Q3 2023 Ardagh Group SA Earnings Call
Welcome to the Argo Group I say third quarter 2023 results Conference call. Today's conference is being recorded at this time I'd like to turn the conference over to Mr. Paul Colson Chair men of AGA Group. Please go ahead Sir.
Welcome everybody and thank you for joining us for our third quarter.
Bondholder call.
This call following the release of our results for the quarter earlier today.
Im joined on this call by John <unk>, our CFO.
As usual our remarks during this call will include certain forward looking statements. These statements reflect circumstances at the time. They are made 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.
Two factors.
Our third quarter Bondholder report can be found on our website about agri dot com earlier today.
Packaging or a M. P released its third quarter results a replay of this earnings call can be accessed at IR day.
Metal packaging dot com and on this call today, we will not be providing any additional information regarding a M. P.
I need to review today.
Highlights for the third quarter, where we saw we certainly expected shipments across our glass business and the strong shipment growth in metal packaging.
Consolidated group revenues of $2 $5 billion increased by 4% at constant currency compared with the third quarter of 22 growth reflected higher shipments and metal packaging led by the Americas and the pass through of increased costs in glass packaging. This was partly offset by lower than expected shipments in glass packaging.
Group adjusted EBITDA declined by 1% at constant currency to 303 4 million for the quarter compared to the same period last year with strong growth in metal packaging offset by a decline.
If I reviewed a segmental reporting performance with a focus on constant currency results and I'll start by briefly recapping on A&P.
Revenue of $1 3 billion at A&P increased by 7% compared with the third quarter and 22 growth reflected higher beverage can shipments part, partly offset by the pass through of lower metal prices.
Third quarter.
Global beverage can shipments increased by 8% compared to the same period last year with growth of 18% in the Americas more than offsetting a 2% reduction in Europe within the Americas. The A&P grew shipments by 20% in North America, while Brazil showed a return to high single digit growth despite continuing macroeconomic.
Like challenges.
A&P as third quarter, adjusted EBITDA of $171 $1 million grew 20%, principally reflecting increased shipments and better pass through of energy costs in Europe.
AMG has initiated consultations regarding the future of its white house, Ohio plant with the aim to improve its network efficiency and reduce fixed cost. Our previously set a rationalization of our remaining steel timelines in Germany is on track to complete around year end.
This demonstrates our focus on optimizing capacity utilization following the completion of our growth investment program.
Cash generation that A&P was very strong in the quarter and then the year to date with significant deposits released from working capital together with EBITDA growth. This resulted in a reduction in net average of a turn in the quarter adjusted EBITDA of $610 million is now projected for full year 2023.
Yes.
If I could turn to glass packaging, where we and the industry faced a very challenging environment during the third quarter.
Our global packaging glass packaging revenue $1 2 billion for the quarter was virtually unchanged compared with the same quarter last year as the pass through of increased input costs was offset by significantly lower than expected shipments.
Total shipments weakened over the course of the quarter and finished 18% below comparable prior year levels.
As we noted in our July earnings call and as reported by glass industry peers over the past week. It is clear that there has been significant and prolonged destocking activity across most of our markets.
And this has been in excess of any change in consumption patterns.
Our response to this sharply changed environment, which we believe to be temporary has been to lower our production by approximately 20% in Q3 and with additional actions planned for the fourth quarter.
Total glass packaging adjusted EBITDA for the quarter declined by 16% to $163 million compared to the same period last year lower earnings were due to the impact of lower shipments combined with production curtailments, which adversely impacted third quarter profitability by over 17 million versus our <unk>.
Previous expectations.
If we look individually at our two glass packaging segment, and if I could start with Europe and Africa revenue of $784 million in the quarter was 9% of the same period last year as the recovery of increased input costs through higher prices more than offset the impact of significantly lower shipments last.
Shipments and in the Europe, and Africa segment were 20% lower than the third quarter compared with the same period last year, and we're well below our expectations.
As we reported on each of our earnings calls this year glass shipments in Europe were exceptionally strong towards the end of 2022 full year 2022 shipments increased by 6% significantly outperforming the market.
We at the time and since then have attributed in elements of this strength to a pre buy activity as volumes were pulled forward from the first half of 'twenty three.
And we expected that to unwind through lower shipments in the first.
Water to be complete by the end of Q2 2023.
However, as we noted in our call. This July 2nd quarter shipment trends remained lower than expected with a similar rate of decline versus 2000 to 2022 that we've seen in the first quarter. This we believe was principally due to destocking by a number of large customers who have higher than normal levels of inventory during the pandemic.
2022.
This was amidst a well reported supply chain bottleneck in glass.
Our leading presence in the beer market and in Germany was also a contributing factor to this weakness.
We believe that the third quarter, 20% decline in European shipments in Europe, and Africa assessment during the quarter reflects a more prolonged destocking by our customers in Europe, and lastly in Africa, and this was exacerbated by weaker demand faced by our customers.
Customers responded to weaker than expected trading in the latter part of Q3.
And to a more uncertain economic environment by significantly lowering their previous class requirement for pets.
We believe that this decline in shipments is temporary for several reasons.
Firstly declined how far outstripped production and consumption over the course of the quarter and year to date compared to the same period last year, nor have we seen any notable movements between substrates of trend between tenants and about for example, a trend, which we would be uniquely well placed to observer.
In our Africa business, the packaging business, we saw a reduction in demand midway through the third quarter as customers move to reduce inventories, which had been boosted by the importation of expensive slabs from various regional markets.
The softer macroeconomic backdrop.
<unk> demand.
Also saw some gains by non returnable glass packaging in the lower peered in the lower priced than the on trade market.
We expect this empty until glass inventory to be worked down over the next two quarters and we expect to see recovery.
As we move through 2000, and we are also seeing an improvement in the outlook in Africa as two of our major customers bed down their recent merger.
In response to weaker demand environment, we adjusted our production during the third quarter in both Europe, and Africa furnace rebuild schedule to reflect and selective capacity idled with the result that third quarter adjusted EBITDA in the segment was 133 million% to 6% reduction compared to the same period last year.
This does turn was after the impact of approximately $60 million in the quarter from lower than anticipated shipments and resulting production curtailment costs in the quarter.
We do not believe that the fundamental markets fundamentals.
Fundamentally the market fundamentals for glass packaging in Europe have changed to put it in context over the past 15 years, including during the global financial crisis, our European shipments at their lowest.
In that in that 15 year period have been 10% higher than we currently project for 2023.
2023 credits, we believe has seen a one time destocking post pandemic and post easing in the supply chain pressures in recent years, we expect normalized customer demand to drive a recovery in shipments during 'twenty 'twenty four as inflationary pressures on consumers ease and all of our customers push V.
William.
It hasn't been pushed volume instead of price they've been pushing price over the last couple of years.
This will be aided by the expected pass through of lower energy prices.
Packaging, thereby making us more competitive in our glass markets.
Longer term, we expect European glass packaging demand to continue to grow by a low single digit percentage of January with mid single digit growth in Africa. This is unchanged and based on our continuous dialogue with our customers.
With a view, which is serving this long term demand with sustainable whether burst capacity, we will soon and commenced production at our Nextgen hybrid furnace at our <unk>, Germany plant.
This will be the first of its kind in scale capable of lowering cotwo emissions by up to 60% and transforming the glass production process over time in December we will bring the third furnace online or Nigel Johannesburg facility to serve the medium term growth needs of the South African market.
Following completion of these investments we plan no further growth capital expenditure focus and focus instead on leveraging the significant investments in recent years to drive earnings growth and cash generation.
So if I now turn to glass in North America revenue for the third quarter was $408 million a reduction of 13% compared with the same period last year and as in Europe and Africa. This was driven by a 14% reduction in shipments partially offset by price improvements.
Shipments continue to be challenged by the previously outlined disruption to a major beer brand in the U S to which we are the major supplier.
The impact on consumption of this brand is widely reported in retail data has to date shown little change since the controversy first rose earlier this year.
In response, we accelerated the closure of two facilities during the third quarter and have been engaged in transferring remaining volumes to other parts of our network. So this involves disruption and temporarily increased costs.
Outside of the mass beer category demand also remained subdued during the quarter with continued destocking evident in the food wine and spirits categories.
This necessitates its ongoing production curve payload curtailments across parts of our U S network, leading to fixed cost under recovery during the quarter.
Third quarter adjusted EBITDA of $30 million was 23 lower than the same period last year was impacted by over $10 million due to shipment weaknesses and resulting production curtailments.
We believe that destocking initiatives by our customers are more advanced in the U S market than in Europe, or Africa, and we continue to assess opportunities to optimize our furnace network with the future right sizing to meet demand.
And while not evident in the reported out turn in view of the circumstances prevailing in 'twenty. Three we have made good improvements in pricing during 2023 as well as early stage growth progress in improving our operating performance others are left remaining to be done to deliver consistently improved.
Stability and greater resilience in the business.
If I turn to our liquidity and our cap structure consolidated group cash and available liquidity was $1 $3 billion at the end of September 2023, including half a billion in cash cash and available liquidity at the arcade restricted group was $800 million net leverage at <unk> restricted group.
A $6 one times LTM adjusted EBITDA at September 23, compared to six two times at December 'twenty two.
This represents an increase of <unk> two of a turn in the quarter LTM adjusted EBITDA at the argued restricted group was $973 million at September 23, compared with $8 93 at December 'twenty two.
So to wrap up these remarks as we look to the full year 'twenty three and beyond the market backdrop remains uncertain and our assumption is that customer demand will remain we remain weak through the fourth quarter of 'twenty, three, especially when measured against an exceptionally strong finish for us in 2022.
We will manage for this environment and set ourselves up for the new year.
Given the projected lower shipments for Q4, and lower production, which we impact.
Which we estimate will impact Q4.
EBITDA by approximately $80 million.
After other cost reductions, we now project full year 2023, adjusted EBITDA for the argued restricted group of approximately $900 million.
As such I'll now turn would leave our glass the EBITDA in 2023 flat compared to the outcome in 2022.
Net leverage Jesse argued restricted group is now projected to earn 23 in the mid six times range before deleveraging in 2024.
In 2024, we expect to return to more level more normal levels of shipments as customer demand recovers following completion of destocking and as customers seek to grow volumes moderating levels of inflation will also be positive for both consumer behavior and for our glass input costs as a result of <unk>.
<unk> reduced input costs in 2024, we will be well placed to regain share in all of our best markets, especially in food and wine.
Our customer volume indications are trending positively for 2024.
Resuming demand growth as well as significantly lower and less costly curtailment activity than in 2023 as well as the benefits of ongoing cost efficiencies should drive a solid recovery in earnings in 2024.
Yeah.
So having made these opening remarks, we will now be very pleased to take any questions that you may have.
Thank you.
Our next.
Questions today, please signal by pressing star one on your telephone keypad.
Xena Speaker phone. Please make sure your mute function is turned off to allow your signal.
Again press Star one to ask a question.
First question is going to come from Richard Phelan from Deutsche Bank. Please go ahead Sir.
Yes, I was hoping you could clarify.
The projections guidance that you gave for both the glass and metal 2023, but yeah I guess just in context of the acquisition.
I think you had previously been looking for $850 million for glass.
Yes.
It is now 700.
But just because of the deal.
As I mentioned in Q3 projected impact in Q4, which would leave it flat with last year. If you compare with the prior year was 690.
And then do you think the dividend at that time.
Right. So the 689 as SASSA, Okay. So 700 for glass and then what did you say for metal.
And that was all stated today, so that was a separate call, but yes. They updated their would take us past the year.
And does the.
<unk> on the glass side does that change your view in terms of <unk>.
Capex for for the group.
How does that plan out for the balance of 2023 and.
For 2024, and obviously focus on glass.
We have taken that Ipass take time to capex for the remainder of the year in both businesses.
It's only on a need less space it sounds as though development stuff going on at all we'll complete envision as he said the two significant projects what is that the next gen hydro <unk> assess warming up at the moment in Germany in liquid production sharply.
And the third.
Third cartilage and Johannesburg, So those projects will come online again before the end of the year, but that's the only.
Developed projects, we have in the pipeline that they will be they're just nearing completion. So the capex that we outlined previously.
Queen development that maintenance and that was it.
The range of about $530 million or so in 2023 that should fall away markedly and next year.
Okay and last question Mike.
The 20% decline in Europe shipments in glass and 14% decline in U S shipments in glass.
Something similar is anticipated in Q4 before <unk>.
<unk> to sort of the normal low single digit volume growth expectations next year is that fair takeaway.
That's correct yes.
I said the indications with customers are that that is the case.
In Europe, we had a lot of Destocking, we had some we had some very big volume calls with <unk>.
Three of our major customers accounted for 40% of the shortfall in demand this year relative to our expectations.
Okay.
It's very big volume declined slightly by five major customers, which were exacerbated by the <unk>. They had stopped up both in sales and unfilled.
Capacity.
Absolutely glass capacity, both bottles until bottles at the end of 'twenty, two when glass with sharp.
Of course, the the wound care demand has slowed down.
Destocking process, which we would have expected to have ended by Q2. It is now it's now going to go through the end of this year and I think youre seeing that reported last week.
But we expect a recovery there and also we have major reductions in our input costs as our energy cost all the way down at the turn of the year.
And Richard recall, we had a strong Q4 of last year. So our planning assumption would be that that decline in Europe year on year in Q4 will be a bit higher and we've adjusted our capacity appropriately.
I understand that we're taking that's great.
Hello.
Yes.
Great. Thank you Greg.
Thank you.
And once again, if you'd like to ask a question. Please press star one our next call is going to be Alex Simon from Keybanc capital. Please go ahead.
Hi, Thanks for taking my question we'd.
I'd like to come back on the Capex side, because let's say you are.
Got it thank you Kathy.
Hi.
And so it became they get six figures.
More.
With 50 million. So could you please give us some guidance.
Knowing that there's been some reduction has already its A&P level. Thank you.
Yes.
Before but.
Maintenance elements.
Spend in the current year it was about.
330, 340 million and then between various projects. It was the best parts 200 million of growth and development for that growth very sharp fall away next year, and then with the benefit of the investments. We've made this year and over the past several years to reduce our maintenance capex as well. So we will update in February.
A very meaningful reduction.
Todd.
Yes, the condition of our assets are very good.
The development there is nothing additional plan there.
Okay. Thank you that's all okay. That's it how much should we plan for 'twenty three full year in terms of the total capex.
Capex.
It's about 10 and it was probably about two.
540 <unk>.
Growth on maintenance.
All lines combined.
Okay.
And I have no further questions in the queue at this time.
Okay.
And I apologize we do have.
Mark do you want to go ahead and take them.
Yes.
Okay, and so I have Richard Phelan again.
Hi, I just thought I'd ask some more questions as always surprised no one else was asking.
In light of.
Upcoming maturities in 2026.
Maybe if you could shed any light on.
Company's plans too to address those obviously theyre not urgent but.
The capital markets.
You consider accelerating the sale of <unk> would you reduce your stake in A&P from 75% to lower would you consider selling preferreds all of the above.
All of the above there are possibilities right Gerry I think in the <unk>.
In the new year, we will turn our highest how are we going to deal with these issues. So I mean, obviously capital markets are.
Bond markets are tricky at the moment.
And.
Cost of finance has risen dramatically. So we will look at various things we have.
Various labors and we will look at all of that.
Okay.
Okay, great. Thank you.
Our next question is going to come from Mark Watts with Citi.
Hi, I just had a quick question on UK production. So you guys had obviously the facility ramp up how the progress is going there and will you be adding capacity across any region.
Near term.
No we referred to ramping up capacity at Nextgen, a hybrid prior to switch it can save a <unk> emissions by 60% and maybe even more and it's the biggest have its kind of scale that will be in operation that's in Germany.
The second one was a third furnace in our national clients, just outside of Johannesburg, and thus to satisfy.
And that has been traditionally over the past few years, some imports into that market. So there is an unmet need and there's also a mid single digit expected no. It doesn't.
Imports are extremely expensive to get into that market. So yes, we have a two furnace facility there and we added the second furnace.
Shortly after the acquisition as a third party will that will come on stream before at the end of the year. So there's nothing specific in that.
The U K and we've always been committed to balancing our capacity and when we've seen the softness in the quarter. We've acted very very promptly.
That influences, our spending plans as well.
Future Capex.
And didn't know in America, you said, obviously the stockings more advanced that do you mind just elaborating on that we also heard from peers around.
The import market potentially being a bit closed and helping that region is that a trend that you're seeing also across glass and metal might be also glass.
I don't think theres been any real dramatic change, there's a certain level of imports into that market.
General customers like a shorter supply chain and importing from too great a distance so our focus is.
Yes.
It's been a challenging market for us.
We've as visits we had the board license option earlier. This year, we moved swiftly to pull forward two facility closures.
As we said and we continue to work on a plan to rightsize our capacity.
And in all likelihood made some further reductions.
In.
In capacity over the next few years.
And the final question I just had was on price pass through I think previous calls you mentioned, maybe some of the bigger.
Drinks companies, maybe pushing back on price and you were doing the same.
How are negotiations there is most of the pass through.
Has that taken full effect or what have you seen to into year end.
Our past dues are fine I mean, I did mentioned our pass throughs are working fine and I did I did mention.
In the last couple of year C code that they see.
<unk> consumer brand companies have been pushing price ahead of volume.
In that case I think it's over now they are not going to push that and they recognize that you may have seen that in recent days with some commentary from some of them.
They will now be working to restore volumes.
As inflation moderates and their cost their input costs come down and our cost of supplying glass than comes down. So I think you will see.
Gil promote promotion of volume over price that was the point I was making and that's what we're hearing from our customer base for the bigger customers isn't them in Europe and really for all customers in the U S are very specific past transformation, particularly as it relates to energy in some cases, they will have complete control over that in terms of the way they want to.
At our Nashville.
And although the cases.
Hand in hand, and an agreement with them on a very structured basis. So recovery there has been good.
Okay, and so did the pass through I'm, sorry, the promotion activity you said so far for <unk>.
Other than Q3, because I know on the previous metals called just earlier that I said that maybe that was maybe a little bit slow with unexpected so glass side.
Has there been any mark the difference between.
October month during Q3.
No.
No I don't think so I think.
Are you talking about promotional activities.
Yes, exactly promotional activity.
This is something we'll see next year I don't know I don't thing. We're seeing is yes, I think thats, what theyre, saying is a number of them both privately and some of them publicly in recent times that.
Dave.
Recognize that what they don't have the knee given the moderation of inflation to push price and they pushed price along the way and probably as far as the consumer was there and I think youre going to see now that they've.
Obviously, some of our bigger customers have lost substantial volumes.
You'll start seeing them pushed to reclaim volumes.
Got it and sorry, the only final question I had if I could was just on your the kind of the changes announced in terms of potentially moving.
With different kind of post within the company do you mind, just elaborating on what the near term plan is there.
Yes exactly.
Last month was that Herman <unk> will take over in mid November as chairman for me.
And I will I will remain as non executive director heavily involved in.
Some of the strategic decisions and done in refinancing and things like that.
And I will remain on the board and remain the controlling shareholder of the group. It's exactly of that announcement. This is okay from that position Harman takes over.
Mid November.
Thanks very much.
Thank you.
And our next question is going to come from Sam Mcgovern from UBS.
Hey, guys. Good morning, just with regards to the Destocking do you have any sense in terms of where inventory levels are currently for customers are we getting to a point now where we're below normal.
Just waiting for the energy prices to be lower.
In terms of the pass throughs next year to be able to restock and what does that mean in terms of demand for 2024 wells that as they rebuild inventory.
I think we're coming towards the end of it.
It's very hard to know, it's very hard to get it.
Visibility.
Yeah.
On the inventory levels both filled.
And auto builds in terms of glass, but I think we're looking to see I think we're looking to see that.
Yes.
There will be a resumption of demand next year and I think some of the factors you mentioned there regarding what pricing will look like next year and also I think you will find also that a number of them are focused on cash conservation and optimization of cash positions ahead of their year ends, it's where they have a December year end.
So there's always a mix of factors playing into to our belief that demand demand will resume and that's what they are telling us that they have worked their way through this up.
What you had with some of our bigger customers, particularly on the electric side last year at the end of 'twenty. Two there were very annoyed with us that we couldnt get the bigger allocations for 2023 than what we were able to give us a.
They bought.
Glass inventory from outside the normal channels.
At least in places like that and even the sub from China, which was pretty expensive for them, but they had it.
There and then when when their demand palace and there has been big falls as you know the Scotch whiskey industry, probably have seen the data.
Somewhere between 20% to 25% depending on which.
So if you look at and which type of whiskey look at and that has been exacerbated by this excess inventory of unbilled stuff that they they have ramped up at the end of 'twenty two.
To deal with what they expect it to be much higher demand in 2003, so that has slowed down.
The inventory being washed out in the Destocking process, but I think we think we're coming out of it and there's a number of other factors as I said earlier during the call lower inflation more.
More promotional activity more focus on volume et cetera, because some of those big companies have lost big volumes this year.
So I think thats, where were not but I mean.
Got it.
It's very difficult.
To get total visibility from in any objective central update drew levels of inventory are although.
We're certainly hearing from the customer base that its working its way through.
Great. Thank you that's helpful. And then just as a follow up obviously you guys have match capacity to demand and how are your competitors reacting and how are some of your competitors who are higher up on the cost curve handling this current environment.
But I think <unk> seen some of them require to already I mean, hey, Dave move now I think we're seeing curtailments across the across the board for everybody. We moved quite early because we saw this happening and.
Quite sharply I think.
Uncertain.
Dependent on what markets you are operating in and also different people who are at different stages of their hedging in relation to energy and energy has been all over the place since the start of the war is this.
At the start of last year so.
Different people or different cycles, we we have a big reduction in energy cost starting in January.
Some people were less dose left an open position on energy the property benefited very much during the year from that.
So much depends.
We are seeing across the piece now people closing capacity because for.
For all the reasons we gave.
Just clarity some weaker consumer demand, although not as weak as the volume declines we've seen in our.
Apply base.
So the combinations of Destocking in the combination.
People wanting to minimize their inventory coming to year end.
And as I say weaker consumer demand.
But we think that we think thats doubled.
Our sense is that northern Europe has probably impacted.
And earlier and Thats, our business is predominantly there, but it's becoming more widespread now let's ignore than Europe as we took actions.
Very promptly.
Through the third quarter and with the path to do that on more of a horrible.
Okay, great. Thank you so much I'll pass it along.
Thank you.
Yes.
Our next question comes from Ed <unk> from Barclays. Please go ahead.
Hey, Thanks for taking my question My first one.
Just on well I guess it sounds like volumes are going to improve in 2024.
You know off of a low base, but good to see they should improve but how does you know on the other side how does pricing look.
And do you expect kind of the weakness that we've seen.
In 2023.
From a volume perspective that some customers might push back on pricing.
We get volumes next year, but kind of a negative pricing action.
I don't think we are certainly not seeing that in our discussions with our customers and if you see some of our peers, who reported last week. They had been very clear as to where they sit in relation to <unk>.
Protecting margins.
Which are which are quite high and indeed so.
And I think we're in a good position to be our input costs that our competitive position which will.
Markets. This year was challenged for us.
Was the challenge for Us this year.
So I don't I don't believe that.
Price will be.
It will play out in the way you suggest I think for US, it's making sure that we have the right production capacity next year.
We get rid of expensive short term curtailments because.
Where you have to curtail quickly.
Got lines down and you don't take out all the costs of those lines you still have some energy for the people there on the lines, so being able to reduce it.
We're here to get our.
<unk> in line with what we think the demand is for next year that will make us much more cost effective vendors, they say with input costs down.
And with less inflation being passed onto the consumer by or at the end consumer by our customers I think we should be okay.
I look at some of the mainline it depends from us in the basket of costs, but energy prices will certainly move.
Meaningfully in the right direction and 24 solid ash prices.
The softer over the last 12 call it spin off labor.
Yes, we can see where we get to the end of the year Budd.
Great.
<unk>.
Headwinds there.
We're disciplined.
Processing is ample liquidity on the way you open all the way down.
Don't see that as a driver.
Got it got it.
And then on on the guide.
July only when we are.
I heard from you last now I guess what has changed there.
From kind of going from the $8 50 to now 700 was it just that you kind of expect destocking to be over.
Yes, I mean, I think we wait.
It's a it's the weakness.
It's the weakness in demand and of course that this is a.
Volume business. So if you if you.
Youre hit with unexpected I mean, our customers are indicating to us that mid year, when we when we talk to that.
They had expectation because a good summer and basically summer was a disaster for a lot of people I mean, I think one one of our the CEO of one of our big customers described was brutal.
Hi.
Thanks, operator, particularly in beer from a very bad weather pattern all summer uncertainty in Europe.
And so suddenly you had.
Can't clear that.
Volumes were not going to be as our customers have had thought they would be.
And that has reduced demand and how does the effect of slowing down the destocking process.
We've had a customer who might have been 25% down with its own customers. He was actually 28% down with us because of the lag effect on the Destocking. So you've got all of that happening and then when you when you when you find that.
Your volumes are going to be down like that.
Got to take short term curtailment.
<unk> activities, which are expenses in their nature, I mean, taking down lines is much more expensive.
In taking down our furnaces, if you take down a whole furnace or greater to plan forward, where you'll have a rebuild coming you decide not to rebuild et cetera that takes us much more cost out of your system.
Charity, if you've got a sudden fall like we have we haven't seen this before.
Earlier, I mean, it's unprecedented in terms of even in bad financial times, you'll see something like this happens in the European market and others of our peers have commented the same so when this happened.
We had to move quickly and.
That has some short term costs, which will not be repeated next year. So that's the reason for its combination of but also the EBITDA on the volume.
And the curtailment costs that you have so we estimated about a 70 million impact versus our expectations in the third quarter bear in mind that about 60% of our costs are fixed in the short term.
We will we've reduced our production by.
The order of 20%, we will do more than that in the fourth quarter, but it's not going to cost us meaningfully more smaller cost lever system will be pulling on.
As Paul said, when we take as some furnaces, we can engineer building at that interim phase into reduced capex. So that when we get into next year.
Sure.
It aligns to anything like the same extent that that becomes much less of a drag.
But in the.
The change since July and really lower production.
To a certain extent lower sales and that just yet.
Fixed costs.
The right thing to do from a inventory management property management perspective.
Got it.
And just my last one.
You know in my opinion, probably further off I just wanted to get your thoughts on that.
G L P, one narrative and weight loss drugs and how it could.
Potentially affect your business over time.
We haven't seen any we haven't seen any impact of that at all thats not something thats.
Coming out in.
In our conversations with customers.
Got it thank you.
Thank you.
Our next question is going to come from Peter Delaney Galena from BNP Paribas. Please go ahead, yes.
Yes, Hi, there my first question with regard to the cash flows at Arctic glass.
It appears that the outflows and working capital year to date are about $300 million should we be expecting any sort of reversal of that in Q4.
Yes.
Yes, I think our view.
We previously would've seen about.
So I think it would be over 100 million now, but it's a significant improvement from where.
The year to date about.
The actions taken will.
Facilitate a reduction in inventory from what.
As of September.
Okay.
Okay.
It kind of a little bit there, so sorry, sorry, she or he or she could you please repeat that.
You said you'd be working down some inventory in Q4, but maybe if you could if there is an amount that you expect to see a reversal.
Yeah.
He indicated we've got a 50 million use I think it'll be something in the 100.
A little bit more of a use but we will see from where it particularly say inventory at the end of the year was we'll see a meaningful inflow coming in between now and the fourth quarter as a result of the curtailments that were taken.
Okay.
Okay. Thank you for that.
And then my next one.
Sorry, and then my next question is regards to is it another question regards to the maturities.
The previous caller mentioned the 26 maturities.
But there's $700 million due in 18 months.
So my question is to you or would you consider an early.
Early refinancing of the pressure at Ambev and then my second question is are there any covenants on the 'twenty 'twenty seven facility at Arctic glass.
Okay.
Okay.
Sorry.
We will turn our minds, we are thinking about obviously the trend in the 2025 maturities that you're that you referenced.
No real comment on anything yet.
I answered previously there were a lot of levers so we could deal with it in terms of reducing.
The refinancing.
Gary.
Although the preferreds as the preferred it out.
Awesome.
It's one of those possible I'm, not giving saying that it's a.
Necessarily under consideration at all.
Okay.
Thanks.
Yes.
Covenants.
Do you mean by that.
There's a.
Theres the ABL at Arctic glass and I was just curious if there's any covenants.
That would prohibit barring on that.
No.
Okay. Thank you for the color.
Thank you.
Yes.
And our next question comes from Roger Good morning Bank of America. Please go ahead.
Hi, Thanks, very much and good afternoon, if you don't mind, just because a lot of cutoffs, if I can just rehearse that 2023 guidance.
And maybe correct me, where I'm wrong and using some of the what you said prior quarter.
Our EBITDA of $700 million.
To all four of A&P dividends.
I heard total capex, including maintenance and relevant 500 4540 $540 million.
Working capital.
Working capital outflow of $100 million for the full year.
And then last quarter, you gave a number of other items like cash interest of $300 million.
Please prepayments of $80 million.
I don't know how this changes cash taxes.
$45 million.
And then glass restructuring of $40 million.
And then there's probably some other stuff that does that all sounds right yes.
No change there Roger <unk> Sam.
Taxes, probably comes down a little bit.
30 million, maybe maybe a little bit smaller, but said that was down a bit.
Yes, no real change their Capex is let's say 540 and that includes about $200 million of nonrecurring look we'd be looking to trim the maintenance settlements as well as we look into the new year, but there is about 280 <unk> between those development projects that we laid out.
And then working capital, yes, we've covered it leases, yes, no real change there restructuring so you kind of have it there.
Got it and just just to be clear under all of those things.
So there are other stuff I think we've talked about before that related to FX dfc either.
Hi.
Yeah.
Do you have an overall cash burn number that you are thinking about for the full year for Jessica.
Okay.
Yeah.
That's probably not going to change much between now and the end of the year.
It's hard to put a number on it just depends on where that currency versus Brian at the period end.
I know, we will be able to using cash a reasonable amount of cash in the current year, but.
Perhaps looking at a depressed EBITDA figure.
Elevated capex figure on a temporary elevated working capital figure. So you know as you look into next year. We obviously, we're only going into our budgeting process, but you'd be looking for a decent recovery in EBITDA.
A sharp falloff in and Capex growth capex being at close to zero as possible with maintenance capex being reduced as well.
Lower restructuring charges.
Working capital, we still will have some bills. This year it had over 100 million, but we'll be looking to reverse a good portion of that when we get into wet into the new year.
Great. Thank you very much.
Thank you. Thank you.
And our next question comes from Karl Griffith from Napier Park. Please go ahead.
Got it.
Yeah.
Please go ahead.
Hello, Brian can you give me.
Can you hear me, yes sure Jeff.
Sure.
Quick question I'm sorry.
I guess the first one is on the impact on North American volumes and Ross could you guys kind of quantify the impact from I guess Bud light.
This is going to be recurring for the next couple.
Alright.
I'm guessing it sounds aren't coming back.
Right.
It was obviously.
Highly material, but we have closed the capacity to allow for that now so I don't think its going to be something thats going to be.
Okay, No I'm, just trying to think through obviously volumes will be.
Over the next couple of quarters before we talk about <unk> split.
The cost is being taken out of it so.
So the EBITDA impact will be lower.
But we've taken out that we've taken out SaaS, which deal with that right.
Sure.
And then just on <unk>.
Quarterly figures you have given for the kind of impact of the curtailments of production.
Earlier on the metal call I think I heard a figure of $70 million.
Seven zero.
Our <unk> and then for the call today.
Was the number you guys were saying in fact closed for Jos.
Yes, we said that in the third quarter number for EBITDA for the group.
70 million below our expectations and that was the correct.
Alright.
No.
The glass business.
It was the element to that where one lower sales volumes to lower production that we initiated in response to control our inventories.
And then net of all of our cost saving offset that we did $70 million.
AGP the glass business and we're taking further as I said the fourth quarter.
Again.
All the savings we can achieve that's about another 80 million. So basically 150 in the second half.
That's what gets you from your your $10 50 to 900 ballpark, yes, which is finance.
Thanks.
I'll leave it flattish.
Okay.
And then just I guess, if you could just talk on the corner.
Yeah look you see for the African business, it feels like a pretty material slowdown there.
Just like what end markets or geographies are driving that because it sounds like the console business has grown.
I'm pretty high.
I think so.
Marks I made earlier I don't know, whether you heard them or not where is that.
There had been a drop.
<unk>.
The outlook is.
Improved.
Growth there I think.
We're quite we're quite happy as to where we are.
Africa and the merger of two of our big customers are two of our biggest customers. There has now been bedded down et cetera.
And I think you will have seen remarks on Africa from from some of those customers.
Alright. Thanks.
Thank you.
Yes.
And our next question comes from Zach Vaughan from Fidelity. Please go ahead.
Hi.
Good afternoon, guys. Thank you for taking my questions. The first one really I wanted to understand on the 2020 maturity.
<unk> previously communicated us that would primarily be y.
Internal funds.
<unk> marketing free cash flow. So is that still the plan or do you would you like to look at markets to decide the $700 million.
Okay. Thanks.
Yes.
We keep an open mind in terms of the proposed capital a different option. So.
We have a bit of runway still on that so it's something we continue to evaluate which is look we're very conscious of it.
Thanks.
You haven't made any determination at this point.
Andrew.
It's 5%.
Sure.
The most expensive that we have so the step up would take would be less.
Understood.
The second one.
Wanted to understand your drop through into EBITDA on the continued curtailment actions that you've taken to handle the European.
Operations.
Kind of when I compare it with something like Mr peers, who reported a couple of weeks ago.
Why is that drop through into EBITDA significantly higher versus what I've seen and those those two plants.
I think the extent.
This is Mike.
The higher we probably did it we don't know.
Eric.
Rather we said we'd reduce production in the quarter by around 20%, that's not a run rate exiting the quarter.
Yeah.
The split for the quarter versus the outflows the previous year. So I think that's a factor as well.
And in the quarter because that.
Excellent.
Is it the cash flow benefits.
Some cases, we won't rebuild.
Also a factor.
<unk> customer base the customer profile, we have I mentioned earlier on the call.
40%.
Shortfall in Europe in volumes.
It was two or three large customers of ours. So some of our peers would not have thought of reports that you mentioned.
I have to say.
Closure to large customers to those large customers. So there are also some.
Destocking, which are bigger with slower with some of those customers as well.
Also different people are different at different stages in their hedging in relation to energy.
Understood.
I'm sorry.
Our cost in the period as yet.
Okay understood yet and the last one was.
Talking about the Capex guidance for next year, you're talking about a significant reduction, but then even going below the maintenance level for this year.
Is the north American restructuring on the back foot assets now because obviously expecting some bit of spending on that as well going into next year and if at all it is on the backfill then how all that plays to you where you would eventually I mean initially you plan forward to be in place being late 'twenty.
He thinks that the level of leverage that you were targeting for Florida for 2026, I mean, how does that kind of.
Looking at now is that anything that you can comment on that.
Very north American gas market.
Related to the <unk>.
Controversy, you should talk a lot of distractions earlier, and we just wanted to see where the market settles somewhere up various other conversations ongoing and so if we follow up meeting to specific invest there we want to have some clarity around some Matt.
And then to cope with different chat.
Announcing options for our specific investment there.
Understood.
Thank you.
Thank you.
And our next caller is sandy Burns from Stifel. Please go ahead.
Hi, Hello, everyone and thanks for taking my question maybe.
To follow up on your answer to the last question about the U S plant modernization seems like you came in and out a little bit. So maybe bottom line is that are those discussions with customers going to restart next year about modernizing the U S plants or just given the macro environment is that kind of on hold for the foreseeable.
Future.
Those discussions are ongoing as we speak.
Okay.
And then in terms of <unk>.
It sounds like Youre, taking very significant downtime in for Q is the expectation that will help fully balance out your your inventories relative to demand or may we still see some downtime in the seasonally slow first quarter.
I think it is intended to balance that.
Thank you.
Sure.
The size of inventory balances at the end of the.
Okay and last one for me I think you touched upon this a little bit earlier, just energy hedges away from the contracts, where do you stand as we go into the winter and 2024.
Yeah look our policy is to.
Be very large case by the end of the year. So we've been acting in respect of our own.
In accordance with us.
Yes.
You'll see a meaningful reduction next year given.
A lot of what we are using this year was procured last year. So we don't put a specific number on it but it will be a meaningful reduction.
That will that will enhance the case for glass.
I think we said soda ash sales come down a little bit as well, we'll see where that trend by that time. We're in these discussions and then you have inflation, but I think it is moderating in other areas.
Carlos has been pretty expensive very expensive until recently and labor associated with the registration there. So it's something that test, but I think the overall basket.
Energy is that that was trending in the right direction.
The headwind than it was before right and it sounds like youre pretty well hedged going into <unk>.
Yes, we do it great alright, great. Thanks, a lot.
Thank you.
And our next question is going to come from Chris <unk> from Schroders. Please go ahead.
Gentlemen, thanks for taking all the questions Mike.
My first question Paul is just a clarification on your new role should we expect you to continue to participate in these calls or are you going to pull away from that.
No.
My successor will be participating in the call. So I will not be Chris.
Okay, just a bit of a tricky time for that transition will happen.
Of course, a lot of confidence.
And we'll also be participating in them.
Okay.
Just.
And then on the Capex for 'twenty or could it be as low as 300.
So we will give an insight into that and it.
In February Chris we're going through our budgeting process for the fire on Capex, it's safe to say, it's been raised just yes, we can.
Spent a lot of money on Capex the network's in good shape I mentioned, the two new furnaces coming up.
Productivity gains that we've had in our in our network.
But we'll update in February.
Laser focus we aim to get it lower yes.
It's very difficult to get Capex approved prototypes.
Okay Alright.
That's helpful. And then the next question was just thinking about the bridge for 'twenty, four we have sort of $70 million in sort of shutdown costs.
Energy costs and things I mean, do you think it's a possibility over 24 could reach.
We're thinking about for 'twenty three.
Or are we sort of permanently below.
We are still in play.
In the budgeting process.
And obviously it whilst we expect a significant recovery in Gabon with volume how far that goes is not yet there's not yet final.
Customers those conversations ongoing with customers as part of our normal year end budget planning process. So hard hard parts artist to say hard to give an answer to that certainly there will be there will be growth over.
Material growth over what we what we have this year.
Understood and then my final question since financial policy understanding.
Obviously, it looks like Amp.
Exiting their period of high Capex, so free cash flow would be better.
What does leverage half to be down to before we can raise the dividend support glass.
I think the mono.
Yes.
Hey Board.
But the evidence is that it's a meaningful contribution.
And I think its value by all shareholders.
Included in the group so.
I think near.
Near term.
Grows into the dividend obviously, the yield is pretty high at the moment, but youre right. It is coming to the end of the Capex.
The program that's pretty much done.
It's about filling out that Capex, and then making various moves there's one in Germany that was alluded to which happens at the end of the year to tightened capacity there the networking group efficiency in that.
The announcement at.
Consultation is valid relationship potential initiative in Ohio.
Okay. Thank you.
Hi.
We factor in the $200 million in our planning.
Yes. Thank you.
And our next question is going to come from Emmanuel.
From Bank of America. Please go ahead Sir.
Emmanuel are you there you maybe have your mute function Qian ye.
Yes sure.
Thanks, Mike.
My question has actually been Ochsner is a couple of times. This morning talked about refi. Thank you.
Thank you.
Okay.
Yes.
Okay, well, thank you, ladies and gentlemen for joining us today.
We look forward to talking to you again in the new year. Thank you very much.
And this concludes today's call. Thank you for your participation you may now disconnect.
Okay.
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