Q1 2022 Ardagh Metal Packaging SA Earnings Call
[music].
Please standby we're about to begin.
Welcome to the Archer Amato packaging I'll say first quarter 2022 update call. Today's conference is being recorded at this time I would like to turn the conference over to Mr. Oliver Graham C E O of art on metal packaging. Please go ahead Sir.
Thanks Jess.
So welcome everybody and thank you for joining today.
Metal packaging first quarter 2022 earnings call.
<unk> is the area of publication at A&P, earning release for the first quarter.
I'm joined today by David born.
Anp's, Chief financial Officer, and by Steven lines, A&P as Investor Relations Officer.
Before moving to your questions I will first provide some introductory remarks.
Around the impact from the current war in Ukraine, Anp's performance and outlook.
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 anp's SEC filings and news releases.
<unk> earnings release and related materials for the first quarter can be found on A&P website to Idaho metal packaging 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 in A&P SEC filings.
Before I turn to the trading performance in the first quarter and the outlook. Let me first make a few comments on the Ukraine, Russia complex.
When we presented our quarter four results on the 24th of February .
We could not message the consequences of Russia's invasion of Ukraine that same date.
Like so many people globally, we are horrified at events currently taking place in Ukraine.
And hope that this contract has brought to a halt as soon as possible.
A&P does not have any employees.
Our operations in the region.
At any past sales would've been a de minimis levels.
We have not experienced any disruption to either our customer sales or to our suppliers arising from the country.
We saw no element in country from the region, nor had any agreement facilities any future supply to underpin our growth ambition.
The conflict is exacerbated what was already a challenging backdrop in terms of inflationary pressures and supply chain bottlenecks.
Multiyear contracts contain pass through mechanisms that share inflationary cost pressures across the supply chain.
Specifically in Europe , such as the magnitude of the short term exceptional spike in our energy and related input costs that we are taking corrective action to recover these costs.
Turning our attention to Anp's first quarter results for.
For the first quarter of 2022, we delivered a good result in line with our guidance. Despite the challenging backdrop of unprecedented inflationary and supply chain pressures.
A&P recorded revenue of $1 137 billion.
Which represented growth of 25% on a constant currency basis.
Predominantly reflecting the pass through of increased input costs.
Adjusted EBITDA of $145 million.
With both 1% higher than the prior year on a constant currency basis.
And against our guidance.
This reflected a positive volume and product mix contribution, which was offset by inflationary cost pressures.
Total beverage can shipments in the quarter were 1% higher than the prior year, which reflected a strong prior year comparable when shipments rose by 8%.
Growth was driven by our new investments in North America as European volumes are largely capacity constrained ahead of the ramp up of new capacity from the current quarter.
Customer demand remains strong across North America, and Europe and supply conditions remain tight as evidenced by continued imports into the North American market.
Specialty cans represented 48% of global shipments in the quarter up from 44% in the prior year quarter, and we remain on track to increase the share to over 50% of the mix this year.
Specialty mix as high as still at 62% in the first quarter increased 52, each cans in Europe .
Looking at <unk> results by segment and at constant exchange rates.
Revenue in the Americas increased by 27% to $638 million.
Mainly due to the pass through of higher input costs shipments with 2% higher than the first quarter of 2021 with growth in North America, partly offset by further softness in Brazil for part of the quarter.
In North America shipments grew by 3% for the quarter.
Demand remains strong across a broad mix of categories to which <unk> has exposure.
With particular strength in energy and fitness drinks ready to drink cocktails and CSP. The beverage can market remains capacity constrained illustrated by continued imports into North America. So far this year. Despite recent capacity additions.
In Brazil first quarter shipments declined by 4%, but outperformed the market, which fell by over 20% shipment.
Shipments in the quarter were impacted by pressure on consumer spending and restrictions on social gatherings.
We have recently seen some signs of recovery with improved sales in March that have continued into the current quarter.
First quarter adjusted EBITDA in the Americas increased by 9% to $89 million.
Growth reflected higher volumes in North America strong recovery of input cost inflation and strong cost management.
Looking forward, we expect a significant acceleration in shipment growth in the Americas led by North America as customer contracted new capacity additions come online.
And support strong broad based category growth.
We expect a gradual recovery in Brazil, and weighted towards the second half of the year.
A&P remains highly competent on the medium term prospects for the Brazilian market.
In Europe first quarter revenue increased by 23% at constant currency to $499 million.
Compared with the same period in 2021.
Shipments for the quarter were unchanged on the prior year ahead of an anticipated ramp up in activity from the second quarter arising from new growth investments.
As previously disclosed we experienced the delay to our planned ramp up of new UK capacity, which is now operational but we also experienced a fire in one of our German plants.
Without these two events our shipments would have been 3% higher.
There has been some short term impact to the off trade market in parts of Europe from the reopening of the on trade as social restrictions ease most notably with alcoholic beverages in the U K.
Our shipment activity in the quarter, largely reflected inventory and capacity constraints after a strong fourth quarter.
First quarter adjusted EBITDA in Europe fell by 9% on a constant currency basis to $56 million.
This performance was impacted by exceptional input cost inflation.
This was in line with our expectations.
Looking to the remainder of 2022 full.
Full year shipments are expected to grow strongly benefiting from the addition of new capacity in Germany, and the U K during the current quarter Europe remains a capacity constrained market and dialogue with our broad mix of customers.
Okay.
Alright.
Continues to confirm our positive demand outlook outlook for the medium term.
Turning now to A&P growth initiatives.
<unk> progress was made on the business growth investment program during the first quarter of 2022.
With a total investment of $110 million.
Underpinning the anticipated pickup in shipments.
Our project teams continue to effectively manage global logistics pressures and minimize potential delays and disruptions to bring new capacity online in support of our customers' growth ambitions.
To recap on some of the larger growth investment projects, all of which are backed by multi year customer agreements.
In North America first of all to high speed lines in Winston Salem, North Carolina started production during the first quarter and the second line is now also in production.
In Huron, Ohio, the first of the new can lines will commence production shortly to be followed by a second line around mid year with further capacity to be added later in the year.
As outlined with our Q4 results commentary Newmar.
<unk> Multiline plant in Arizona will add an additional initial $3 5 billion of capacity to support our customers' growth.
Construction will begin later this year with production commencing in the first half of 2024.
In Europe , new capacity in the UK has started production this quarter as well as in Germany as part of an expansion project that will also see further capacity addition in the first half of 2023.
While our new facility in north known as progressing three planning.
In Brazil, we continue to make progress towards the addition of new capacity at our <unk> plants towards the end of the current year.
We are also progressing our greenfield facility administer eyes.
Investment of approximately $1 billion.
On business growth investments as planned during 2022, all of which are expected to generate significant earnings and free cash flow accretion.
We remain confident in the long term secular growth drivers supporting the beverage can that we've previously outlined.
<unk> also seen no deterioration in end consumer demand in the current environment, reflecting the defensive nature of our products.
The global can sheet market is in tight supply, but we are fully contracted to support our multi year capacity growth and our suppliers predominantly source locally.
Therefore, notwithstanding near term inflationary pressures, we remain on track to deliver on our plan to more than doubled adjusted EBITDA from 2020 to 2020 goal supported by our growth investments.
Now focusing on progress towards our sustainability goals in the quarter, we continued to advance our ambitious sustainability agenda as part of our social pillar in March we celebrated international Women's day as an annual reminder, that the efforts we need to make together as a society and working towards equality by celebrating women's achievements and accomplished.
<unk>.
Coinciding with Earth day, we announced plans to install onsite solar generation to our site in the Netherlands. This follows similar initiatives already in place in our plants in Austria. These.
These installations are part of our overall goal to move towards 100% of electricity from cleaner renewable sources by 2030 as well as contributing significantly to our overall Sidoti reduction.
We continue to progress a number of renewable onsite and Offsite PPA opportunities in Europe , and North America towards our 2030 target.
The war in Ukraine further underpins the importance of limiting our use of fossil fuels and in Europe renewable sources now represents close to half of our electricity needs.
In the quarter. We also received the supplier engagement rating of AA from CDP, which positions us in the leadership band.
Ship position on supply engagement also complements our leadership positions that we occupy for both climate change and water management.
We'll shortly publish the allocation and impact report is committed to and the Green bond framework with the proceeds of our raised last year, recognizing our focus on energy efficient state of the art, new investment projects as well as Opex and on maximizing the proportion of high recycled content in our products.
We continue in parallel to develop our stem education program in the U S and elsewhere. Our U S program is now operational and some 320 public schools in the communities where we operate.
Moving now to our financial position and our capital allocation framework.
As well as delivering adjusted EBITDA of $145 million in the first quarter.
In line with our guidance A&P, we maintained a strong liquidity position in what is seasonally a quarter of what a quarter of working capital investments.
So Paulo as positive working capital movements in the fourth quarter that were ahead of expectation.
Adjusted EBITDA minus maintenance capital expenditure was $125 million.
Or 86% of adjusted EBITDA.
To illustrate the strong underlying cash generation looking through the seasonality of working capital movements.
Total liquidity as of quarter end was $450 million of which $225 million was in cash and the balance by way of our Undrawn ABL facility.
Net leverage ended the quarter at below four two times LTM adjusted EBITDA.
As we set out in February we intend to return $400 million to shareholders in 2022.
No $66 per share.
We have declared a first quarter dividend.
$10 per share and we expect to follow this with further dividends of <unk> 10 per share in respect of each of quarter, two and quarter three with the balance being paid before year end.
We intend to proceed with the planned issuance of $600 million of non convertible preference shares and envisaged net leverage at the end of 2022 being well below the forward looking adjusted EBITDA leverage guidance of $3 75 to four times, which we outlined in February .
Before meeting to take your questions I'd like to recap on A&P performance and key messages.
Today A&P reported first quarter EBITDA that was in line with our guidance.
On our growth investments in the quarter positions us for a meaningful step up in shipments activity across the remaining quarters in 2022.
The medium term demand outlook across each of our markets remain strong.
And underpins, our earning and cash flow accretive customer that growth investments our plan to more than double adjusted EBITDA from 2020 to 2024 remains on track.
Full year 2022, adjusted EBITDA is projected to be at the order of $750 million using Q1 average FX rates compared with our previous guide of $775 million.
Which is on a comparable basis.
This reduction reflects unprecedented inflationary pressures, particularly in Europe arising from the impact of the war in Ukraine for which we are taking corrective action.
Our guidance for global shipment growth in 2022 of between a mid to high teens percentage remains unchanged.
In terms of guidance for the second quarter adjusted EBITDA is anticipated to be in the order of $180 million.
As the prior year of $168 million on a constant currency basis.
Having made these opening remarks, we will now proceed to take any questions that you may have.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
Using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment.
Again, it is star one to ask a question.
Well pause for just a moment to allow everyone an opportunity to signal.
Our first question comes from George Staphos with Bank of America. Your line is open. Please go ahead.
Hey, Thanks, very much hi, everybody. Good morning Ali Thanks for the details on the presentation.
I just wanted to hit on the EBITDA guidance for the year just to be clear so even though the wording has changed the basis in terms of how youre guiding hasnt changed all youre basically saying on a constant currency basis is that you don't want to be in the currency forecasting business.
In Norway, and so based on what Youre seeing right now in terms of currencies you are guiding to on the order of $750 million would that be fair and thats. The same basically youre projecting last quarter when it was 775.
Yes, Hi, Joe Jeff No I think Thats exactly right. So I think we've taken the average coupon rates given the volatility of FX. There is a small risk at today's spot.
Of the order of five to 10, but I think in the 750 <unk> presented relative to the 775.
And given that was using the average coupon rates.
Okay, and the actions that you're taking to offset the inflation that you've been seeing can you talk a bit about what.
What that means in more detail and when you actually expect that to materialize. So that's something that shows up later this year or is it something that given the market's still lags and so on that it would be more of a 2023 benefit that you would be receiving and Relatedly can you talk to the degree to which you are on.
Hedged.
Unhedged.
On energy prices in Europe .
Sure, Yes, so maybe in reverse order.
So we entered the year as we said at the Q4 was about 75% to 80% hedged so with some open position.
We hedge.
We've got a lot of external advice on this so we hedge on a rolling basis, and we were doing that so we still have some open I mean, I think we're not going to give running commentary on the exact percentage, but we are hedging that forward as we go.
So the corrective actions.
That is a dialogue with our customers as we said in the remarks, it's such a large spike in.
Energy costs, and it's driven by such a completely unforeseen set of events that we felt it was appropriate to address that as a pass through with customers at the current time.
And I think that and so the other piece.
Thats weighted more to the second half of this year rather than to 2023.
Okay.
And then lastly, and I'll turn it over.
You talked about continued optimism in the growth in beverage cans.
And the market and the market being sold out.
On the other hand.
I wanted to pick up some things.
Growth in Europe exited disruptions.
3% and North America, It was 3%.
Three years ago, we would have been thrilled with that kind of volume growth now based on orphan comparison.
Recent quarters, that's somewhat lower.
Why do you feel comfortable on the growth outlook, what is your long term growth outlook.
For the market and are there any weak spots developing that you would you would have us consider or you feel the same pretty much across your end markets and for the market as a whole. Thank you I'll turn it over.
Yes, sure. So I mean, let's go region by region three that one I think.
Europe , we see Europe as a mid single digit market medium term.
Had a lot of inbound inquiries.
Additional projects during the quarter.
That was as I mentioned in the remarks, a little bit of weakness.
In beer in Q1.
I mentioned the U K, we would always I think signaled that.
There was some COVID-19 support in the U K.
And there was a very rapid opening up in the UK, which meant our customers have to pivot into kegs very quickly. So we see that as a bit of a one off correction. We also think there is a bit of pressure on export.
Out of Europe , because of the high cost devotion and international price at the moment. So so we see those to be honest, one often specific events and remain very confident about the prospects for the European market. I think we we also being clear we didn't add any capacity to Europe last year.
It's only in the beginning of this year that we started to get additional capacity coming online.
And that was delayed by the Covid effects on the U K and by some equipment right.
So.
We grew very strongly in Q4 that led to.
Very tight on inventory than with the other capacity hit.
We really didn't have anything more to give.
So I think that's why we're perfectly confident around Europe , North America again, we've talked about it because of the Q4 quite deep into the quarter.
Still working through the.
Inventory overhang, but I think as the quarter progressed.
We really saw some players in particular coming back strong in our numbers. So we feel good about that we feel good about the ready to drink.
Cocktail space, that's linked to that and we know the retail in North America planned a.
A big somewhere around ready to drink.
And then the other categories in North America looks healthy to LNG in particular.
The water, we're seeing our innovation coming on.
Stillwater side in particular, so North America looks good and in Brazil.
We just see this long term to weigh to one way, we see the GDP growth driving beer consumption and again, we had some good recovery in March and April and I think our customers are very confident for the October to February period. When do you think there's a world Cup or some are.
A much more hopefully significant carnival.
Periods.
I think we think Brazil will revert.
So it's a growth path that we've seen before and anticipated in the in the process last year at north of 5% in North America, just on the market I think we see 3% to 5% very realistic so.
I think overall, there's a number of specific factors, but we remain very confident in the medium term outlook.
Okay. Thanks Ali I'll turn it over I'll be back thank you.
Okay.
We'll go next to Mark Wilde with Bank of Montreal. Your line is open. Please go ahead.
Thanks, Good morning Oliver.
Either.
I Wonder can you just help us over in Europe , where how much of a net drag you expect this year from.
Unrecovered energy cost energy and other costs.
Yes, I mean, that's essentially the $25 million.
In the guidance. So basically the sudden 75 to 750 is entirely a european either direct or indirect energy inflation.
Okay and along the same line.
You talk about any impact from higher converting margins on aluminum can sheet, whether that creates any headwind because maybe you are indexed to get price and.
As the converting spreads would widen you wouldn't be able to recover all of that or is that not an issue.
No I think I mean, the lemme in premium largely.
Hedged out will pass through.
So you see some impact in our working capital line from from increased <unk> and premium costs.
This is a drag cash wise, but not EBITDA wise.
And then.
Got to sheet conversion is more specific.
Supply demand.
Question, though I think the reason you're hearing about it and particularly at the moment is because of ocean freight.
Very high Ocean freight costs, and so for imports into the regions.
Those cost have risen very significantly and in our forecast.
Stay at elevated levels into 'twenty three.
So that is something I think it will.
<unk>, who will kind of makes it and looking at and we're looking at in terms of our 2023 recovery.
Okay, Alright, and then last one for me.
Any color you can provide us around Brazil, because your corporate <unk> drop versus that 26% for the industry is really quite striking.
Yes, it's all about customer mix.
We actually were on the wrong end of that in the Q4 s.
Because we we had a customer mix, where our customer base performance.
Well in the market and now we are.
Where the other side of that which is our customer mix is performing slightly better than the market. So that's what's driving that.
Okay very good I'll turn it over.
Thank you.
Okay.
Our next question comes from Kyle White with Deutsche Bank. Your line is open. Please go ahead.
Hey, good morning, Thanks for taking the question.
In Europe , just curious how many how much contract renewals you have lined up at this year to drive some of the cost recovery you talked about some of the contractual changes that you have discussed.
No I mean, we're very strongly contracted actually.
But I think we're still confident we have the.
The opportunities to address the current inflation environment with our customers. So.
And we see that we do need to do that I think it is a new a new environment with this level of volatility.
We see that we can address that going into 2023.
Got it and then I'm curious how what's been some of the reception that you've heard from shareholders on the preferred.
It's been roughly a quarter since you announced it.
When should we expect.
The issuance.
Third to occur.
Yes, I can't really add anything to the remarks on timing, but I think we've had a range of.
Feedback from.
Across the piece.
And so.
<unk> had much more to the to the remarks on that.
If I could follow up then is it still the plan to have a pretty.
Increasing dividend year over year.
Yes, I think given our growth plan and a very high cash generative nature of the business and I think we see it is appropriate to have a progressive dividend policy.
Got it I'll turn it over.
Thanks Scott.
We'll go next to Arun Viswanathan RBC capital markets. Your line is open. Please go ahead.
Great. Thanks for taking.
All my questions.
And congrats on the quarter.
Yes, I guess similarly to some other questions you.
Still sounding very positive on your longer term outlook I guess, when you think about the visibility would you say that you still have visibility out to 2025 or has that kind of shorten.
And then maybe if you could provide a little commentary on the Brazilian market.
A little bit of a pullback there maybe GDP related and other factors like the World Cup.
When do you see that kind of normalizing and what's kind of the trajectory. We should expect over the next couple of quarters for Brazil.
Sure.
I don't think the visibility has changed as we laid out.
In the <unk>.
<unk> and <unk>.
Process last year with very highly contracted with strong contract structures through 'twenty four and obviously as we've added slightly to the capacity build $3 25.
We are also required that to be contracted.
With visibility around volume so.
I don't think that visibility has changed relative to where we were before.
Obviously, we are in a highly volatile environment, particularly in Europe , but.
We hope that's not a long term situation so much as a short term situation.
And then on the Brazilian market I think.
As you say I think there's been some consumer spending pressure there's been there was a very poor weather.
At the beginning of the summer and then the shutdown of the Carnival.
It was very significant relative to normal summer seasons. So we see some recovery at the moment, but we're going into the low season, so that sofa.
Our base and the main recovery, we think it will come in Q3 and Q4.
So I think the October to February periods, where we see the big recovery.
We have the World Cup for the first time ever in Brazil, Brazilian summer and the World Cup was good in Brazil anyway, then we have hopefully assuming no further COVID-19 setbacks very significant carnival season.
And so we and our customers are very hopeful for the growth in that period.
Okay. Thanks, and then as a follow up maybe I could ask about.
One of the different categories. So Argos has a little bit more exposure to the seltzer market.
Some of your peers.
Could you just comment on what Youre seeing there and then.
Maybe if you can comment also on if theres any differences between regions are you seeing any improvement in.
Yes, some of those other newer categories in Europe .
Thank you.
Sure.
So I think thats out to market is sort of broadly with the big players are projecting it I think.
I think most of the big fan out there.
Other day with US 10 with them at sort of 10.
We see it in that range.
Mid to high single digits for the year.
And what we're seeing then on our numbers is a very significant recovery because.
The inventory is being worked through increasingly.
Someplace passed and others.
Is happening.
And we're also seeing the replacement of imported cans.
In the mix of those customers so.
Yes, we're seeing a very significant recovery in our sales.
Absolutely in line with our.
Our forecast and we expect.
A decent level of growth for the years ahead, I think that that needed to be a shakeout and.
Now the main players in the category can start to manage the category properly in terms of promotion and innovation and pricing and shelf management. So we see that's what will happen over the next few years plus I think we see the category as being the seltzer in the ready to drink space and obviously as I said before the ready to drink cocktails space is very hot lots of innovation.
And lots of retailer interest in space being dedicated to that.
Then on the other categories energy as I said very strong and Thats the broader energy space.
I think sparkling water continues to do very well.
Now what we're seeing is this innovation into Stillwater say, we've got a couple of brands, we've mentioned liquid death on the call before but.
People really pushing into that space.
In a significant way, obviously still from a small base but.
But looking good and thats on on both sides of the Atlantic.
Coffee in line continued to be areas.
Areas going into cans.
And in General I think innovation still strongly weighted towards cans in the beverage space.
And just considering all of what you just mentioned is there possibility that you'd be announcing more greenfield expansions or.
How do you.
Plan to meet all that demand.
So obviously, we have already been announced.
So we did announce Arizona.
Some of the projects, we've announced we've got more space within them.
We are also still discussing projects with customers. So I think we will we will take that.
Over the course of this.
This year next year to see what more capacity we need in addition to the current plan.
Thanks.
Thank you.
Our next question comes from Roger Spitz of Bank of America. Your line is open. Please go ahead.
Alright, thanks, very much our first can you on the $600 million preferred shares can you just remind us what the use of proceeds.
Okay.
David Tuna.
Yes savi.
The intention of the use of proceeds Walter.
<unk> preference share issue and it was for some of our best months.
And therefore kind of support the pgi that was over and above that that we initially set out during the transaction.
Got it and then I think.
I don't think you said I missed it.
Can you update us on any other pieces of guidance after EBITDA, alright, I think last quarter.
And the Capex was $1 one point.
Cash taxes, working capital inflow outflow anything you can tell us half please.
So I'll hand that to David Yeah, sure I'll say I'll have one investment in <unk> for the year will be of the order of 1 billion scale.
Despite the very much close to what we said last time cash tax 50 million, which is I think pretty much in line with last time no.
Change on maintenance Capex working capital, there's probably a slight headwind to circa $50 million, which broadly arises from the closing of <unk>.
Our working capital balances with input costs, LMA and premium and that sort of thing has already referred to earlier.
But otherwise we're pretty much levels stay with where we expect it to be previously.
Great I don't know if you want to.
Let us now.
What do you expect your 2022 volume growth.
We will be when the dust settles.
I think we said mid teens.
In the remarks.
Got it alright, thank you Brian .
Very much.
Thank you.
We'll go next to Jamie Harris with Goldman Sachs. Your line is open. Please go ahead.
Good morning. Thank you for taking my questions. My first one just relates to the full year EBITDA guidance against kind of what youre guiding for for the first half. So I guess first of all with regards to that 25 million kind of price cost headwind as you discussed earlier is that primarily rolling through in <unk>.
And then secondly, if I kind of back into second half implied EBITDA guidance can you kind of walk us through what youre thinking about in terms of recovery on that price cost versus volume.
So.
Yes.
First your question, we do see the drag being heavily.
Second quarter weighted because obviously with <unk>.
Some lag to the recovery.
And then we will always Ht weighted in our plan this year because of the capacity ramp. So we have capacity around going on particularly in Q1 and Q2. So we're always significantly H two weighted.
Outside of the plan Hasnt changed so the real thing going on.
As you say the price cost.
Squeezed that's occurring.
European energy to both direct and indirect energy costs and the <unk>.
The majority of that impact is hitting in the second quarter.
Got it and just.
To clarify that $25 million that is all kind of energy and other cost inflation, that's not related to the FX that you discussed right.
Correct, yes, the FX is as capacity additions about today's spot rates.
But again the volatility so high we we took an average Q1 for that.
Understood. Okay. Thank you and then my final one just on the balance sheet I noticed you had a $100 million revolver draw.
Can you kind of walk us through kind of a is that mostly just kind of timing given what.
What happened with the markets and your kind of plans around the preference shares and then b.
Going forward as we kind of think about seasonality in your working capital needs throughout the year do you kind of anticipate the revolver being.
A source of cash in the first half of the year as you fund working capital or is it mostly kind of related to what we're seeing on input cost inflation and again the timing of the preference shares.
Yeah, No look there.
The ABL facility is always designed as a kind of working capital facility. We did have some natural seasonality to our business and our working capital peak is usually in Q1.
Say, it's a natural point in our cycle.
The ABL facility.
Clearly at the point, while we have other income coming from that.
And we need to engage with that.
Normal working capital cycle will be built in Q1.
Steady really three quarters of the year.
That's all very helpful. Thank you for the time.
Thanks.
We'll take our next question from Paul Brennan with Goldman Your line is open Sir. Please go ahead.
Hi, good afternoon.
My question is similar to the previous.
Previous speaker just about.
And a step up in expected performance in the second half of the year.
Is it possible for you to kind of quantify the overall.
Drag and J H, one from input cost.
Et cetera.
Instead as an additional 25, but it'd be helpful to understand kind of what that what the total CAGR. That's hurting the numbers in the first half and how that kind of progressing into the second half of the year.
I mean is the addition of.
The guidance, we gave you the key for us in this guidance so.
And the key for us.
FX.
Around $20 million and another.
15.
Input cost timing.
<unk> so you'll remember we spoke about the fact that our inflation plus utilities do sometimes lag.
So we have that 15, and then essentially we've added the 25 to that I think those two numbers.
A number of LNG for the overall input cost drag for 2022.
Got it so it sounds like second half of the year you expect.
That would be pretty flat.
Price increases your questions here to offset.
Yes.
Okay.
Go ahead sorry.
Just one more question from me.
Just on the.
The EBITDA guidance revision from 775 to 750.
Sorry, if you've mentioned this already but is there any FX in that at all or is 25 all operational.
So the 25 years old operations. So that was the piece we mentioned at the top.
And we saw there was some confusion around that so that's all at the same essentially the same FX rate.
<unk>.
He took today's spot that's another 510 risk.
We took the Q1 average because of the volatility on the rates.
Understood. Thank you.
Okay.
Our next question comes from Greg excuse me.
Wells Fargo Securities. Your line is open. Please go ahead.
Oliver David Good morning.
Hi.
I was curious can you talk to us a little bit about contract protections that you have.
Think for a while we're hearing kind of take or pay type provisions.
Can you talk about number one I guess practically speaking how that might play out in the event that.
Volumes don't materialize.
The way you envision and then second I guess, a very direct question.
Any of your.
Current.
Capacity additions underpinned or dependent on Stillwater or is that something that would be above and beyond and sort of.
I guess, the white space for you as it sits today.
Yes, the second one's easy announced is not none of it dependent on Stillwater. So I think when we're putting the investment program together, we saw that more middle of the decade and the way. The next wave of growth. Some of it is coming quicker than we thought as I mentioned, we see.
See we always expected that it would be the challenger brands that come into it because the.
The existing brands of such.
<unk> invested asset base and also are not familiar with the <unk> in the same way as CSD player would be.
And that is what we're seeing so we're seeing challenger brands come into the space with new new brands and new propositions and I think that will be the catalyst.
For a more significant movement, but node.
World capacity plan is not really I mean.
I think we have really small numbers and nothing that would be significant to the capacity build.
And then on your first question I think I mean, we always talked about we have a range of contractual protections around volumes some.
Take or pay some min Max type arrangements, obviously that go into lots of detail on that.
On a big goal, but I think that.
We're comfortable with those protections and.
Sometimes things go wrong.
They can either be implemented as they are or they can be the basis for other commercial discussion. So so we're comfortable overall with the level of volume protection that we've got in these contracts.
Okay. Thank you and then I guess as <unk>.
Others are sort of probing around this call we've had an opportunity to digest quite a few earnings this week and from competing substrates.
One of the things Thats interesting to me.
If I think about the Europe market specifically.
There are some glass container capacity that's offline in the duration of which is sort of uncertain. At this time, but have you had any inbounds from specifically your beer customers.
Saying, Hey look we were previously.
Previously looking to.
But our beer and glass containers and now there is a shortage.
I don't know how much slack capacity there is for the incumbent suppliers in Continental Europe start to take that on.
Is that an opportunity as we sit today or is that going to be offset by the normalization of consumption that we're hearing about kind of in the U K.
I think there is some degree to which that that is offset by the changing consumer patterns. As we go into Q2, and we have a sense. This is true for the industry rule pretty capacity constrained in any way.
So I think that that will find its way probably into the the other players.
The glass in the glass industry is my sense of it.
So I don't think we are hearing that specifically.
From customers not to date.
And Doug explained all the reasons for why that putting demand, but I've not heard that one specifically.
Okay, and then last one for me has anything changed with the magnitude of your existing investments or potentially I guess future.
Other than COVID-19 related or supply chain related delays.
In dollar terms or number of lines slashed.
Number of units that are probably going to be commercialized here in the next 18 months.
No no not since our last update so there are some there are some small delays to the Brazil projects some equipment delays on the project in the northeast and undergoing us.
Had some delays finalizing the land acquisition.
So the greenfield administer eyes, but given that we had a soft some of this year that essentially that means that we built a very appropriate ramp up timing of our capacity to their demand.
Apart from that we will approach it.
So scale.
Exactly as we described them in the last few calls.
I think the one thing I'd probably add to that.
We look to take advantage of economic financing opportunities.
I'd say, our leasing opportunities arise that allow us to preserve some cash flight and we're taking advantage of that.
Thank you.
Thanks.
A reminder, that it with star one if you have a question or comment.
Well go to George Staphos with Bank of America. Your line is open. Please go ahead.
Thank you very much I guess two last ones for me so.
On the on the on the dividend if in fact the.
Financing market remains tighter than you would like.
And you can't do the preferred with the timing that you would wish would that alter at all your views on both the regular dividend.
$200 million in the fourth quarter and then.
Question.
Again, and David touched on this we've been hearing from a lot of the other.
<unk> companies.
Thus far during reporting.
One of them talked about a move that theyre seeing which typically happens.
During weaker economic periods to returnable glass and format out of one way are you seeing anything and I'm, assuming the answer is no.
In terms of a larger shift to returnable packaging to glass had a one way in Brazil.
And assuming your answer is no why why aren't you concerned thanks, guys and good luck in the quarter.
Thanks, Joe it's yet that doesn't have a lot to add on the perhaps I think we are confident in our financing activities and then our dividend policy.
I think the.
On Brazil.
The answer is no. So we don't see a long term shift that.
And it's a very difficult thing to shift back because essentially the consumer gets comfortable with cheaper.
The off trade.
And I think that but what you can see as you said <unk>.
<unk> had the experience of many years when there is a lower economic.
<unk> activity that can be a shift back.
For margin reasons.
Out of.
The suppliers.
But I think that it won't stick and I think it is linked to a bit the opening up again at the on trade.
And the reason why it's sticky is because then the the market participants will go back to.
Promoting in the off trade and gaining share.
And we've seen all of the strategies of the major Brewers in in Brazil align around that in the last few years. After a period were somewhat more off trade focused somewhat more on trade focus now.
And very often trade focus and I think it is always been a feature of a period of.
Lower demand overall, and therefore, you might as well take some margin in the on trade.
I think that we don't see that as a permanent.
Feature I think that from what we've seen.
In other geographies. These systems once they start to decline they actually become as we thought about sub scale and they can actually collapsed and get significant demand.
So the one way packaging and we also see strong demand no more might packaging, both cans and glass in Brazil, So I think those <unk>.
Those trends are going to persist.
What we're seeing is just a temporary temporary phenomenon.
Relatedly one of the Brewers is adding self make glass capacity and this is not a super new concentrating thats been out there for a little while but again why aren't you troubled by that.
Relative to obviously the investments youre, making in cans in Brazil, Thanks, guys and I'll turn it over.
Okay.
I think Joe is just because of the.
The shortages in both substrate.
There is a significant shortage in one way glass as well as in one way cans.
And where we see all the market trends going in Brazil, we see both needing significant additional capacity and so that.
That particular capacity bill it doesn't concern us.
Thank you very much.
Yes.
We'll go next to Ed Brucker with Barclays. Your line is open. Please go ahead.
Thanks for the question this morning.
So Russia is a producer of aluminum.
And really a large ex energy ex quarter, especially in the European area. So I just wanted to see if <unk> seen any supply chain issues.
With either aluminum supplier in energy availability.
In the first quarter and then how youre looking at for the rest of the year.
Sure. So yes, I think on the <unk> side, and we don't see any impact.
Ending up enrolling that was produced and used within Russia.
None of our supply sources, we're dependent on it and we see plenty of other.
Sources and ups.
Upstream. So so we're not concerned on that piece of it obviously the energy is the key one.
We don't know better than anyone else at this current stage.
It appears that the gas is still flowing and while it's still flowing although it's expensive because of concerns over disruption.
Industry continues and as long as that's the case, we will we'll be fine.
<unk> as I say, we don't know better than the next person at this point, we are assuming it will continue in the projections, we've given you today.
Got it and then onto the balance sheet leverage is up to four two times.
Above your leverage target range I just wanted to get your thoughts on how you plan on getting back to that leverage target is it is it going to be solely through earnings or do you see an opportunity to reduce debt.
Or is it getting to that leverage range kind of contingent on getting that preferred shares done.
No I think the overall plan.
Significant earnings growth.
Way with Delevering, and we would always plan to have a phase of being a little bit higher than our <unk>.
Targets, and then coming down over time.
David for anymore.
Right.
Leverage at Q1 as exact cash in line with the way we internally we would have targeted just track.
Traction in API and is already illustrated in his prepared remarks.
The cash flow conversion on the EBITDA is so strong that that gives us a natural deleveraging effect very quickly.
And with no other questions holding I'll turn the conference back for any additional or closing comments.
Thank you everyone for your time and look forward to talking to you next quarter.
Ladies and gentlemen that will conclude today's call. We thank you for your participation you may disconnect at this time.