Ardagh Metal Packaging S.A. Ordinary Shares

Welcome to the Arda Metal Packaging SA Fourth Quarter 2023 Results Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Stephen Lyons, Investor Relations. Please go ahead.

Thank you, Operator, and welcome, everybody. Thank you for joining today for Arda Metal Packaging's Fourth Quarter 2023 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 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 fourth 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 details of AMP's forward-looking statements disclaimer and 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.

Steven. 2023 represents a year of transition for our business as the team navigated a challenging macro demand environment and took decisive action on our footprint and inventories to position the business for growth in 2024 and beyond. Despite the market context, in particular softer European demand, we achieved record global revenues and shipment volumes, which grew by 5% for the full year and 2% in the fourth quarter. our America segment grew at an almost mid-teens percentage, driven by strong growth in both regions. Our actions on energy pass-through to our customers in Europe resulted in stronger inflation recovery, but this was more than offset by unfavorable volume mix effects with a significant decline in production activity and shipments experienced in the second half of the year, which also impacted fixed cost absorption. In Brazil, Full year shipment growth was below initial expectations due to consumer weakness and customer mix, which included a customer restructuring that is now resolved, but with an encouraging sequential improvement in shipment trends during the second half and a strong Q4 against the week prior year comparable. Our team's efforts on working capital management in this challenging environment generated a near trebling of cash from operating activities, resulting in AMP ending the year in a robust liquidity position. Our fourth quarter performance was negatively impacted versus our expectations by weaker than expected volume and mix effects in Europe, which was partly offset by a stronger performance in the Americas. European shipments deteriorated towards the end of the quarter and well below retail scanner trends, which were more positive, reflecting what we view to be largely customer destocking actions. There was a clear divergence of performance by customer and geography and with a gravitation towards value brands and private labels. Our confidence in a stronger performance in 2024 reflects our expectations for volume growth in all regions, leading to improved cost absorption, in addition to our footprint actions. Inflationary pressures are moderating, and the beverage can continues to win shares the package of choice by customer innovation and its sustainability advantages. We are committed to balancing our network capacity with demand through a mix of curtailment and longer-term action as appropriate. the two remaining steel lines in Weißenturm, Germany, closed at the end of the year, as previously indicated. In North America, we closed our two-line facility in White House, Ohio, this month, which will improve network utilization to a more appropriately balanced position. These permanent actions will optimize our network and drive earnings improvement. With our well-invested global manufacturing base and a strong, diverse mix of customer relationships, we remain well-placed to benefit from a normalization in demand which should drive further earnings growth over the medium term. During the quarter, the publication of our 2023 sustainability report highlighted our progress on sustainability initiatives. The recently announced supply agreement with Novellis in North America for supply from its greenfield development will further contribute towards AMP's metal decarbonization strategy. AMP, alongside other industry stakeholders, participated in a call for action at COP28. and we look forward to updating on further progress on sustainability during 2024. Turning now our attention to AMP's fourth quarter results. We recorded the fourth quarter of $1.1 billion, an increase of 5%, which reflected favorable volume mix and higher input cost recovery, partly offset by the pass-through to customers of lower input costs. Adjusted EBITDA of $148 million was down 7% on the prior year, with growth in the Americas more than offset by a decline in Europe in excess of our expectation, which reflected customer caution and apparently stocking against a weak consumer backdrop. Total beverage can shipments in the quarter were 2% higher than the prior year, with 14% growth in Americas, offsetting a 10% decline in Europe. We had a strong cash performance, with adjusted operating cash flow approaching $500 million for the quarter and $680 million for the full year, This reflected our team's focus on working capital, in particular inventory management, and our ongoing reduction in capital expenditure. Turning now to AMP's results by segment. Revenue in the Americas in the fourth quarter increased by 11% to $705 million, which reflected shipments growth partly offset by lower input costs. In North America, shipments grew by 8% for the quarter and 13% for the year. Our shipment's growth was broadly in line with our expectations, which drove record profitability. This strong outperformance versus the market reflects the contribution from customer contract commitments arising from our investment program, as well as the diverse mix of our portfolio weighted towards non-alcoholic beverages, including the high-growth functional energy drink segment. Looking at the market overall, Demand remains somewhat constrained by higher retail pricing and lower levels of promotional activity than historical norms. Industry demand trends improved in Q4, and we expect further improvement into 2024 as input costs moderate, retail pricing stabilizes, and consumers see real wage growth. We're encouraged by our strong annual growth in shipments in 2023, our pipeline of contracted growth, and good early momentum so far in 2024. This supports our forecast for shipments in our North American business to grow by a mid-to-high single-digit percentage this year versus a low single-digit percentage growth for the industry. In Brazil, fourth quarter shipments increased by 34% against a week prior year comparable, outperforming the mid-single-digit increase in the market. We experienced encouraging sales momentum with a number of key customers. Shipments grew by 3% for the full year, which was slightly ahead of the market. We forecast modest shipments growth for our Brazil business in 2024, and we continue to balance our capacity through curtailment of our network. We are confident in the growth potential of the business, but remain cautious in the near term given the softness over the last two years. The market has started the year strongly, but we would highlight the earlier date for Carnival this year, which may have had some impact in pulling forward demand. Adjusted EBITDA in the Americas increased by 3% to $117 million in the fourth quarter as the contribution from higher volumes was offset by favorable prior year effects, which included a contribution from unfulfilled customer contractual volume commitments. In 2024, we expect shipments growth in the Americas of a mid-single-digit percentage. Shipments growth and improved fixed cost absorption will drive growth in adjusted EBITDA in 2024. In Europe, fourth quarter revenue decreased by 10% on a constant currency basis to $427 million, compared with the same period in 2023, principally due to unfavorable volume mix effects, partly offset by a high input cost recovery. Shipments for the quarter declined by 10% on the prior year, as sales volumes decelerated sharply towards the end of the quarter. For the full year, shipments declined by 2%, with growth in the first half more than offset by the second half deterioration. Consumer demand remains weak given household financial pressures, but the decline in shipments experienced by ourselves and the industry was broad-based and significantly in excess of retail scanner trends in the quarter. We believe this reflected elevated customer destocking into the end of the year. Scanner trends also showed an improvement in consumer volumes towards the end of the quarter, at odds with our shipments experience as customers took increased levels of downtime over the holiday period. Fourth quarter adjusted EBITDA in Europe decreased by 35% at constant currency to $31 million due to volume mix effects and reduced fixed cost absorption, which offset stronger input cost recovery versus the prior year. Reduced production activity as finished goods inventory was right sized earlier than expected resulted in higher fixed cost under absorption and a lower margin contribution than expected from the period end contract asset. We took action on our footprint with the closure of vice and term steel lines at the end of the year, and we will continue to keep our network under review to balance supply with demand and improve efficiency. For 2024, we expect low single-digit percent shipments growth with a stronger performance in the second half. Volume growth and improved fixed cost absorption will drive adjusted EBITDA growth in 2024, but partly offset by competitive pressure on a small portion of our business, and some upstream cost increases reflecting elevated energy costs. I'll now briefly hand over to David to talk you through our financial position before finishing with some concluding remarks.