Q2 2024 Ardagh Metal Packaging SA Earnings Call

July 25, 2024

Operator: Welcome to the Ardagh Metal Packaging S.A. Q2 2024 results call. Today's call is being recorded. At this time, I'd like to turn the call over to Mr. Stephen Lyons, Investor Relations. Please go ahead.

Welcome to the Ardham Metal Packaging SA second quarter 2024 results call. Today's call is being recorded. At this time, I'd like to turn the call over to Mr. Stephen Lyons, Investor Relations. Please go ahead.

Operator: 2024 results call. Today's call is being recorded. At this time, I'd like to turn the call over to Mr. Stephen Lyons, Investor Relations. Please go ahead.

Stephen Lyons: Thank you, operator, and welcome, everybody. Thank you for joining today for Ardagh Metal Packaging's Q2 2024 earnings call, which follows the earlier publication of AMP's earnings release for the second quarter. 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 will first provide some introductory remarks around AMP's performance and outlook. AMP's earnings release and related materials for the second quarter can be found on AMP's website at www.ardaghmetalpackaging.com. Remarks today will include certain forward-looking statements and include use of non-IFRS financial measures. Actual results could vary materially from such statements. Please review the detail of AMP's forward-looking statements disclaimer and the reconciliation of non-IFRS financial measures to IFRS financial measures in AMP's earnings release. I will now turn the call over to Oliver Graham.

Speaker Change: Thank you, Operator, and welcome, everybody. Thank you for joining today for our Diametal Packaging's 2nd Quarter 2024 Earnings Call.

which follows the earlier publication of AMP's earnings release for the second quarter.

Speaker Change: I am joined today by Oliver Graham, ANP's Chief Executive Officer, and David Bourne, ANP's Chief Financial Officer. Before moving to your questions, we will first provide some introductory remarks around ANP's performance and outlook.

Stephen Lyons: AMP's earnings release and related materials for the second quarter can be found on AMP's website at www.ardametalpackaging.com. A&P performed well in the second quarter, and we were delighted to deliver a second successive outperformance versus our guidance. Adjusted EBITDA growth was as anticipated ahead of shipments growth for the quarter due to improved operating cost performance and stronger than expected input cost recovery in Europe, which drove the outperformance versus our guidance. The economic backdrop remains challenging, with heightened political uncertainty, ongoing inflation, and pressured consumer spending.

Speaker Change: AMP's earnings release and related materials for the second quarter can be found on AMP's website at www.ardametalpackaging.com.

Remarks today will include certain forward-looking statements and include use of non-IFRS financial measures.

Actual results could vary materially from such statements.

Please review the detail of AMP's forward-looking statement disclaimer and the reconciliation of non-IFRS financial measures to IFRS financial measures in AMP's earnings release.

Oliver Graham: Thanks, Stephen. AMP performed well in Q2, and we were delighted to deliver a second successive outperformance versus our guidance. This is a testament to the resilience of our business, the strength of our customer and supplier relationships, and the commitment of our teams. Global beverage shipments grew by 3% in the quarter versus the prior year, with revenue broadly unchanged as favorable volume mix was offset by the pass-through to customers of lower input costs. Adjusted EBITDA grew by 18%, with strong double-digit growth across both segments. Adjusted EBITDA growth, as anticipated, ahead of shipments growth for the quarter, due to an improved operating cost performance and stronger than expected input cost recovery in Europe, which drove the outperformance versus our guidance. This increased our LTM Adjusted EBITDA to $631 million, which we expect to increase further in Q3.

Speaker Change: I will now turn the call over to Oliver Graham.

Oliver Graham: Thanks Stephen. A&P performed well in the second quarter and we were delighted to deliver a second successive outperformance versus our guidance. This is a testament to the resilience of our business, the strength of our customer and supplier relationships and the commitment of our teams.

Speaker Change: Global beverage shipments grew by 3% in the quarter versus the prior year, with revenue broadly unchanged as favourable volume mix was offset by the pass-through to customers of lower input costs.

Adjusted EBITDA grew by 18% with strong double-digit growth across both segments.

Adjusted EBITDA growth as anticipated ahead of shipments growth for the quarter due to an improved operating cost performance and stronger than expected input cost recovery in Europe . We strove the outperformance versus our guidance.

This increased our LTM adjusted EBITDA to $631 million, which we expect to increase further in Q3.

Oliver Graham: The economic backdrop remains challenging, with heightened political uncertainty, ongoing inflation, and pressured consumer spending. However, industry growth expectations in both Europe and Brazil have strengthened year to date, and following our strong first half performance, we have increased confidence in our full year outlook, and as such, we are improving our Adjusted EBITDA guidance range to $640 to $660 million. We continue to progress our sustainability agenda, and recent notable highlights include the extension and for higher volume of a solar power purchase agreement to 2030 will cover up to 40% of German demand needs. Our Huron facility, which recently received an ISO 14001 certification, following which all global AMP facilities are now accredited, demonstrating best practice, environmental management, and a commitment to ongoing improvement.

The economic backdrop remains challenging, with heightened political uncertainty, ongoing inflation and pressured consumer spending.

Stephen Lyons: However, industry growth expectations in both Europe and Brazil have strengthened year-to-date. And following our strong first-half performance, we have increased confidence in our full-year outlook. And finally, we recently concluded our global biannual employee engagement survey with a significant improvement in participation rates across all regions. Shipments for the quarter increased by 5% on the prior year. Growth was broad-based as customers increased their focus on volume growth, favored the can in their pack mix, and built stock for the summer selling season, including for sporting events such as the European Football Championships and the Paris Olympics. Second quarter adjusted EBITDA in Europe increased by 23% on both a reported and constant currency basis.

However, industry growth expectations in both Europe and Brazil have strengthened year-to-date.

And following our strong first-half performance, we have increased confidence in our full-year outlook and as such we are improving our adjusted EBITDA guidance range to $640 to $660 million.

We continue to progress our sustainability agenda and recent notable highlights include the extension and for higher volume of a solar power purchase agreement to 2030 will cover up to 40% of German demand needs.

Our Huron facility, which recently received an ISO 14001 certification, following which all global AAP facilities are now accredited, demonstrating best practice environmental management and a commitment to ongoing improvement.

Oliver Graham: The completion of our carbon audit for 2023 highlighted a significant reduction in Scope 3 emissions, with the absolute emissions reduction more than compensating for the impact from business growth since 2020. Finally, we recently concluded our global biannual employee engagement survey with a significant improvement in participation rates across all regions. Looking at AMP's results by segment. In Europe, Q2 revenue increased by 2% to $566 million, compared with the same period in 2023, due to favorable volume mix effects and foreign exchange, partly offset the pass-through of lower input costs to customers. Shipments for the quarter increased by 5% on the prior year.

The completion of our carbon audit for 2023 highlighted a significant reduction in scope 3 emissions with the absolute emissions reduction more than compensating for the impact from business growth since 2020.

And finally, we recently concluded our global biannual employee engagement survey with a significant improvement in participation rates across all regions.

Speaker Change: Looking at AMP's results by segment, in Europe , second quarter revenue increased by 2% to $566 million compared with the same period in 2023, due to favourable volume mix effects and foreign exchange, part of the offset of a pass-through of lower input costs to customers.

Oliver Graham: Growth was broad-based as customers increased their focus on volume growth, favored the can in their pack mix, and built stock for the summer selling season, including for sporting events such as the European Football Championships and Paris Olympics. Q2 Adjusted EBITDA in Europe increased by 23% on both a reported and constant currency basis, $79 million due to favorable volume mix and stronger input cost recovery. We expect this stronger input cost recovery to continue and to offset the pricing headwind that we had initially forecast for 2024. For full year 2024, we continue to expect low single-digit percentage shipments growth for our European business as we closely monitor demand patterns and the sell-through to consumers across the summer season.

Speaker Change: Shipments for the quarter increased by 5% on the prior year. Growth was broad-based as customers increased their focus on volume growth, favoured the can in their pack mix, and built stock for the summer selling season, including for sporting events such as the European Football Championships and Paris Olympics.

Speaker Change: Second quarter adjusted EBITDA in Europe increased by 23% on both a reported and constant currency basis to $79 million due to favourable volume mix and stronger input cost recovery.

Stephen Lyons: $79 million due to favorable volume mix and stronger input cost recovery. Before year 2024, we continue to expect low single-digit percentage shipments growth for our European business, as we closely monitor demand patterns and the sell through to consumers across the summer season, with growth in both regions, which was driven by favorable volume mix effects and improved operating cost performance. In North America, shipments grew by 3% for the quarter as we lapped a strong prior year comparable of 18%, which reflected the ramp-up of new capacity.

Speaker Change: We expect this stronger input cost recovery to continue and to offset the pricing headwind that we had initially forecast for 2024.

Speaker Change: Before the year 2024, we continue to expect low single-digit percentage shipments growth for our European business as we closely monitor demand patterns and the sell-through to consumers across the summer season.

Oliver Graham: Overall, we're pleased that our full year expectation for Europe has been significantly de-risked, as this was the area of greatest uncertainty in our 2024 guidance. In the Americas, revenue in Q2 decreased by 1% to $693 million, which reflected the pass-through of lower input costs, partly offset by favorable volume mix, with months growth of 1%. Adjusted EBITDA in the Americas increased strongly by 14% to $99 million, with growth in both regions, which was driven by favorable volume mix effects and improved operating cost performance. In North America, shipments grew by 3% for the quarter as we lapped a strong prior year comparable of 18%, which reflected the ramp-up of new capacity.

Speaker Change: Overall, we're pleased that our full year expectation for Europe has been significantly de-risked as this was the area of greatest uncertainty in our 2024 guidance.

Speaker Change: In the Americas, revenue in the second quarter decreased by 1% to $693 million, which reflected the pass-through of lower input costs partly offset by favorable volume mix, equipment's growth of 1%.

Speaker Change: At EBITDA in the Americas increased strongly, by 14% to $99 million, with growth in both regions which was driven by favourable volume mix effects and improved operating cost performance.

Speaker Change: In North America shipments grew by 3% for the quarter as we lapped a strong prior year comparable of 18% which reflected the ramp-up of new capacity.

Oliver Graham: We continue to grow above the market, supported by our pipeline of contracted growth with particular strengths in CSD, sparkling water, and innovative soft drinks. Softer demand in the energy drinks category, which represents about 11% of our portfolio, leads us to modestly reduce our forecast for shipments growth this year to a mid-single digit percentage versus low single digit growth for the overall market. We're confident that the market growth rate will increase over time as customers demonstrate an increased focus on volume and innovation and sustainability trends support the growth of the infinitely recyclable beverage can in the pack mix. In Brazil, Q2 beverage can shipments declined by 7%, below industry growth of 8%, due to temporary customer mix effects. Q2 is the seasonal low period for industry sales, which includes downtime taking customer filling locations.

Stephen Lyons: We continue to grow above the market, supported by our pipeline of contracted growth, with particular strengths in CSD, sparkling water, and innovative software. However, softer demand in the energy drinks category, which represents about 11% of our portfolio, leads us to modestly reduce our forecast for shipments growth this year to a mid single-digit percentage versus low single-digit growth for the overall market. It's a temporary customer mix effect.

Speaker Change: We continue to grow above the market, supported by our pipeline of contracted growth, with particular strengths in CSD, sparkling water, and innovative soft drinks.

Speaker Change: Softer demand in the energy drinks category, which represents about 11% of our portfolio, leads us to modestly reduce our forecast for shipments growth this year to a mid-single digit percentage versus low single digit growth for the overall market.

Speaker Change: We're confident that the market growth rate will increase over time as customers demonstrate an increased focus on volume and innovation and sustainability trends support the growth of the infinitely recyclable beverage can in the PEC mix.

Speaker Change: In Brazil, second quarter beverage can shipments declined by 7% below industry growth of 8% due to temporary customer mix effects. The second quarter is the seasonal low period for industry sales, which includes downtime taking customer filling locations.

Oliver Graham: Our shipments of ends grew by a strong double-digit percentage versus the prior year period. Overall, we're encouraged by the strong first half for the Brazil beverage can market, which we now believe may grow above mid-single-digit percentage this year. Consumption has benefited from a supportive macroeconomic environment, and beverage can growth has been further supported by the pack mix shift back to one-way packaging. We continue to balance our capacity in Brazil through curtailment of our network, and we closely assess customer demand needs beyond the quieter winter period. Overall, in the Americas, we expect shipments growth in the order of a low- to mid-single-digit percentage for 2024, slightly below our previous guide, due to the softer energy drink in North America. Shipments growth and improved fixed cost absorption will drive Adjusted EBITDA growth for the remainder of 2024.

Stephen Lyons: Our shipments of ends grew by a strong double-digit percentage versus the prior year period. Consumption has benefited from a supportive macroeconomic environment, and beverage can growth has been further supported by the PacMix shift back to one-way packaging. Overall in the Americas, we expect shipments growth in the order of a low to mid single-digit percentage for 2024, slightly below our previous guide due to the softer energy degree in North America. Do you type focus on cash manager?

Speaker Change: Our shipments of ENDS grew by a strong double-digit percentage versus the prior year period.

Speaker Change: We continue to balance our capacity in Brazil through curtailment of our network, and we closely assess customer demand needs beyond the quieter winter period.

Speaker Change: Overall in the Americas, we expect shipments growth in the order of a low to mid single digit percentage for 2024, slightly below our previous guide due to the softer energy degree in North America.

Speaker Change: Shipments growth and improved fixed cost absorption will drive adjusted EBITDA growth for the remainder of 2024.

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

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

David Bourne: Thanks, Ollie, and hello, everyone. We ended the quarter with a liquidity position of $405 million, an increase from $329 million at the end of the first quarter, which is typically the seasonal low point for our business due to our working capital cycle. Adjusted operating and free cash flow for the quarter was ahead of expectations due to tight focus on cash management. AMP incurred total CapEx of $36 million for the quarter, which included $10 million of growth CapEx. We reiterate our expectation for growth CapEx for 2024 of approximately $100 million, and maintenance, sustainability, and IT CapEx of the order of $120 million, in line with our steady long-term run rate. We anticipate a further reduction in growth CapEx again in 2025.

David: Thanks, Olly, and hello, everyone.

David: Adjusted operating and free cash flow for the quarter was ahead of expectations due to tight focus on cash management.

Stephen Lyons: AMP incurred total capex of $36 million for the quarter, which included $10 million of growth capital. We anticipate a further reduction in growth capital expenditure again in 2025. Our net leverage ratio reduced to 5.8 times from 6.2 times at the end of the first quarter, and we expect a further reduction through H2 and for the ratio to end the year around 5.2.

David: We reiterate our expectation for growth capex for 2024 of approximately $100 million and maintenance, sustainability and IT capex of the order of $120 million, in line with our steady long-term run rate.

David: We anticipate a further reduction in growth capex again in 2025.

David Bourne: Our net leverage ratio reduced to 5.8 times from 6.2 times at the end of Q1, and we expect a further reduction through H2, and for the ratio to end the year around 5.2 times. This will be supported by LTM adjusted EBITDA growth, further working capital net inflows, and lease principal repayments. We anticipate a more meaningful leverage reduction in future years. We have announced today a new $300 million secured financing commitment from Apollo directly to AMP, which we expect to draw down in Q3 and will be neutral to our net leverage ratio. This term loan facility is for general corporate purposes and increases our forecast for year-end liquidity to approximately $0.9 billion. The facility is subject to customary closing conditions.

David: Our net leverage ratio reduced to 5.8 times from 6.2 times at the end of the first quarter and we expect a further reduction through H2 and for the ratio to end the year around 5.2 times.

David: This will be supported by LTM Adjusted EBITDA Growth, social operations activities, and operational resources activities.

Stephen Lyons: We anticipate a more meaningful leverage reduction in the future year. We have announced today a new $300 million secured financing commitment from Apollo directly to AMP, which we expect to draw down in the third quarter and will be neutral to our net leverage ratio. This term loan facility, thanks Pat and Sue with the existing secured bonds. Accordingly, we have today announced our quarterly ordinary dividend of $0.10 per share to be paid in September, in line with our guidance and capital allocation policy, which remains unchanged. With that, I'll hand it back to Oliver.

David: We are taking the most useful information from operations in recent years.

David: We have announced today a new $300 million secured financing commitment from Apollo directly to AMP, which we expect to draw down in the third quarter and will be neutral to our net leverage ratio.

David: This term loan facility is for general corporate purposes and increases our forecast for year-end liquidity for approximately $0.9 billion.

David Bourne: replaces the existing ABL facility and the secured bonds, is not callable for the first year, and is scheduled to mature in 2029. The facility also preserves the flexibility to continue to pay the current level of ordinary and preferred share dividends, but caps dividend payments at the current level while the facility remains in place. Accordingly, we have today announced our quarterly ordinary dividend of $0.10 per share to be paid in September, in line with our guidance and capital allocation policy, which remains unchanged. We would also reiterate that AMP operates with a standalone capital structure, which is structurally and legally separate to that of Ardagh Group, our 76% long-term majority shareholder. With that, I'll hand back to Ollie.

David: The facility is subject to customary closing conditions, banks pursue with the existing secured bonds, is not callable for the first year, and is scheduled to mature in 2029.

David: The facility also preserves the flexibility to continue to pay the current level of ordinary and preferred share dividends.

David: but caps dividend payments at the current level while the facility remains in place.

David: Accordingly, we have today announced our quarterly ordinary dividend of $0.10 per share to be paid in September , in line with our guidance and capital allocation policy, which remains unchanged.

David: We would also reiterate that AMP operates with a standalone capital structure, which is structurally and legally separate to that of Ardile Group, our 76% long-term majority shareholder.

Oliver Graham: Thanks, David. So before moving to questions, I'll just recap briefly on AMP's performance key messages. So global shipments grew by 3% in Q2, with Europe growing by a strong 5%, further building on the growth in Q1. We continued to outperform the market in North America, growing by 3% despite lapping a strong prior-year comparable of 18%. Adjusted EBITDA growth for the quarter was ahead of guidance for a second successive quarter, with both segments delivering double-digit year-over-year growth. And our strong first half performance gives us confidence to improve our full-year adjusted EBITDA guidance range to $640 to 660 million. Our EBITDA guidance is supported by global shipments growth approaching mid-single-digit percentage, improved operating cost performance, and stronger input cost recovery.

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

Ollie: Thanks David.

Ollie: So before moving to questions, I'll just recap briefly on AMP's performance key messages.

Ollie: So global shipments grew by 3% in the second quarter with Europe growing by a strong 5%, further building on the growth in the first quarter. We continue to outperform the market in North America, growing by 3% despite lapping a strong prior year of 18%.

Oliver Graham: Adjusted EBITDA growth for the quarter was ahead of guidance for a second successive quarter, with both segments delivering double-digit year-over-year growth. And our strong first-half performance gives us confidence to improve our full-year adjusted EBITDA guidance range to $640 to $660 million. Continued strong adjusted EBITDA growth in the second half of this year. In terms of guidance for the third quarter, adjusted EBITDA is anticipated to be in the order of $185 million, with growth across both geographic segments and compares with prior year adjusted EBITDA of $171 million on both the reported and constant currency basis. So having made these opening remarks, we'll now proceed to take any questions you may have. Once again, use star 1 for questions. Great, thanks for the color.

Ollie: Adjusted EBITDA growth for the quarter was ahead of guidance for a second successive quarter with both segments delivering double-digit year-over-year growth, and our strong first-half performance gives us confidence to improve our full-year adjusted EBITDA guidance range to 640 to 660 million.

Ollie: Our EBITDA guidance is supported by global shipments growth approach in single-digit percentage, improved operating cost performance, and stronger input cost recovery, and we expect

Oliver Graham: We expect continued strong adjusted EBITDA growth in the second half of this year. In terms of guidance for the third quarter, adjusted EBITDA is anticipated to be in the order of $185 million, with growth across both geographic segments, and compares with prior year adjusted EBITDA of $171 million on both a reported and constant currency basis. Having made these opening remarks, we'll now proceed to take any questions you may have.

Ollie: Continued strong Adjusted EBITDA growth in the second half of this year. In terms of guidance for the third quarter, Adjusted EBITDA is anticipated to be in the order of $185 million.

Ollie: with growth across both geographic segments and compares with prior year adjusted EBITDA of $171 million on both a reported and constant currency basis. So having made these opening remarks, we'll now proceed to take any questions you may have.

Operator: Thank you. If you would like to ask a question, you may signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, star one for questions. We'll go first to Stefan Diaz with Morgan Stanley.

Speaker Change: Thank you. If you would like to ask a question, you may signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, star 1 for questions.

Ollie: We'll go first to Stephen Diaz with Morgan Stanley .

Stefan Diaz: Hello, everyone. Thanks for taking my question. Maybe to begin, liquidity improved ahead of your expectations. We usually see a, you know, working capital release in the second half. Can you expand on why you decided to secure that $300 million financing agreement?

Stephen Lyons: Hello, everyone. Thanks for taking my question.

Stephen Lyons: Maybe to begin, liquidity improved ahead of your expectations. We usually see a working capital release in the second half. Can you expand on why you decided to secure that 300 million financing agreement?

Oliver Graham: Sure. Yeah, no, I'll start, and then I'll pass it to David. So I think that we wanted to demonstrate the resilience of the business, and the strength of our balance sheet, and we wanted to increase that resilience and strength, quarter where we had had a credit downgrade. So we decided to take that action to get us to, you know, nearly $1 billion of liquidity at year-end, which will also put us in a very good position into next year. So that was the overall objective, and I think that that will carry as well through the next year... 12, 18 months. David, do you want to add anything?

Speaker Change: I'll start and then I'll pass it to David. So I think we wanted to demonstrate the resilience of the business and the strength of our balance sheet, and we wanted to increase that resilience and strength.

David: in a quarter where we had had a credit downgrade

David: And so we decided to take that action to get us to, you know, nearly a billion of liquidity at year end, which will also put us in a very good position into next year. So that was the overall

David: Objective and I think that that will carry as well through the next.

David Bourne: Yeah, I'll, I'll just add to that, that, you know, despite that, there's no significant change to our free cash flow forecast or, or to our leverage position for FY 2024, which as I outlined in the prepared remarks, falls to 5.2x. So we aim to utilize that cash to lower our usage of the ABL facility and some of our factoring facilities. So we see it as a very low-cost option in order to strengthen and project, that strong business resilience. And for modeling purposes, I know some people will ask, we, we kind of expect that facility will incur a net interest cost of, of around about $10 million per annum. So it felt like a low-cost option to take out.

Speaker Change: I'll just add to that that, you know, despite that, there's no significant change to our free cash flow forecast or to our leverage position for FY24, which, as I outlined in the prepared remarks, falls to 5.2 times.

Speaker Change: So we aim to utilize that cash to lower our usage of the ABL facility and some of our factoring facilities. So we see it as a very low-cost option in order to strengthen and project that strong business resilience.

Speaker Change: and for modeling purposes, I know some people will ask, we kind of expect that facility will incur a net interest cost of around about 10 million per annum, so it felt like a low-cost option to take out.

Stefan Diaz: Great. Thanks for the color. I know you're not big in mass beer in North America, but maybe you could expand on what you're seeing by category in the region, particularly in energy?

Oliver Graham: And I know you're not big in mass beer in North America, but maybe you could expand on what you're seeing by category in the region, particularly in energy. Yeah, certainly. So I think we're seeing strength in the soft drinks arena. So carbonated soft drinks, particularly sparkling waters, very strong; we see a lot of strength in our portfolio in sort of innovative soft drinks. So the sort of gut health, sort of wellness position is going extremely well in the market and in our portfolio. It's on the soft drink side; yeah, the energy has been the one that was weak in Q2.

Speaker Change: Great, thanks for the color. And I know you're not big in mass beer in North America, but maybe you could expand on what you're seeing by category in the region, particularly in energy.

Oliver Graham: Yeah, certainly. So, I think we're seeing strength in the soft drinks arena. So carbonated soft drinks, particularly sparkling waters, very strong. We see a lot of strength in our portfolio in sort of innovative soft drinks, so the sort of gut health, sort of wellness, position is going extremely well in the market and in our portfolio. So on the soft drink side, yeah, the energy has been the one that was weak in Q2. It's a big category. It's had a couple of great years, and it seems to be taking a bit of a breath at this point. We expect it to return to growth. You know, there's a lot of innovation in that space.

Speaker Change: Very strong. We see a lot of strength in our portfolio in sort of innovative soft drinks, so the sort of gut health.

Speaker Change: [inaudible]

Oliver Graham: It's a big category, it's had a couple of great years, and it seems to be taking a bit of a breath at this point. [inaudible] We can see that there's a bit weaker on the scanner data, but we do have growth in that category this year through contractual gains. Great, thank you so much. I'll turn it over to you.

Speaker Change: It's a big category, it's had a couple of great years, and it seems to be taking a bit of a breath at this point.

Oliver Graham: Some new players, where their growth is naturally plateauing out a bit after, you know, again, a couple of amazing years. But that has been a bit softer in the quarter than we'd anticipated. And then if you go into the alcoholic side, actually cocktails, you know, mixed flavored cocktails, very strong, both in the market and in our portfolio. And then we're growing into beer, but we can see that beer's a bit weaker on the scanner data, but we do have growth in that category this year through contractual gains.

Speaker Change: We expect it to return to growth. You know, there's a lot of innovation in that space. Some new players, where their growth is naturally plateauing out a bit after, you know, again, a couple of amazing years.

Speaker Change: But that has been a bit softer in the quarter than we'd anticipated. And then if you go into the alcoholic side, actually cocktails, you know, mixed flavoured cocktails, very strong.

Speaker Change: both in the market and in our portfolio. And then we're growing into beer, but we can see that beer is a bit weaker on the scanner data, but we do have growth in that category this year through contractual gains.

Stefan Diaz: Great. Thank you so much. I'll turn it over.

Oliver Graham: Thank you, Stephen.

Operator: Thank you. We'll take our next question from Mike Roxland with Truist Securities.

Speaker Change: Great, thank you so much. I'll turn it over.

Stephen: Thank you, Stephen.

Speaker Change: Thank you. We'll take our next question from Mike Roxland with Truist Securities.

Michael Roxland: Thank you, Ollie, David, and Stephen, for taking my questions, and congrats on the continued progress.

Oliver Graham: Thank you, Ollie, David, and Stephen, for taking my questions, and congratulations on the continued progress. Just want to get a sense of whether, you know, there has been a pull forward of demand and whether there could be some mean reversion or some softer growth in the back half. We'll take our next question from Cash and Keeler with Bank of America. And then a little bit of mix.

Michael Andrew Roxland: Thank you, Ollie, David, and Stephen for taking my questions, and congrats on the continued progress.

Oliver Graham: Thank you.

David Bourne: Thank you.

Michael Roxland: First question I had, just, you know, how much of the demand growth that you're seeing in Europe, you know, both this quarter, last quarter, do you think can be attributed to a pull forward of demand related to the Euro Cup, to the Olympics? Just want to get a sense of whether, you know, there has been pull forward of demand and whether there could be some mean reversion or some softer growth in the back half of this year.

Speaker Change: Thank you.

Michael Andrew Roxland: First question I had is, you know, how much of the demand growth that you're seeing in Europe , you know, both this quarter, last quarter, do you think can be attributed to a pull forward of demand related to the Euro Cup, to the Olympics?

Speaker Change: Just want to get a sense of whether, you know, there has been pulled forward of demand and whether there could be some mean reversion or some softer growth in the back half of this year.

Oliver Graham: Yeah, no, good question. I think, you know, we see, aside from the Euros and the Olympics, we do see customers leaning back into volume for their revenue growth this year, which we'd anticipated. We also see the can gaining in the pack mix, you know, with the efficiency of the can and also the sustainability credentials. So we think those are just more the factors that we used to benefit from, that are coming back, after, you know, a year or two of lesser growth with the inflation in the market. So we're not putting a huge amount of this on the Euros or the Olympics. There was a lot of innovation in our portfolio in the first half, which you could put down to some promo SKUs as well as new products.

Speaker Change: Yeah, good question. I think, you know, we see, aside from the Euros and the Olympics, we do see customers leaning back into volume.

Speaker Change: for their revenue growth this year.

Speaker Change: which we'd anticipated. We also see the CAN gaining in the pack mix.

Speaker Change: Thank you very much.

Speaker Change: We're not putting a huge amount of this on the Euros or the Olympics, there was a lot of innovation in our portfolio.

Oliver Graham: So we got a lot of requests for fresh production through Q2, and in fact, we probably could have had another point or two of growth if we'd been able to produce all of it. But inventories were low, both on the customer side and on our side, going into Q2, and that did put pressure on our fresh production capacity. So yeah, I think, you know, you'd expect the Euros and the Olympics to have had an effect, but we think the main thing that's going on is a reversion to the traditional growth of the European beverage can market, which has always been very, very healthy. We are being cautious in our guidance. You can see that because we do want to go through the summer period, and make sure that, you know, there aren't some pull forward effects.

Speaker Change: In the first half, which you could put down to some...

Speaker Change: promo SKUs as well as new products and so we got a lot of requests for fresh production through Q2 and in fact we probably could have

Speaker Change: at another point or two of growth if we'd been able to produce all of it.

Speaker Change: But inventories were low.

Speaker Change: both on the customer side and on our side, going into Q2, and that did put pressure on our fresh production capacity.

Speaker Change: So yeah, I think, you know, you'd expect the Euros and the Olympics to have had an effect, but we think the main thing that's going on is a reversion to the traditional growth of the European beverage can market, which has always been very, very healthy. We are being cautious in our guidance. You can see that because we do want to go through the summer period.

Oliver Graham: But at this point, July is looking very strong. It would be above our Q2 performance at this point if the trend continues. So we've got, you know, we probably are being a little bit cautious as we look into the second half.

Speaker Change: and make sure that, you know, there aren't some pull-forward effects. But at this point, July is looking very strong. It would be above our Q2 performance at this point if the trend continues. So we've got, you know, we probably are being a little bit cautious as we look into the second half.

Michael Roxland: Got it. That's very helpful, Ollie. Thank you. And then just, you know, two quick questions to finish it off here. You know, last call, you mentioned that you may find offsetting cost actions to drive better price costs. Any color you can provide on what those cost actions might be? You know, have they been implemented? You know, what's your take, what's your take on the amount the company could benefit from and over what time period? And then just lastly, you mentioned increased flexibility that you're building into your North American network to respond to challenging mark-- to changing market, customer demand patterns. Any additional color you can provide on that as well? Thank you.

Speaker Change: Got it. That's very helpful. I thank you. And then just two quick questions to finish it off here. You know, last call, you mentioned that you may find offsetting cost actions to drive better price costs.

Speaker Change: Any color that you can provide on what those cost actions might be, you know, have they been implemented?

Speaker Change: you know, what's your take on the amount the company could benefit from in over one time period. And then, just lastly, you mentioned increased flexibility that you're building into your North American network to respond to challenging market, to changing market customer demand patterns. Any additional comments you can provide on that as well. Thank you.

Oliver Graham: Sure, yeah. So look, on the first one, I think we mentioned in the prepared remarks that we did have improved in-input cost recovery in the quarter, you know, versus our expectations at the beginning of the year. So in some of our bigger categories, also energy, and that has offset what we initially, coming into 2024, thought might be a pricing headwind in Europe. So I think we've got a good balance now of pricing cost in Europe, and that helped us, outperform our guidance and also raise our full year guidance. We do see ongoing improved operating cost performance as we grow into our capacity and with the various efficiency programs we have in our business. So we do anticipate, you know, further cost reduction as we go into 2025 and 2026 across the business.

Speaker Change: Unknown Attendee Sure, yeah. So look, on the first one, I think we mentioned in the prepared remarks that we did have improved input cost recovery.

Speaker Change: Oliver Graham, Stephen Lyons

Speaker Change: Outperform our guidance and also raise our full year guidance. We do see ongoing improved operating cost performance.

Speaker Change: Oliver Graham, Stephen Lyons, Stephen Lyons, Stephen Lyons, Stephen Lyons, Stephen Lyons,

Oliver Graham: In terms of North America, yeah, we have, you know, adjusted our footprint now, returning to some standard capacity, 12-ounce, 16-ounce, and also adjusting our ends footprint, to take into account, 2 or 6 ends with 20-ounce cans. So we are now very well positioned for all the trends that are in the market and can adapt as needed. And we, you know, we do anticipate, therefore, being able to fully utilize our capacity over the next couple of years.

Speaker Change: 2026 across the business.

Speaker Change: In terms of North America, yeah, we have, you know, adjusted our footprint now, returning to some standard capacity, 12-ounce, 16-ounce, and also adjusting our ENDS footprint.

Speaker Change: to take into account 206Ns for 20 ounce cans. So we are now very well positioned for all the trends that are in the market and can adapt as needed. And we do anticipate therefore being able to fully utilise our capacity over the next couple of years.

Stefan Diaz: Thank you. Good luck in the quarter.

Michael Roxland: Thank you. Good luck in the quarter.

Oliver Graham: Thanks, Mike.

Operator: We'll take our next question from Kashan Keeler with Bank of America.

Speaker Change: Thank you. Good luck in the quarter.

Speaker Change: Thanks, mate.

Cashen Keeler: Yeah. Hi, guys. Good morning. Thanks for the time. So in the Americas, despite, you know, volumes only coming in at low single digits overall and a decline in Brazil, you still had pretty solid margins in the segment. So I know you called out input cost recovery, but was there perhaps anything on the mix side that allowed you to perform the way you did in that region?

Speaker Change: We'll take our next question from Cash and Keeler with Bank of America.

Speaker Change: Hi guys, good morning. Thanks for the time. So in the Americas, despite volumes only coming in at low single digits overall and a decline in Brazil, you still had pretty solid margins in the segment. So I know you called out input cost recovery, but was there perhaps anything on the mix side that allowed you to perform the way you did in that region?

Oliver Graham: Yeah, a little. So I think we did have some, some positive mix. And then we had, you know, clearly a, a better cost performance was, you know, a significant driver. Again, as we grow into our operating footprint, and also, you know, we had rationalized our footprint, which, you know, we don't like doing from a team point of view, but was necessary to do with the capacity we were carrying in North America. So that also helped our cost performance. We've done the same thing in Europe with the steel line. So, clearly, both on the input costs and on the operating costs, we, we delivered a better performance, and then a little bit of mix.

Speaker Change: Yeah, a little. So I think we did have some positive mix.

Speaker Change: And then we had, you know, clearly a better post performance was, you know, a significant driver again, as we grow into

Speaker Change: are operating footprint and also, you know, we had rationalized our footprint, which, you know, we don't like doing from a team point of view, but was necessary to do with the capacity we were carrying in.

Speaker Change: [inaudible]

Oliver Graham: And yeah, look, I think we also had good end sales in Brazil, which you can count as a mixed effect in the quarter, which also was positive for margins. And then actually, again, looking into July, growth looks pretty positive in, particularly in North America, which would be above, again, the Q2 number. So, you know, we're feeling pretty good about our performance there. We're over 7% year to date in the first half, which matches, you know, pretty much anyone in the market and is clearly ahead of market growth. So we're looking positively to the year end, even though we've got, again, some very tough competitions.

Oliver Graham: Yeah, look, I think we also had good end sales in Brazil, which you can count as a mix effect in the quarter, which also was positive to margins. And then actually, again, looking into July, you know, growth looks pretty positive in, particularly in North America, would be above, again, the Q2 number. So, you know, we're feeling pretty good about our performance there. We're seven-- We're over 7% year to date in the first half, which matches, you know, pretty much anyone in the market and is clearly ahead of market growth. So we're looking positively to the year-end, even though we've got, again, some very tough comps. I think we have a 20% comp in Q3 and a 12% in Q4.

Speaker Change: and then a little bit of mix.

Speaker Change: and yeah look I think we also had good end sales in Brazil which you can count as a mixed effect in the quarter which also was was positive to margins.

Speaker Change: And then actually, again, looking into July, growth looks pretty positive, particularly in North America, would be above, again, the Q2 number, so we're feeling pretty good about our performance there. We're over 7% year-to-date in the first half, which matches pretty much anyone.

Speaker Change: In the market and is clearly ahead of market growth.

Oliver Graham: I think we have a 20% comp in Q3 and 12% in Q4. So our very strong growth in 2022 does provide a lot of guidance on what we can achieve this year, but we're still expecting to beat it through the remainder of the year. Okay, that's helpful.

Speaker Change: So we're looking positively to the year end, even though we've got, again, some very tough comps. I think we have a 20% comp in Q3 and a 12% in Q4. So our very strong growth in 2022, you know, does provide much on what we can achieve this year, but we're still expecting to beat it through the remainder of the year.

Oliver Graham: So our very strong growth in 2022, you know, does provide on what we can achieve this year, but we're still expecting to beat it through the remainder of the year.

Cashen Keeler: Okay, that's helpful. Then I guess, as we just move more into Q3 and Q4, you know, I know you called out uptick in promotional activity, but is that kind of above what you were observing last quarter? And you know, how do you expect that to impact volumes here in the second half?

Oliver Graham: And then I guess as we just move more into 3Q and 4Q, you know, I know you called out an uptick in promotional activity. But is that kind of above what you were observing last quarter? And, you know, how do you expect that to impact volumes here in the second half? Yeah, I think, you know, again, we've been saying this for 12-18 months, so we do expect it to normalize over time. I think it has continued to do so in Q2, and we'd expect it to continue to do so.

Speaker Change: Okay, that's helpful. And then I guess as we just move more into 3Q and 4Q, you know, I know you called out uptick in promotional activity. But is that kind of above what you were observing last quarter? And, you know, how do you expect that to impact volumes here in the second half?

Oliver Graham: Yeah, I think, you know, again, we've been saying it for 12, 18 months, so we do expect it to normalize over time. I think it has continued to do that in Q2, and we'd expect it to continue to do it. It's probably been slower than we anticipate. Our customers were able to achieve more on price than we might have thought, and, you know, not surprisingly, therefore did so. But we think, you know, for the revenue growth they'll want, they will have to lean more on volume, going forward, because I think they are reaching the limits of pure price. So we do expect continued improvement in promotional activity, in all our markets, you know, going through the remainder of the year.

Speaker Change: Yeah, I think, you know, again, we've been saying it for 12, 18 months, so we do expect it to normalize over time. I think it has continued to do that in Q2, and we'd expect it to continue to do it. It's probably been slower than we...

Oliver Graham: It's probably been slower than we anticipated. Our customers were able to achieve more on price than we might have thought and, you know, not surprisingly, therefore, did so.

Speaker Change: Stephen Lyons, Oliver Graham, Stephen Lyons, Stephen Lyons, Stephen Lyons, Stephen Lyons,

Oliver Graham: But we think, you know, for the revenue growth they'll want, they will have to lean more on volume going forward because I think they are reaching the limits of pure price. So we do expect continued improvement in promotional activity in all our markets through the remainder of the year. Thanks, Kirsten.

Speaker Change: going forward because I think they are reaching the limits of pure price. So we do expect continued improvement in promotional activity in all our markets, you know, going through the remainder of the year.

Cashen Keeler: Okay, thanks. I'll turn it over.

Oliver Graham: Thanks, Kashan.

Operator: Thank you. We'll take our next question from Josh Spector with UBS.

Speaker Change: Okay, thanks. I'll turn it over.

Oliver Graham: Thank you. We'll take our next question from Josh Spector with, If I could get a quick follow-up there, is that $30 to $40 million under absorption, how much do you think you're benefiting from that this year? Thank you. We'll go next to Anthony Pettinari with, Okay, that's very helpful. I'll turn it over.

Kirsten: Thanks, Kirsten.

Speaker Change: Thank you. We'll take our next question from Josh Spector with UBS.

Josh Spector: Yeah. Hi, good morning. I wanted to follow up on, on the North America volumes. So to the point that you mentioned, Q3 has a pretty tough comp, and I mean, I think your guidance implies that your volumes will grow, call it a couple percent in the second half. Is that the right way to think about that, or would you expect that to accelerate at all when you talk about outperformance versus the market?

Josh Spector: Yeah, hi, good morning. I wanted to follow up on the North America volumes. So to the point that you mentioned, 3Q has a pretty tough comp.

Josh Spector: I think your guidance implies that your volumes will grow, call it a couple percent in the second half. Is that the right way to think about that, or would you expect that to accelerate at all when you talk about outperformance versus the market?

Oliver Graham: No, I think it's probably a bit ahead of a couple of percent in our numbers, right? To get to mid-singles. But I don't think we see a particular acceleration. I mean, the market, you know, we're calling it low single, but it looks like it's more at the lower end of low single at the minute. So, you know, mid-single will, in our view, clearly be a beat to the market by some distance. So yeah, the way we're seeing it is that, you know, we should land in that mid-single area, and that would mean, you know, we'd be low to mid in Q3 and Q4.

Speaker Change: No, I think it's probably a bit ahead of a couple of percent in our numbers right to get to mid-singles.

Kirsten: But I don't think we see, you know, a particular acceleration. I mean, the market, you know, we're calling it low single, but it looks like it's more at the lower end of low single at the minute. So, you know, mid single will, in our view, clearly be a beat to the market by some distance.

Kirsten: So yeah, the way we're seeing it is that, you know, we should land in that mid-single area and that would mean, you know, we'd be low to mid in Q3 and Q4.

Josh Spector: Thanks, that's helpful. And I just wanted to ask on volume leverage here. I mean, you alluded to some additional cost help over the next couple of years. I mean, your EBITDA growth relative to volumes is maybe a little bit more than 2x this year. I guess as we frame 2025, 2026, how should we be thinking about that leverage? Or I guess it's easier if you wanna separately quantify the cost savings different versus the operating leverage. Thank you.

Speaker Change: Thanks, that's helpful and I just wanted to ask on

Speaker Change: Volume leverage here. I mean, you alluded to some additional cost help over the next couple of years.

Speaker Change: I mean, your EBITDA growth relative to volumes is maybe a little bit more than 2x this year.

Speaker Change: I guess as we frame 2526, how should we be thinking about that leverage? Or I guess it's easier if you want to separately quantify the cost savings different versus the operating leverage. Thank you.

Oliver Graham: Yeah, look, obviously, we're not guiding 2025, 2026 yet, but we do anticipate good earnings growth into those years with the volume growth. We talked, I think, at the beginning of the year, about having a $30 to 40 million and sitting in our business from underabsorbed fixed costs. So we'd expect that to work out over the next 1 to 2 years, and that will give a... I mean, I haven't got the exact math to hand, but that clearly will give a ratio that's positive between EBITDA growth and volume growth. So we'll guide more fully on those numbers, you know, obviously in early 2025.

Speaker Change: Yeah, obviously we're not guiding 25, 26 yet, but we do anticipate good earnings growth into those years with the volume growth.

Speaker Change: We talked, I think, at the beginning of the year about having a 30 to 40 million.

Speaker Change: and sitting in our business from under-absorbed fixed costs.

Speaker Change: So we'd expect that to work out over the next one to two years, and that will give a I mean, I haven't got the exact maths to hand, but that clearly will give a ratio that's positive between EBITDA growth and volume growth. So we will guide more fully on those numbers, you know, obviously in early 2025.

Josh Spector: If I get a quick follow-up there, so that $30 to 40 million under absorption, how much do you think you're benefiting from that this year?

Speaker Change: If I could get a quick follow-up there, is that $30 to $40 million under absorption, how much do you think you're benefiting from that this year?

Oliver Graham: Sorry, Josh, that broke up. How much do we think?

Josh Spector: How much do you think that $30 to 40 million under absorption coming into this year is actually helping 2024?

Speaker Change: Sorry Josh, that broke up. How much do we think?

Speaker Change: How much do you think that $30 to $40 million under-absorption coming into this year is actually helping 2024?

Oliver Graham: ... well, probably about a third, half is helping 2024. We talked about, I think, a $20 million-

Speaker Change: Well, probably about a third, half is helping, 24. We talked about, I think, a $20 million cost improvement. Is that right, David? Yeah. So we would have said we had $60 million coming into the year, and we'll have $30 to $40 coming out of the year, Joel.

David Bourne: Yeah.

Oliver Graham: Cost improvement. Is that right, David?

David Bourne: Yeah. So we would have said we had $60 million coming into the year, and we'll have, you know, 30 to 40 million coming out of the year, Joe.

Stefan Diaz: Very clear. Thank you.

Josh Spector: Very clear. Thank you.

Operator: Thank you.

Oliver Graham: Thanks, Joe.

Operator: We'll go next to Anthony Pettinari with Citi.

Joel: Very clear. Thank you.

Speaker Change: Thank you. We'll go next to Anthony Pettinari with Citi.

Anthony Pettinari: Good morning. You talked about-

Oliver Graham: Hi

Anthony Pettinari: Hey, you talked about cans gaining in the pack mix in Europe, and I'm wondering, as you look across the portfolio, both Americas and Europe, you know, which categories or countries are cans gaining maybe most rapidly from glass or maybe, you know, plastic or other substrates? And, conversely, are there, you know, categories or countries where, you know, can share is stagnant or maybe even giving back some share?

Speaker Change: Good morning.

Unknown Attendee: Unknown Attendee You talked about Cairns, Gatie.

Anthony James Pettinari: Hey, you talked about cans gaining in the pack mix in Europe .

Anthony James Pettinari: And I'm wondering, as you look across the portfolio, both Americas and Europe ,

Speaker Change: you know, which categories or countries are Cans gaining?

Speaker Change: maybe most rapidly from glass or maybe, you know, plastic or other substrates? And conversely, are there, you know, categories or countries where, you know, canned share is stagnant or maybe even giving back some share?

Oliver Graham: Yeah, good question. I think Europe, it's a beer story relative to glass. So I think, you know, glass has obviously had a lot of energy cost headwinds in the last two years with the Russia-Ukraine conflict. And so the can is sitting, you know, at a lower cost position. And when you're in mass beer, margins are not particularly high through the chain, so, you know, you need to optimize on the pack. And so I think cans are benefiting from that this year if you look across the beer portfolio. And then I think, you know, relative to plastics, obviously, it's mainly the soft drinks part of the portfolio where we see, you know, our major customers are making commitments around virgin plastic and overall recycled content, which, I think is broadly helpful for the can.

Speaker Change: Yeah, good question. I think Europe , it's a beer story, relative to glass. So I think, you know, glass has obviously had a lot of energy costs, headwinds, in the last two years with the Russia Ukraine conflict.

Speaker Change: and so the can is sitting you know at a lower cost position and when you're in mass beer margins are not particularly high through the chain so you know you need to optimize on the pack.

Speaker Change: and so I think Cairns are benefiting from that this year if you look across the beer portfolio.

Speaker Change: And then I think, you know, relative to plastics, obviously, it's mainly the soft drinks part of the portfolio where we see...

Speaker Change: You know, our major customers are making commitments around virgin plastic and overall recycled content, which I think is broadly helpful for the can. So we do see the can get a share in those soft drinks categories.

Oliver Graham: So we do see the can gain share in those soft drinks categories. I can't think of a category in particular where we're going backwards. Obviously, there's some categories where we're still low share, spirits, still waters, but overall, when we look across the piece, we're generally, I think, gaining share in the pack mix. And in Brazil, it's a big shift out of two-way, as we've talked about before, into one-way packaging, and that, some of that is going into one-way glass, but you know, a lot of it is going into cans.

Speaker Change: I can't think of a category.

Speaker Change: In particular, where we're going backwards, obviously, there's some categories where we're still low share.

Speaker Change: Spirits, Still Waters, but overall when we look across the piece we're generally I think gaining share in the pack mix and in Brazil it's a big shift out of two ways we've talked about before into one-way packaging and that some of that is going into one-way glass but you know a lot of it is going into cans.

Anthony Pettinari: Okay, that's very helpful. And then just two quick follow-ups on Europe. You know, there's some, you know, fairly stringent environmental regulations around single-use packaging that are set to be enacted in Europe. And as you think about the impact on the can, you know, over the next 5, 10 years versus other substrates, any quick thoughts on that? And then just finally, you know, Germany, obviously biggest market in Europe, but has some kind of maybe, you know, special relationship with glass. I don't know if you can talk about sort of the long-term opportunity for can penetration in Germany, specifically.

Speaker Change: Okay, that's very helpful. And then just two quick follow-ups on Europe . You know, there's some fairly stringent environmental regulations around single-use packaging that are set to be enacted in Europe . And as you think about the impact on the can, you know, over the next 5, 10 years versus other substrates, any quick thoughts on that? And then just finally, you know, Germany, obviously biggest market in Europe , but has some kind of

Speaker Change: maybe, you know, a special relationship with glass. I don't know if you can talk about sort of the long-term opportunity for can penetration in Germany specifically.

Oliver Graham: Sure. So when we look at the European legislation overall, we're pretty comfortable that the can, you know, will benefit, particularly because of, you know, regulation around recycled content, where the can is extremely strong. But also, you know, if we look at our pathway on decarbonization, the actions that we're taking, that our suppliers are taking, it's also a very positive story. Clearly, there's some element of returnable packaging in the EU legislation, but there's already a decent amount of returnables in the European market. So we think overall, when we look at it, that the can will do very well from most of that legislation.

Speaker Change: So when we look at the European legislation overall, we're pretty comfortable that the can will benefit, particularly because of regulation around recycled content, where the can is extremely expensive.

Speaker Change: strong. But also, you know, if we look at our pathway on decarbonisation, the actions that we're taking, that our suppliers are taking, it's also a very positive story.

Speaker Change: Clearly there's some element of returnable packaging in the EU legislation but there's already a decent amount of returnables in the European market so we think overall

Oliver Graham: In Germany, I mean, we're on this very long-term recovery from 2003, when the deposit scheme that was put in was very ill-designed, and very favorable to glass, as you say. And so that's why the German market has grown at 10% or 15% a year since then, and still has that kind of growth rate. So we don't see that changing in the near term, because it's just a recovery to a more normal pack mix once the deposit scheme was fixed and people could find a return path for cans. So Germany remains very good growth, and we think it will do that, you know, a number of years to come.

Speaker Change: When we look at it, the can will do very well.

Speaker Change: from most of that legislation and then in Germany I mean we're on this very long-term recovery from 2003 when the deposit scheme that was put in

Speaker Change: was very ill-designed.

Speaker Change: and very favorable to glass, as you say.

Speaker Change: And so that's why the German market has grown at 10 or 15% a year since then and still.

Speaker Change: have that kind of growth rate. So we don't see that changing in the near term because it's just a recovery to a more normal pack mix once the deposit scheme was fixed and people could find a return path for cans. So Germany remains very good growth and we think it will do that a number of years to come.

Anthony Pettinari: Okay. That's very helpful. I'll turn it over.

Oliver Graham: Thanks, Anthony.

Operator: Thank you. We'll take our next question from Mike Leithead with Barclays.

Oliver Graham: Thank you. We'll take, So the deal is a private deal and is subject to customary closing conditions. So those terms are private at the moment, but I think I've given you good modeling guidance on what the net interest costs will be for the business. Yeah, we believe after we put that cash to use. And then the other question that we have: can the Apollo facility be used to take out, or not?

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

Speaker Change: Thank you. We'll take our next question from Mike Lighthead with Barclays.

David Bourne: Great. Thanks. Good morning, guys. First question, can you just remind us just where you currently stand on the previous North American customer volume dispute? I think as of earlier this year, you're still on some litigation. Just any update you can provide, and relatedly, are you assuming any financial recovery in your numbers at this point?

Mike Leithead: Great. Thanks. Good morning, guys. First question, can you just remind us just where you currently stand on the previous North American customer volume dispute? I think as of earlier this year, you're still on some litigation. Just any update you can provide, and relatedly, are you assuming any financial recovery in your numbers at this point?

Mike Lighthead: All right. Thanks. Good morning, guys.

Unknown Attendee: First question, can you just remind us just where you currently stand on the previous North American customer volume dispute? I think as of earlier this year, you're still on some litigation. Just any update you can provide, and relatedly, are you assuming any financial recovery in your numbers at this point? Unknown Attendee

Oliver Graham: Yeah, look, obviously, we can't give any running commentary on the call, but we're making progress. You know, we're still very optimistic about our contractual position. There's nothing assuming any guidance we've given to the market on that situation.

Speaker Change: Yeah, look, obviously, we can't give any running commentary on the call, but we're making progress, you know, we're still very optimistic about our contractual position. None of the, there's nothing in any guidance we've given to the market on that situation.

David Bourne: Got it. Fair enough. And then, David, can you just remind us on, on your cash interest expectations for 2024, as we already start looking ahead to 2025? I appreciate it's still early, but when we factor in the new term loans and lease repayments, what should cash interest, at least initially, look like for 2025? Yeah, Mike, I mean, for 2024, we've said $200 million-ish, and actually that won't change this year as a consequence, the term loan facility, given the timing of that and given the useful push to that. For 2025, I would model that $10 million higher at this stage. As I referenced earlier, I think that's the net cash cost, given the use, we'll put the loan facility to off that.

Mike Leithead: Got it. Fair enough. And then, David, can you just remind us on, on your cash interest expectations for 2024, as we already start looking ahead to 2025? I appreciate it's still early, but when we factor in the new term loans and lease repayments, what should cash interest, at least initially, look like for 2025?

Speaker Change: Got it. Fair enough. And then, David, can you just remind us on your cash interest expectations for 2024 as we already start looking ahead to 2025?

Speaker Change: I appreciate it's still early, but let me factor in the new term loans, some lease repayments. What should cash interest at least initially look like for 25?

David Bourne: Yeah, Mike, I mean, for 2024, we've said $200 million-ish, and actually that won't change this year as a consequence, the term loan facility, given the timing of that and given the useful push to that. For 2025, I would model that $10 million higher at this stage. As I referenced earlier, I think that's the net cash cost, given the use, we'll put the loan facility to off that.

David: Yeah, Mike, I mean for 24 we've said 200 million ish and actually that won't change this year as a consequence.

David: The term loan facility, given the timing of that and given the useful push to that.

Speaker Change: For £25 million, I would model that £10 million higher at this stage. As I referenced earlier, I think that's the net cash cost, given the use we'll put the...

David Bourne: And you know, we'll see what the other puts and takes are closer to the time when we do our budgeting and give our guidance in February. Great. Thank you.

David Bourne: And you know, we'll see what the other puts and takes are closer to the time when we do our budgeting and give our guidance in February.

Speaker Change: main facility two of that and you know we'll see what the other puts and takes closer to the time when we do our budgeting and give our guidance in February.

Mike Leithead: Great. Thank you.

Oliver Graham: ... Thanks, Mike.

Operator: We'll take our next question from Roger Spitz with Bank of America.

Speaker Change: Great, thank you.

Mike: Thanks, Mike.

Olivia Tong: Hi, this is Olivia in for Roger. Thanks for taking our questions. So with regarding the July 2024 $300 million Apollo term loan due 2029, what is the interest rate on that term loan?

Speaker Change: We'll take our next question from Roger Spitz with Bank of America.

Speaker Change: Hi, this is Olivia for Roger. Thanks for taking our questions. So with regarding the July 2024 300 million Apollo term loan due 2029, what is the interest rate on that term loan?

David Bourne: So the deal is a private deal and is subject to customary closing conditions. So those terms are private at the moment, but I think I've given you good modeling guidance on what the net interest costs will be for the business. Yeah, we believe after we've put that cash to use.

Oliver Graham: The deal is a private deal and is subject to customary closing conditions, so those terms are private at the moment, but I think I've given you good modelling guidance on what the net interest cost will be for the business, we believe, after we've put that cash to use.

Olivia Tong: Okay, thank you. And then the other question that we have, can Apollo facility be used to take out the preferred or is it prohibited?

Speaker Change: Okay, thank you. And then the other question that we have, can Apollo facility be used to take out the preferred or is it prohibited?

David Bourne: In theory, it could. That's not our intention.

Oliver Graham: In theory, it could, but that's not our intention. Obviously, that seems low in the context of the current facilities, and I was wondering if that was the $10 million net interest because it only reflected the commitment fee and not the incremental interest if it was fully drawn. No, so we're saying what we think will be the net interest cost to AMP from fully drawing down the facility, which we intend to do during the course of Q3, and then putting that cash flow to use within the business.

Olivia Tong: Okay, thank you.

Speaker Change: In theory, it could. That's not our intention.

Speaker Change: Okay, thank you.

Operator: Thank you. We'll take our next question from Richard Feulin with Deutsche Bank.

Speaker Change: Thank you. We'll take our next question from Richard Phelan with Deutsche Bank.

Richard Felton: I was pursuing the same line of questions as the questioner just before this, which is the annual interest. When you say a net interest cost, obviously, that seems low in the context of the current facilities. And I was wondering if that was the $10 million net interest cost only reflected the commitment fee and not the incremental interest, if it was fully drawn.

Richard Phelan: Obviously, that seems low in the context of the current facilities. And I was wondering if that was the $10 million net interest because it only reflected the commitment fee and not the incremental interest if it was fully drawn.

David Bourne: No, so we're saying that we think will be the net interest cost to AMP from fully drawing the facility, which we intend to do during the course of Q3, and then putting that cash flow to use within the business. So, you know, think about ABL utilization, which currently has an effective interest rate of, I think it's about 5.25%. Think about some of the factoring that we do. Yeah, those are the sort of uses that we anticipate.

Oliver Graham: So, you know, think about ABL utilization, which currently has an effective interest rate of about 5.25%. Think about some of the factoring that we do. Yeah, those are the sorts of uses that we anticipate. Okay, and in addition to the potential but not intentioned by preferred, can the same thing apply to other bonds in the capital structure the same way that the portion of the new Apollo facility at Artigroup, I say, is intended to purchase bonds in the secondary market at that level?

Speaker Change: No, so we're saying that we think will be the net interest cost to AMP from fully drawing the facility, which we intend to do during the course of Q3, and then putting that cash flow to use within the business. So, you know, think about ABL utilisation, which currently has an effective interest rate of, I think it's about 5.25%.

Speaker Change: I'll talk about some of the factoring that we do. Those are the sorts of uses that we anticipate.

Richard Felton: Okay. And, in addition to the potential, but not intention to buy preferred, can the same thing apply to other bonds in the capital structure, the same way that the new-- a portion of the new Apollo facility at Ardagh Group S.A. is intended to purchase bonds in the secondary market at that level?

Speaker Change: Okay, and in addition to the potential but not intentioned by preferred, can the same thing apply to...

Speaker Change: Other bonds in the capital structure the same way that the portion of the new Apollo facility at Arda Group, I say, is intended to purchase bonds in the secondary market at that level.

David Bourne: Yeah. Look, this will be cash that sits on our balance sheet. You know, as I said in my prepared remarks, there's no anticipated change to our leverage position as a result of the cash raise. It's to strengthen our business resilience and to demonstrate that strength, you know, across our commercial relationships.

Oliver Graham: Yeah, look, this will be cash that sits on our balance sheet. As I said in my prepared remarks, there's no anticipated change to our leverage position as a result of the cash raise. It's to strengthen our business resilience and to demonstrate that strength across our commercial relationships. I think our bonds really don't become current until 27, 28, 29. That's correct.

Speaker Change: Yeah, look, this will be cash that sits on our balance sheet. You know, as I said in my prepared remarks, there's no anticipated change to our leverage position as a result of the cash raise. It's to strengthen our business resilience and to demonstrate that strength across our commercial relationships.

Oliver Graham: And I think our bonds-

Richard Felton: And-

Oliver Graham: - really don't become current until 2027, 2028, 2029, so you know, there's no real need.

Oliver Graham: And I think our bonds really don't become current until 27, 28, 29, so, you know, there's no real need. There's no incentive, there would be no incentive for us to do anything with those.

David Bourne: There would be no incentive for us to do anything with those.

Oliver Graham: Okay.

Richard Felton: Understood. And, last point, just to reconfirm, I thought I heard year-end net leverage target, which was 5.2 times. Is that correct?

Speaker Change: Thank you for joining us.

David Bourne: That's correct.

Richard Felton: Great. Thank you very much.

Oliver Graham: Thank you.

Speaker Change: That's correct.

Operator: We'll take our next question from George Staphos with Bank of America.

Speaker Change: Great. Thank you very much.

Oliver Graham: We'll take our next question from George Staphos with Bank of America. Unknown Attendee, Oliver Graham, Ning Yang, David Bourne, Michael Roxland, Arun Viswanathan, There was some talk, I think, from one of the big CSD players that their hydration portfolio had really popped with the hot weather and that that might have been a negative for the energy category. So there are possibly some temporary factors in there, and we'll only know that as we go through the remainder of the year.

Speaker Change: Thank you.

Speaker Change: We'll take our next question from George Staphos with Bank of America.

George Staphos: Hi, everyone. Good morning. Thanks for taking our question. So to the extent that you have a view on this that you can share from your customers, how long do you think the weakness in energy will last, and what do you think is driving it? You mentioned basically comparisons being difficult as the market's lapping the progress of new entrants. How much of it do you think is a function of macro and the demographic of some of the larger brands, and in turn, that being a function of, you know, being impacted by inflation? What are your thoughts, wanted to pick up, guys? And then I had a couple follow-ons.

Speaker Change: Hi everyone, good morning. Thanks for taking our question. So to the extent that you have a view on this that you can share from your customers, how long do you think the weakness in energy will last and what do you think is driving it? You mentioned

Speaker Change: Basically, comparisons being difficult as the market's lapping the progress of new entrants.

George Leon Staphos: How much of it do you think is a function of macro and the demographic of some of the larger brands, and in turn that being a function of being impacted by inflation? What are your thoughts? When does it pick up, guys? And then I have a couple of follow-ons.

Oliver Graham: Yeah. Hi, George. Yeah, I think it's early to know is probably the honest answer. You know, there is some talk about some relatively temporary effects. You know, there's lower footfall inconvenience, particularly gas stations with higher gas prices. There was some talk, I think, from one of the big CSD players, that their hydration portfolio had really popped with the hot weather, and that that might have been a negative for the energy category. So there's possibly some temporary factors in there, and we'll only know that as we go through the remainder of the year. I think clearly they had a couple of years of fabulous growth, so they're lapping some pretty big comps. And we also have some consolidation in that sector with, you know, some M&A activity that happened. So I think there's a lot going on.

Speaker Change: Yeah, hi George. Yeah, I think it's early to know is probably the honest answer. You know, there is some talk about some relatively temporary effects. You know, there's lower footfall inconvenience, particularly gas stations with higher gas prices.

Oliver Graham: There was some talk, I think, from one of the big CSD players that their hydration portfolio had really popped with the hot weather and that that might have been a negative for the energy category.

Oliver Graham: I think clearly they had a couple of years of fabulous growth, so they're lapping some pretty big comps. And we also have some consolidation in that sector with some M&A activity that happened. So I think there's a lot going on. There was some very good innovation. Unknown Attendee, Oliver Graham, Unknown Attendee, Oliver Graham, Unknown Attendee, Unknown Attendee, No, I appreciate that Ali.

Oliver Graham: So there's possibly some temporary factors in there, and we'll only know that as we go through the remainder of the year. I think clearly they had a couple of years of fabulous growth, so they're lapping some pretty big comps. And we also have some consolidation.

Oliver Graham: There was some very good innovation in category coming out of COVID and some new players who really hit the, hit the mark in terms of consumer trends. My anticipation is that, you know, we won't see a huge recovery this year, but I'd expect, you know, the category to get back into growth next year. Just based on our experience of it over the last 30 years, where you've got some very strong players, some very strong innovative activity, and, you know, it's been an extremely high-performing category in all regions, but particularly North America. So I think our best guess, George, would be next year, but, you know, we need to see how much of this was temporary and how much of it was some underlying factors.

Oliver Graham: sector with some M&A activity that happened. So I think there's a lot going on. There was some very good innovation.

Oliver Graham: category coming out of COVID and some new players who really hit the hit the mark in terms of consumer trends.

Oliver Graham: My anticipation is that, you know, we won't see a huge recovery this year, but I'd expect, you know, the category to get back into growth next year, just based on our experience of it over the last 30 years, where you've got some very strong players, some very strong, innovative.

George: activity. And, you know, it's been an extremely high performing category in all regions, but particularly North America. So I think our best guess, George, would be next year. But, you know, we need to see how much of this was temporary and how much of it was some underlying factors.

George Staphos: No, I appreciate that, Ollie. Second question. You know, one of the other beverage packaging companies was talking about the fact that, within North America, within the US, and not trying to take political sides, the uncertainty on the election is maybe causing downstream uncertainty in terms of promotional programs, marketing, operations, and in turn, that feeding back into demand. Are you seeing any signs of that in terms of your conversations with customers or your conversations with other CEOs and what their plans are or are not at the moment, given the uncertainty?

Oliver Graham: Second question, you know, one of the other beverage packaging companies was talking about the fact that within North America, within the U.S., and not trying to take political sides, the uncertainty of the election is maybe causing... Are you seeing any signs of that in terms of your conversation? Unknown Attendee, Oliver Graham, Ning Yang, Michael Roxland, David Bourne, Arun Viswanathan, very good July. So, you know, we're feeling very constructive about the market.

Speaker Change: No, I appreciate that, Ali. Second question, you know, one of the other beverage packaging companies was talking about the fact that

Speaker Change: Within North America, within the U.S., and not trying to take political sides, the uncertainty on the election is maybe causing downstream uncertainty in terms of promotional programs, marketing, operations, and in turn that feeding back into demand.

Speaker Change: Are you seeing any signs of that in terms of your conversations with customers or your conversations with other CEOs and what their plans are or are not at the moment given the uncertainty?

Oliver Graham: No, I mean, I think I sort of feel what we're seeing is that. Clearly, there's an attempt to reduce economic activity in the US to bring inflation down. You know, that is putting some degree of additional pressure on consumers who traded with a lot of COVID support payments, you know, in the previous couple of years. So there is a bit more stress on consumers, although there is now, you know, something approaching real wage growth again. So I think we more see that and the result of what's been a couple of years of pretty significant price rises by our customers, which they found largely stuck, and so then they kept going. And so I think we've got to a place where the, you know, those prices are pretty high.

Speaker Change: No, I mean I think, I sort of feel what we're seeing is that

Oliver Graham: Clearly there's an attempt to reduce economic activity in the US to bring inflation down. You know, that is putting some degree of additional pressure on consumers who traded with a lot of.

Speaker Change: We've been talking about Covid support payments in the previous couple of years, so there's a bit more stress on consumers, although there is now something approaching real wage growth again.

Speaker Change: So I think we more see that and the result of what's been a couple of years of pretty significant price rises by our customers, which they found largely stuck. And so then they kept going.

Oliver Graham: Consumers are getting their disposable income under a little bit more pressure, and so the economic activity is just a bit more muted, which I think is the design, right? If you want to bring down inflation. So, you know, that's, I think, the backdrop, for me, more than political, but obviously, we're less in the US. We don't hear that from the team. I think that what we believe is that, you know, revenue growth will continue to be a target for our customers. We believe that means they will lean into volume to get that revenue growth, because we think that price lever is reaching its limit. And we believe the can is very well placed for that because we're very efficient through that chain, and we've got the right credentials. So that's why I remain very constructive on the North American market.

Oliver Graham: And so I think we we've got to play to a place where the you know, those prices are pretty high consumers are in their disposable income under a little bit more pressure. And so the economic activity is, is just a bit more muted, which I think is the design, right, if you want to bring down inflation.

Oliver Graham: So...

Oliver Graham: You know, that's, I think, the backdrop.

Speaker Change: For me, more than political, but obviously we're less in the U.S. We don't hear that from the team.

Speaker Change: I think that...

Oliver Graham: You know, again, we've had great performance in North America the last couple of years, over 7% year to date, very good July. So, you know, we're feeling very constructive about the market.

George Staphos: And off of that segue, both for North America and also Europe, you mentioned that your July trends are better than Q2. You're perhaps building in some conservatism. Are you seeing or what are you seeing that is giving you reason to maybe build in some conservatism into the back half guidance and on sell-through, recognizing, you know, we all like prudence from our management team, so we'd rather the, you know, what you're doing than overoptimism. But are you seeing anything that gives you pause in terms of the demand trend? And then lastly, you mentioned, I think in North America, that there was some volume that you missed on because you just didn't have the capacity to produce it. Are we getting to a point where maybe you need to, you know, consider another facility?

Speaker Change: Are you seeing, or what are you seeing that is giving you reason to maybe build in some conservatism into the back half guidance?

Speaker Change: We all like prudence from our management team. So we'd rather what you're doing than over-optimism. But are you saying anything?

Oliver Graham: Unknown Attendee, That gives you pause in terms of the demand trend. And then lastly, you mentioned, I think in North America, that there was some volume that you missed on because you just didn't have the capacity to produce it. Are we getting to a point where maybe you need... Thanks, George. Yeah, no, actually, that comment was more about Europe.

Oliver Graham: That gives you pause in terms of the demand trend. And then lastly, you mentioned, I think in North America, that there was some volume that you missed on because you just didn't have the capacity to produce it.

George Staphos: Or said differently, what amount of creep, what amount of productivity and growth CapEx-driven capacity growth can you see over the next several years without putting on a new facility? Thank you, and good luck in the quarter.

Speaker Change: Are we getting to a point where maybe you need to consider another facility or said differently?

Oliver Graham: Thanks, George. Yeah, no, actually, that comment was more about Europe.

Oliver Graham: So what we saw in Europe was that we'd been very cautious about inventory build; our customers have been very cautious about inventory build. So we saw, you know, a big de-stock in Q4, that I think, you know, the whole industry has commented on. We saw a bit of a recovery in Q1. But as it turned out, the summer was much stronger than anticipated.

George Staphos: Okay.

Oliver Graham: So, what we saw in Europe was that we'd been very cautious on inventory build. Our customers have been very cautious on inventory build. So we saw, you know, a big destock in Q4 that I think, you know, the whole industry has, you know, commented on. We saw a bit of a recovery in Q1, but as it turned out, the summer was much stronger than anticipated. And then the second effect we saw was a big demand on new labels. So, you know, big demand on fresh production, which does unfortunately reduce the efficiency of our facilities, you know, because we're doing more changeovers.

Oliver Graham: Thanks, George. Yeah, no, actually, that comment was more about Europe . So what we saw in Europe was that...

Oliver Graham: We've been very cautious on inventory build our customers have been very cautious on in inventory build So we saw you know big D stock in q4 that I think you know the whole industry is cut You know commented on we saw a bit of a recovery in q1

Oliver Graham: But as it turned out, the summer was much stronger than anticipated. And then the second effect we saw was a big demand on new labels. So, you know, a big demand on fresh production, which does unfortunately reduce the efficiency of our facilities, you know, because we're doing more changeovers.

Oliver Graham: And then the second effect we saw was a big demand for new labels. So, you know, a big demand for fresh production, which does, unfortunately, reduce the efficiency of our facilities, you know, because we're doing more changeovers. So we lost some production capacity as a result of that in the middle of a pretty strong demand season. And that's why I said, you know, I could imagine we'd do another point of growth if we'd had that capacity or the correct inventory already built.

Oliver Graham: So we lost some production capacity as a result of that in the middle of a pretty strong demand season, and that's why I said, you know, I could imagine we'd done another point of growth if we'd had that, capacity or the correct inventory already built. So I don't think that's telling us too much about needing to build additional capacity, because, A, I think customers will be more cautious on inventory and perhaps on contracting going into 2025. And I think also we're still bringing up some capacity, particularly in La Ciotat, in the south of France. So we will have some additional capacity going into 2025. So...

Oliver Graham: So we lost some production capacity as a result of that in the middle of a pretty strong demand Season and that's why I said, you know, I could imagine we've done another point

Oliver Graham: of growth if we'd had that capacity or the correct inventory.

Oliver Graham: So I don't think that's telling us too much about needing to build additional capacity because, A, I think customers will be more cautious about inventory and perhaps on contracting going into 2025. And I think we're still building some capacity, particularly in La Ciotat, in the south of France.

Speaker Change: Oliver Graham, Stephen Lyons

Oliver Graham: So we will have some additional capacity going into 2025. And then, sort of turning that to your broader question, I think across both North America, Brazil, and Europe, we do see that we can grow at least into 25 and probably into 26 with the current footprint as we, you know, because we are still ramping, we're still generating additional efficiencies, and we are driving efficiencies generally in our portfolio. And then to your first question about EU demand trends, we did see some slightly negative numbers in May on a sort of overall volume level for Europe in certain categories, not on the canned side, but that was linked to, you know, some very poor weather in Northern Europe at that time. So that gave us a little bit of a pause, but you know, the weather in the summer is looking pretty good at the minute. And, you know, again, July looks strong.

Oliver Graham: And I think also we're still bringing up some capacity, particularly in La Ciotat in the south of France. So we will have some additional capacity going into 2025.

Oliver Graham: And then sort of turning that to your broader question, I think, across both North America, Brazil, and Europe, we do see that we can grow at least into 2025 and probably into 2026 with the current footprint. As we, you know, because we are still ramping, we're still generating additional efficiencies, and we are driving efficiencies generally in our portfolio. And then to your first question about the EU demand trends, we did see some slightly negative numbers in May on a sort of overall volume level for Europe in certain categories, not on the can side, but, and that was linked to, you know, we had some very poor weather in northern Europe at that time. So that gave us a little bit of a pause. But, you know, the weather in the summer is looking pretty good at the minute.

Oliver Graham: And then sort of turning that to your broader question, I think across both North America, Brazil and Europe , we do see that we can grow.

Oliver Graham: at least into 25 and probably into 26 with the current footprint as we, you know, because we are still ramping, we're still generating additional efficiencies.

Oliver Graham: and we are driving efficiencies generally in our portfolio. And then to your first question about the EU demand trends, we did see some slightly negative numbers in May.

Oliver Graham: on a sort of overall volume level for Europe in certain categories, not on the Cannes side, but, and that was linked to, you know, we had some very poor weather in Northern Europe at that time. So that gave us a little bit of a pause, but, you know, the weather in the summer is looking pretty good at the minute and

Oliver Graham: And, you know, again, July looks strong. Our constraint at the moment is mostly, you know, again, our low inventory levels and our production capacity rather than demand. So it's possible we're being on the cautious side, but as you say, we'd rather be there, than, than overlead.

Oliver Graham: Our constraint at the moment is mostly, you know, again, our low inventory levels and our production capacity rather than demand. So it's possible we're being on the cautious side, but as you say, we'd rather be there than overlead. Yeah, look, I think to your point, we are planning to sell cans and ends. And one of the problems is that we report this all quarterly. And so you do, particularly with the Brazil situation, get some. So I think this is more, you know, our overall commentary that we're still being relatively cautious, again, particularly around the European situation, but also just being cautious around H2 generally, you know, to make sure we hit our guidance. David, would you add anything?

David: Thank you.

George Staphos: Yeah, I appreciate all that, Ollie. Yeah, sorry about the miscategorization, Europe versus North America. I'll turn it over. Thanks, guys.

David: I appreciate all that, Ollie. And yeah, sorry about the miscategorization, Europe versus North America. I'll turn it over. Thanks, guys. No problem. Thanks, George.

Oliver Graham: No problem. Thanks, George.

Operator: We'll take our next question from Gabe Hajde with Wells Fargo.

Speaker Change: We'll take our next question from Gabe Hady with Wells Fargo.

Gabe Hajde: Ollie, Gabe, good morning.

Oliver Graham: Morning, Gabe.

Gabe Hajde: I wanted to ask about the sort of implied guidance for Q4 at $155. And you talked about increased can end sales, excuse me, down in Brazil and just the mix effect of that. I mean, generally speaking, you know, we heard others comments, you tend to sell a can and an end. You know, it's got to be filled at some point. So, the implied $155 is sort of in between, what? 21 and 23, in the fourth quarter. Is there anything else, again, maybe going to this conservatism question, that would say profit could be down even if volumes are up more in the Americas versus Europe, because I think you guys had to throttle back production in Europe.

Holly: Holly, David, good morning.

David: I wanted to ask about the sort of implied guidance for Q4 at 155, and you talked about

David: Increased end sales down in Brazil and just the mixed effect of that.

David: I mean, generally speaking, you know, we heard all those comments, you tend to fill a can in an end, you know, it's got to be filled at some point. So

David: The implied 155 is sort of in between, what, 21 and 23 in the fourth quarter. Is there anything else, again, maybe going to this conservatism question, that...

Oliver Graham: would say profit could be down even if volumes are up more in the Americas versus Europe because I think you guys had to throttle back production in Europe. So I would expect a pretty good fourth quarter if you get the volume growth or that materializes the way you'd expect on the profit side.

Gabe Hajde: So I would expect a pretty good fourth quarter, if you get the volume growth or if that materializes the way you'd expect on the profit side.

Oliver Graham: Yeah, look, I think to your point, we, we're planning to sell cans and ends, and one of the problems is that we report this all quarterly, and so you do, particularly with the Brazil situation, get some timing effects. But by the end of the year, we don't anticipate for there to have been a different sale of can and ends in Brazil. So you're right, there's some, there's some amount of what happened in Q2 that can reverse slightly out in the remainder of the year. But then, you know, overall, we, we see that balanced across the year. I don't think there's anything else, but I'll check with David, that's affecting our, our H2 guide in North America that's particularly negative EBITDA to volume.

David: Yeah, look, I think to your point, we're planning to sell cans and ends. And one of the problems is that we report this all quarterly. And so you do, particularly with the Brazil situation, get some

Speaker Change: Oliver Graham, Stephen Lyons

David: But then, you know, overall, we see that balanced across the year.

Oliver Graham: I don't think there's anything else, but I'll check with David that's affecting our H2 guide in North America that's particularly negative EBITDA to volume. So I think this is more, you know, our overall...

Oliver Graham: So I think this is more, you know, our overall commentary that we're, you know, we're still being relatively cautious, again, particularly around the European situation, but also just being cautious around H2 generally, you know, to make sure we hit our guidance. David, would you add anything?

Oliver Graham: commentary that we're, you know, we're still being relatively cautious, again particularly around the European situation, but also just being cautious around

David Bourne: No, I'd echo that. And you know, clearly, we do expect to see growth in the Americas segment through H2.

David: H2 generally, you know, to make sure we hit our guidance. David, would you add anything? No, I'd okay that, and you know, clearly we do expect to see growth in the amount of the segments with H2.

Oliver Graham: Oh, I'd echo that. And, you know, clearly, we do expect to see growth in the Americas segment through H2. Unknown Attendee, Oliver Graham, Ning Yang, Michael Roxland, David Bourne, Arun Viswanathan Yeah, as I say, July is looking pretty strong. We have tough comps in both Europe and North America in August, so, you know, we'll look less strong.

Gabe Hajde: Okay. And then maybe this is again getting to the conservatism, but I think the June data, as we can see it for the two big categories in Europe, beer and carbonated soft drink, fell off a decent amount in June. Now, again, the timing of which is a little bit funky based on when the Euro Cup started and what data we get. I'm just curious, is that from your vantage point, maybe an on-venue versus off-venue issue, and again, you're not seeing anything in terms of customer sell-through?

Speaker Change: Okay, and then maybe this is again getting to the conservatism, but I think the June data as we can see it for the two big categories in Europe , beer and carbonated soft drink.

Oliver Graham: fell off a decent amount in June, now again, the timing of which...

Bryan Nicholas Burgmeier: and Bryan Burgmeier. I'm just curious, is that, from your vantage point, maybe an on-venue versus off-venue issue? And, again, you're not seeing anything in terms of customer sell through?

Oliver Graham: Yeah, look, as I say, I mean, July is looking pretty strong. We have tough comps in both Europe and North America in August, so you know, it will look less strong. But we're not seeing anything really clear in the data yet that says there's a big cutback, but we are being cautious because, like you, we've seen some of these less positive numbers. But generally, the can is, you know, in the mix, is doing pretty well. So that can explain some of these gaps between overall volume numbers and can volumes and growth. And certainly, we've largely been approached through this season by customers for more. I think they did go in pretty low stock. And so that's been the general message throughout.

Oliver Graham: As I say, July is looking pretty strong. We have tough comps in both Europe and North America.

Oliver Graham: in August , so you know, we'll look less strong.

Oliver Graham: but we're not seeing anything really clear in the data yet that says there's a big...

Oliver Graham: But we're not seeing anything really clear in the data yet that says there's a big cutback, but we are being cautious because, like you, we've seen some of these less positive numbers. But generally, the can is, you know, that in the mix is doing pretty well. So that can explain some of these gaps between overall volume numbers and can volumes and growth. And certainly, we've largely been approached through this season by customers for more; I think they did go in pretty low stock. And so that's been the general message throughout. And as I said, we would probably have sold more if we'd been able to produce more. So there is nothing yet to support a more bearish view.

Oliver Graham: Cut back, but we are being cautious because like you we've seen

Oliver Graham: some of these less positive numbers. But generally the can is, you know, in the mix is doing pretty well. So that can explain some of these gaps between overall volume numbers and can volumes and growth. And certainly we've

Oliver Graham: Largely been approached through this season by customers for more. I think they did go in pretty low stock

Oliver Graham: As I said, we would've probably sold more if we'd been able to produce more. Nothing yet to support a more bearish view, but we are, you know, we are being cautious because you're right, some of that market data is not as positive as, as what we're seeing.

Oliver Graham: and so that's been the general message throughout and as I said we would have probably sold more if we've been able to produce more so nothing yet to support a more bearish view but we are you know we are being cautious because you're right some of that market data is not as positive as what we're seeing

Oliver Graham: But we are, you know, we are being cautious because you're right, some of that market data is not as positive as what we're seeing. Okay, and last one for me, thinking about 2526, just from a contracting standpoint, I think the industry, generally speaking, was, was prudent to fold contracts out when things are pretty tight. Unknown Attendee Maybe a two part question, one in Brazil. Is it the second quarter weakness, if you want to call it that?

Gabe Hajde: Okay. And last one for me, thinking about 2025, 2026, just from a contracting standpoint, I think the industry, generally speaking, was prudent to forward contract out when things are pretty tight. Maybe a two-part question. One, in Brazil, is it the Q2 weakness, if you wanna call it that, truly the more geographic related in terms of where product is being produced? We've seen a little bit, what feels like a little bit of movement around down there, which generally speaking, is not a good thing. And then in North America, can you just remind us when kind of your next big contract shows up? I think it's 2027, but I could be wrong.

Oliver Graham: Okay. And last one for me, thinking about 2526, just from a contracting standpoint, I think the industry, generally speaking, was prudent to fold a contract out when things are pretty tight.

Unknown Attendee: It may be a two-part question. One, in Brazil, is it the second-quarter weakness, if you want to call it that, truly more geographic-related in terms of where product is being produced?

Oliver Graham: Truly, that more geographical in terms of where the product is being produced? Unknown Attendee, Oliver Graham, Ning Yang, Unknown Attendee, Oliver Graham, Unknown Attendee, Yeah, so we've got some contracts that come up at the end of next year. You know, in the soft drink space that we've referenced before, that we'll start talking to customers about this year and next year. We've got other contracting activity going on now.

Speaker Change: We've seen a little bit, what feels like a little bit of movement around down there, which, generally speaking, is not a good thing. And then in North America, can you just remind us when kind of your next big contract shows up? I think it's 27, but I could be wrong.

Oliver Graham: Yeah, so we've got some contracts that come up at the end of next year, you know, in the soft drink space that we've referenced before, you know, that we'll start talking to customers about, you know, this year and next year. We've got other contracting activity now already going on. So actually, the situation we came out of COVID with, with, you know, significant numbers of contracts, you know, in this sort of time period, some of that is moderating, want to move earlier or we've, you know, there have been different situations. But yeah, there are a couple of, of the bigger soft drinks positions in North America that, come free at the end of 2025, and I think one in the end of 2026. So we'll be contracting those.

Oliver Graham: So actually, the situation we came out of COVID with, with, you know, significant numbers of contracts, you know, in this sort of time period, some of that is moderating, customers want to move earlier, or we've Unknown Attendee, Oliver Graham, Unknown Attendee, Oliver Graham, Unknown Attendee, Thank you. We'll take our next question from Arun Viswanathan with RBC Capital Markets. Great, thanks for taking my question. I hope you guys are well. So just two questions, I guess.

Oliver Graham: And we've got other contracting activity now already going on. So actually, the situation we came out of COVID with with, you know, significant numbers of contracts, you know, in this sort of time period, some of that is moderating, some of them as one to move earlier, or we've

Speaker Change: You know, there have been different situations, but yeah, there are a couple of the biggest soft drinks positions in North America.

Oliver Graham: come free at the end of 25 and I think one in the end of 26 and so we'll be contracting those. You know clearly there's been constructive action in North America on capacity by ourselves and others so we're largely constructive about about those situations.

Oliver Graham: You know, clearly, there's been constructive action in North America on capacity by ourselves and others, so we're largely constructive about those situations. In Brazil, we didn't get impacted by the, you know, the flooding and other natural events, so you know, this was a customer mix issue. Mainly, we had a very strong H2 last year, on the customer mix side, and then, you know, we're slightly on the wrong side of that, with one customer. And then it was also some downtime that we didn't anticipate towards the end of the quarter. So we expect that to pick back up in H2.

Speaker Change: In Brazil, we didn't get impacted by the...

Speaker Change: Oliver Graham, Stephen Lyons

Oliver Graham: with one customer and then it was also some downtime that we didn't anticipate towards the end of the quarter. So we expect that to pick back up in in H2.

Gabe Hajde: Got it. Thank you.

Oliver Graham: Okay.

Operator: Thank you. We'll take our next question from Arun Viswanathan with RBC Capital Markets.

Arun Shankar Viswanathan: Got it. Thank you.

Speaker Change: Thank you. We'll take our next question from Arun Viswanathan with RBC Capital Markets.

Arun Viswanathan: Great. Thanks for taking my question. Hope you guys are well. So just two questions.

Oliver Graham: Bye.

Oliver Graham: Hi, Arun.

Arun Viswanathan: I guess first off, just the first question is just on the category mix and promotional activity. So it sounds like, there hasn't been an uptick in, you know, promotional activity with NABs, but, do you see that maybe crossing over to the beer side, you know, at some point, and if so, how much? And then the second question I had was really around, your own kind of mix. You know, given that there has been a little bit of a slowdown on the energy side, maybe that's impacting your slim can capacity, could you just kind of review, you know, your ability to flex to other product sizes if that's also a limitation? Thanks.

Arun Shankar Viswanathan: Great, thanks for taking my question. I hope you guys are well. So just two questions, I guess first off,

Arun Shankar Viswanathan: The first question is just on the category mix and promotional activity. So it sounds like there hasn't been an uptick in...

Oliver Graham: First off, Unknown Attendee, Oliver Graham, David Bourne, Unknown Attendee, Oliver Graham, David Bourne, Unknown Attendee, [inaudible] being impacted by the six energy category issues is 16 ounce, so more standard can width. And yeah, look, I think I mentioned it earlier in the call, but what we've done is built a lot of slim capacity. Slim is the term in the US.

Speaker Change: you know, promotional activity with NABs, but do you see that maybe crossing over to the beer side, you know, at some point? And if so, how much?

Speaker Change: And then the second question I had was really around your own kind of...

Oliver Graham: mix.

Speaker Change: Given that there has been a little bit of a slowdown in the energy side, maybe that's impacting your SlimCan capacity. Could you just kind of review your ability to flex to other product sizes if necessary, and if that's also a limitation? Thanks.

Oliver Graham: ... Sure, yeah. So no, I think, I mean, the main is being impacted by the energy category issues is 16-ounce, so more a standard can width. And yeah, look, I think I mentioned it earlier in the call, but what we've done, we built a lot of sleek capacity, so slim is the term in the US. We built a lot of sleek capacity through COVID to deal with the seltzer growth that was anticipated, and what we've been doing is converting some of that back to standard with cans, so 12, 16. And I think that just means we're in a very good place to deal with whatever trends we get over the next couple of years. So we're in a good spot there.

Oliver Graham: So no, I think, I mean, the main thing is...

Speaker Change: Unknown Attendee being impacted by the

Oliver Graham: The sixth by the energy category issues is 16 ounces, so more a standard can.

Oliver Graham: and and yeah look I think I mentioned it earlier in the call but what we've done We built a lot of sleep capacity so Slim is the term in the US Um, we built a lot of sleep capacity in through COVID to deal with the cell, so

Oliver Graham: We built a lot of sleek capacity in through COVID to deal with the seltzer growth that was anticipated. And what we've been doing is converting some of that back to standard with cans. So, 1216.

Oliver Graham: that was anticipated and what we've been doing is converting some of that back to standard with CANS, so 12, 16

Oliver Graham: And I think that just means we're in a very good place to deal with whatever trends we get over the next couple of years. So we're in a good spot there. And then in terms of the category mix and the promos, I mean, I think we are just seeing, and it's in the data, an increased tick up in promo activity quarter by quarter, but just not necessarily at the speed we had hoped for or the necessarily depth that is needed to really drive, you know, very big increases in volume.

Oliver Graham: And I think that just means we're in a very good place to deal with whatever trends we get over the next couple of years. So we're in a good spot there.

Oliver Graham: Then in terms of the category mix and the promos, I mean, I think we are just seeing, and it's in the data, you know, an increased tick up in promo activity quarter by quarter, but just not necessarily at the speed we had hoped for or the depth necessarily that is needed to really drive, you know, very increases in volume. So again, we expect that trend to continue because, you know, you look at where pricing is sitting. It's clear it's meeting some degree of consumer resistance, and our customers, you know, will want some revenue growth. So we do anticipate that they will keep pushing on the volume lever in the next year or two.

Oliver Graham: And then in terms of the category mix and the promos, I mean, I think we are just seeing, and it's in the data, you know, an increased tick up in promo activity quarter by quarter, but just not necessarily at the speed we had hoped for or the depth necessarily that is needed to really drive.

Oliver Graham: So again, we expect that trend to continue because, you know, pricing is sitting, it's clear, it's meeting some degree of consumer resistance, and our customers will want some revenue growth. So we do anticipate that they will keep pushing on the volume lever in the next year or two. Great, thanks a lot.

Oliver Graham: You know, increases in volume. So, again, we expect.

Speaker Change: Thank you.

Stefan Diaz: Great. Thanks a lot.

Oliver Graham: Thanks, Aaron.

Oliver Graham: Thanks, Aaron. Great, thank you for taking my follow-on. Maybe just one more quick one from me.

Operator: Thank you. We'll take our next question from Stefan Diaz with Morgan Stanley.

Oliver Graham: Great. Thanks a lot.

Aaron: Thanks, Aaron.

Oliver Graham: Peggy O'Brien Thank you. We'll take our next question from Stephen Diaz with Morgan Stanley .

Stefan Diaz: Great. Thank you for taking my follow on. Maybe just one more quick one from me. As we look into 2025, you know, your growth investment plan is largely finished. You know, you're benefiting from customer wins here in North America, here in 2024. But maybe outside of, you know, any category or customer differences, are there any idiosyncratic tailwinds that you believe would drive, you know, Ardagh to outperform the market as we look into 2025, 2026?

Oliver Graham: Great. Thank you for taking my follow-on. Maybe just one more quick one from me. As we look into 2025, you know, your growth investment plan is largely finished.

Oliver Graham: As we look into 2025, you know, your growth investment plan is largely finished. You're benefiting from customer wins here in North America here in 2024. But maybe, outside of, you know, any category or customer differences, are there any idiosyncratic tailwinds that you believe would drive Ardell to outperform the market as we look into 2025-2026? Great, thank you.

Oliver Graham: You know, you're benefiting from customer wins here in North America here in 2024. But maybe outside of, you know, any category or customer differences, are there any idiosyncratic tailwinds that you believe would drive?

Speaker Change: You know, are adults outperformed the market as we look into 2025-2026?

Oliver Graham: Not particularly. So I think the, you know, the growth of, from contractual positions that were largely arranged in, you know, the COVID and post-COVID period, they're, you know, they're largely complete. So we're not anticipating any particular, additional gains. It's never been something we particularly targeted for the business, so, you know, there's nothing I'd call out there. Clearly, we have had, you know, a good run with customers, you know, which I think is about the delivery we provide, quality, service, and the relationship. So I wouldn't rule it out either, that we could grow slightly ahead. And then it's really about the mix, you know, which categories we're in and where they grow, which, again, we're relatively light mass beer in the US, which has been a category under pressure. And actually, I realize Arun asked about promotions there.

Unknown Attendee: Unknown Attendee Not particularly. So I think, you know, the growth from contractual positions that were largely arranged in, you know, the COVID and post COVID period that, you know, they're largely complete, so we're not.

Speaker Change: Anticipating any particular additional gains, it's never been something we particularly targeted.

Speaker Change: Oliver Graham, Stephen Lyons

Speaker Change: Slightly ahead and then it's really about the mix.

Speaker Change: you know, which categories we're in and where they grow, which again, we're relatively light mass beer in the US, which has been a

Oliver Graham: I think promotions will come back into that category more over time, but clearly it's under pressure from a, you know, changes in drinking habits, you know, in younger consumers as well. So we are a bit lighter there, which could give us a tailwind, has done in the last couple of years. And then Europe, we're very broad based. So, you know, no particular obvious thing, that we are strong in Germany, which we called out earlier in the call as a higher growth market, so that could be a tailwind. And then in Brazil, you know, we're all – it just depends again, how the customers go. So yeah, looking into 2025, 2026, we're probably more looking into market growth, you know, plus a little bit maybe.

Speaker Change: category under pressure, and actually I realise Aaron asked about promotions there. I think promotions will come back into that category more over time, but clearly it's under pressure from, you know, changes in drinking habits, you know, in younger consumers as well.

Speaker Change: So we are a bit lighter there, which could give us a tailwind, as done in the last couple of years.

Speaker Change: And then Europe , we're very broad-based.

Speaker Change: so you know no particular obvious thing that we are strong in Germany which we called out earlier in the in the call as a higher growth market so that could be a tailwind and then in Brazil you know we're all all it just depends again how the customers go so yeah looking into 25-26 we're probably more looking into market growth you know plus a little bit maybe.

Stefan Diaz: Great. Thank you.

Oliver Graham: Thanks, Stefan.

Operator: That will conclude our question and answer session. At this time, I would like to turn the call back over to Mr. Graham for any additional or closing remarks.

Oliver Graham: Great, thank you.

Oliver Graham: That will conclude our question and answer session. At this time, I would like to turn the call back over to Mr. Graham for any additional or closing remarks.

Oliver Graham: That will conclude our question and answer session. At this time, I would like to turn the call back over to Mr. Graham for any additional or closing remarks. Thanks, Katie. So, look, just to summarise, our Q2 earnings performance was ahead of expectations. That's the second successive quarter we've done that. Strong performance in both Europe and America, but particularly Europe, which gives us the confidence to raise our guidance range for the full year.

Oliver Graham: Thanks, Katie. So look, just to summarize, our Q2 earnings performance was ahead of expectations. That's the second successive quarter we've done that. Strong performance, both Europe and Americas, but particularly Europe, which gives us the confidence to raise our, our guidance range for, for the full year. And I think that, you know, 2024, the, the big trend we're seeing is that we see increased predictability across our markets, and that's very encouraging, looking into the second half and into 2025. So we look forward to talking to you at our Q3 results. Thanks very much.

Oliver Graham: Thanks, Katie. So look, just to summarize, our Q2 earnings performance was ahead of expectations. That's the second successive quarter we've done that.

Oliver Graham: And I think that 24, the big trend we're seeing is that we see increased predictability across our markets.

Oliver Graham: and that's very encouraging looking into the second half and into 2025. So we look forward to talking to you at our Q3 results. Thanks very much. Thank you.

Stefan Diaz: Thank you.

Operator: That will conclude today's call. We appreciate your participation.

Oliver Graham: And I think that, you know, 24, the big trend we're seeing is that we see increased predictability across our markets. And that's very encouraging, looking into the second half and into 2025. So we look forward to talking to you about our Q3 results. Thanks very much. That will conclude today's call. We appreciate your participation.

Oliver Graham: That will conclude today's call. We appreciate your participation.

Q2 2024 Ardagh Metal Packaging SA Earnings Call

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