Ardagh Metal Packaging S.A. Ordinary Shares

Welcome to the ARDA Metal Packaging SA Third Quarter 2022 Update Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Stephen Lyons. Please go ahead, sir.

Thank you, operator, and welcome, everybody. Thank you for joining today for ARDA Metal Packaging's Third Quarter 2022 Earnings Call, which follows the earlier publication of AMP's earnings release for the third quarter. We have also added an earnings presentation onto our investor website for your reference. I am joined today by Oliver Graham, AMP's Chief Executive Officer, and David Bourne, AMP's Chief Financial Officer. Before moving to your questions, we will 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 AMP's most recently filed Form 20F with the SEC and any other public filings. AMP's earnings release and related materials for the third quarter can be found on AMP's website at rdametalpackaging.com. Information regarding the use of non-IFRS financial measures may also be found in the notes section of the earnings release, which also includes a reconciliation to the most comparable IFRS measures of adjusted EBITDA, adjusted operating cash flow, and adjusted free cash flow. Details of AMP's forward-looking statements disclaimer may be found in AMP's earnings release. I will now turn the call over to Oliver Graham.

Thank you, Stephen. We experienced a challenging third quarter of 2022. While global shipments increased by 9% compared with the same period last year, earnings were below our expectations. Profits were impacted by a softening in demand conditions relative to our forecast in both Europe and the Americas, together with a reduction in fixed cost recovery. We expect these conditions to persist through the fourth quarter and into the first half of 2023. In response, we are taking a disciplined approach to managing our costs and capacity, including near-term curtailment of some of our production footprints. We are tightly managing our inventory and have further flexed our growth investment program. Near-term demand headwinds reflect further weakening in the hard seltzer category in North America Inflationary pressures across core categories, including CSD and sparkling water, and further weakness in the beer category in Europe. However, the secular trends underpinning the attractive growth outlook for the industry remain unchanged. Those secular trends have continued as evidenced by, firstly, consistent share gains for the beverage can relative to other packaging substrates, secondly, the mix of innovation with over 80% of new products favoring the beverage can as their package of choice. And thirdly, ever increasing engagements with customers to help them enhance their own sustainability profile based on the infinitely recyclable nature of the beverage can. It is worth remembering that in 2019, before the pandemic, before the multiple supply chain challenges we faced, a war in mainland Europe, and now a 40-year record level of inflation, The North American market grew at 3.5%, Europe at 6%, and Brazil at 14%. The fundamental drivers of that growth have not changed. These include the growth of categories packed in cans, such as energy drinks, the beverage can's effectiveness as a package to maintain beverage quality and communicate to the consumer, the beverage can's efficiency as reflected in a very low cost through the supply chain, and the strong sustainability credentials of the can based on its high recycling rate and levels of recycled content. In addition, the beverage can's performance has always proven resilient through economic cycles. So while we are in unusually uncertain times for forecasting, as we look out to 2023, we anticipate market demand growth in all our markets at the level of low single digit percentage in North America and Europe and mid single digit percentage for Brazil. In summary, We are confident in the beverage can's enduring secular growth tailwinds, and the maturity of our investment program leaves us very well placed to serve this growth. At this time, we're focused on managing through a complex operating environment, in addition to a disciplined management of our footprint and our operating costs. This includes addressing our energy requirements, recovering exceptional inflation, and progressing our sustainability agenda. On that agenda, we were delighted to recently gain approval from the Science-Based Targets Initiative for our greenhouse gas emissions reduction target, and to be awarded an improved EcoVadis Platinum rating as part of the wider ADAR group, positioning us in the top 1% of companies assessed. We recently published our Sustainability Update Report, and we're also co-sponsors, alongside Crown, of the Global Aluminium Can Sustainability Summit in Rome, bringing together organizations globally from across the aluminium beverage can value chain. Turning our attention to AMP's third quarter results. We recorded revenue of $1.2 billion, which represented growth of 21% on a constant currency basis, predominantly reflecting the pass-through to customers of higher input costs and strong volume mix growth. Adjusted EBITDA of $140 million was 15% lower than the prior year, on a constant currency basis. This is principally due to input cost headwinds partly offset by favorable volume effects from the group's growth investment program. Total beverage can shipments in the quarter were 9% higher than the prior year, with growth well spread across our global footprint, supported by the contribution of our growth investments. Specialty cans represented 46% of global shipments in the quarter, up from 44% in the prior year quarter. Our specialty mix was higher still at 62% in the third quarter, inclusive of 50 centilitre cans in Europe, which some of our competitors include in their definition of specialty cans.