.
Inflation rate.
Pressures in Europe , and we have been recovering these strong adjustments in pricing with our customers and if there are further unforeseen ones, resulting from the travel and Ukraine.
Then.
We will be going back customers again to recover.
And.
I don't think I want to go into the detail of the numbers environment.
The cost increases, but particularly in Europe .
They are well into double digits significant double digit figures.
In North America, not quite so much.
Got it right and how much hedging do you do on your.
Natural gas or your energy purchases.
Yes, Richard it's John <unk> here, we have lots of different arrangements in place.
Pending on the market on the customer.
We typically would go into at the beginning of the year with about.
About 80% covered obviously the worst in spite the backend of last year. So we will have a little bit less than that but then we would layer it in.
Gradually so.
That's part of that open position did cost us in the second half that fourth quarter of last year, but we have substantial covenant pace for the year ahead and that factored into lab, what we've laid out today.
Got it and then the combination of the higher pricing that we should start to see here in Q1 should we expect glass margins then to rebound as theyre better reflective of what the underlying energy environment as early in 2022.
I think it's going to be relatively flat parse this out for the full year as you said from the guidance. If you look at this.
The projections from an A&P when you adjust for the exchange rate classroom will be relatively flat.
Sure.
At current levels that will be definitely a headwind there in energy.
We have achieved significant cost recovery, but there still is a net headwind.
Got it.
Loan loss recovery is also Richard assisted by the very strong demand that exists for our products.
Particularly on both the A&P and on the glass side, but on the gas side, specifically are very strong demand.
Got it okay. That's good and then maybe lastly for carton.
Alright, that's very helpful.
However device.
Cut you off.
I'm finished.
Okay, and then lastly for me just in terms of your <unk> Guide.
In 2022, you've got some distributions that the metal beverage cans is going to be making up to you guys and if you are potentially going to be.
Monetizing that stake in trivium.
What is the plan for cash proceeds coming out of maybe those two areas do you plan to delever with that or is there something else that that will go towards.
I think we're certainly not going to pay any further dividend to shareholders in 2022.
So it will go to Delever.
Obviously, we've got pay for consoles.
Youre right, we will have those too.
In word flows outside of our classes.
But our plan is to use them for deleveraging.
Got it I appreciate it thank you.
Thank you.
And once again, if you'd like to ask a question you may signal at this time by pressing star one on your telephone keypad.
And we'll pause for just a moment to allow everyone an opportunity to signal.
Okay.
And there are no further questions at this time I would like to turn the conference back to Mr. Colson for any additional or closing remarks.
Well, thank you very much everyone for joining us.
<unk>.
We look forward to joining you with our Q1 results.
In April thank you very much indeed.
And this concludes today's conference. Thank you all for your participation you may now disconnect.
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Okay.
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