Q3 2022 Ardagh Metal Packaging SA Earnings Call

October 27, 2022

Thank you operator and welcome everybody. Thank you for joining today for our metal packaging third quarter 2022 earnings call.

Which follows the earlier publication of <unk> earnings release for the third quarter.

We have also added an earnings presentation onto our investor website for your reference.

I am joined today by Oliver Graham Anp's, Chief Executive Officer, and David Bourn, A&P as Chief Financial Officer.

Before moving to your questions.

I'll first provide some introductory remarks around <unk> 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.

Including those set forth in <unk>, most recently filed form 20-F, with the SEC and any other public filings.

A&P as our earnings release and related materials for the third quarter. It can be found on <unk> website at <unk> metal packaging Dot com.

Information regarding the use of non <unk> financial measures May also be found in the notes section of the earnings release.

Which also includes a reconciliation to the most comparable <unk> measures of adjusted EBITDA.

<unk> operating cash flow and adjusted free cash flow.

Details of A&P as forward looking statements disclaimer, maybe found in Anp's earnings release.

I will now turn the call over to Oliver Graham.

Thank you Steven.

We experienced a challenging third quarter of 2022.

While global shipments increased by 9% compared with the same period last year, earning.

Earnings were below our expectations.

Profits were impacted by a softening in demand conditions relative to our forecast in both Europe and the Americas.

Together with a reduction in fixed cost recovery.

We expect these conditions to persist through the fourth quarter and into the first half of 2023.

In response, we are taking a disciplined approach to managing our cost and capacity.

<unk> near term curtailments of some of our production footprint.

We are tightly managing our inventory and have further flexed our growth investment program.

Near term demand headwinds reflect further weakening in the hard seltzer category in North America inflationary pressures across core categories, including CFA and sparkling water and further weakness in the beer category in Europe .

However, the secular trends underpinning the attractive growth outlook for the industry remain unchanged.

Those secular trends have continued as evidenced by firstly consistent share gains for the beverage can relative to other packaging substrates.

The mix of innovation with over 80% of new products favoring the beverage can is that package of choice.

And thirdly ever increasing engagements with customers to help them enhance their own sustainability profile based on the infinitely recyclable nature of the beverage can.

It is worth remembering that in 2019 before the pandemic the photo multiple supply chain challenges, we faced award in mainland Europe , and now a 40 year record level of inflation.

The North American market grew at 33, 5% Euro.

Europe at 6% and Brazil at 14%.

The fundamental drivers of that growth have not changed.

These include the growth of categories packaging, Ken's, such as energy drinks the.

The beverage can the effectiveness of the package to maintain beverage quality and communicate to the consumer.

The beverage cabs efficiency is reflected in a very low cost through the supply chain.

And the strong sustainability credentials of the Ken based on its high recycling rates and levels of recycled content.

In addition, the beverage counts performance has always proven resilient through economic cycles.

So while we are in unusually uncertain times for forecasting as we look out to 2023, we anticipate market demand growth in all our markets at the level of low single digit percentage in North America, and Europe , and mid single digit percentage for Brazil.

In summary, we are confident in the beverage cans enduring secular growth tailwind and the maturity of our investment program leaves us very well placed to serve this growth.

At this time, we are focused on managing through a complex operating environment. In addition to a disciplined management of our footprint and our operating costs.

This includes addressing our energy requirements recovering exceptional inflation and progressing our sustainability agenda.

On that agenda, we were delighted to recently gained approval from the science based targets initiative for our greenhouse gas emissions reduction target.

And to be awarded and improved <unk> platinum rating as part of the wider group.

<unk> in the top 1% of companies assessed.

We recently published our sustainability update report.

We're also co sponsors alongside chrome of the global aluminium Ken sustainability summit in Rome.

Together organizations globally from across the aluminum beverage can value chain.

Turning our attention to Amc's third quarter results.

We recorded revenue of $1 2 billion.

Which represented growth of 21% on a constant currency basis.

Dominantly, reflecting the pass through to customers of higher input costs and strong volume mix growth.

Adjusted EBITDA of $140 million.

Was 15% lower than the prior year on a constant currency basis.

This was principally due to input cost headwinds, partly offset by favorable volume effects from the group's growth investment program.

Total beverage can shipments in the quarter were 9% higher than the prior year with growth well spread across our global footprint supported by the contribution of our growth investments.

Specialty cans represented 46% of global shipments in the quarter up from 44% in the prior year quarter.

Our specialty mix is higher still at 62% in the third quarter increases of 50, <unk>, Canada, and Europe , where some of our competitors include in that definition of specialty Chem.

Looking at <unk> results by segment and at constant exchange rates.

Revenue in the Americas increased by 23% to $680 million, mainly due to the pass through of higher input costs and favorable volume mix effects.

Shipments were 10% higher than the third quarter of 2020 with increases in both market driven by growth investments and improved momentum in Brazil.

In North America shipments grew by a high single digit percentage for the quarter.

Growth was particularly strong in carbonated soft drinks, but with some softness in sparkling water and continued pressure in the hard seltzer category.

Our new capacity additions continue to support shipment growth that the near term growth outlook is softer as high retail pricing for our product impacts on demand.

Resulting in ongoing customer destocking.

As we emphasized on our last earnings call. We have added increased flexibility to our network and we will manage our capacity in a disciplined manner to match supply with demand conditions, and creating near term curtailment action and further measures in 2023.

In Brazil third quarter shipments grew by a low teens percentage.

Outperforming the market, which returned to high single digit growth.

Our outperformance reflected customers seeking to diversify their supply.

Adjusted EBITDA in the Americas increased by 2% to $102 million in the third quarter.

Strong volume growth from increased capacity was largely offset by higher operating costs caused principally by fixed cost under absorption as we align production with demand.

Looking forward.

We expect continued strong shipment growth in the Americas of new capacity continues its ramp up in North America and as the market trends continue to normalize in Brazil held by an unrestricted summer period.

In Europe third quarter revenue increased by 19% on a constant currency basis to $493 million.

Compared with the same period in 2021.

Shipments for the quarter grew by 9% on the prior year supported by the ramp up of installed capacity in the UK and Germany.

Across categories soft drinks performed well, but demand has been lower and alcoholic beverages.

There was additional continued weakness in the export market for filtering due to elevated freight costs.

We noticed a slowdown in activity towards the end of the quarter, which may indicate that inflationary pressures are starting to have some impact on consumer demand.

Third quarter adjusted EBITDA in Europe fell by 42% to $38 million.

As input cost headwinds exceeded the contribution from higher shipments.

We also incurred costs related to unusual metal valuation timing issues as a result of holding higher raw materials inventory for longer than anticipated while metal prices fell during that period.

But we were able to offset this impact through positive one off factors and we do not expect these costs to reoccur in the fourth quarter.

Looking to the remainder of 2022 shipments in the fourth quarter unlikely to see a modest decline, reflecting a strong prior year comparable.

Operator: to Stephen Lyons. Please go ahead, sir.

Operator: To Stephen Lyons. Please go ahead, sir.

As part of our actions to manage our capacity, we will not below the line in 2023 to balance our market needs.

Stephen Lyons: Thank you, operator, and welcome everybody. Thank you for joining today for Ardagh Metal Packaging's Q3 2022 Earnings Call, which follows the earlier publication of AMP's earnings release for the third quarter. We have also added an earnings presentation onto our investor website for your reference. I am joined today by Oliver Graham, AMP's Chief Executive Officer, and David Bourne, AMP's Chief Financial Officer. Before moving to your questions, we'll first provide some introductory remarks around AMP'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.

We are well advanced on building out our energy hedging target for 2023 and.

And in discussions with our customers to ensure a timely.

And effective posture of our energy costs.

Since our last update the near term energy outlook in Europe has improved with gas storage levels in excess of expectations.

Stephen Lyons: I am joined today by Oliver Graham, AMP's Chief Executive Officer, and David Bourne, AMP's Chief Financial Officer. Before moving to your questions, we'll first provide some introductory remarks around AMP'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.

And various emerging national supports and coordinated European wide energy measures.

We will continue to monitor the situation and as we previously mentioned the beverage can sector has historically been favored as an essential industry by governments most recently during COVID-19.

As we look ahead to 2023, the price resets within our multiyear contracts for non metal and non energy input costs will benefit from a more significant uplift as calculated by the elevated PPI curve in line with current inflation levels.

Stephen Lyons: 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 AMP's most recently filed Form 20-F with the SEC and any other public filings. AMP's earnings release and related materials for the third quarter can be found on AMP's website at ardaghmetalpackaging.com. Information regarding the use of non-IFRS financial measures may also be found in the notes section of the earnings release, which also includes a reconciliation to the most comparable IFRS measures of adjusted EBITDA, adjusted operating cash flow, and adjusted free cash flow. Details of AMP's forward-looking statements disclaimer may be found in AMP's earnings release. I will now turn the call over to Oliver Graham.

Turning to our growth initiatives during the third quarter A&P made additional growth investments of $129 million.

Our investment program is now well advanced and we will continue to contribute to future shipments growth.

Our project delivery teams continued to deliver our investments largely to budget, despite the inflationary and supply chain challenges.

As previously outlined we will be disciplined in our management of capacity and in any additions. Our objective is to match supply with anticipated demand from long term contracts offering attractive economic terms.

Stephen Lyons: Information regarding the use of non-IFRS financial measures may also be found in the notes section of the earnings release, which also includes a reconciliation to the most comparable IFRS measures of adjusted EBITDA, adjusted operating cash flow, and adjusted free cash flow. Details of AMP's forward-looking statements disclaimer may be found in AMP's earnings release. I will now turn the call over to Oliver Graham.

We are in constant dialogue with our customers to understand their needs and we will be reactive to changing demand conditions.

In response to the softer near term demand.

We are further revising our expectation for 2022 growth investments to approximately $600 million.

Oliver Graham: Thank you, Stephen. We experienced a challenging Q3 2022, while global shipments increased by 9% compared with the same period last year, earnings were below our expectations. Profits were impacted by a softening in demand conditions relative to our forecast in both Europe and the Americas, together with a reduction in fixed cost recovery. We expect these conditions to persist through the Q4 and into the first half of 2023. In response, we are taking a disciplined approach to managing our costs and capacity, including near-term curtailment of some of our production footprints. We are tightly managing our inventory and have further flexed our growth investment program. Near-term demand headwinds reflect further weakening in the hard seltzer category in North America, inflationary pressures across core categories, including CSD and sparkling water, and further weakness in the beer category in Europe.

Flip between under $500 million of Capex and the remainder through leasing.

This represents a reduction of nearly $500 million.

Relative to our expectation at the beginning of the year.

To recap on our some of our more recent growth investment activity in North America, we started up capacity in Huron, Ohio.

We are re phasing some of the further capacity come from this project into the first half of next year.

Following the previously completed expansions in Winston Salem, North Carolina in Olive branch, Mississippi, We do not anticipate adding any new capacity to the market in the near term.

Oliver Graham: In response, we are taking a disciplined approach to managing our costs and capacity, including near-term curtailment of some of our production footprints. We are tightly managing our inventory and have further flexed our growth investment program. Near-term demand headwinds reflect further weakening in the hard seltzer category in North America, inflationary pressures across core categories, including CSD and sparkling water, and further weakness in the beer category in Europe.

In Europe , our near term plans include our previously set out capacity expansions of 109 eight in Germany in France in the first half of 2023.

In Brazil, and additional line expansion Annegarn us will complete in the first quarter of 2023.

I'll now briefly hand over to David to talk you through our financial position before finishing with some concluding remarks.

Oliver Graham: However, the secular trends underpinning the attractive growth outlook for the industry remain unchanged. Those secular trends have continued, as evidenced by, firstly, consistent share gains for the beverage can relative to other packaging substrates. Secondly, the mix of innovation, with over 80% of new products favoring the beverage can as their package of choice. And thirdly, ever-increasing engagements with customers to help them enhance their own sustainability profile based on the infinitely recyclable nature of the beverage can. It is worth remembering that in 2019, before the pandemic, before the multiple supply chain challenges we faced, a war in mainland Europe, and now a 40-year record level of inflation, the North American market grew at 3, 3.5%, Europe at 6%, and Brazil at 14%. The fundamental drivers of that growth have not changed.

Thanks, Tony and Hello, everyone.

During the quarter, we issued $250 million.

A perpetual redeemable non convertible preference shares.

And also successfully upsized, our ABL facility by $90 million to $415 million.

We ended the quarter with a healthy liquidity position of circa 1 billion of which $583 million in cash.

This was notwithstanding an impact on working capital due to softer than expected demand conditions in the quarter, leading to an elevated inventory position.

Oliver Graham: It is worth remembering that in 2019, before the pandemic, before the multiple supply chain challenges we faced, a war in mainland Europe, and now a 40-year record level of inflation, the North American market grew at 3, 3.5%, Europe at 6%, and Brazil at 14%. The fundamental drivers of that growth have not changed.

We expect to see a working capital inflow over the fourth quarter.

With alkylation investment plan, well advanced and further flexed, we anticipate a further reduction in planned future investment in 2023.

Oliver Graham: These include the growth of categories packed in cans, such as energy drinks, the beverage can's effectiveness as a package to maintain beverage quality and communicate to the consumer, the beverage can's efficiency, as reflected in a very low cost through the supply chain, and the strong sustainability credentials of the can, based on its high recycling rate and levels of recycled content. In addition, the beverage can's performance has always proven resilient through economic cycles. So while we are in unusually uncertain times for forecasting, as we look out to 2023, we anticipate market demand growth in all our markets at the level of low single-digit percentage in North America and Europe, and mid-single-digit percentage for Brazil. In summary, we are confident in the beverage can's enduring secular growth tailwinds, and the maturity of our investment program leaves us very well placed to serve this growth.

Our cash outlay will also continue to be lowered to leasing activity.

As such we do not anticipate any external market financing need in 2022 eight.

Net leverage at the end of the quarter up four five times LTM adjusted EBITA.

As a reminder, currency effects are broadly neutral from a leverage perspective, given the currency mix of our debt and our earnings.

Oliver Graham: So while we are in unusually uncertain times for forecasting, as we look out to 2023, we anticipate market demand growth in all our markets at the level of low single-digit percentage in North America and Europe, and mid-single-digit percentage for Brazil. In summary, we are confident in the beverage can's enduring secular growth tailwinds, and the maturity of our investment program leaves us very well placed to serve this growth.

The majority of our debt has also been issued on fixed rate terms and we have no bonds maturing before 2027.

Speaker 1: capital due to softer than expected demand conditions in the quarter, leading to an elevated inventory position. We expect to see a working capital inflow over the fourth quarter. With our growth investment plan well advanced and further flexed, we anticipate a further reduction in planned future growth investment in 2023. Our cash outlay will also continue to be lowered through leasing activity. As such, we do not anticipate any external market financing need in 2023. Net leverage at the end of the quarter at 4.5 times LTM adjusted EBITDA. As a reminder, currency effects are broadly neutral from a leverage perspective given the currency mix of our debt and our earnings. The majority of our debt has also been issued on fixed rate terms and we have no bonds maturing before 2027. We have today announced our fourth quarter dividend of 10 cents per share to be paid later in November . This takes our cumulative dividends for 2022 to 40 cents, which we view as sustainable and is in line with our guidance to pay the 40 cents within the current calendar year. As part of our share buyback program authorized in June , we repurchased a further 32 million dollars of shares in the quarter and this takes our cumulative share repurchases to 35 million to date.

We have today announced our fourth quarter dividend of <unk> 10 per share to be paid later in November .

This takes our cumulative dividends for 2022% to 47.

Which we view as sustainable.

Oliver Graham: At this time, we're focused on managing through a complex operating environment. In addition to a disciplined management of our footprint and our operating costs, this includes addressing our energy requirements, recovering exceptional inflation, and progressing our sustainability agenda. On that agenda, we were delighted to recently gain approval from the Science Based Targets Initiative for our greenhouse gas emissions reduction target, and to be awarded an improved EcoVadis platinum rating as part of the wider Ardagh Group, positioning us in the top 1% of companies assessed. We recently published our sustainability update report, and we're also co-sponsors, alongside Crown, at the Global Aluminum Can Sustainability Summit in Rome, bringing together organizations globally from across the aluminum beverage can value chain. Turning our attention to AMP's Q3 results.

And it's in line with our guidance to pay off.

Within the current calendar year.

As part of our share buyback program authorized in June we repurchased a further $32 million of shares in the quarter and this takes our cumulative share repurchases to $35 million to date.

Oliver Graham: On that agenda, we were delighted to recently gain approval from the Science Based Targets Initiative for our greenhouse gas emissions reduction target, and to be awarded an improved EcoVadis platinum rating as part of the wider Ardagh Group, positioning us in the top 1% of companies assessed. We recently published our sustainability update report, and we're also co-sponsors, alongside Crown, at the Global Aluminum Can Sustainability Summit in Rome, bringing together organizations globally from across the aluminum beverage can value chain.

With that I'll hand, it back to Audi.

Thanks, David.

And before taking questions I'd, just like to recap imp's performance and key messages.

Our global shipments grew by 9% supported by growth investments, which will underpin future shipment growth.

Softer than expected demand conditions in the quarter resulted in an earnings performance below our expectations.

In response to which were further re phasing our growth capex temporarily curtailing some capacity tightly managing our inventory and planning further capacity reductions in 2023.

Oliver Graham: Turning our attention to AMP's Q3 results.

Oliver Graham: We recorded revenue of $1.2 billion, which represented growth of 21% on a constant currency basis, predominantly reflecting the pass-through to customers of higher input costs and strong volume mix growth. Adjusted EBITDA of $140 million was 15% lower than the prior year on a constant currency basis. This is principally due to input cost headwinds, partly offset by favorable volume effects from the group's growth investment program. Total beverage can shipments in the quarter were 9% higher than the prior year, with growth well spread across our global footprint, supported by the contribution of our growth investments. Specialty cans represented 46% of global shipments in the quarter, up from 44% in the prior year quarter.

Our growth investment plans are well advanced and we now anticipate a significant reduction in future investment.

And do not expect any external market financing needs for 2023.

We continue to progress our sustainability agenda and are pleased with recent third party recognition of our journey.

And in Europe , we're well advanced on the build outs of our energy hedges for 2023, continuing to progress the recovery of our energy costs and look forward to greater support from the PPI input cost recovery mechanism into 2023.

Speaker 1: With that, I'll hand back to Ollie. Thanks, David. And before taking questions, I'd just like to recap on AMP's performance and key messages. Our global shipments grew by 9%, supported by our growth investments, which will underpin future shipment growth.

Despite the softer near term global demand outlook secular demand trends continue to support the beverage can for which we're very well placed to capitalize.

Oliver Graham: Total beverage can shipments in the quarter were 9% higher than the prior year, with growth well spread across our global footprint, supported by the contribution of our growth investments. Specialty cans represented 46% of global shipments in the quarter, up from 44% in the prior year quarter.

<unk> volume and profit growth into 2023, and we will update with more detailed guidance at our full year results.

Our current view of the market leads us to project global shipment growth for 2022 of our mid single digit percentage.

Speaker 2: Tougher than expected demand conditions in the quarter resulted in an earnings performance below our expectations, in response to which we're further rephrasing our growth capex, temporarily curtailing some capacity, tightly managing our inventory and planning further capacity reductions in 2023.

Oliver Graham: Our specialty mix was higher still, at 62% in Q3, inclusive of 50 centiliter cans in Europe, which some of our competitors include in their definition of specialty cans. Looking at AMP's results by segment and at constant exchange rates. Revenue in the Americas increased by 23% to $680 million, mainly due to the pass-through of higher input costs and favorable volume mix effects. Shipments were 10% higher than Q3 2021, with increases in both markets driven by growth investments and improved momentum in Brazil. In North America, shipments grew by a high single-digit percentage for the quarter. Growth was particularly strong in carbonated soft drinks, but with some softness in sparkling water and continued pressure in the hard seltzer category.

Full year 2022, adjusted EBITDA is projected to be in the order of $640 to $650 million, assuming a euro dollar parity exchange rate to year end.

Speaker 2: Our growth investment plans are well advanced and we now anticipate a significant reduction in future investment and do not expect any external market financing need for 2023.

This compares to the prior year adjusted EBITDA of $630 million on a constant currency basis.

As a reminder, and as a proxy everyone movements in the euro dollar rate represent circa $2 million.

Speaker 2: We continue to progress our sustainability agenda and are pleased with recent third-party recognition of our journey.

On an annual basis.

Our estimate compares with our previous full year, adjusted EBITDA 2020 guidance of $710 million.

Speaker 2: And in Europe , we're well advanced on the build out of our energy hedges for 2023, continue to progress the recovery of our energy costs, and look forward to greater support from the PPI input cost recovery mechanism into 2023.

Of the $60 million to $70 million reduction the majority relates to volume mix effects through both a lower top line benefits as well as weaker fixed cost absorption and manufacturing inefficiencies with a similar impact expected in Q4 as to that experienced in Q3.

Oliver Graham: In North America, shipments grew by a high single-digit percentage for the quarter. Growth was particularly strong in carbonated soft drinks, but with some softness in sparkling water and continued pressure in the hard seltzer category.

Speaker 2: Despite the softer near-term global demand outlook, secular demand trends continue to support the beverage can for which we're very well placed to capitalise.

Oliver Graham: Our new capacity additions continue to support shipment growth, but the near-term growth outlook is softer as higher retail pricing for our products impacts on demand, resulting in ongoing customer destocking. As we emphasized on our last earnings call, we have added increased flexibility to our network, and we will manage our capacity in a disciplined manner to match supply with demand conditions, including near-term curtailment action and further measures in 2023. In Brazil, Q3 shipments grew by a low teens %, outperforming the market, which returned to high single digit growth. Our outperformance reflected customers seeking to diversify their supply. Adjusted EBITDA in the Americas increased by 2% to $102 million in Q3. Strong volume growth from increased capacity was largely offset by higher operating costs, caused principally by fixed costs under absorption as we aligned production with demand.

Speaker 2: We see volume and profit growth into 2023 and we will update with more detailed guidance about

In terms of guidance for the fourth quarter adjusted EBITDA is anticipated to be of the order of $175 million to $195 million.

Speaker 2: Our current view of the market leads us to project global shipment growth for 2022 of a mid single digit percentage.

Which compares with prior year adjusted EBITDA of $157 million on a constant currency basis.

Speaker 2: Full year 2022 adjusted EBITDA is projected to be in the order of $640 to $650 million.

Having made these opening remarks, we'll now proceed to take any questions that you may have.

And if you would like to ask a question. Please signal by pressing star one on your telephone keypad.

Speaker 2: Assuming a EURO-USD parity exchange rate to year end.

Speaker 2: This compares to the prior year adjusted EBITDA of $630 million on a constant currency basis.

Ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment again star one to ask a question.

Oliver Graham: In Brazil, Q3 shipments grew by a low teens %, outperforming the market, which returned to high single digit growth. Our outperformance reflected customers seeking to diversify their supply. Adjusted EBITDA in the Americas increased by 2% to $102 million in Q3. Strong volume growth from increased capacity was largely offset by higher operating costs, caused principally by fixed costs under absorption as we aligned production with demand.

Speaker 2: As a reminder, and as a proxy, every one cent movement in the Eurodollar rate represents circa $2 million on an annual basis.

And our first question today comes from Angel Castillo of Morgan Stanley .

Speaker 2: Our estimate compares with our previous full year adjusted EBITDA 2022 guidance of $710 million.

Hi, Good morning, and thank you for taking my question.

I was just wondering if you could give us a little bit more color I know you havent laid out a particular I guess theres a specific number for 'twenty.

Speaker 2: Of the $60 to $70 million reduction, the majority relates to volume mix effects, through both a lower top-line benefit as well as weaker fixed-cost absorption and manufacturing inefficiencies, with a similar impact expected in Q4 as to that experienced in Q3.

<unk>.

The anticipated volume and profit growth.

As we think about all the different buckets and levers that should be benefiting such as PPI on cost recovery and pulling back on capex.

Oliver Graham: Looking forward, we expect continued strong shipment growth in the Americas as new capacity continues its ramp-up in North America, and as the market trends continue to normalize in Brazil, helped by an unrestricted summer period. In Europe, third quarter revenue increased by 19% on a constant currency basis to $493 million, compared with the same period in 2021. Shipments for the quarter grew by 9% on the prior year, supported by the ramp-up of installed capacity in the UK and Germany. Across categories, soft drinks perform well, but demand has been lower in alcoholic beverages. There was additional continued weakness in the export market for filled drinks due to elevated freight costs. We noticed a slowdown in activity towards the end of the quarter, which may indicate that inflationary pressures are starting to have some impact on consumer demand.

Speaker 2: In terms of guidance for the fourth quarter, adjusted EBITDA is anticipated to be of the order of $175 to $185 million, which compares with prior year adjusted EBITDA of $157 million on a constant currency basis.

Ravi how would you kind of.

As described that bridge and could you quantify some of those buckets. So we can kind of kind of a better sense for that profit growth that you anticipate year over year.

Yes, Hi, Andrew I think we're not going to quantify all of them on this call going through our budget process at the moment and we'll update in more detail in February but just to give you. Some of the pieces that we'll be talking about that and as we said, we see both volume and profit growth into 2023, we've given you the mark.

Speaker 2: Having made these opening remarks, we'll now proceed to take any questions that you may have.

Speaker 1: If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, it is star 1 to ask a question.

Oliver Graham: Across categories, soft drinks perform well, but demand has been lower in alcoholic beverages. There was additional continued weakness in the export market for filled drinks due to elevated freight costs. We noticed a slowdown in activity towards the end of the quarter, which may indicate that inflationary pressures are starting to have some impact on consumer demand.

<unk> guidance of what we think the market will go out and we would expect to outperform.

That market growth and we also see that we're going to recover.

Speaker 1: Our first question today comes from Angel Castillo of Morgan Stanley .

Speaker 3: Hi, good morning and thank you for taking my question. I was just wondering if you could give us a little bit more color. I know you haven't laid out a particular, I guess, specific number for 2023, but you noted they anticipate volume and profit growth.

'twenty three inflation in Europe over 2022 that we're not clear at this point, depending on how that plays out that we'll recover some of the loss that occurred in 2022. So I think those are two or three of the big pieces as I say, we're not going to get into detailed guidance on this call because it does remain.

Oliver Graham: Q3 Adjusted EBITDA in Europe fell by 42% to $38 million, as input cost headwinds exceeded the contribution from higher shipments. We also incurred costs related to unusual metal valuation timing issues as a result of holding higher raw materials inventory for longer than anticipated, while metal prices fell during that period. But we were able to offset this impact through positive one-off factors, and we do not expect this cost to reoccur in Q4. Looking to the remainder of 2022, shipments in Q4 are likely to see a modest decline, reflecting a strong prior year comparable. As part of our actions to manage our capacity, we will mothball a line in 2023 to balance our market needs.

Speaker 3: As we think about all the different buckets and levers that should be benefiting such as kind of PPI or cost recovery and pulling back on cutbacks, probably how would you kind of...

Certain operating environment, and we want to go through the <unk>.

Entirety of our budget process to give.

Speaker 3: you guys subscribe that bridge and could you quantify some of those buckets so we we can kind of get a better sense for that profit growth that you anticipate you'll be here

To give the guidance in February .

Understood and then maybe we can I guess in terms of the curtailments and the potential shutdowns that you mentioned and maybe some of that is still kind of.

Speaker 2: Yeah, hi, I think we're not going to quantify all of them on this call and we'll going through our budget process at the moment and we'll update in more detail in February . But just to give you some of the Theses that we'll be talking about then, as we said, we see both volume and profit growth into 2023. We've given you the market guidance of what we think the market will grow at and we'd expect to outperform that market growth and we also see that we're going to recover

And in discussions, but can you give us a sense for maybe what.

Oliver Graham: Looking to the remainder of 2022, shipments in Q4 are likely to see a modest decline, reflecting a strong prior year comparable. As part of our actions to manage our capacity, we will mothball a line in 2023 to balance our market needs.

Kind of the size of the assets are.

Kind of capacity that you have envisioned in terms of the strategy and potential curtailments.

<unk>.

Both in North America, but then the shutdown in Europe .

Yes, I think we could see in a $1 billion to $2 billion of capacity curtailed in North America next year, we could see up to a billion.

Oliver Graham: We are well advanced on building out our energy hedging target for 2023 and in discussions with our customers to ensure a timely, fair, and effective pass-through of our energy costs. Since our last update, the near-term energy outlook in Europe has improved, with gas storage levels in excess of expectations and various emerging national supports and coordinated European-wide energy measures. We will continue to monitor the situation, and as we previously mentioned, the beverage can sector has historically been favored as an essential industry by governments, most recently during COVID. As we look ahead to 2023, the price resets within our multi-year contracts for non-metal and non-energy input costs will benefit from a more significant uplift, as calculated by the elevated PPI curve in line with current inflation levels.

Mothballed in Europe next year, so it's that order of magnitude as we we make sure we balance.

Speaker 2: 23 inflation in Europe over 2022. So we're not clear at this point, depending on how that plays out, that we'll recover some of the loss that we occurred in 2022. So I think those are two or three of the big pieces. As I say, we're not going to get into detailed guidance on this call because it does remain an uncertain operating environment and we want to go through the entirety of our budget process to give the guidance in February .

Supply with demand, we're very focused on remaining in the ninety's utilization rate and maintaining a disciplined stance.

We will be doing that in both markets.

Oliver Graham: We will continue to monitor the situation, and as we previously mentioned, the beverage can sector has historically been favored as an essential industry by governments, most recently during COVID. As we look ahead to 2023, the price resets within our multi-year contracts for non-metal and non-energy input costs will benefit from a more significant uplift, as calculated by the elevated PPI curve in line with current inflation levels.

Very helpful. Thank you.

Okay.

Our next question comes from Anthony Pettinari of Citibank.

Hi, good morning.

Speaker 3: Understood. And maybe we can, I guess in terms of the curtailments and the potential shutdowns that you mentioned, maybe some of that is still kind of in discussions, but could you give us a sense for maybe what kind of the size of the assets or kind of the capacity that you have envisioned in terms of the strategy of potential curtailments and both in North America but then the shutdown in Europe ?

John following up on <unk>, just following up on Angel's question I think at the time of the listing.

Outlined the path to maybe 60 billion units of capacity by 2024, obviously there've been a number of adjustments kind of along the way.

Oliver Graham: Turning to our growth initiatives, during the third quarter, AMP made additional growth investments of $129.9 million. Our investment program is now well advanced and will continue to contribute to future shipments growth. Our project delivery teams continue to deliver our investments largely to budget, despite the inflationary and supply chain challenges. As previously outlined, we will be disciplined in our management of capacity and in any additions. Our objective is to match supply with anticipated demand on long-term contracts offering attractive economic terms. We are in constant dialogue with our customers to understand their needs, and we will be reactive to changing demand conditions. In response to the softer near-term demand, we are further revising our expectation for 2022 growth investment to approximately $600 million, split between under $500 million of CapEx and the remainder through leasing.

With the curtailments and with the decisions you've made this quarter could.

Could you talk about where capacity.

Might be exiting next year exiting 2023 or 2024.

Speaker 2: Yes, so I think we could see 1 to 2 billion of capacity curtailed in North America next year. We could see up to a billion mothballed in Europe next year. So it's that order of magnitude as we make sure we balance.

And so I think that in North America will have completed the capacity build out that we described at the time of the listing I.

Speaker 2: supply with demand, you know, we're very focused on remaining in the 90s utilization rate and maintaining a disciplined stance. And so we'll be doing that in both markets.

I think in both Europe , and Brazil will be behind that curve.

Oliver Graham: Our objective is to match supply with anticipated demand on long-term contracts offering attractive economic terms. We are in constant dialogue with our customers to understand their needs, and we will be reactive to changing demand conditions. In response to the softer near-term demand, we are further revising our expectation for 2022 growth investment to approximately $600 million, split between under $500 million of CapEx and the remainder through leasing.

With some of the re phasing that we've done and some of the plans that we have.

So we I haven't got the exact numbers to hand, we can give you more detail of those in February but it will certainly be behind Europe , and Brazil have completed and in North America.

Speaker 4: Very helpful, thank you.

Speaker 1: Our next question comes from Anthony Petinari of Citibank.

Okay understood.

Speaker 5: Good morning.

Speaker 6: Following up on Angel's question, I think at the time of the listing, you outlined a path to maybe 60 billion units of capacity by 2024. Obviously there have been a number of adjustments along the way. With the curtailments and with the decisions you've made this quarter, could you talk about where capacity might be exiting next year, exiting 2023 or 2024?

And then just can you talk a little bit more about the cost headwinds.

That offset volume growth in Americas and <unk>.

Oliver Graham: This represents a reduction of nearly $500 million relative to our expectation at the beginning of the year. To recap on some of our more recent growth investment activity, in North America, we started up capacity in Huron, Ohio. We are rephasing some of the further capacity to come from this project into the first half of next year... Following the previously completed expansions in Winston-Salem, North Carolina, and Olive Branch, Mississippi, we do not anticipate adding any new capacity to the market in the near term. In Europe, our near-term plans include our previously set out capacity expansions of one line each in Germany and France in the first half of 2023. In Brazil, an additional line expansion in Alagoas will complete in Q1 2023.

America's balls were up 10% year over year at $1 up I think a couple of million dollars can you just talk a little bit more about the.

So the cost bridge for the Americas in the quarter.

Yes. It is all linked to volume so I mean, if you take the Miss it's 95% linked to volume, but the three elements. Firstly, if you like the straight volume. Miss then there's also a significant mix effect.

Speaker 2: So I think that in North America we'll have completed the capacity build out that we described at the time of the listing. I think in both Europe and Brazil we'll be behind that curve with some of the rephrasing that we've done and some of the plans that we have. So I haven't got the exact numbers to hand. We can give you more detail of those in February , but we'll certainly be behind Europe and Brazil. So we'll have completed in North America.

The volumes that we.

We lost relative to expectations with higher margin and then the third element, which we referred to and the cost is the under recovery of fixed costs. So we were expecting obviously to run more cans across the new capacity and when you run the <unk> across that capacity you get an under recovery on your fixed cost. So it's not an SG&A element.

Oliver Graham: In Europe, our near-term plans include our previously set out capacity expansions of one line each in Germany and France in the first half of 2023. In Brazil, an additional line expansion in Alagoas will complete in Q1 2023.

Plant operating costs inefficiencies driven by the lack of volume. So you can take 95% of the Miss in the Americas, which is in North America is linked to volume.

Oliver Graham: I'll now briefly hand over to David to talk you through our financial position, before finishing with some concluding remarks.

Speaker 6: Okay, understood. And then just, can you talk a little bit more about the cost headwinds that offset volume growth in Americas in 3Q? I think, you know, America's balls were up 10% year over year, EBITDA was up, I think, a couple million. Can you just talk a little bit more about the...

David Bourne: Thanks, Ollie, and hello, everyone. During the quarter, we issued EUR 250 million of perpetual redeemable, non-convertible preference shares, and also successfully upsized our ABL facility by $90 million to $415 million. We ended the quarter with a healthy liquidity position of circa $1 billion, of which $583 million is in cash. This was notwithstanding an impact on working capital due to softer than expected demand conditions in the quarter, leading to an elevated inventory position. We expect to see a working capital inflow over Q4. With our growth investment plan well advanced and further flexed, we anticipate a further reduction in planned future growth investment in 2023. Our cash outlay will also continue to be lowered through leasing activity. As such, we do not anticipate any external market financing need in 2023.

Okay.

I will turn it over thanks.

Something.

Our next question is from Kyle White of Deutsche Bank.

Yeah.

Speaker 6: Of the cost bridge for the Americas in in the quarter.

Hey, good morning, Thanks for taking the question I just wanted to focus a little bit on Europe , and if you could provide a little bit more detail about some of the weakness in the quarter that you saw there maybe.

Speaker 2: Yes, it is all linked to volume. So I mean if you take the miss, it's 95% linked to volume, but the three elements of that are firstly the, if you like, the straight volume miss. Then there's also a significant mixed effect in that the volumes that we lost relative to expectations were higher margin. And then the third element, which we referred to in the cost is the under recovery of fixed costs.

Maybe some more details on the metal valuation timing issue that you called out and then I think you said that you noticed some deceleration in demand late in the quarter I believe was because some of the inflation inflationary pressures. So if you could just provide more details on what youre seeing from that standpoint going into <unk> as well.

Speaker 2: So, you know, we were expecting obviously to run more cans across the new capacity, and when you run less cans across that capacity, you get an under recovery on your fixed costs. So it's not an SG&A element, it's a plant operating cost inefficiency driven by the lack of volume. So you can take 95% of the miss in the Americas, which is in North America, is linked to volume.

Sure.

David Bourne: With our growth investment plan well advanced and further flexed, we anticipate a further reduction in planned future growth investment in 2023. Our cash outlay will also continue to be lowered through leasing activity. As such, we do not anticipate any external market financing need in 2023.

So I think that the some of the trends that we saw in the first half continued into the second half a little stronger than we had anticipated obviously, particularly in September and going into October so that is weakness in the northern European markets and particularly in beer.

We saw some weakness.

Growing in the in the co pack segment.

And then as the filled goods for export also continued weaker than we anticipated we thought there'll be some recovery in that so those trends continued and then.

Speaker 5: Okay, that's helpful. I'll turn it over.

David Bourne: Net leverage at the end of the quarter, up 4.5x LTM Adjusted EBITDA. As a reminder, currency effects are broadly neutral from a leverage perspective, given the currency mix of our debt and our earnings. The majority of our debt has also been issued on fixed rate terms, and we have no bonds maturing before 2027. We have today announced our Q4 dividend of $0.10 per share, to be paid later in November. This takes our cumulative dividends for 2022 to $0.40, which we view as sustainable, and is in line with our guidance to pay the $0.40 within the current calendar year. As part of our share buyback program authorized in June, we repurchased a further $32 million of shares in the quarter, and this takes our cumulative share repurchases to $35 million to date.

Speaker 7: Thanks antony.

Speaker 8: Our next question is from Kyle Weis of Deutsche Bank.

As we said I think just towards the end of September and coming into October we did see some weakness, which we know are attributing more to the pressures that are on the consumer in Europe , either because theyre beginning to get squeezed by increasing energy costs or because theres enough narrative around in the in the.

Speaker 9: Hey, good morning. Thanks for taking the question. I just wanted to focus a little bit on Europe and if you could provide a little bit more details on some of the weakness in the quarter that you saw there. Maybe some more details on the metal valuation timing issue that you called out. And then I think you said that you noticed some deceleration and demand late in the quarter. I believe it was because of inflation inflationary pressures. So if you just provide more details on what you're seeing from that standpoint, going into 4 Q as well.

The <unk> to know that it's coming.

And then we saw in the last few days, both two big beer customers reporting out and recognizing some potential demand weakness around consumer inflation. So I think that's why we're just signaling that as a risk I think going into Q4 in the first part of next year on.

Speaker 2: Sure, hi Kyle. So I think that some of the trends that we saw in the first half continued into the second half a little stronger than we'd anticipated, obviously, particularly in September and going into October . So that is weakness in the Northern European markets and particularly in beer. We saw some weakness growing in the COPAC segment. And then as the filled goods for export also continued weaker than we anticipated, as we thought there would be some recovery in that.

David Bourne: This takes our cumulative dividends for 2022 to $0.40, which we view as sustainable, and is in line with our guidance to pay the $0.40 within the current calendar year. As part of our share buyback program authorized in June, we repurchased a further $32 million of shares in the quarter, and this takes our cumulative share repurchases to $35 million to date.

On the metal issue sort of a mid teens million issue.

And as we said on the remarks, we managed to offset a good part of that with a number of one off recoveries that included some take or pay recovery that included some release of some energy hedges.

So there was some one off factors that meant we could offset that and as we said also we don't see that issue persisting into Q4.

Speaker 2: So those trends continued and then, as we said, I think just towards the end of September and coming into October , we did see some weakness which we now are attributing more to the pressures that are on the consumer in Europe , either because they're beginning to get squeezed by increasing energy costs or because there's enough narrative around it in the air to know that it's coming. And then we saw in the last few days both two big beer customers reporting out and...

David Bourne: With that, I'll hand back to Ollie.

Oliver Graham: Thanks, David. Before taking questions, I'd just like to recap on AMP's performance and key messages. Our global shipments grew by 9%, supported by our growth investments, which will underpin future shipment growth. Softer than expected demand conditions in the quarter resulted in an earnings performance below our expectations, in response to which we're further rephasing our growth CapEx, temporarily curtailing some capacity, tightly managing our inventory, and planning further capacity reductions in 2023. Our growth investment plans are well advanced, and we now anticipate a significant reduction in future investment, and do not expect any external market financing need for 2023. We continue to progress our sustainability agenda and are pleased with recent third-party recognition of our journey.

Got it and then as we think about next year for Europe how.

How should we understand thinking about some of the headwinds that youre facing regarding energy are you still expecting a headwind in the first half of the year just trying to understand given the hedging that you have in place as well as some of the cost recovery or are you are correct in that scope.

Energy.

Sure Yeah, So look I think.

Speaker 2: recognizing some potential demand weakness around consumer inflation. So I think that's why we're just signaling that is a risk, I think, going into Q4 in the first part of next year. On the metal issue, I mean, it was sort of a mid-teens dollar million issue. You know, and as we said on the remarks, we managed to offset a good part of that with a number of one-off recoveries. That included some take or pay recovery. That included some release of some energy hedges. So there were some one-off factors that meant we could...

The team has done a lot of work this year and might vary.

Hard to get energy costs recovered both in this year, which we're very close to the target we set ourselves.

Oliver Graham: Our growth investment plans are well advanced, and we now anticipate a significant reduction in future investment, and do not expect any external market financing need for 2023. We continue to progress our sustainability agenda and are pleased with recent third-party recognition of our journey.

Going into next year, and we've had a lot of very constructive conversations with most of our customers.

And as a result of that we have largely split out energy as a cost element in our contractual structures and that means we are confident that we will recover energy costs 23 on.

Oliver Graham: In Europe, we're well advanced on the build-out of our energy hedges for 2023, continue to progress the recovery of our energy costs, and look forward to greater support from the PPI input cost recovery mechanism into 2023. Despite the softer near-term global demand outlook, secular demand trends continue to support the beverage can, for which we're very well placed to capitalize. We see volume and profit growth into 2023, and we will update with more detailed guidance at our full year results. Our current view of the market leads us to project global shipment growth for 2022 of a mid-single digit percentage. Full year 2022 Adjusted EBITDA is projected to be in the order of $640 to 650 million, assuming a euro/dollar parity exchange rate to year-end.

2022 at this point, we don't see ourselves recovering some of the losses from this year in 2023, but we're hopeful as the PPI curve flattens out, which we had expected to do next year and going into 2024 that would recover some of those in 2024.

Speaker 2: offset that and as we said also we don't see that issue persisting into Q4.

Speaker 9: Got it, and then as we think about next year for Europe , how should we understand or think about some of the headwinds still that you're facing regarding energy? Are you still expecting a headwind in the first half of the year? Just trying to understand given the hedging that you have in place as well as some of the cost recovery or your proactive that's going.

We've made very good progress on our hedging program. So we've taken a very disciplined approach to that since the second quarter and we're in good shape now for 2023, and we're in dialogue with our customers about how much of the remaining open portion they want to leave open all they want to hedge out, which obviously is subject to their volume commitments in <unk>.

Oliver Graham: Our current view of the market leads us to project global shipment growth for 2022 of a mid-single digit percentage. Full year 2022 Adjusted EBITDA is projected to be in the order of $640 to 650 million, assuming a euro/dollar parity exchange rate to year-end.

Speaker 4: Energy.

Speaker 2: Sure, yeah, so look I think

Speaker 2: The team has done a lot of work this year and worked very hard to get energy costs recovered both in this year, which we're very close to the target we set ourselves and going into next year. And we've had a lot of very constructive conversations with most of our customers. And as a result of that, we have largely split our energy as a cost element in our contractual structures. And that means we're confident that we'll recover energy costs 23 on the next year.

Making sure that their volume commitments are solid around those hedges. So I think overall, we've done a good job if not a very good job around energy. This.

Oliver Graham: This compares to the prior year Adjusted EBITDA of $630 million on a constant currency basis. As a reminder, and as a proxy, every 1 cent movement in the euro/dollar rate represents circa $2 million on an annual basis. Our estimate compares with our previous full year Adjusted EBITDA 2022 guidance of $710 million. Of the $60 to 70 million reduction, the majority relates to volume mix effects through both a lower top-line benefit as well as weaker fixed cost absorption and manufacturing inefficiencies, with a similar impact expected in Q4 as to that experienced in Q3.

This year.

Got it that's very helpful I'll turn it over.

Thank you.

Our next question comes from Arun Viswanathan of RBC capital markets.

Oliver Graham: Of the $60 to 70 million reduction, the majority relates to volume mix effects through both a lower top-line benefit as well as weaker fixed cost absorption and manufacturing inefficiencies, with a similar impact expected in Q4 as to that experienced in Q3.

Speaker 2: 2022. At this point, we don't see ourselves recovering some of the losses from this year in 2023. But we're hopeful as the PPI curve flattens out, which we'd expect it to do next year and going into 2024, that we'd recover some of those in 2024. We've made very good progress on our hedging program. So we've taken a very disciplined approach to that since the second quarter. And, you know, we're in good shape now for 2023. And we're in dialogue with our customers about how much of the remaining

Zero.

We can move on to George Staphos of Bank of America.

Oliver Graham: In terms of guidance for the Q4, Adjusted EBITDA is anticipated to be of the order of $175 to 185 million, which compares with prior year Adjusted EBITDA of $157 million on a constant currency basis. Having made these opening remarks, we'll now proceed to take any questions that you may have.

Thank you hi, everyone. Good day good morning, Thanks for the details.

Ali David I guess first question I had for you.

If we could you remind us again, what your expectation is for market growth and your growth in 'twenty, three and then longer term.

Speaker 2: open portion they want to leave open or they want to hedge out, which obviously is subject to their volume commitments and making sure that their volume commitments are solid around those hedges. So I think overall we've done a good job, if not a very good job around energy this year.

And with that as the context.

Operator 2: If you would like to ask a question, please signal by pressing star one on your telephone keypad. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, it is star one to ask a question. Our first question today comes from Angel Castillo of Morgan Stanley.

Operator: If you would like to ask a question, please signal by pressing star one on your telephone keypad. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, it is star one to ask a question. Our first question today comes from Angel Castillo of Morgan Stanley.

Assuming those market and our fundamentals are hit.

Trend lines when we.

Would you expect that you'd need to add capacity said differently, how many years, assuming the markets and your performance play out as expected can you go without adding.

Speaker 9: Got it. That's very helpful. I'll turn it over.

Speaker 7: Thank you.

Speaker 8: Our next question comes from Aaron Fiswane of RBC Capital Markets.

New lines, new capacity, recognizing that youll have some latent capacity as well too.

Angel Castillo: Hi, good morning, and thank you for taking my question. Was just wondering if you could give us a little bit more color. I know you haven't laid out a particular, I guess, a specific number for 2023, but you noted that you anticipate volume and profit growth as we think about all the different buckets and levers that should be benefiting, such as kind of PPI or cost recovery, and pulling back on CapEx. Broadly, how would you kind of, you guys describe that bridge? And could you quantify some of those buckets so we can kind of get a better sense for that profit growth that you anticipate year over year?

Two to 3 billion units worth from the Mothballing and curtailments that you expect to do in 2003.

Speaker 8: We've lost Aaron.

Yeah.

Sure Yeah, Hi, George.

So what we see going into 2023 is low single digit market growth in Europe , and North America in mid single digits in Brazil, and then we'd hope that.

Speaker 8: Okay, we can move on to George Stasos of Bank of America.

Speaker 6: Thank you. Hi, everyone. Good day. Good morning. Thanks for the details. Ollie, David, I guess the first question I had for you, if we could you remind us again what your expectation is for market growth and your growth in 23 and then longer term? And with that as the context.

Numbers would pick up 2024 and beyond as the <unk>.

Angel Castillo: And could you quantify some of those buckets so we can kind of get a better sense for that profit growth that you anticipate year over year?

Macroeconomic environment stabilizes as the hard Seltzer category stabilizes, which we would expect to happen in the first quarter of next year.

Oliver Graham: Yeah. Hi, Angel. I think we're not going to quantify all of them on this call, and we're going through our, our budget process at the moment, and we'll update in more detail in February. But just to give you some of the pieces that we'll be talking about then, as we said, we see both volume and profit growth into 2023. We've given you the market guidance of what we think the market will grow at, and we'd expect to outperform that market growth. We also see that we're going to recover 2023 inflation in Europe over 2022, though we're not clear at this point, depending on how that plays out, that we'll recover some of the loss that we occurred in 2022. So I think those are two or three of the big pieces.

As we see the continued sustainability performance of the can play out without all of this operating disruption that where were facing into at the moment. So we'd see we'd see high growth numbers the news for.

Speaker 6: So, assuming those market and RDA fundamentals are hit, those trend lines, when would you expect that you'd need to add capacity? Said differently, how many years, assuming the markets and your performance play out as expected, can you go without adding new lines, new capacity, recognizing that you'll have some latent capacity as well, you know, two to three billion units worth from, you know, the mothballing and curtailments that you expect to do in 23?

For 2024 and beyond and as we said on the.

As I've already said on the call I think we see ourselves outperforming those numbers in 2023.

Oliver Graham: We also see that we're going to recover 2023 inflation in Europe over 2022, though we're not clear at this point, depending on how that plays out, that we'll recover some of the loss that we occurred in 2022. So I think those are two or three of the big pieces.

We won't give you a specific number nine we will do that in February .

And then I think we see there's some reason to believe that that could continue into 2024 as well so with that said I think if we go around the regions I think Brazil is the market that might need capacity earlier than the other two regions, so that might well need additional capacity during 2024.

Oliver Graham: As I say, we're not gonna get into detailed guidance on this call because it does remain an uncertain operating environment, and we want to go through the entirety of our budget process to give the guidance in February.

But we're just evaluating that as part of our business planning process and then I think.

Both Europe and North America can get through.

Angel Castillo: Understood. And maybe we can—I guess, in terms of the curtailments and the potential shutdowns that you mentioned, maybe some of that is still kind of in discussions, but could you give us a sense for maybe what kind of the size of the assets or kind of the capacity that you have envisioned in terms of the strategy and potential curtailment, and both in North America, but then the shutdown in Europe?

At a reasonable estimate 'twenty three and 'twenty four.

Before we need additional capacity in those networks.

Okay.

Speaker 2: as we see the continued sustainability performance of the can play out without all of this operating disruption that we're facing into at the moment. So we'd see higher growth numbers than those for 2024 and beyond. And as we said on the, as I've already said on the call, I think we see ourselves outperforming those numbers in 2023. And then we won't give you a specific number now, we'll do that in February . And then I think we see there's some reason to believe that that could continue into 2024.

Thanks for that rundown.

Second thing then is could you remind us if you've said before or give us some input in terms of where you sit with your.

From your contracts and when you have the next stage or relatively large tranche coming up for renewal across the regions.

Oliver Graham: Yes. So I think we could see, you know, 1 to 2 billion of capacity curtailed in North America next year. We could see up to 1 billion mothballed in Europe next year. So it's that order of magnitude as we make sure we balance our supply with demand. You know, we're very focused on remaining in the 90s utilization rate and maintaining a disciplined stance. And so we'll be doing that in both markets.

However, you'd like to present that.

Sure.

So I mean, we obviously went into the listing process.

Speaker 2: As well, so with that said, I think if we go around the regions, I think Brazil. Is the market that might need capacity earlier than the other 2 regions. So that might well need additional capacity during 2024. But we're just evaluating that as part of our business planning process. And then I think. Both Europe and North America can get through. You know, at a reasonable estimate, 23 and 24.

Pretty well contracted.

And that means that it's really the middle of the decade in any of the regions before we have any major contract renewals and actually increasingly in the Americas. Those contracts are going out more into 2026 2027 time frame.

Angel Castillo: Very helpful. Thank you.

Oliver Graham: Pleasure.

Operator: Our next question comes from Anthony Pettinari of Citibank.

Particularly on some of our specialty contract so.

Anthony Pettinari: Good morning.

Oliver Graham: Hi.

Anthony Pettinari: Just following up on Angel's question, you know, I think at the time of the listing, you know, you outlined a path to maybe 60 billion units of capacity by 2024. Obviously, there have been a number of adjustments kind of along the way. With the curtailments and with the decisions you've made this quarter, could you talk about where capacity might be exiting next year or exiting 2023 or in 2024?

The middle of the decade is really at the time that we would expect to see some degree of contract renewal.

Speaker 6: before we need additional capacity in those networks. Okay, thanks for that rundown. I guess the second thing then is, could you remind us if you've said before or give us some input in terms of where you sit with your contracts and when you have the next stage or relatively large tranche coming up for renewal across the regions, however you'd like to present that.

And that's why also we're looking to make sure. We're in good balanced by then.

Understood.

And I guess my last question, two part and I'll turn it over related to that.

As you think about it.

Your discussions with your customers.

Their growth expectations were relative to what's materialized dory during 2022.

Oliver Graham: So I think that in North America, we'll have completed the capacity build-out that we described at the time of the listing. I think in both Europe and Brazil, we'll be behind that curve, with some of the rephasing that we've done and some of the plans that we have. So, I haven't got the exact numbers to hand. We can give you more detail of those in February, but we'll certainly be behind Europe and Brazil. We'll have completed in North America.

What if anything are you doing differently in terms of incorporating their growth expectations relative to what you ultimately think will play out in terms of demand in terms of how you then pivot from a capacity standpoint.

Speaker 2: Sure, so, I mean, we obviously went into the listing process, you know, pretty well contracted. And that means that it's really the middle of the decade in any of the regions before we have any. Major contract renewals and actually. Increasingly in in the Americas, those contracts are going out more into the 2026 2027 timeframe. Particularly on some of our specialty contracts, so.

Are your hair cutting their expectations any more than normal based on what we've gone through the last three quarters or do you view most of whats happened in terms of the demand shortfall relative to expectations purely just consumer fatigue consumer kind of weathering because of inflation and relatedly are you seeing.

Anthony Pettinari: Okay, understood. And then just, can you talk a little bit more about the cost headwinds that offset volume growth in Americas in Q3? I think, you know, Americas volumes were up, you know, 10% year-over-year. EBITDA was up, I think, $2 million. Can you just talk a little bit more about the kind of cost bridge for the Americas in the quarter?

Speaker 2: The middle of the decade is really the time that we would expect to see some degree of contract renewal. And that's why also, you know, we're looking to make sure we're in good balance by then.

Any signs yet we haven't really seen and from our vantage point, but are you seeing any signs yet that your customers are beginning to promote more volume Ralph to what we've seen in the last.

Speaker 6: Understood. And I guess my last question to partner will turn it over related to that.

912 months thanks, guys.

Oliver Graham: Yeah, look, it is all linked to volume. So I mean, if you take the miss, it's 95% linked to volume, but there are three elements of that. Firstly, the, if you like, the straight volume miss, then there's also a significant mix effect in that the volumes that, you know, that we lost relative to expectations were higher margin. And then the third element, which we referred to in the cost, is the under recovery of fixed costs. So, you know, we were expecting, obviously, to run more cans across the new capacity, and when you run less cans across that capacity, you get an underrecovery on your fixed costs. So it's not an SG&A element. It's a plant operating cost inefficiency driven by the lack of volume.

Speaker 6: As you think about it, your discussions with your customers and where their growth expectations were relative to what's materialized during 2022.

Thanks Jos.

I think the answer the last question is no not really.

In fact during this quarter, we saw a major CSD player pool promotional activity out of one of the major retail channels in the U S and we saw in.

Speaker 6: And what, if anything, are you doing differently in terms of incorporating their growth expectations relative to what you ultimately think will play out in terms of demand, in terms of how you then pivot from a capacity standpoint? I said differently, are you haircutting their expectations any more than normal based on what we've gone through the last three quarters, or do you view most of what's happened in terms of the demand shortfall relative to expectations purely just...

And a major impact on our volumes. So I think at the moment it still looks like retail prices are rising.

On average and that.

Oliver Graham: So, you know, we were expecting, obviously, to run more cans across the new capacity, and when you run less cans across that capacity, you get an underrecovery on your fixed costs. So it's not an SG&A element. It's a plant operating cost inefficiency driven by the lack of volume.

That's working for the.

For our customers and for retailers in terms of the balance of.

Price and volume.

And we haven't really seen anything different in Europe , we would have expected potentially going into a world Cup.

To start to see some more activity, but I think the input cost inflation means that our customers are still essentially prioritizing on price, which.

Oliver Graham: So you can take 95% of the miss in the Americas, which is in North America, is linked to volume.

Speaker 6: consumer fatigue, consumer kind of withering because of the inflation. And relatedly, are you seeing any signs yet, we haven't really seen it from our vantage point, but are you seeing any signs yet that your customers are beginning to promote more volume relative to what we've seen in the last 9-12 months. Thanks guys.

Anthony Pettinari: Okay, that, that's helpful. I'll turn it over.

It is understandable given the environment. So I think we haven't seen any returns promotional activity. Yes, I think we would expect to see that going through 2023 and into 2020 for once this wave of inflation is through and settled with the consumer and so thats why we are hopeful for the back end of 'twenty three and.

Oliver Graham: Thanks, Anthony.

Operator: Our next question is from Kyle Weiss of Deutsche Bank.

Kyle White: Hey, good morning. Thanks for taking the question. I just wanted to focus a little bit on Europe, and if you could provide a little bit more details on some of the weakness in the quarter that you saw there. Maybe some more details on the metal valuation timing issue that you called out, and then I think you said that you noticed some deceleration in demand late in the quarter. I believe it was because of some of the inflationary pressures. So if you could just provide more details on what you're seeing from that standpoint going into Q4 as well.

Speaker 2: Thanks, George. I think the last question is no, not really. In fact, during this quarter, we saw a major CSD player pull promotional activity out of one of the major retail channels in the US, and we saw an immediate impact on our volume. So I think at the moment, it still looks like retail prices are rising on average, and that's working for our customers and for retailers in terms of the balance including Uber.

Into 2024 that we will see another uptick uptick in.

In volumes and market volumes.

On the customer forecast they are already being much more cautious and I think that recognizing the uncertainty.

We are also being more cautious with their forecast too.

So I think that combination means that everybody is level setting it.

Oliver Graham: Sure. Hi, Kyle. So I think that some of the trends that we saw in the first half continued into the second half, a little stronger than we'd anticipated, obviously, particularly in September and going into October. So that is weakness in the Northern European markets and particularly in beer. We saw some weakness growing in the co-pack segment. And then as the filled goods for export also continued weaker than we anticipated, as we thought there would be some recovery in that. So those trends continued.

A level below.

Where it was and I think that makes sense, particularly in Europe . There is clearly some uncertainty about how the consumer will react to.

Speaker 2: price and volume And we haven't really seen anything different in Europe , you know would have expected potentially going into a World Cup

So the inflation that's coming through.

Speaker 2: to start to see some more activity, but I think the input cost inflation means that our customers are still essentially prioritizing on price, which is understandable given the environment. So I think we haven't seen any returns promotional activity yet. I think we would expect to see that going through 2023 and into 2024 once this wave of inflation is through and settled with the consumer. And so that's why we're hopeful for the back end of 2023 and into 2024.

Thank you Ali.

Thank you Bill.

And our next question comes from Iran. Mr. Nathan of RBC capital markets.

Okay.

Great. Thanks for taking my question.

Oliver Graham: And then, as we said, I think just towards the end of September and coming into October, we did see some weakness, which we now are attributing more to the pressures that are on the consumer in Europe, either because they're beginning to get squeezed by increasing energy costs or because there's enough narrative around it in the, in the, the air to, to know that it's coming. And then we saw in the last few days, both two big beer customers reporting out and recognizing some potential demand weakness around consumer inflation. So I think that's why we're just signaling that is a risk, I think, going into Q4 and the, the first part of next year. On the metal issue, I mean, it was sort of a mid-teens $ million issue.

So, yes, we've seen a little bit of a slowdown here obviously.

In North America I guess.

Could you elaborate on that or are you seeing that across categories I know that.

A lot of.

Folks have pointed out the weakness in seltzer is but are you seeing that also in sparkling water and coffee and Tees and CSD, maybe you can just kind of flush out.

What we're seeing and what youre seeing in different categories.

Sure sure Iron.

Oliver Graham: So I think that's why we're just signaling that is a risk, I think, going into Q4 and the, the first part of next year. On the metal issue, I mean, it was sort of a mid-teens $ million issue.

Yes, I mean, it obviously is a decline in growth relative to our expectations. We grew 9% in North America, but the main drivers of the gap to our expectations, where indeed phelps's, so that down 10% year to date in dollar terms and they were off by 13% in September in Q3 as against the Red.

Speaker 2: the consumer will react to the inflation that's coming through.

Oliver Graham: You know, and as we said on the, on the remarks, we managed to offset a good part of that with a number of one-off recoveries that included some Take-or-pay recovery, that included some release of some energy hedges. So there were some one-off factors that meant we could offset that. And as we said, also, we don't see that issue persisting into Q4.

Speaker 6: Thank you all.

Speaker 2: Thank you.

Speaker 8: Our next question comes from Aaron Vistenathan of RBC Capital Markets.

<unk> softer comp.

2021, which is the time when Celsis first began to come off the boil in.

Speaker 10: Great, thanks for taking my question.

Speaker 10: So yeah, we've seen a little bit of slowdown here obviously in North America, I guess You know, could you can you elaborate on that? Are you seeing that across categories? I know that, you know, a lot of folks have pointed out the weakness in seltzers But are you seeing that also in sparkling water and coffee and teas and and CSP? Maybe you can just kind of flush out

North America. So Delta is we're definitely part of it but we didn't see any recovery there.

Kyle White: Got it. And then as we think about next year for Europe, how should we understand or think about some of the headwinds that you're facing regarding energy? Are you still expecting a headwind in the first half of the year? Just trying to understand, given the hedging that you have in place, as well as some of the cost recovery or your proactiveness going energy?

In Q3, but then it's true that in Q3 the point I just mentioned, we did see softness in the core categories relative to expectations again because of pricing. So I think retail pricing rising the pulling of promotions.

Although we still got growth, we definitely had less growth than anticipated and that was in a big core categories of CST and sparkling water.

Oliver Graham: Sure. Yeah. So look, I think the team has done a lot of work this year and worked very hard to get energy costs recovered, both in this year, which we're very close to the target we set ourselves, and going into next year. And we've had a lot of very constructive conversations with most of our customers. And as a result of that, we have largely split out energy as a cost element in our contractual structures, and that means we're confident that we'll recover energy costs 2023 on 2022. At this point, we don't see ourselves recovering some of the losses from this year in 2023, but we're hopeful, as the PPI curve flattens out, which we'd expect it to do next year and going into 2024, that we'd recover some of those in 2024.

Speaker 10: what we're seeing and what you're seeing in different categories. Thanks.

Not very present in mass beer in North America. So we didn't have any particular impact from from the Bayer sector.

Speaker 2: Sure, sure. Hi Aaron. Yes, look, I mean it obviously is a decline in growth relative to our expectations, we're growing 9% in North America, but the main drivers of the gap to our expectations were indeed CELTAs, so they're down 10% year to date in dollar terms and they were off by 13% in September and Q3 is against a relatively softer comp.

Okay. That's helpful.

And when you look out I guess.

Excuse me a couple a couple of years from now.

What's it going to really take it.

Any sort of improvement.

Is it a factor of <unk>.

Better personal income levels.

Lower pricing or.

Speaker 2: For 2021, which was the time when seltzer's first began to come off the boil in North America. So, we're definitely part of it that we didn't see any recovery there. Uh, in Q3, but then it's true that in Q3, the point I just mentioned, we did see softness in the core categories relative to expectations again, because of pricing. So I think retail pricing, rising, the pulling of promotions. Meant that, although we've still got growth.

Oliver Graham: At this point, we don't see ourselves recovering some of the losses from this year in 2023, but we're hopeful, as the PPI curve flattens out, which we'd expect it to do next year and going into 2024, that we'd recover some of those in 2024.

Continued substrate conversion.

What would you be looking for as far as factors.

To improve the growth rate from here.

Yes look I do think normally to Canada as a heavily promoted.

<unk> retail.

Oliver Graham: We've made very good progress on our hedging program, so we've taken a very disciplined approach to that since Q2. And, you know, we're in good shape now for 2023, and we're in dialogue with our customers about how much of the remaining open portion they want to leave open, or they want to hedge out, which obviously is subject to their volume commitments and making sure that their volume commitments are solid around those hedges. So I think overall, we've done a good job, if not a very good job, around energy, this year.

The account is an incredibly efficient way to deliver beverages to consumers and as a result, it can support significant promotional activity, which drives our volumes. So we would expect that to be a major things come back into the mix.

Speaker 2: We definitely had less growth than anticipated and that was in our big core categories of CSD and sparkling water. We're not very present in mass beer in North America, so we didn't have any particular impact from from the beer sector.

This inflationary wave is through.

And that will be very very positive volumes I think the second factor is that we see over 80% of innovation in beverages coming into the Ken wed expect light the hard seltzer way to see the next wave of successful innovation driving growth.

Oliver Graham: So I think overall, we've done a good job, if not a very good job, around energy, this year.

Speaker 5: Okay, that's helpful.

Speaker 10: And when you look out, I guess, excuse me, a couple years from now, what's it going to really take to see some improvement? Is it a factor of.

Kyle White: Got it. That's very helpful. I'll turn it over.

Particularly in North America, but we see those trends also in Europe .

Oliver Graham: Thank you.

Operator 2: Our next question comes from Arun Viswanathan of RBC Capital Markets.

Operator: Our next question comes from Arun Viswanathan of RBC Capital Markets.

In Europe , we do need the overall inflationary environment to come off.

Speaker 10: you know better personal income levels, you know lower pricing or

Clearly the energy situation is extreme for governments and consumers. So I think again once that comes off which we hope. It will then we should see the consumer revert to more confidence and that will mean more more items in our weekly grocery basket I think we feel we're going to be resilient in Europe to the economic environment because of the.

Speaker 10: Continued substrate conversion, what would you be looking for as far as factors to improve the growth rate from here?

Oliver Graham: We lost Arun.

Operator 2: Please, Arun? Okay, we can move on to George Staphos of Bank of America.

Operator: Please, Arun? Okay, we can move on to George Staphos of Bank of America.

Speaker 2: Yeah, look I do think normally the can is a heavily promoted item at retail and the can is an incredibly efficient way to deliver beverages to consumers and as a result it can support significant promotional activity which drives our volume. So we'd expect that to be a major thing to come back into the mix. You know, once this inflationary wave is through and that will be very, very positive for our volumes. I think a second factor is that we see over 80% of innovation in beverages coming into the can.

George Staphos: Thank you. Hi, everyone. Good day, good morning. Thanks for the details. Ollie, David, I guess the first question I had for you: could you remind us again what your expectation is for market growth and your growth in 2023, and then longer term? And with that as the context, assuming those market and RDAR fundamentals are hit, those trend lines, when would you expect that you'd need to add capacity? Said differently, how many years, assuming the markets and your performance play out as expected, can you go without adding new lines, new capacity, recognizing that you'll have some latent capacity as well, you know, 2 to 3 billion units worth from, you know, the mothballing and curtailments that you expect to do in 2023?

<unk> has traditionally resilient.

Relatively promoted item. We also have some mix advantage. The <unk> falling was a disadvantage to us in terms of our inventory revaluation timing, but for the accounting generally it's highly positive for SME has fallen to the levels that for them because it makes it more competitive in the pack mix.

In 2023, so we think that we will be resilient to the economic environment, but we do recognize the economic environment is somewhat negative. So once that comes off I think that will also be very positive.

George Staphos: Said differently, how many years, assuming the markets and your performance play out as expected, can you go without adding new lines, new capacity, recognizing that you'll have some latent capacity as well, you know, 2 to 3 billion units worth from, you know, the mothballing and curtailments that you expect to do in 2023?

Ken I think the sustainability tailwind that we had will continue I think there is increased regulatory pressure on plastics and plastic recycling system remains under very great strain difficult to get recycled PT and it's very high cost.

And then in Brazil, we just need the market to return to what it was doing pre pandemic, which is it was substituting very rapidly to a packaging into one way and most of that was going into the can and if you think that we were growing at 14%. In 2019, you can see why we are confident that we'd be over 5%.

Oliver Graham: Sure. Yeah. Hi, George. So what we see going into 2023 is low single-digit market growth in Europe and North America, and mid-single digits in Brazil.

Speaker 2: and that will mean more items in their weekly grocery basket. I think we feel we're going to be resilient in Europe to the economic environment because the can is traditionally resilient as a relatively promoted item. We also have some pack mix advantage. The LME falling was a disadvantage to us in terms of our inventory revaluation timing, but for the can in general it's highly positive that LME has fallen to the levels it's fallen because it makes it more competitive in the pack mix.

George Staphos: Yep.

Oliver Graham: Then we'd hope that those numbers would pick up in 2024 and beyond, as the macroeconomic environment stabilizes, as the hard seltzer category stabilizes, which we'd expect to happen in Q1 of next year. And, you know, as we see the continued sustainability performance of the can play out without all of this operating disruption that we're facing into at the moment. So we'd see higher growth numbers than those for 2024 and beyond. And as we said on the, as I've already said on the call, I think we see ourselves outperforming those numbers in 2023.

Going into 2024, so I think those are the three or four really big factors and that's why we're very confident in the growth of the Cam because what we see at the moment is essentially a set of transitory issues that are impacting on our and our customers' growth.

That's very helpful and if I can.

Speaker 2: going into 2023. So we think that we will be resilient to that economic environment, but we do recognize the economic environment is somewhat negative. So once that comes off, I think that will also be very positive for the can. I think the sustainability tailwinds that we had will continue. I think there is increased regulatory pressure on plastics and the plastic recycling system remains under very great strain. Difficult to get recycled PET and it's very high cost.

Within SaaS one more question.

So given that backdrop, if you were to increase your financing what would be the avenues there or is it further green bonds are.

Oliver Graham: And as we said on the, as I've already said on the call, I think we see ourselves outperforming those numbers in 2023.

What are some of the options ahead of you. If you were to ratchet capex back up.

George Staphos: Yep.

Oliver Graham: And then we won't give you a specific number now. We'll do that in February. And then I think we see there's some reason to believe that that could continue into 2024 as well. So with that said, I think if we go around the regions, I think Brazil is the market that might need capacity earlier than the other two regions, so that might well need additional capacity during 2024. But we're just evaluating that as part of our business planning process. And then I think both Europe and North America can get through, you know, at a reasonable estimate, 2023 and 2024, before we need additional capacity in those networks.

I mean that would be the main one and I think that we'd look to David Yeah. I think that's right Ali so as we've signaled will continue to see leasing activity around our great investment program say that.

Speaker 2: And then in Brazil, we just need the market to return to what it was doing pre-pandemic, which is it was substituting very rapidly two-way packaging into one way, and most of that was going into the CAM. And if you think that we were growing at 14% in 2019, you can see why we're confident that we'd be over 5%, you know, going into 2024. So I think those are the three or four really big factors. And that's why we're very confident in the growth of the CAM because what we see at the moment is essentially a set of transit trees.

But green bond issuance has been our traditional regions.

It remains the most likely we have plenty of capacity.

Within our covenants et cetera to be able to data.

Yes, plenty of levers still to pull that well reach an 8-K.

Oliver Graham: And then I think both Europe and North America can get through, you know, at a reasonable estimate, 2023 and 2024, before we need additional capacity in those networks.

Just to reiterate what we said earlier, we don't envisage.

Needing to guidance for 2023.

Thanks.

Speaker 2: issues that are impacting our and our customers growth.

George Staphos: Okay. Thanks for that rundown. I guess second thing then is, could you remind us, if you've said before or give us some input in terms of where you sit with your, your contracts, and when you have sort of the next stage or a relatively large tranche coming up for renewal across the regions, however you'd like to present that?

Our next question comes from Mark Wilde of Bank of Montreal.

Speaker 10: That's very helpful and if I could just ask 1 more question. So, given that backdrop, if you were to increase your financing, what would be the avenues there? Is it. For their green bonds or.

Good morning, Alex Good morning, David.

Good morning.

All is it possible to get some sense of just order of magnitude on the Capex number for 'twenty three I mean, you've been quite clear that it's going down from the sort of $600 million of growth capital this year, but just order of magnitude.

Speaker 10: What are some of the options ahead if you were to ratchet CapEx back up?

Speaker 1: I mean, that would be the main one, I think that we'd look to David. Yeah, I think that's right, Ollie. So as we've signaled, we'll continue to pursue leasing activity around our growth investment program too. But green bond issuance has been our traditional route and remains the most likely. We have plenty of capacity within our covenant, et cetera, to be able to do that. So there are plenty of levers still to pull there, I worry, to me too.

Oliver Graham: Sure. So I mean, we obviously went into the listing process, you know, pretty well contracted. And that means that it's really the middle of the decade in any of the regions before we have any major contract renewals. And actually, increasingly in the Americas, those contracts are going out more into the 2026, 2027 timeframe, particularly on some of our specialty contracts. So, the middle of the decade is really the time that we'd expect to see some degree of contract renewal. And that's why also, you know, we're looking to make sure we're in good balance by then.

I mean, it's a meaningful reduction.

I'm not talking about $50 million, it's a meaningful reduction in <unk>.

From that 600.

We will give you the detail in fact that you can certainly take off.

A significant slug of the $600 million.

Okay, Alright, and then just one other one this co located plant that you're building down in Brazil.

Speaker 1: But just to reiterate what we said earlier, we don't envisage needing to go there in 2023.

Can you just talk with us about sort of the puts and takes as you assess doing that because if we think about the container industry over the last 20 or 30 years.

Oliver Graham: And that's why also, you know, we're looking to make sure we're in good balance by then.

Speaker 7: Thanks.

Speaker 8: Our next question comes from Mark Wild of Bank of Montreal.

George Staphos: Understood. And I guess my last question to you, Pard, and I'll turn it over, related to that. You know, as you think about it, your discussions with your customers and you know, where their growth expectations were relative to what's materialized during 2022, what, if anything, are you doing differently in terms of incorporating their growth expectations relative to what you ultimately think will play out in terms of demand, in terms of how you then pivot from a capacity standpoint? Said differently, are you haircutting their expectations any more than normal based on what we've, you know, gone through the last, you know, three quarters? Or do you view most of what's happened, in terms of the demand shortfall relative to expectations, purely just consumer fatigue, the consumer kind of withering because of the inflation?

The direction has been for companies to be kind of focused on a particular product or particular substrate and you're building a plant that's.

Speaker 11: Morning, Ollie. Alex, morning, David.

Speaker 7: I'm not.

Speaker 11: Ollie, is it possible to get some sense of just order of magnitude on the capex number for 23? I mean, you've been quite clear that it's going down from the sort of $600 million of kind of growth capital this year, but just order of magnitude.

Now going to have both glass and metal lag so I am just.

I'm curious about you know.

Any ways in which you think that might handcuff optionality going forward.

Yes, the amount we should be clear it's not one plan. So these are two separate plants next door.

Speaker 2: I mean it's a meaningful reduction, you know, I'm not talking about 50 million, it's a meaningful reduction in that 600. So I mean we will give you the detail in fact but you can certainly take off a significant slug off of the 600 million.

Obviously, I can't really comment on the glass side of the house on this call Tonight. So.

George Staphos: Said differently, are you haircutting their expectations any more than normal based on what we've, you know, gone through the last, you know, three quarters? Or do you view most of what's happened, in terms of the demand shortfall relative to expectations, purely just consumer fatigue, the consumer kind of withering because of the inflation?

So just but just to be clear on the A&P.

<unk> plant, that's underpinned by a number of contractual situations you've seen our growth this year in Brazil has been significantly above market.

Speaker 11: Okay, all right, and then just one other one. This co-located plant that you're building down in Brazil, you know, if we...

Despite the same next year.

George Staphos: Relatedly, are you seeing any signs yet... We haven't really seen it from our vantage point, but are you seeing any signs yet that your customers are beginning to promote more volume, relative to what we've seen in the last, you know, 9, 12 months? Thanks, guys.

Speaker 11: Can you just talk with us about the puts and takes as you assess doing that? Because if we think about the container industry over the last 20 or 30 years, the direction has been for companies to be focused on a particular product or a particular substrate. You're building a plant that's going to have both glass and metal added. I'm curious about any ways in which you think that might...

That underpins the the plan. So we're confident that that will be a good investment we don't have the exact timing on it yet because clearly the market has been softer than we anticipated. This year. So we're working through that as part of our business planning process.

Oliver Graham: Thanks, Josh. I think the answer to the last question is no, not really.

But we're still confident that that's a good investment and it will be underpinned by some strong contractual positions.

George Staphos: Yep.

Oliver Graham: In fact, during this quarter, we saw, you know, a major CSD player pull promotional activity out of one of the major retail channels in the US, and we saw an, you know, an immediate impact on our volumes. So I think at the moment, it still looks like retail prices are rising, on average, and that, for you know, that's working for our customers and for retailers in terms of the balance of price and volume.

Yeah, and just if I could are there like shared services at the.

At the two facilities just curious why put them together in one location then.

Speaker 2: handcuff optionality going forward. Yes, Mark, we should be clear. It's not one plant. So these are two separate plants next door. And obviously I can't really comment on the glass side of the house on this call. You know, that's an HSA piece. So just to be clear on the AMP plant, that's underpinned by a number of contractual situations. You've seen our growth this year in Brazil has been significantly above market.

Yes, not really.

So it's more of that.

It's more down to the discussions we had with customers in that at all.

Obviously helps.

In terms of.

Team and providing support during the build phase, but it's not that the plants themselves of any particular synergies.

George Staphos: Mm-hmm.

Oliver Graham: - and we haven't really seen anything different in Europe. You know, we'd have expected potentially going into a World Cup to start to see some more activity, but I think the input cost inflation means that our customers are still essentially prioritizing on price, which, you know, is understandable given the environment. So, so I think-

Okay, Alright, that's helpful. I'll turn it over good luck in the balance of the year and into next year. Thanks.

Speaker 2: You know, we anticipate the same next year and that underpins the plant. So we're confident that that'll be a good investment. We don't have the exact timing on it yet because clearly the market has been softer than we anticipated this year. So we're working through that as part of our business planning process, but we're still confident that that's a good investment and will be underpinned by some strong contractual positions.

Mark.

The next question is from Jay mirrors of Goldman Sachs.

George Staphos: Sure

Oliver Graham: ... no, we haven't seen any return to promotional activity yet. I think we would expect to see that going, you know, through 2023 and into 2024, once this wave of inflation is through and settled with, with the consumer. And so that's why we're, you know, hopeful for the back end of 2023 and into 2024, that we'll see another uptick in volumes, in market volumes. I mean, on the customer forecast, they are already being much more cautious, and I think they're recognizing the uncertainty of the environment, and we are also being more cautious with their forecast, too. So I think that combination means that everybody is level setting at a level below, you know, where it was.

George Staphos: Sure

Good morning. Thank you for the time today I guess to follow up on the last question of all of that so assuming a b.

Big step down in Capex growth Capex from the $600 million. This year can you talk a little bit about how you're thinking about maybe other capital allocation priorities between shareholder returns.

Speaker 11: Are there shared services at the two facilities? Just curious, why put them together in one location?

<unk> sheet any any color you can provide there just in terms of priorities and then I guess.

Oliver Graham: I mean, on the customer forecast, they are already being much more cautious, and I think they're recognizing the uncertainty of the environment, and we are also being more cautious with their forecast, too. So I think that combination means that everybody is level setting at a level below, you know, where it was.

Secondarily as you think about the kind of leverage you are running at running at four five times right now which is towards the high end of your target range, but <unk>.

Speaker 2: Yeah, not really. So it's more that, well, it's more down to the discussions we had with customers and that it obviously helps in terms of...

<unk> that your target is kind of off of forward EBITDA, just given growth has been a little bit slower than you envisioned how how does that kind of influence how you think about leverage going forward. Thanks.

Oliver Graham: I think that makes sense, particularly in Europe, you know, there is clearly some uncertainty about how the consumer will react to the inflation that's coming through.

Speaker 2: team and providing support during the build phase, but it's not that the plants themselves have any particular synergies.

Okay.

Sure.

Speaker 11: Okay, all right, that's helpful. I'll turn it over. Good luck in the balance of the year and into next year.

Yeah, Yeah. So thanks for the question Jay I think <unk> four.

George Staphos: Thank you, Ollie.

Oliver Graham: Thanks, Josh.

Four five times leverage on a trailing LTM basis at the moment I would envisage paying in a very similar position at year end at this point.

Operator 2: Our next question comes from Arun Viswanathan of RBC Capital Markets.

Speaker 7: Thanks, Matt.

Operator: Our next question comes from Arun Viswanathan of RBC Capital Markets.

Speaker 8: Next question is from Jay Mayers of Goldman Sachs.

Speaker 12: Good morning. Thank you for the time today. I guess to follow up on the last question a little bit, so assuming a big step down in CapEx, growth CapEx from the $600 million this year, can you talk a little bit about how you are thinking about maybe other capital allocation priorities between shareholder returns, balance sheet, any color you can provide there just in terms of priorities? And then I guess kind of secondarily as you think about the kind of leverage you're running at, running at four and a half times right now which is...

Arun Viswanathan: Great, thanks for taking my question. So yeah, we've seen a little bit of slowdown here, obviously, in North America. I guess, you know, could you, can you elaborate on that? Are you seeing it across categories? I know that, you know, a lot of folks have pointed out the weakness in seltzers, but are you seeing that also in sparkling water, and coffee, and teas, and CSD? Maybe you can just kind of flesh out what we're seeing in... what you're seeing in different categories. Thanks.

That will leave us well placed in terms of liquidity going into 2023.

In terms of our capital program clearly, we're being conservative with that capital program in terms of cash outflow spend liquidity in order to preserve our balance sheet liquidity and keep within the leverage position that we feel comfortable with for the longer term.

And so we will continue to kind of look for opportunities to prudently manage.

Our balance sheet and cash conservation and look at working capital initiatives.

Oliver Graham: Sure, sure, Arun. Yes, look, I mean, it obviously is a decline in growth relative to our expectations. We agreed 9% in North America, but the main drivers of the gap to our expectations were indeed seltzers, so they're down 10% year to date in dollar terms, and they were off by 13% in September. Q3 is against a relatively softer comp for 2021, which was the time when seltzers first began to come off the boil in North America. So seltzers were definitely part of it, but we didn't see any recovery there in Q3. It's true that in Q3, the point I just mentioned, we did see softness in the core categories relative to expectations, again, because of pricing.

And that sort of thing.

So I think there are plenty of levers at our disposal.

I think the key message at the moment is that from a balance sheet perspective, we're very well placed.

Yes for example over 90% of our debt is fixed interest and 2027% to 2029. So I think we've given ourselves a very stable platform with which to manage the macroeconomic headwinds.

Speaker 1: Visage being in a very similar position at year end at this point. That will leave us well placed in terms of liquidity going into 2023. In terms of our capital program, clearly we're being conservative with that capital program in terms of cash outflow spend deliberately in order to preserve our balance sheet liquidity and keep within the leverage position that we feel comfortable with for the longer term.

That we've been discussing.

I appreciate that color and I guess, just as a follow up.

The preferred equity that was put in place this quarter with all.

Oliver Graham: It's true that in Q3, the point I just mentioned, we did see softness in the core categories relative to expectations, again, because of pricing.

Alright assay.

Can you just comment on how you kind of view that portion of the capital structure is that going to be permanent.

Oliver Graham: So I think retail pricing rising, the pulling of promotions meant that, although we've still got growth, we definitely had less growth than anticipated, and that was in our big core categories of CSD and sparkling water. We're not very present in mass beer in North America, so we didn't have any particular impact from the beer sector.

For the foreseeable future or is that something that you could see once financing conditions improve you look to maybe try to put in place at a cheaper piece of.

Speaker 1: And so we'll continue to kind of look for opportunities to prudently manage both the balance sheet and cash conservation and look at working capital initiatives and that sort of thing. So I think there are plenty of levers at our disposal, but I think the key message at the moment is that from a balance sheet perspective we're very well placed. For example, over 90% of our debt is fixed interest.

Of that or something there.

Well I think the key attributes of.

Preference shares of nonconvertible, but they all redeemable anytime say, yes, we have full flexibility on that going forward, we have no intention to exercise that flexibility at the moment clearly.

Arun Viswanathan: Okay, that's helpful. And when you look out, I guess, excuse me, a couple years from now, what's it gonna really take to see some improvement? Is it a factor of, you know, better personal income levels, you know, lower pricing or, you know, continued substrate conversion? What would you be looking for as far as factors to improve the growth rate from here?

Yes, they are supportive of our of our four balance sheet position and our liquidity and I think from an A&P perspective representatives.

Speaker 1: and term 2027 to 2029. So I think we've given ourselves a very stable platform with which to manage the macroeconomic headwinds that we've been discussing.

Good piece of paper.

Say, yes, we would have optionality on that perhaps at some point in the future, but no plans in the short to medium term.

Speaker 12: Appreciate that, Color. And I guess just as a follow-up, the preferred equity that was put in place this quarter with R-A, can you just comment on how you kind of view that portion of the capital structure? Is that going to be permanent for kind of the foreseeable future? Or is that something that you could see once financing conditions improve, you look to maybe try to put in place a cheaper piece of debt or something there?

Great. Thank you very much turn it over.

Okay.

The next question comes from Ed Brucker of Barclays.

Oliver Graham: Yeah, look, I do think normally the can is a heavily promoted item at retail, and the can is an incredibly efficient way to deliver beverages to consumers. And as a result, it can support significant promotional activity, which drives our volumes. So we'd expect that to be a major thing to come back into the mix, you know, once this inflationary wave is through, and that will be very, very positive for our volumes. I think a second factor is that, you know, we see over 80% of innovation in beverages coming into the can. We'd expect, like the hard seltzer wave, to see the next wave of successful innovation driving growth, and that's probably particularly in North America, but we see those trends also in Europe. In Europe, we do need the overall inflationary environment to come off.

Hey, Thanks for taking my question this morning.

My first one.

Just back on inflationary pressures that have been impacting demand.

Is there a switching effect.

Maybe you are seeing from other products or maybe a trade down to some cheaper substrates, whether that would be plastic or glass or do you think it's more just people buying less given that are less consumer products or less beverages to.

Speaker 1: Well, I think the key attributes of those preference shares are they're nonconvertible, but they are redeemable at any time. So we have full flexibility on that going forward. We have no intention to exercise that flexibility at the moment. Clearly, they are supportive of our overall balance sheet position and our liquidity. And I think from an AMP perspective, represent a very good piece of paper. And say,

Oliver Graham: We'd expect, like the hard seltzer wave, to see the next wave of successful innovation driving growth, and that's probably particularly in North America, but we see those trends also in Europe. In Europe, we do need the overall inflationary environment to come off.

To pay for other things like rent and gas at a time.

Essentially here.

Yes, Hi, Ed.

I think it's more that they are buying a bit less.

And that's because there's less promotional activity. So when there is less promotional activity, obviously not picking up 12 cans that picking up.

Oliver Graham: Clearly the energy situation is extreme for governments and consumers. So I think, again, once that comes off, which we hope it will, then we should see the consumer revert to more confidence, and that will mean more, more items in their weekly grocery basket. I think we feel we're gonna be resilient in Europe to the economic environment because the can is traditionally resilient as a relatively promoted item. We also have some pack mix advantage. The LME falling was a disadvantage to us in terms of our inventory revaluation timing. But for the can, in general, it's highly positive that LME has fallen to the levels it's fallen, because it makes it more competitive in the pack mix going into 2023. So we think that we will be resilient to that economic environment, but we do recognize the economic environment is somewhat negative.

The number of cans off the shelf instead of the instead of the promotional package.

Speaker 1: Yes, we'd have optionality on that perhaps at some point in the future, but no plans in the short to medium term.

We actually see in the data for North America that the account is still gaining share at the expense of plastic and I think that's very interesting because 10 years ago in similar economic conditions.

Speaker 12: Great Thank you very much. Turn it over.

Speaker 7: Thanks, differences.

Speaker 8: The next question comes from Ed Brucker of Bark, please.

<unk> you would have seen a shift towards BT, particularly big two liter bottles of Cola.

Speaker 13: Thanks for taking the question this morning. My first one, just back on inflationary pressures that have been impacting demand, is there a switching effect that maybe you're seeing from other products or maybe a trade down to some cheaper substrates, whether that would be plastic or glass, or do you think it's more just people buying less, or less consumer products or less beverages to pay for other things like rent and gas?

So I think that that shows you the strength of the sustainability support that can that has on that.

One of the reasons that underpins our confidence.

For the future growth of the 10, I think going into 2023, it's difficult to pick exactly where we are.

Oliver Graham: But for the can, in general, it's highly positive that LME has fallen to the levels it's fallen, because it makes it more competitive in the pack mix going into 2023. So we think that we will be resilient to that economic environment, but we do recognize the economic environment is somewhat negative.

Where we sit substrates the substrate, but all I would say is that again, let me.

<unk> is.

As there is.

Potentially very significant because that is a reflection of a cent of cheap LNG and the <unk>.

Oliver Graham: So once that comes off, I think that will also be very positive for the can. I think the sustainability tailwinds that we had will continue. I think there is increased regulatory pressure on plastics, and the plastic recycling system remains under very great strain. Difficult to get recycled PET, and it's very high cost. And then in Brazil, we just need the market to return to what it was doing pre-pandemic, which is it was substituting very rapidly two-way packaging into one way, and most of that was going into the can. And if you think that we were growing at 14% in 2019, you can see why we're confident that we'd be over 5%, you know, going into 2024. So I think those are the three or four really big factors.

Our east and for Europe in particular that means that the can will be highly competitive.

So I think we're well placed going into what will be a difficult year and potentially in a recessionary environment.

Got it and my second question just on the back of <unk>.

More directly I guess, which lever would you.

Paul first in order to preserve cash would that be just lowering capex to maintenance levels would that be turning dividends off not buying back shares.

Speaker 2: 10 years ago in similar economic conditions, I suspect you'd have seen a shift towards BET, particularly big two-liter bottles of cola. So I think that that shows you the strength of the sustainability support that the can now has and that's one of the reasons that underpins our confidence for the future growth of the can. I think going into 2023, it's difficult to pick exactly where we sit substrate to substrate, but all I'd say is that again, that LME...

Oliver Graham: And if you think that we were growing at 14% in 2019, you can see why we're confident that we'd be over 5%, you know, going into 2024. So I think those are the three or four really big factors.

Yes, just flip.

Point of weakness would you have to see before turning off the dividend.

Oliver Graham: That's why we're very confident in the growth of the can, because what we see at the moment is essentially a set of transitory issues that are impacting our, you know, our and our customers' growth.

Yes, so we don't see any scenario for that at the moment.

We're very comfortable as David said within our liquidity positioning within.

Arun Viswanathan: That's very helpful. And if I could just ask one more question, so given that backdrop, if you were to increase your financing, what would be the avenues there? Is it further green bonds, or what, what are some of the options ahead of you, if you were to ratchet the CapEx back up?

The forecast we have for cash going into 2023, the obvious right. One to addresses is the growth capital just because.

Speaker 2: fall is very, you know, potentially very significant because that is a reflection of a sense of cheap energy you know in the Far East and for Europe in particular that means that the can will be highly competitive. And so I think we're well placed going into what will be a difficult year and potentially, you know recessionary environment.

The weakness that is actually because demand is lower.

We do need to balance supply and demand staying.

Staying disciplined in our in our industry. So that's why we're going to look first to our overall capacity to conserve our cash.

Oliver Graham: I mean, that would be the main one, I think, that we'd look to. David would-

David Bourne: Yeah, I, I think that's right, Ollie. So as we've signaled, we'll continue to pursue leasing activity around our growth investment program too. But green bond issuance has been our traditional route, and you know, it remains the most likely. We have plenty of capacity within our covenant, et cetera, to be able to do that. So yeah, plenty of levers still to pull there were we to need to. But just to reiterate what we said earlier, we don't envisage needing to go there in 2023.

Great. Thanks for the questions.

Thank you.

Speaker 13: And my second question, just on the back of Jay's, is, I'm not sure if you can hear me

The next question is from Roger Spitz of Bank of America.

Speaker 13: More directly, I guess, which lever would you...

Thank you very much on a couple of cash flow items on the $600 million Capex of which 500, just capex hunters leasing does that include or exclude the <unk>.

Speaker 13: Pull first in order to preserve cash would that be just lowering capex to maintenance levels would that be turning dividends off? Not buying back shares. I guess just what what you know point of weakness Would you have to see before turning off the dividend?

$100 million of maintenance Capex.

Hey, <unk>.

<unk> looked at.

Just under <unk> five.

<unk>, a cash business, great investment and not one of leasing and then there's no 0.1 of kind of maintenance Capex, that's the right way to look at it.

Speaker 2: Yeah, we don't see any scenario for that at the moment. So I think we're very comfortable, as David said, within our liquidity position and within the forecast we have for cash going into 2023. The obvious right one to address is the growth capital just because the weakness then is actually because demand is lower and we do need to balance supply and demand staying disciplined in our industry. So that's always where we're going to look first and to our overall capacity to conserve our cash.

Arun Viswanathan: Thanks.

Operator: Our next question comes from Mark Wild of Bank of Montreal.

Thank you and then you talked about Q4.

22, working capital inflow any way you can size that.

Mark Wilde: Morning, Ollie. Morning, David.

Oliver Graham: Hi, Mark.

David Bourne: Morning.

For us.

Mark Wilde: Ollie, is it possible to get, you know, some sense of just order of magnitude on the CapEx number for 2023? I mean, you've been quite clear that it's, it's going down from the sort of $600 million of kind of growth capital this year, but just order of magnitude?

Yes, I think it will be a significant in place.

A triple digits and it will.

<unk> take us much closer to where we would expect our normalized position stay at the end of the year Q4 was the natural seasonality in play for the business anyway, but we've taken actions relatively early on in Q3 to manage our inventory position in particular action.

Speaker 4: Thanks for the question.

Speaker 4: This Thank you.

Speaker 8: Next question is from Roger Spitz of Bank of America.

Oliver Graham: I mean, it's a meaningful reduction. You know, I'm not talking about $50 million. It's a meaningful reduction in that from that $600 million. So, I mean, we will give you the detail in February, but you can certainly take off a significant slug off the $600 million.

Speaker 14: Thank you very much. On a couple of cash flow items, on the 600 million capbacks of which 500 is CapEx, 100 is leasing, does that include or exclude the hundred million of maintenance CapEx?

Around the raw material input to that that means that if you look at our balance sheet Youll see our trade payables has fallen while our inventory has kind of held its position.

Mark Wilde: Okay. All right, and then, just one other one. This co-located plant that you're building down in Brazil, you know, if we-- Can you just talk with us about sort of the, the puts and takes as you assess doing that? Because if, if we think about the container industry over the last 20 or 30 years, you know, the, the direction has been for, companies to be kind of focused on a particular product or a particular substrate, and you're building a plant that's, you know, gonna have both glass and metal at it. So I'm just, I'm curious about, you know, any ways in which you think that might handcuff optionality going forward.

Speaker 1: So to be clear, Roger, I'm just under 0.5 of cash business growth investment and 0.1 of leasing. And then there's 0.1 of kind of maintenance capex. That's the right way to look at it.

You can assume the natural follow through on that will be that in Q4.

Payables and inventory position will kind of rebalance more in line.

With where you'd expect that long term balanced debate.

Speaker 14: Thank you. And then you talked about a Q4-22 Morgan Capital inflow. Any way you can size that.

Speaker 14: We talked about the Q422 working capital inflow. Any way you can size that for us?

Got it and lastly, it shares the preferred shares our payment of the dividends at your discretion.

Is the dividend.

Speaker 1: Yeah, look, I think it will be a significant inflow, so triple digits and it will take us much closer to where we would expect our normalised position to be at the end of the year. Q4 is a natural seasonality inflow for the business anyway, but we've taken actions relatively early on in Q3 to manage our inventory position.

Cumulative preferred.

Where if you Miss a quarter.

Mark Wilde: So I'm just, I'm curious about, you know, any ways in which you think that might handcuff optionality going forward.

Make it up later on.

That's correct.

Thank you very much.

Thank you Roger.

Oliver Graham: Yes, so Mark, we should be clear, right? It's not one plant. So these are two separate plants next door. And obviously, I can't really comment on the glass side of the house on this call. You know, that's an HSAs piece. But just to be clear, on the AMP plant, that's underpinned by a number of contractual situations. You've seen our growth this year in Brazil has been significantly above market. You know, we anticipate the same next year. And, you know, that underpins the plant. So we're confident, you know, that that'll be a good investment. We don't have the exact timing on it yet because, you know, clearly the market has been softer than we anticipated this year. So we're working through that as part of our business planning process.

The next question comes from Rachel Fox of Guggenheim Partners.

Yeah.

Good morning, and could you give us some color as to why the overall industry manufacturing capacity look like in both Europe , and North America backend stagnation tightened and nine.

Speaker 1: and particular actions around the raw material input to that. That means that if you look at our balance sheet, you'll see our trade payables has fallen, while our inventory has kind of held its position. You can assume the natural follow through on that will be that in Q4, those payables and inventory position will kind of rebalance more in line with where you'd expect that long term balance to be.

And high capacity utilization rates compared to today.

Okay.

Yes, I have to admit I don't have the exact numbers to hand.

But to the extent.

Maybe to give some color on what happened during the financial crashes that.

Oliver Graham: We don't have the exact timing on it yet because, you know, clearly the market has been softer than we anticipated this year. So we're working through that as part of our business planning process.

There was some deterioration of demand in Europe . So I think in 2008, the market went down a few percent low two 3%, but then the following year it grew by 5%.

Speaker 14: And lastly, it says the preferred shares are payment of the dividends at your discretion. Is it a dividend, is it a cumulative preferred where if you miss a quarter you make it up later on?

Oliver Graham: But we're still confident that that's a good investment and will be underpinned by some strong contractual positions.

I think utilization rates remained in a good place.

North America, I think it was less impacted.

Mark Wilde: Yeah, and just if I could, are there, like, shared services at the two facilities? Just curious, why, why put them together in one location then?

The time, obviously was a lower growth market.

Speaker 4: That's correct.

Speaker 14: Thank you very much.

What's different about this time is that there is inflation.

Speaker 7: Thank you.

Speaker 8: The next question comes from Rachel Fox of Guggenheim Partners.

Oliver Graham: Yeah, not really. So it's more that... Well, it's more down to the discussions we had with customers, and, you know, that it obviously helps, you know, in terms of team and providing support during the build phase. But it's not that the plants themselves have any particular synergies.

Which is impacting consumer demand. So I think it's a different environment, but overall, we see the resilience of the cans are these kind of economic downturns because firstly.

Speaker 15: Good morning. Could you give us some colour as to what overall industry manufacturing capacity looked like in both Europe and North America back in 2008 and 2009 and how those capacity utilisation rates compared to today?

The consumer moves from out of home consumption restaurants holidays.

At home consumption and then within the at home consumption, the Canada is pretty resilient. So.

Mark Wilde: Okay. All right. That's helpful. I'll turn it over. Good luck in the balance of the year and into next year.

Yeah, I have to admit I don't have the exact numbers to hand, but to the extent, maybe to give some color on what happened during the financial crash is that there was some deterioration of demand in Europe . So I think in 2008 the market went down a few percent, low two, three percent, but then the following year grew by five percent. And I think utilization rates remained in a good place.

Yes, that's why I mentioned, a few times that I am relatively confident in our 2023 outlook. Despite the uncertainties in the environment.

Oliver Graham: Thanks, Mark.

Operator: The next question is from Jay Mayers of Goldman Sachs.

Thanks.

Jay Mayers: Good morning. Thank you for the time today. I guess to follow up on the last question a little bit. So assuming a big step down in CapEx, growth CapEx, from the $600 million this year, can you talk a little bit about how you're thinking about maybe other capital allocation priorities? Between shareholder returns, you know, balance sheet, any color you can provide there, just in terms of priorities? And then I guess, kind of secondarily, as you think about the kind of leverage you're running at, you know, 4.5x right now, which is towards the high end of your target range, but you know, recognizing that your target's kind of off of forward EBITDA.

Jay Meyers: Good morning. Thank you for the time today. I guess to follow up on the last question a little bit. So assuming a big step down in CapEx, growth CapEx, from the $600 million this year, can you talk a little bit about how you're thinking about maybe other capital allocation priorities? Between shareholder returns, you know, balance sheet, any color you can provide there, just in terms of priorities?

And then just on the energy cost inflation, you previously spoke quite a recovery treat the surcharges and preventative care customers and pay those surcharges and beyond.

I don't have the percentage of customers, but we recovered pretty much in line with our expectation.

North America I think was less impacted, though at the time obviously was a lower growth market. What's different about this time is that there is inflation, which is impacting consumer demand. So I think it's a different environment, but overall we see the resilience of the cans of these kind of economic downturns because firstly,

Which was around 50, 60% of.

Jay Meyers: And then I guess, kind of secondarily, as you think about the kind of leverage you're running at, you know, 4.5x right now, which is towards the high end of your target range, but you know, recognizing that your target's kind of off of forward EBITDA.

What we suffered.

And this year and then going into next year, we're getting up to a very high percentage of our customers who have accepted what we believe is a is a very fair and equitable way to pass through the exceptional.

Jay Mayers: Just given growth has been a little bit slower than you envisioned, how, how does that kind of influence how you think about leverage, going forward? Thanks.

Jay Meyers: Just given growth has been a little bit slower than you envisioned, how, how does that kind of influence how you think about leverage, going forward? Thanks.

<unk> that we're all facing in Europe .

you know, the consumer moves from out-of-home consumption, restaurants, holidays, bars to at-home consumption. And then within the at-home consumption, the can is pretty resilient. So…

Because we only put it through when it went in time will take it out again, when it falls, which it will.

And therefore, there's no ongoing effect of it for our customer base.

Oliver Graham: Yeah.

David Bourne: Yeah.

David Bourne: Yeah. Ollie, shall I pick that one up?

Oliver Graham: Yeah.

David Bourne: Yeah. Yeah, so thanks for the question, Jay. Look, I think you're right. We're at 4.5x leverage on a trailing LTM basis at the moment. I would envisage being in a very similar position at year end, at this point. That will leave us well placed in terms of liquidity going into 2023. In terms of our capital program, clearly, we're being conservative with that capital program in terms of cash outflow spend deliberately, in order to preserve our balance sheet liquidity and keep within, you know, the leverage position that we feel comfortable with for the longer term. And so we'll continue to kind of look for opportunities to prudently manage both the balance sheet and cash conservation and look at working capital initiatives, and that sort of thing.

Yeah, that's why I mentioned a few times that I'm relatively confident in our 2023 outlook despite the uncertainties in the environment.

Thanks.

Thank you.

Our next question comes from Eric Steve of Golden Tree.

Hi, guys. Thanks for taking the call your guidance implies a nice sequential increase in EBITDA from Q3 from Q3 to Q4.

Thanks.

Just on the energy cost inflation, you previously spoke about the recovery through the surcharges. Cost presented to your customers pay those surcharges in the end.

Can you talk about the factors that youre seeing that that we do too.

I don't have the percentage of customers but we recovered pretty much in line with our expectation which was around 50-60% of what we suffered in this year and then going into next year we're getting up to a very high percentage of our customers who've accepted what we believe is a is a very fair and equitable way to pass through the exceptional situation that we're all facing in Europe .

That conclusion.

Sure, Yes, so I think there is three or four factors.

So firstly in Q3, we talked about some of these metal impacts, even though we offset them we don't.

David Bourne: And so we'll continue to kind of look for opportunities to prudently manage both the balance sheet and cash conservation and look at working capital initiatives, and that sort of thing.

We see those reoccurring, we didn't we weren't able to offset them all.

And we see ongoing energy recovery in Europe with the efforts we've been putting in.

David Bourne: So, I think there are plenty of levers at our disposal. But I think the key message at the moment is that, you know, from a balance sheet perspective, we're very well-placed. You know, for example, over 90% of our debt is fixed interest and term 2027 to 2029. So I think we've given ourselves a very stable platform with which to manage the macroeconomic headwinds that we've been discussing.

We see a good.

because we only put it through when it's high and we'll take it out again when it falls, which it will, and therefore there's no ongoing effect of it for our customer base.

<unk> position in Brazil.

With some of the customer growth and the mix and we see some overall mix effects.

<unk> volumes, particularly in North America, so those three or four factors.

Thanks.

That lead us.

Thank you.

To see an improved performance in Q4 versus Q3.

Our next question comes from Eric Sieve of Golden Tree.

Check with David I didn't Miss anything out there, yes, no I think outside obviously surpassed.

Hi, guys, thanks for taking the call. Your guidance implies a nice sequential increase in EBITDA from Q3 to Q4. Can you talk about the factors that you're seeing that lead you to that conclusion?

There's even further as well.

That may support the volume number of course phone calls.

Jay Mayers: Appreciate that color. And I guess just as a follow-up, you know, the preferred equity that was put in place this quarter with Artisa, can you just comment on how you kind of view that portion of the capital structure? Is that gonna be permanent, you know, for kind of the foreseeable future? Or is that something that you could see once, you know, financing conditions improve, you look to maybe try to put in place a cheaper piece of debt or something there?

Jay Meyers: Appreciate that color. And I guess just as a follow-up, you know, the preferred equity that was put in place this quarter with Artisa, can you just comment on how you kind of view that portion of the capital structure? Is that gonna be permanent, you know, for kind of the foreseeable future? Or is that something that you could see once, you know, financing conditions improve, you look to maybe try to put in place a cheaper piece of debt or something there?

Okay, and you mentioned it sounded like.

Subsequent to the quarter and October you saw some more deterioration it sounds like it was mostly in Europe .

So I think there's three or four factors. So firstly, in Q3, we talked about some of these metal impacts, even though we offset them. We don't see those reoccurring. And we weren't able to offset them all. We see ongoing energy recovery in Europe with the efforts we've been putting in there. We see a good position in Brazil, again, with some of the customer growth in the mix. And we see some overall mixed effects.

Have you factored this into your your your outlook and what specifically is your expectation for European volumes in Q4.

Yes.

Put that in the outlook.

David Bourne: Well, well, I think, you know, the key attributes of, of those preference shares are they're non-convertible, but they are redeemable at any time. So, you know, we have full flexibility on that going forward. We have no intention to exercise that flexibility at the moment. Clearly, you know, they are supportive of our, of our overall balance sheet position, and our liquidity, and I think from an AMP perspective, represent a very good piece of paper. So yes, we'd have optionality on that, and perhaps at some point in the future, but, but no plans in the short to medium term.

The reason for the range.

And we I think we mentioned, we do expect Q4 European volumes to be negative relative to Q4 'twenty. One 'twenty one was very strong in Europe .

Traditionally European sales in Q4 are down a bit.

We typically take some stoppages were not done that for the last few years. So that's really a reversion to some normality there as well, but we do see a slightly negative growth path and we did include in that some conservatism based on what we've seen in in the back end of September and October .

in our volumes, particularly in North America. So there's three or four factors that lead us to see an improved performance in Q4 versus Q3.

David Bourne: So yes, we'd have optionality on that, and perhaps at some point in the future, but, but no plans in the short to medium term.

Check with David. I didn't miss something out there. Yeah, no, I think that's right. Obviously some of our capacity is even further up as well So that may support the volume number course on course. Yep.

Okay and did you see a corresponding weakness in North America over that timeframe as well are now.

Jay Mayers: Great. Thank you very much. Turn it over.

Jay Meyers: Great. Thank you very much. Turn it over.

Oliver Graham: Thanks, Jay.

Okay, and you mentioned it sounded like…

Operator: The next question comes from Ed Brocker of Barclays.

I mean, we've seen weakness in North America, and some of that definitely came through in September but it was just a slightly different reason, which is more around.

Subsequent to the quarter in October , you saw some more deterioration. It sounds like it was mostly in Europe .

Edward Brucker: Hey, thanks for taking the question this morning. My first one, just back on inflationary pressures that have been impacting demand. Is there a switching effect that maybe you're seeing from other products or maybe a trade-down to some cheaper substrates, whether that would be plastic or glass? Or do you think it's more just people buying less, given that... or less consumer products or less beverages to pay for other things like rent and gas that have gone substantially higher?

have you factored this into your outlook and what specifically is your expectation for European volumes in Q4?

The seltzer market as I said it was minus 13 in September .

Relative to minus 10 year to date. So there was some further weakness and then also the removal of promotional activity by some of the big.

Yes, we we

put that in the outlook part of the reason for the range. And we, I think we mentioned we do expect Q4 European volumes to be negative relative to Q4 21. Q4 21 was very strong in Europe and traditionally European sales in Q4 are down a bit. We typically take some stoppages, we've not done that for the last few years, so it's really a reversion to some normality there as well. But we do see a slightly negative growth path and we did include in that some conservatism based on what we've seen in.

CSD players. So we also took that into account, but we saw that weakening at the back end of September .

Okay, and what's your expectation for North American volumes in Q4.

We still see growth I mean, we've got.

The coming.

Oliver Graham: Yeah, hi, Ed. I think it's more that they're buying a bit less, and that's because there's less promotional activity. So when there's less promotional activity, obviously they're not picking up 12 cans, they're picking up, you know, a number of cans off the shelf instead of the, instead of the promotional pack. We actually see in the data for North America, that the can is still gaining share at the expense of plastic, and I think that's very interesting, because 10 years ago, in similar economic conditions, I suspect you'd have seen a shift towards PET, particularly big 2-liter bottles of cola. So I think that that shows you the strength of the sustainability support that the can now has, and that one of the reasons that underpins our confidence for the future growth of the can.

Coming through but I don't have the exact number so we still see growth in Q4 over Q4 'twenty one.

Okay, great. Thank you and then last one for me.

On the energy side do you have a sense of how much of a.

Oliver Graham: We actually see in the data for North America, that the can is still gaining share at the expense of plastic, and I think that's very interesting, because 10 years ago, in similar economic conditions, I suspect you'd have seen a shift towards PET, particularly big 2-liter bottles of cola. So I think that that shows you the strength of the sustainability support that the can now has, and that one of the reasons that underpins our confidence for the future growth of the can.

Headwind energy is to EBITDA.

And in.

<unk> 22 and expectations for 'twenty three.

2022, I think we were of the order of $50 million.

We offset all of which failed.

Alex yet in 2023, we're not expecting a headwind from energy because of the way we've worked with customers to split that out and make it linked directly to the cost of energy and we've also got a significant hedge position in place that's giving our customers good certainty on what that number looks like.

Oliver Graham: I think going into 2023, it's, it's difficult to pick exactly where we, where we sit substrate to substrate, but all I'd say is that again, that LME fall is very, you know, potentially very significant, because that is a reflection of a sense of cheap energy, you know, in the Far East. And for Europe in particular, that means that the can will be highly competitive. And so I think we're well-placed, going into what will be a difficult year, and potentially, you know, recessionary environment.

the big

CSP players, so we also took that into account that we saw that weakening at the back end of September .

Okay and in terms of the just to follow up on the hedging part it sounded like when you're formulating your hedge book Youre doing that in concert with your customers do you have contracts.

Okay. What's the expectation for North American volumes in Q4?

We still see growth. I mean we've got, you know, capacity coming through but I don't have the exact number so we still see growth in Q4 over Q4 21.

With them that at this point you know well.

Youll be able to pass along the energy costs you are hedging your locking in via those hedges.

On the energy side, do you have a sense of how much of a headwind energy is to EBITDA in 2022 and expectations for 2023?

Yes, yes. So that's the work we've been doing this year is the split energy out as a separate item because it is exceptional and also to be fair to customers to be clear that we weren't trying to take anything on it we were just dealing with this exceptional situation caused by war. So we split it out it's very transparent.

Edward Brucker: Got it. And my second question, just on the back of Jay's. More directly, I guess, which lever would you pull first in order to preserve cash? Would that be just lowering CapEx to maintenance levels? Would that be turning dividends off, not buying back shares? I guess just what, you know, point of weakness would you have to see before turning off the dividend?

2022, I think we were of the order of 50 million, of which we offset. Of which we offset 50 to 60%. And 2023, we're not expecting a headwind from energy because of the way we've worked with customers to split that out and make it linked directly to the costs of energy. And we've also got a significant hedge position in place that's giving our customers good certainty on what that number looks like.

We've done that and we've also.

Certainly big customers up to date on our hedge position and then we're in dialogue with them about what they want us to do with the open portion and again that does also linked to their volume commitments, because we obviously don't want to be over hedged.

Oliver Graham: Yeah, look, we don't see any scenario for that at the moment. So I think we're very comfortable, as David said, within our liquidity position and within the, you know, the forecast we have for cash going into 2023. The obvious right one to address is the growth capital, just because, you know, the weakness then is actually because demand is lower. And we do need to balance, you know, supply and demand, you know, staying disciplined in our industry. So that's always where we're gonna look first and to our overall capacity to conserve our cash.

We do have a number of support schemes coming into place now UK and Germany, which we also think it will help.

Okay, and in terms of the, just to follow up on the hedging part, it sounded like when you're formulating your hedge book, you're doing that in concert with your. Customers do you have contracts?

<unk> situation. So so we think we've got very good transparency and island on energy into 2023.

Thanks, guys.

With them that at this point, you know, will. You know, you'll be able to pass along the energy cross your hedging you're locking in via those hedges.

Thank you.

Our next question is from Gabe <unk> of Wells Fargo.

Oliver David Good morning.

Edward Brucker: Great. Thanks for the questions.

Yes, so that's what the work we've been doing this year is to split energy out as a separate item because it was so exceptional. And also to be fair to customers to be clear that, you know, we weren't trying to take anything on it, we were just dealing with this exceptional situation caused by a war. So we've split it out. It's very transparent the way we've done that. And we've also kept certainly big customers up to date on our head position. And then we're in dialogue with them about what they want us to do with the open portion.

If we can kind of I don't want to go through a whole teach in on contracts and how they behave but just I'm curious.

Oliver Graham: Thank you.

Operator: Next question is from Roger Spitz of Bank of America.

Roger Spitz: ... Thank you, very much. On a couple of cash flow items, on the $600 million CapEx, of which $500 million is CapEx, $100 million is leasing, does that include or exclude the $100 million of maintenance CapEx?

Roger Smith: ... Thank you, very much. On a couple of cash flow items, on the $600 million CapEx, of which $500 million is CapEx, $100 million is leasing, does that include or exclude the $100 million of maintenance CapEx?

All of our having lived through kind of when there's been too much capacity in the market.

Your customer commitments and contracts.

Hi.

Look at them more as supply agreements.

David Bourne: To, to be clear, Roger, I'm at not just under $0.5 of cash business growth investment and $0.1 of leasing, and then there's $0.1 of kind of maintenance CapEx. That's the right way to look at it.

And you don't necessarily have 100% of their volumes locked up there.

Have the flexibility or the ability to go out and maybe dual source or what have you. So can you give us a sense for within your your contracts supply agreements.

And again, that does also link to their volume commitments because we obviously don't want to be over hedged. And again, that does also link to their volume commitments because we obviously don't want

We do have a number of support schemes coming into place now, UK and Germany, which we also think will help the overall situation. So we think we've got very good transparency now on energy into 2023.

Roger Spitz: Thank you. And then you talked about a Q4 2022 working capital inflow. Any way you can size that for us?

Roger Smith: Thank you. And then you talked about a Q4 2022 working capital inflow. Any way you can size that for us?

How much flexibility there is on on behalf of the customer to go out and call it buy in the spot market and.

Again kind of coming from Rexam.

David Bourne: Yeah, look, I think it will be a significant inflow. So, so, you know, triple digits, and it will, you know, take us much closer to where we would expect our normalized position to be at the end of the year. Q4 is a natural seasonality inflow for the business anyway, but we've taken actions relatively early on in Q3 to manage our inventory position, and particular actions around the raw material input to that. That means that if you look at our balance sheet, you'll see our trade payables has fallen while our inventory has kind of held its position. You can assume the natural follow-through on that will be that in Q4, you know, those payables and inventory position will kind of rebalance more in line with where you'd expect, you know, that long-term balance to be.

Moving through other times harder.

Thanks.

How does that work in terms of do they come knocking on your door as a supplier.

Thank you.

Our next question is from Gabe Hajde of Wells Fargo.

Hey can you help me out.

Just curious.

Oliver, David, good morning. If we can, I don't want to go through a whole teach-in on contracts and how they behave, but I'm curious, Oliver, having lived through when there's been too much capacity in the market.

Sure Matt.

Okay.

Yes, I think.

Many large customers will have dual supply or even.

Three or four suppliers.

Either because of geographic location or to de risk their business.

Your customer commitments and contracts, I sort of look at them more as supply agreements. And you don't necessarily have 100% of their volumes locked up. They have the flexibility or the ability to go out and maybe dual source or what have you. So can you give us a sense for within your contracts supply agreements, how much flexibility there is on behalf of the customer to go out and call it buy in the spot market and

And they will.

Gave guidance on the volumes expected either through giving dedication to filling location or giving some sort of overall guidance for that geography.

David Bourne: You can assume the natural follow-through on that will be that in Q4, you know, those payables and inventory position will kind of rebalance more in line with where you'd expect, you know, that long-term balance to be.

And then so relatively few of them if you like buying on the spot because they will have those contractual positions in place because they want to be protected and make sure that that business can can confirm that marketing and scope of the cans that it needs.

I think we were clear about during the listing process is that we have a range of commitments around those volumes and those range from.

Roger Spitz: Got it. And lastly, it says the preferred shares are payment of the dividends at your discretion. Is it, is the dividend, is it a cumulative preferred, where if you miss a quarter, you, you make it up later on?

Roger Smith: Got it. And lastly, it says the preferred shares are payment of the dividends at your discretion. Is it, is the dividend, is it a cumulative preferred, where if you miss a quarter, you, you make it up later on?

Again, coming from Rexxim and moving through other times, how does that work in terms of do they come knocking on your door as a supplier and say, hey, can you help me out? I'm just curious.

Rebate type structures, where customers lose money by not.

Taking a full volume allowance right through to take or pay and those are contracts, particularly the take or pay or the minimum volume legal requirements were put in place, particularly in North America, both because of the size of the growth that we saw in North America because of the uncertainty of some of that with some of the players.

David Bourne: That's correct.

Roger Spitz: Thank you very much.

Roger Smith: Thank you very much.

from that. Yes, I think

Oliver Graham: Thank you, Roger.

Operator: The next question comes from Rachel Fox of Guggenheim Partners.

Many large customers will have dual supply or even...

Rachel Fox: Morning. Could you give some color as to what overall industry manufacturing capacity looked like in both Europe and North America back in 2008 and 2009, and how those capacity utilization rates compared to today? Thanks.

three or four suppliers, either because of geographic location or to de-risk their business. And they will give guidance on the volumes expected either through giving dedication to a filling location or giving some sort of overall guidance for a geography.

Because the market was extremely tight and so it was possible to get those kind of contracts through and that was a very significant upgrade to the contractual structures that historically, it's assisted in North America, and I think Europe , and Brazil stayed more with traditional rebate structures, because there wasn't that same level of growth.

Oliver Graham: Yeah, I have to admit, I don't have the exact numbers to hand. But to the extent, maybe to give some color on what happened during the financial crashes, that there was some deterioration in demand in Europe. So I think in 2008, the market went down a few percent, low 2 to 3 percent, but then the following year grew by 5 percent, and I think utilization rates remained in a good place. North America, I think, was less impacted. Though at the time, obviously, was a lower growth market. What's different about this time is that there is inflation, which is impacting consumer demand. So I think it's a different environment.

So relatively few of them are, if you like, buying on spot because they will have those contractual positions in place because they'll want to be protected.

So we have now a number of situations where customers do have very firm commitments with us.

and make sure that their business can confirm that marketing has got the cans that it needs.

Some of them are missing them and so we're in very active dialogue with customers about those clauses and getting recovery on them, because we think thats fair and appropriate we are recompense for the capital we put in the ground and we don't thing.

I think what we were clear about during the listing process is that we have a range of commitments around those volumes and those range from rebate type structures where customers lose money by not taking their full volume allowance right through to take or pay. And those were contracts, particularly the take or pay or the minimum volume legal requirements were put in place particularly in North America, both because of the size of the growth.

That impacts and ongoing constructive commercial relationships.

<unk> is in progress, we're not going to give a running commentary on that and we're obviously doing that in a very constructive way with our customers, but those types of contracts were put in place and they are relevant for this environment.

Oliver Graham: What's different about this time is that there is inflation, which is impacting consumer demand. So I think it's a different environment.

I appreciate the transparency there Ali.

that we saw in North America and because of the uncertainty of some of that with some of the players and because the market was extremely tight and so it was possible to get those kind of contracts through and that was a very significant upgrade to the contractual structures that historically had persisted in North America. I think Europe and Brazil stayed more with traditional rebate structures because there wasn't that same level of growth. So we have now a number of situations where customers do have very firm commitments with us and obviously some of them are missing them.

And then one question I guess on leverage and cash flow. If we are looking at 2023.

Oliver Graham: But overall, you know, we see the resilience of the can to these kind of economic downturns, because firstly, you know, the consumer moves from out-of-home consumption, restaurants, holidays, bars, to at-home consumption, and then within the at-home consumption, the can is pretty resilient. So yeah, that's why I mentioned a few times that I'm relatively confident in our 2023 outlook, despite the, the uncertainties in the environment.

Op cash flow less capex.

I don't know, maybe I put a $400 million in there for Capex and you guys are <unk>.

Cash flow neutral.

On an operating basis, and then with dividend and maybe some share repurchase.

Burning cash would you expect to be at the same leverage rate.

Kind of at the end of 2023.

Rachel Fox: Thanks. And, just on the energy cost inflation, you previously spoke about the recovery through the surcharges. What percentage of your customers pay those surcharges in the end?

And so we're in very active dialogue with customers about those clauses and getting recovery on them because we think that's fair and appropriate that we are recompense for the capital we put in the ground and we don't think that impacts an ongoing constructive commercial relationship. So that is in progress, we're not going to give a running commentary on that. We're obviously doing that in a very constructive way with our customers but those types of contracts were put in place and they are relevant for this environment.

Sure.

Below obviously with the earnings growth that you referenced.

During our prepared remarks.

Yes, I think once we've gone through our budget exercise and present back in February we'll be able to give you a bit more precision on kind of our leverage projections.

Oliver Graham: I don't have the percentage of customers, but we recovered pretty much in line with our expectation, which was around 50, 60% of what-

At the end of 'twenty, three and clearly part of that leverage projections EBITDA.

Rachel Fox: Yeah

Oliver Graham: ... what we suffered in this year. And then going into next year, we're getting up to a very high percentage of our customers who've accepted what we believe is a very fair and equitable way to pass through the exceptional situation that we're all facing in Europe. Because, you know, we only put it through when it's high, and we'll take it out again when it falls, which it will. And therefore, there's no ongoing effect of it for our customer base.

Okay.

Yes.

I'll have to wait a little bit longer for that but I think the way showing messages.

I appreciate the transparency there, Ali. And then one question, I guess, on leverage and cash flow. If we are looking at 2023, you know, op cash flow, less capex, I don't know, maybe I put a $400 million in there for capex and you guys are cash flow neutral, let's say, on an operating basis, and then, you know, with dividend and maybe some share to purchase and burning cash, would you expect to be, you know, at the same leverage rate?

Is the one around kind of where our balance sheet is today, we will be at year end.

We are very focused on.

Our liquidity and leaves us in a strong position for weathering, we're doing the short term impacts we are seeing.

Rachel Fox: Thanks.

Okay, and one last one if I may Brian isolate Nicole specific projects on the list I think Ali referenced maybe delaying align and Huron I just want to make sure that was originally expected to be three lines.

Oliver Graham: Thank you.

Operator: Our next question comes from Eric Sece of GoldenTree.

you know kind of at the end of 2023 or you know below obviously with the earrings quote that you referenced you know during your prepared remarks.

Roger Spitz: Hi, guys. Thanks for taking the call. Your guidance implies a nice sequential increase in EBITDA from Q3 to Q4. Can you talk about the factors that you're seeing that lead you to that conclusion?

Eric Seeve: Hi, guys. Thanks for taking the call. Your guidance implies a nice sequential increase in EBITDA from Q3 to Q4. Can you talk about the factors that you're seeing that lead you to that conclusion?

And then we have seen an announcement from some local officials about a new plant in Ireland. So I'm curious if that's one that you were talking about delaying and then again it sounds like Arizona sort of.

Yeah, no, look, I think once we've gone through our budget exercise and present back in February , we'll be able to give you a bit more precision on kind of our leverage projections for the end of 23. And clearly, part of that leverage projection is EBITDA too, right? So, you know, you have to wait a little bit longer for that. But I think the reassuring message is the one around kind of where our balance sheet is today will be at the year end and that we are

Oliver Graham: Sure, yeah. So, I think there's three or four factors. So firstly, in Q3, we talked about some of these metal impacts. Even though we offset them, we don't see those recurring, and we didn't, you know, we weren't able to offset them all. We see ongoing energy recovery in Europe with the efforts we've been putting in there. We see a good position in Brazil, again, with some of the customer growth and the mix. And we see some overall mix effects in our volumes, particularly in North America. So there's three or four factors that lead us to see an improved performance in Q4 versus Q3. I'll just check with David. I didn't miss something out there.

Indefinitely postponed.

No I think Thats fair in Arizona, I think until we see the capacity in North America come back into balance.

Isn't it isn't needed and that is going to take a bit of time.

But obviously long term, we still have positive views on the region and the customer base.

Yes, I think it's fair to say that the moment, we don't have a timing.

Timing on that.

Here on that capacity initially was planned to come up with the back end of this year and I will slip into the first half of next year no. Non we've actually had some natural delays on that project we are in discussion.

Oliver Graham: So there's three or four factors that lead us to see an improved performance in Q4 versus Q3. I'll just check with David. I didn't miss something out there.

Both with the contracting with customers.

David Bourne: Yeah. No, I think that's right. Obviously, some of our capacity is even further up as well, so-

The timing for that so I don't have a.

Date for that at the moment, but clearly we did get planning Commission, which is why there's been some announcements in the press.

Oliver Graham: True

David Bourne: ... that may support the volume number quarter-over-quarter.

Then we've seen an announcement from some local officials about a new plant in Ireland. I'm curious if that's one that you're talking about delaying and then again it sounds like Arizona is......

Oliver Graham: Yeah.

Roger Spitz: Okay, and you mentioned it sounded like subsequent to the quarter in October, you saw some more deterioration. It sounds like it was mostly in Europe. Have you factored this into your outlook, and what specifically is your expectation for European volumes in Q4?

Eric Seeve: Okay, and you mentioned it sounded like subsequent to the quarter in October, you saw some more deterioration. It sounds like it was mostly in Europe. Have you factored this into your outlook, and what specifically is your expectation for European volumes in Q4?

Great. Thank you guys and good luck.

Okay.

And as there are no further questions I'd like to hand, the call back to Oliver Graham <unk> for any additional or closing remarks.

and definitely postponed.

No, look, I think that's fair on Arizona. I think that until. You know, we see the capacity in North America come back into balance. Um, you know, that isn't isn't needed and that is going to take a bit of time. But obviously, you know, long term, we still have positive. Views on the region and the customer base, but yes, I think it's fair to say that moment we don't have a timing. The timing on that here on that capacity initially was planned to come up at the back end of this year and now we'll slip into the 1st, half of next year.

Thank you Kevin.

Thanks to everyone on the call and for your interest in A&P just to summarize again, our shipments grew 9% in the quarter versus the prior year period for earnings were below expectations that was because of softer demand conditions and higher operating costs.

Oliver Graham: Yes, we put that in the outlook. It's part of the reason for the range. And I think we mentioned, we do expect Q4 European volumes to be negative relative to Q4 2021. Q4 2021 was very strong in Europe, and traditionally, European sales in Q4 are down a bit. We typically take some stoppages. We've not done that for the last few years, so it's really a reversion to some normality there as well. But we do see a slightly negative growth path, and we did include in that some conservatism based on what we'd seen in the back end of September and early October.

We're taking action around that which we talked about at length to align our supply with demand and improve our inefficient efficiency.

And as we said in Europe , we're looking forward to a good recovery of our input cost inflation into 2023.

I think as we said a number of times on the call. We remain very confident in the secular demand trends that support the beverage can and we see as we come through this difficult macro environment in 2023 that we will see stronger growth into 2024 and beyond.

And Northern Ireland, we've actually had some natural delays on that project. We're in discussion both with the contracting and with customers about timing for that. So I don't have an exact date for that at the moment, but clearly we did get planning permission, which is why there's been some announcements in the press.

Oliver Graham: But we do see a slightly negative growth path, and we did include in that some conservatism based on what we'd seen in the back end of September and early October.

Eric Sece: Okay. And did you see a corresponding weakness in North America over that timeframe as well, or no?

Eric Seeve: Okay. And did you see a corresponding weakness in North America over that timeframe as well, or no?

As we put in place.

Our investment program, we're very well placed.

To take advantage of those trends so.

Great. Thank you guys and good luck.

Oliver Graham: I mean, we, we've seen weakness in North America, and some of that definitely came through in September, but it's just a slightly different reason, which was more around the seltzer market. You know, as I said, it was -13% in September, you know, relative to -10% year to date. So there was some further weakness, and then also this removal of promotional activity by some of the big CSD players. So, we also took that into account that, you know, we saw that weakening at the back end of September.

So thanks for your interest and we look forward to talking to you again at our Q4 results.

Thank you.

And as there are no further questions, I'd like to hand the call back to Oliver Graham for any additional or closing remarks.

That does now conclude today's conference call. We thank you all for your participation and you may now disconnect.

Thank you Kevin

So thanks to everyone on the call for your interest in AMP. Just to summarize again, our shipments grew 9% in the quarter versus the prior year period, but earnings were below expectations. That was because of softer demand conditions and higher operating costs.

We're taking action around that, which we've talked about at length to align our supply with demand and improve our efficiency.

Eric Sece: Okay. And what's the expectation for North American volumes in Q4?

Eric Seeve: Okay. And what's the expectation for North American volumes in Q4?

Oliver Graham: We still see growth. I mean, we've got, you know, capacity coming through, but I don't have the exact number. So we still see growth in Q4 over Q4 2021.

And as we said in Europe , we're looking forward to a good recovery of our input cost inflation into 2023.

I think as we said a number of times on the call we remain very confident in the secular demand trends that support the beverage can and we see as we come through this difficult macro environment in 2023 that we'll see stronger growth into 2024 and beyond. And as we put in place our investment program we're very well placed.

Eric Sece: Okay, great. Thank you. And then last one from me. On the energy side, do you have a sense of how much of a headwind energy is to EBITDA in 2022 and expectations for 2023?

Eric Seeve: Okay, great. Thank you. And then last one from me. On the energy side, do you have a sense of how much of a headwind energy is to EBITDA in 2022 and expectations for 2023?

Oliver Graham: 2022, I think we were of the order of $50 million, with which we offset-

to take advantage of those trends.

Oliver Graham: 2022, I think we were of the order of $50 million, with which we offset-

So thanks for your interest, and we look forward to talking to you again at our Q4 results.

Operator: Of which we offset 50, 60%.

David Bourne: Of which we offset 50, 60%.

Oliver Graham: Yeah. And 2023, we're not expecting a headwind from energy because of the way we've worked with customers to split that out and make it linked directly to the cost of energy. And we've also got a significant hedge position in place that's giving our customers good certainty on what that number looks like.

And that does now conclude today's conference call. We thank you all for your participation and you may now disconnect.

You

Eric Sece: Okay. And in terms of just to follow up on the hedging part, it sounded like when you're formulating your hedge book, you're doing that in concert with your customers. Do you have contracts with them that, at this point, you know will, you know, you'll be able to pass along the energy costs you're hedging, you're locking in via those hedges?

Eric Seeve: Okay. And in terms of just to follow up on the hedging part, it sounded like when you're formulating your hedge book, you're doing that in concert with your customers. Do you have contracts with them that, at this point, you know will, you know, you'll be able to pass along the energy costs you're hedging, you're locking in via those hedges?

Oliver Graham: Yes. Yeah, so that's what the work we've been doing this year, is to split energy out as a separate item because it was so exceptional. And also to be fair to customers, to be clear that, you know, we weren't trying to take anything on it. We were just dealing with this exceptional situation caused by a war. So we've, we've split it out. It's very transparent the way we've done that, and we've also kept certainly big customers up to date on our hedge position. And then we're in dialogue with them about what they want us to do with the open portion. And again, that does also link to their volume commitments, because we obviously don't want to be over-hedged. We do have a number of support schemes coming into place now, UK and Germany, which we also think will help the overall situation.

Oliver Graham: And then we're in dialogue with them about what they want us to do with the open portion. And again, that does also link to their volume commitments, because we obviously don't want to be over-hedged. We do have a number of support schemes coming into place now, UK and Germany, which we also think will help the overall situation.

Oliver Graham: So, we think we've got very good transparency now on energy into 2023.

Eric Sece: Thanks, guys.

Eric Seeve: Thanks, guys.

Oliver Graham: Thank you.

Operator: Our next question is from Gabe Hajde of Wells Fargo.

Gabe Hajde: Oliver, David, good morning.

Oliver Graham: Hi.

Gabe Hajde: If we can, kinda, I don't want to go through a whole teach-in on contracts and how they behave, but just I'm curious, Oliver, having lived through kind of when there's been too much capacity in the market, your customer commitments and contracts, I sort of look at them more as supply agreements, and you don't necessarily have 100% of their volumes locked up. There's, you know, they have the flexibility or the ability to go out and maybe, you know, dual source or what have you. So can you give us a sense for within your contract supply agreements, how much flexibility there is on behalf of the customer to go out and, call it, buy in the spot market?

alcoholic beverages. There was additional continued weakness in the export market for filled drinks due to elevated freight costs. We noticed a slowdown in activity towards the end of the quarter, which may indicate that inflationary pressures are starting to have some impact on consumer demand. Third quarter adjusted EBITDA in Europe fell by 42% to $38 million as input cost headwinds exceeded the contribution from higher shipments. We also incurred costs related to unusual metal valuation timing issues as a result of holding higher raw materials inventory for longer than anticipated while metal prices fell during that period. But we were able to offset this impact through positive one-off factors, and we do not expect this cost to reoccur in the fourth quarter. Looking to the remainder of 2022, shipments in the fourth quarter are likely to see a modest decline reflecting a strong prior year comparable. As part of our actions to manage our capacity

Gabe Hajde: So can you give us a sense for within your contract supply agreements, how much flexibility there is on behalf of the customer to go out and, call it, buy in the spot market?

Gabe Hajde: You know, again, kind of coming from Wrexham and living through other times, how does that work in terms of, you know, do they come knocking on your door as a supplier and say, "Hey, can you help me out?" Just curious on that.

Oliver Graham: Sure. Yeah, so look, I think many large customers will have dual supply or even three or four suppliers, either because of geographic location or to de-risk their business. And they will give guidance on the volumes expected, either through giving dedication to a filling location or giving some sort of overall guidance for a geography. And then, so relatively few of them are, if you like, buying on spot, because they will have those contractual positions in place because they'll want to be protected and make sure that their business can confirm, you know, that marketing has got the cans that it needs.

Oliver Graham: And then, so relatively few of them are, if you like, buying on spot, because they will have those contractual positions in place because they'll want to be protected and make sure that their business can confirm, you know, that marketing has got the cans that it needs.

Oliver Graham: I think what, you know, we were clear about during the listing process is that we have a range of commitments around those volumes, and those range from rebate-type structures, where customers lose money by not taking their full volume allowance, right through to take-or-pay. And those were contracts, particularly the take-or-pay, or the minimum volume legal requirements, were put in place, particularly in North America, both because of the size of the growth that we saw in North America, and because of the uncertainty of some of that with some of the players, and because the market was extremely tight, and so it was possible to get those kind of contracts through. And that was a very significant upgrade to the contractual structures that historically had persisted in North America.

Oliver Graham: And those were contracts, particularly the take-or-pay, or the minimum volume legal requirements, were put in place, particularly in North America, both because of the size of the growth that we saw in North America, and because of the uncertainty of some of that with some of the players, and because the market was extremely tight, and so it was possible to get those kind of contracts through. And that was a very significant upgrade to the contractual structures that historically had persisted in North America.

Oliver Graham: And I think Europe and Brazil stayed more with traditional rebate structures because there wasn't that same level of growth. So we have now a number of situations where our customers do have very firm commitments with us, and obviously, you know, some of them are missing them. And so we're in very active dialogue with customers about those clauses and getting recovery on them, because we think that's fair and appropriate that we are recompensed for the capital we put in the ground, and we don't think that impacts an ongoing, constructive commercial relationship. So that is in progress. We're not gonna give a running commentary on that, and we're obviously doing that in a very constructive way with our customers, but those types of contracts were put in place, and they are relevant for this environment.

Oliver Graham: And so we're in very active dialogue with customers about those clauses and getting recovery on them, because we think that's fair and appropriate that we are recompensed for the capital we put in the ground, and we don't think that impacts an ongoing, constructive commercial relationship. So that is in progress. We're not gonna give a running commentary on that, and we're obviously doing that in a very constructive way with our customers, but those types of contracts were put in place, and they are relevant for this environment.

Gabe Hajde: I appreciate the transparency there, Ollie. And then one question, I guess, on leverage and cash flow. If we are looking at 2023, you know, op cash flow, less CapEx, I don't know, maybe I put a $400 million in there for CapEx, and you guys are cash flow neutral, let's say, on an operating basis, and then, you know, with dividend and maybe some share repurchase, burning cash. Would you expect to be, you know, at the same leverage rate, you know, kind of at the end of 2023, or, you know, below, obviously, with the earnings growth that you referenced, you know, during your prepared remarks?

Gabe Hajde: Would you expect to be, you know, at the same leverage rate, you know, kind of at the end of 2023, or, you know, below, obviously, with the earnings growth that you referenced, you know, during your prepared remarks?

David Bourne: Yeah. No, look, I think once we've gone through our budget exercise and present back in February, we'll be able to give you a bit more precision on kind of our leverage projections for the end of 2023, and clearly part of that leverage projection is EBITDA, too, right? So, yeah, you'll have to wait a little bit longer for that. But I think the reassuring message is the one around kind of where our balance sheet is today, will be at the year end, and that we are very focused on preserving our liquidity and leaving us in a strong position for weathering the short-term impacts we're seeing.

David Bourne: But I think the reassuring message is the one around kind of where our balance sheet is today, will be at the year end, and that we are very focused on preserving our liquidity and leaving us in a strong position for weathering the short-term impacts we're seeing.

Gabe Hajde: Okay. And one last one, if I may. I recognize it's late in the call. Specific projects on the list. I think, Ollie, you referenced maybe delaying a line in Huron. I just wanna make sure, that was originally expected to be three lines. And then we've seen an announcement, you know, from some local officials about a new plant in Ireland. So I'm curious if that's one that you're talking about delaying, and then again, it sounds like Arizona is sort of, you know, indefinitely postponed.

Oliver Graham: No, look, I think that's fair in Arizona. I think that until, you know, we see the capacity in North America come back into balance, you know, that isn't needed, and that is gonna take a bit of time. But obviously, you know, long term, we still have positive views on the region and the customer base. But yes, I think it's fair to say that at the moment, we don't have a timing on that. Huron, that capacity initially was planned to come up at the back end of this year, and now will slip into the first half of next year. At Northern Ireland, we've actually had some natural delays on that project. We're in discussion both with the contracting and with customers about timing for that.

Oliver Graham: At Northern Ireland, we've actually had some natural delays on that project. We're in discussion both with the contracting and with customers about timing for that.

Oliver Graham: So, I don't have an exact date for that at the moment, but clearly we did get planning permission, which is why there's been some announcements in the press.

Gabe Hajde: Great. Thank you, guys, and good luck.

Oliver Graham: Thanks.

David Bourne: Thank you.

Oliver Graham: Okay.

Anthony Pettinari: As there are no further questions, I'd like to hand the call back to Oliver Graham for any additional or closing remarks.

Operator: As there are no further questions, I'd like to hand the call back to Oliver Graham for any additional or closing remarks.

Oliver Graham: Thank you, Kevin. So thanks to everyone on the call for your interest in AMP. Just to summarize again, our shipments grew 9% in the quarter versus the prior year period, but earnings were below expectations. That was because of softer demand conditions and higher operating costs. We're taking action around that, which we've talked about at length, to align our supply with demand and improve our efficiency. And as we said, in Europe, we're looking forward to a good recovery of our input cost inflation into 2023. I think as we said a number of times on the call, we remain very confident in the secular demand trends that support the beverage can. And we see, as we come through this difficult macro environment in 2023, that we'll see stronger growth into 2024 and beyond.

Oliver Graham: I think as we said a number of times on the call, we remain very confident in the secular demand trends that support the beverage can. And we see, as we come through this difficult macro environment in 2023, that we'll see stronger growth into 2024 and beyond.

Oliver Graham: As we've put in place our investment program, we're very well-placed to take advantage of those trends. Thanks for your interest, and we look forward to talking to you again at our Q4 results.

Anthony Pettinari: That does now conclude today's conference call. We thank you all for your participation, and you may now disconnect.

Operator: That does now conclude today's conference call. We thank you all for your participation, and you may now disconnect.

Q3 2022 Ardagh Metal Packaging SA Earnings Call

Request a DemoDemo

AMBP

AMP

Earnings