Ardagh Metal Packaging S.A. Ordinary Shares

Welcome to the Ardell Metal Packaging fourth quarter 2021 investor call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Oliver Graham, CEO of Ardell Metal Packaging. Please go ahead, sir.

Thanks, Orlando. Welcome, everybody, and thank you for joining today for Ardell Metal Packaging's fourth quarter 2021 earnings call, which follows the earlier publication of AMP's earnings release for the fourth quarter and the full year. I'm joined today by David Bourne, AMP's Chief Financial Officer, and by Stephen Lyons, AMP's Investment Relations Officer. Before moving to your questions, I'll first provide some introductory remarks around AMP's performance and outlook. Remarks today will include certain forward-looking statements. These reflect circumstances at the time they are made, and the company expressly disclaims any obligation to update or revise any forward-looking statements. Actual results or outcomes may differ materially from those that may be expressed or implied due to a wide range of factors, including those set forth in the AMP's SEC filings and news releases. AMP's earnings release and related materials for the fourth quarter and the full year can be found on AMP's website at ardarmetalpackaging.com. Information regarding the use of non-GAAP financial measures may also be found in the notes section of the release, which also includes a reconciliation to the most comparable GAAP measures of adjusted EBITDA adjusted operating cash flow, and adjusted free cash flow. Details of AMP's statutory forward-looking statements disclaimer can be found in AMP's SEC filing. I'll now provide an overview of AMP's full year and fourth quarter results. AMP recorded full year 2021 revenue of $4.1 billion, an adjusted EBITDA of $662 million, representing annual growth of 15% and 19%, respectively, on a constant currency basis. Strong underlying cash flow generation with adjusted free cash flow before growth investment capital expenditure for the year of $389 million resulted in a net debt leverage ratio of under 3.7 times that was largely ahead of expectation. These results exceeded the plan set out a year ago when ADA announced its intention to list the shares in AMP. and were achieved against the backdrop of a highly inflationary environment, tight global supply chains, and COVID-related challenges. I would like to express our thanks to our colleagues across the business for their unswerving commitment, as well as the support of our customers, suppliers, and other business partners. These results also mark a year of significant achievement for AMP, as in addition to listing AMP on the New York Stock Exchange as a leading pure-play beverage can group, a number of other key milestones were achieved, including progressing very well the value-creating business growth investments. These contributed strongly to 2021 performance, and the program has been enhanced by additional project announcements that reflect the strong market outlook. And significantly advancing the sustainability agenda during the year, issuing a $2.8 billion green bond to support a lowering of AMP's carbon footprint, and publishing updated ambitious targets in AMP's sustainability report. Looking in more detail into the fourth quarter and focused on constant currency exchange rates, revenue of $1.09 billion increased by 22%, reflecting increased shipments and the pass-through of higher aluminium and other input costs. Adjusted EBITDA increased by 19% to $165 million, compared with the same period last year, driven by a strong advance in the Americas. Total beverage can shipments in the quarter were 6% higher than the prior year, despite a demanding prior year comparable when shipments rose 7%. Growth was driven by strong performances in both Europe and North America, with buoyant customer demand reflected in tight supply conditions. This favorable demand backdrop underpins planned new capacity additions in 2022 and beyond. Specialty cans represented 48% of global shipments in the quarter. up from 46% in the prior year quarter and are set to rise to over 50% of our mix in 2022. If you include 50 centilitre cans in Europe in that calculation, as do some industry players, our specialty mix is higher still at 62% in the fourth quarter and 61% for the year. The business is contracted on a very high 90% of planned volumes for 2022 and close to 90% out to 2024. Growth of a mid to high teens percentage in total shipments in 2022 is anticipated as our highly earnings accretive growth investments continue their ramp-ups or commence production. Now looking at AMP's results by segments and at constant exchange rates. Revenue in the Americas increased by 28% to $632 million, mainly due to the past year of higher input costs. Shipments are 1% higher than the fourth quarter of 2020 with a strong performance in North America, partly offset by principally weather-related softness in Brazil. In North America, shipments grew by 6% for the quarter. Demand remains strong across the broad mix of categories to which AMP has exposure, with particular strength in energy and fitness drinks, ready-to-drink cocktails, and carbonated soft drinks. The beverage can market remains capacity constrained, illustrated by over 14 billion of imported cans into North America in 2021, underpinning ongoing and planned new capacity additions. In Brazil, fourth quarter shipments declined by a low teens percentage, measured against a tough comparable which had grown by almost 20%. Shipments in the quarter were impacted by adverse weather conditions, as well as by COVID restrictions on social gatherings. Overall volumes were flat for the full year. Fourth quarter adjusted EBITDA in the Americas increased by 26% to $111 million. Growth reflected higher volumes, a strong cost performance, and a favorable sales mix compared with the prior year, supported by the contribution from investments made in the latter part of 2020 and through 2021. Looking forward, 2022 shipment growth of over 20% in the Americas is anticipated. led by North America as customer-contracted new capacity additions come online and support strong broad-based category growth. Recent softness in Brazil is expected to continue in the first half of 2022, but AMP remains very confident on prospects for the Brazilian market, as the long-standing driver of two-way to one-way packaging continues to drive demand for beverage cans. In Europe, fourth quarter revenue increased by 16% at constant currency to $455 million. compared with the same period in 2020. Shipments increased by 11% compared with the prior year, despite a strong prior year comparable of 8%. Growth was broad-based across the alcoholic and non-alcoholic beverage categories, with notable strength in energy drinks. Fourth quarter, adjusted EBITDA in Europe increased by 6% on a constant currency basis to $54 million. The impact of strong shipments in the period was partly offset by input cost inflation, with high European energy costs well documented. Looking to 2022, full-year shipments are expected to grow almost 10%, benefiting from the addition of new capacity in Germany and the UK during the first half of the year. Europe remains a capacity-constrained market, and dialogue with customers continues to confirm a positive demand outlook for the medium term. Turning to A&P's growth initiatives. Excellent progress was made on the business growth investment program during 2021, underpinning projected growth in 2022. Total investment on these growth projects during the year was almost $700 million. This was despite the increasing impact in the final quarter of delays due to global logistics pressures and selective component shortages. Entering 2022, these pressures remain evident, and project teams continue to navigate these challenges well. To recap on some of the larger growth investment projects. In North America, two new high-speed sleep lines in Olive Branch, Mississippi, ramped up successfully from early 2021. The first of two new lines in Winston-Salem, North Carolina, began production in early 2022, with the second new high-speed line to commence production in the next quarter. Our Huron, Ohio brownfield expansion began to produce ends in November, one year after the site's acquisition, with can lines beginning to ramp up in the first half of this year. In Europe, new capacity in Germany and in mainland UK also starts up in the first half of 2022. And in Brazil, additional capacity came online in Jacarei in the last quarter and will continue to ramp up through 2022. Brazil ends capacity was also expanded in 2021 and additional investments are planned for 2022. In October, we set out plans for a new can facility in the US Southwest. This multi-line plant will be based in Arizona and will add an initial 3.5 billion of capacity to support customers growth. Construction will begin later this year with production commencing in the first half of 2024. The plant will have space for further expansion as we continue to contract customer volumes for 2025 and beyond. The Northern Ireland greenfield expansion is progressing through planning. It will be the only can making plant on the Island of Ireland and will benefit from Northern Ireland's unique trade status. This plant is expected to start producing cans in the second half of 2023. All of these investments are well contracted and backed by a diverse mix of customers and, importantly, expand the strategic reach of AMP's network within attractive markets. Investment of over $1 billion on business growth investments is planned during 2022, including initial outlays on these two new projects, all of which generate significant earnings and free cash flow accretion. In summary, the investment program has made significant progress in 2021. Project teams have done an excellent job in managing execution risk, helped to refocus where possible on expansion within existing facilities, thereby leveraging an established skill base, community presence, and scale. While not immune to the short-term challenges presented by the global supply chain, Our plan set out a year ago to more than double adjusted EBITDA from 2020 to 2024 remains well on track. The outlook for medium to long-term demand in each of our markets remains very positive, based upon long-term secular growth trends supporting the beverage can, which continue to strengthen. These include sustainability, convenience, and innovations. AMP continues to partner with global customers to support their introduction of new categories, premiumization, as well as playing an integral role in our customer sustainability agendas. Secondly, demand for aluminium cans continues to outpace supply globally. AMP faces shortages in supplying customers across the North American and European markets, and the business is mostly sold out into 2024. Finally, current demand levels have resulted in abnormal and uneconomic product flows. Most likely, imports into the U.S. market continue to run at elevated levels, totaling over 14 billion cans in 2021, an equivalent to over 10% of market demand. Imports are now expected to continue into 2022. Furthermore, inventories remain at low levels and operating rates continue to be elevated. These demand drivers are expected to continue over the medium to long term, and AMP expects to take advantage of additional investment opportunities that meet our strict return criteria and offer attractive paybacks in line with the existing growth program. Turning to sustainability, which is at the heart of everything we do in AMP, and our strategy based around the three key pillars of emissions, ecology, and social sustainability. AMP is committed to achieving science-based targets through the Science-Based Target Initiative, and approval is expected later this year, and to delivering zero waste to landfill by 2025. Ambitious new targets have been set to 2030 that include 100% renewable electricity, a 20% reduction in water usage, and a 10% reduction in VOC emissions. ADAR sustainability efforts were further affirmed by the recent award of a gold rating from EcoVardis for the sixth successive year, which places ADAR in the top 5% of companies assessed by EcoVardis. ADAR also again received a supplier engagement rating of A from the Global Sustainability Not-for-Profit CDP ranking in the top 8% of companies who provided disclosures. ARDA also has an A- rating from CDP for both climate change and water management. And in the next few months, the allocation and impact report are to be published as committed to in the Green Bond Framework for the proceeds that were raised last year. AMP has an important role to play to elevate the sustainability agenda across the value chain. In this regard, AMP is a leading participant across industry groups and regularly engages with local authorities and government bodies. As an example, through our participation in CMI, AMP is engaged in a significant program with recycling facilities to increase the capture of beverage cans in the refuse stream in North America. Employees' well-being and safety is of great importance to us. The business has operated under the highest standards to mitigate COVID risk and through our Be Safe initiative is constantly striving to improve employee safety with continuous training and education. During the year, a new hybrid working policy was rolled out, and AMP continues to reinvest in its people through learning and leadership development, as well as an employee wellness initiative. Deep community connections are vital to AMP's continued success, particularly in securing talented people from the communities in which AMP operates. Last year, ADAR announced a $50 million investment in STEM education across ADAR's locations in the U.S. They, partnering with Project Lead the Way, to fund 276 schools in 47 school districts. ADAR is currently working to expand this initiative into Europe and Brazil. Moving now to the financial position and capital allocation framework. As well as delivering adjusted EBITDA of $662 million in 2021, AMP generated strong cash flows and maintained a strong liquidity position. Strong underlying cash generation with adjusted free cash flow before growth investment capital expenditure for the year of $389 million represented a conversion ratio of 59% of adjusted EBITDA. Underlying cash generation is projected to grow significantly over the medium term, as the pipeline of growth projects come on stream and fully contribute to earnings. Total liquidity at year-end was $788 million, of which over $463 million was in cash and the balance by way of an undrawn ABL facility. Net leverage ended the year under 3.7 times adjusted EBITDA. In terms of our capital allocation framework, we recognize the importance of regular cash returns to shareholders. in tandem with growing earnings and cash flow through the substantial investment program. To enable AMP to pursue these twin objectives in future, we intend to maintain net leverage in the range of 3.75 to four times 12 months forward-looking adjusted EBITDA. This leverage range will govern cash returns to shareholders, and in 2022, we plan to return $400 million to shareholders. We intend to grow future annual returns of capital to shareholders progressively in line with business and cash flow growth. In 2022, AMP envisages paying a quarterly dividend for the first three quarters of $0.10 per share, costing approximately $180 million, with the balance of $220 million being paid before year-end of the fourth quarter distribution. Dividends are our preferred means to return cash to shareholders, thereby avoiding a reduction in the public flow. To enable us to achieve our important objectives of, firstly, implementing and, if appropriate, increasing our significant and profitable development program, and secondly, returning substantial amounts of cash to shareholders, and thirdly, maintaining leverage within the range outlined above, we plan in the near future to launch an issue of non-convertible preference shares to raise $600 million. AMP continues to favor organic expansion opportunities over M&A, as there is ample opportunity to strengthen the network in our existing attractive end market. Before moving to take your questions, I'd like to recap on AMP's performance and key messages. Today, AMP reported strong growth in fourth quarter and full-year earnings, reflecting a focus on sustainable metal packaging, AMP's diverse customer base, and attractive end market. Over the last five years, AMP has grown EBITDA at a double-digit annual growth rate. and by 32% in the past two years. In the years since the business time was presented to the market, medium-term demand prospects driven by sustainability and other secular trends have strengthened, and the beverage carrying continues to win as the packaging is choice for exciting new product categories. AMP has a clear customer-backed plan to grasp this opportunity, and implementation to date is progressing very well, with additional growth opportunities expected to arise. The amended capital allocation framework outlined today enables AMP to address shareholders' desire for both the secular growth offered by beverage camp packaging, as well as for significant and regular cash returns, whilst at the same time maintaining leverage at appropriate levels. AMP's plan is expected to deliver on customers' growth ambitions and to provide very strong returns for shareholders. AMP's experienced team continues to actively manage the highly inflationary environment and tight global supply chain. Contract structures are characterized by multi-year agreements with cost-pass-through provisions which provide resilience against an uncertain inflationary environment, albeit subject to some occasional timing lag. Looking to 2022, demand in North America and Europe remains strong, while Brazil has experienced softer demand in recent months. AMP expects to deliver accelerated growth in shipments of mid-to-high teens per cent at a group level for the year, with some second-half waiting as new capacity continues to come on stream, and ramp up through the year. Our confidence in the strength and resilience across our end market is underpinned by further expanding the current growth investment program. Full year 2022 adjusted EBITDA is projected in the order of $775 million, which is after taking account of a $20 million currency translation headwind relative to the exchange rates in the business plan filed with the SEC in February 2021. In terms of guidance, first quarter adjusted EBITDA is anticipated to be broadly in line with the prior year constant currency outturn of $144 million. Having made these opening remarks, we'll now proceed to take any questions that you may have. There are lots of people on the line, so could we ask that participants please limit themselves to one question and one follow-up. Thank you.

Thank you. And if you would like to ask a question, please 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. Again, everyone, please press star one if you would like to ask a question, and we'll pause for a moment to assemble the queue. Once again, as an additional reminder, that is star one if you would like to ask a question. And we will first hear from George Staffos with Bank of America. Please go ahead.