Ardagh Metal Packaging S.A. (NYSE:AMBP) Q1 2023 Earnings Call Transcript

Ardagh Metal Packaging S.A. (NYSE:AMBP) Q1 2023 Earnings Call Transcript April 30, 2023

Operator: Welcome to the Ardagh Metal Packaging S.A. First 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, Ardagh Metal Packaging Investor Relations. Please go ahead.

Stephen Lyons: Thank you, operator, and welcome, everybody. Thank you for joining today for Ardagh Metal Packaging’s first quarter 2023 earnings call, which follows the earlier publication of AMP’s Earnings Release for the first quarter. We have also added an earnings presentation on to our investor website for your reference. 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 first 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 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.

Oliver Graham: Thanks, Stephen. We delivered a solid performance in the first quarter and met our market guidance. Due to disciplined cost stewardship, actions to improve manufacturing efficiency and stronger input cost recovery. In light of our resilient start to the year, we are reaffirming our full year guidance. We delivered global shipment growth of 3%, including 5% growth in North America and 2% in Europe, and adjusted EBITDA of $130 million, in line with our guidance. Our adjusted EBITDA result represented an 8% decline on a constant currency basis versus the prior year quarter. The contribution from shipment growth was more than offset by higher operating costs. Looking into Q2 and beyond, we see inflation recovery in Europe that will drop through its adjusted EBITDA as we set out in our forecast.

Global demand remains restrained by sustained retail price inflation, but we are encouraged by the early signs of a pickup in promotional activity in North America, especially in non-alcoholic beverages and a broader moderating outlook for consumer pricing supported by an easing of input cost inflation. Input cost recovery in Europe through the annual reset in our PPI mechanisms and a more effective pass-through of direct energy costs. And good volume growth in North America drove an adjusted EBITDA performance in both regions that was ahead of expectation and offset the softer performance in Brazil, where industry demand is slowly recovering. We continue to manage our capacity in a disciplined manner through curtailment actions that moderate our footprint ahead of growth in demand and that position the business for a period of investment-free growth.

Adjusted EBITDA is anticipated to accelerate through the year due to inflation recovery and volume improvement. Our expectation for industry growth in 2023 supported by positive secular tailwinds is for a low single-digit percentage growth in the Americas and a low to mid-single-digit percentage growth in Europe. We continue to project significantly increased adjusted EBITDA and positive adjusted free cash flow in 2023 with further improvement into next year. And we are committed to our quarterly $0.10 dividend. Turning to our sustainability agenda. We were awarded a first-time leadership A rating from CDP on supplier engagement, which followed the first time A- rating for water management and a B rating for climate change disclosed in our last update.

We are proud to have committed to the International Aluminium Institute’s, Aluminium Forward 2030 initiative, bringing together global leaders across the aluminium supply chain, with the aim to accelerate progress towards net zero emissions. As part of the Mission Possible Partnership, we have endorsed the industry back net zero transition strategy, and we continue to progress our sustainability targets and are delighted to have just signed a PPA agreement with Electricity in Germany, which will provide approximately 20% of our electricity needs. Turning our attention to AMP’s first quarter results. We recorded revenue of $1.1 billion, which represented a growth of 2% on a constant currency basis, predominantly reflecting higher volumes. Adjusted EBITDA of $130 million was down 8% on the prior year on a constant currency basis.

The contribution from higher volumes and stronger input cost recovery was offset by the under absorption of higher operating costs and the expected impact relating to the timing of recognition of inflation recovery in EBITDA. Total beverage can shipments in the quarter were 3% higher than the prior year, with 5% growth in North America and 2% growth in Europe, offsetting a 1% decline in Brazil. Looking at AMP’s results by segment and at constant exchange rates. Revenue in the Americas in the first quarter increased by 1% to $645 million, mainly due to higher volumes, partly offset by the pass-through lower metal and freight costs. In North America, shipments grew by 5% for the quarter. Demand remains restrained by sustained higher retail pricing, but with greater resilience experience in non-alcoholic categories, which represent the majority of our North American business.

The hard seltzer category accounted for 8% of North America shipments in the quarter, with the segment remaining under pressure. The impact to our business is offset by growth across other categories, including carbonated soft drinks, energy and wellness and in spirit-based ready-to-drinks. We have completed our planned capacity additions in North America with the third line in Huron, Ohio now ramping up along with the other 2 lines added in the final quarter of last year. Our investments in Huron, Ohio, Winston-Salem in North Carolina and Olive Branch, Mississippi position us favorably for future growth. We’re encouraged by the early signs of an improvement in demand with a small increase in promotional activity, which we expect to strengthen over the coming months through the peak summer season.

We will show continued discipline with our capacity planning in the interim. In Brazil, first quarter shipments declined modestly, underperforming the high single-digit growth in the market due to customer mix effects as well as some customer destocking. The market recorded a high single-digit growth rate against a weak 2022 comparator and was softer than anticipated as adverse weather and more challenging macroeconomic backdrop pressured consumption. We are forecasting volumes to grow at a high single-digit percentage in 2023 in Brazil, which is underpinned by the recent start-up of new capacity in Alagoinhas, customer mix and the market recovery strengthening into the second half of the year supported by an easing of customers’ input cost pressures.

One of our customers in Brazil entered a judicial reorganization process in the period. Our exposure to the customer was at a historic low position. And due to our security coverage, we do not foresee a material credit risk at this point in time. We remain in close dialogue with the customer who continues to trade through the process. We are very well diversified in our customer base in Brazil, and we do not expect that the reorganization process will negatively impact on overall beer consumption in the country. Adjusted EBITDA in the Americas decreased by 9% to $81 million in the first quarter. The contribution from volume mix was more than offset by an expected fixed cost absorption drag and unfavorable input cost recovery relative to some over recovery in the prior year period.

Overall, the decline in the year reflected softer conditions in the Brazil market, with our performance in North America ahead of the prior year and our expectations due to good volume growth and improved manufacturing efficiency. In 2023, we continue to expect strong shipment growth in the Americas in the order of high single-digit percentage supported by improving market conditions and the ramp-up of our investments. Fixed cost under absorption net of our mitigating curtailment actions remains a headwind to our performance. In line with our previous guidance, we anticipate an uplift in EBITDA generation into the second half of the year as demand begins to normalize in both markets. In Europe, first quarter revenue increased by 3% on a constant currency basis to $486 million compared with the same period in 2022, mainly due to more favorable input cost recovery.

Shipments for the quarter grew by 2% on the prior year. Consumer demand remained resilient in the quarter led by carbonated soft drinks. The beer market saw an overall softer performance in the off-trade but with notable exceptions in the economy segment of both brands and own label. First quarter adjusted EBITDA in Europe fell by 8% on a constant currency basis to $49 million as the contribution from higher shipments and input cost recovery was offset by higher overhead costs and the known impact from the timing of inflation recovery recognition in EBITDA. Performance was, however, ahead of expectations, reflecting our overall strong input cost recovery. For 2023, we continue to expect shipment growth in the order of a low single-digit percentage with a more significant increase in adjusted EBITDA arising as the year progresses.

The European energy market continues to improve its resilience supported by public policy actions. We are fully hedged for the current year and have significantly progressed our energy purchases for future years as prices have fallen. In the second quarter, we will complete the addition of further capacity in our La Ciotat plant in Southern France, and our intention remains to close one of the legacy steel lines in Weißenthurm, Germany during the year. This concludes the brownfield investments under our initial growth investment program. I’ll now briefly hand over to David to talk through our financial position before finishing with some concluding remarks.

David Bourne: Thanks, Ollie, and hello, everyone. Moving now to our financial position. We ended the quarter with a liquidity position of approximately $0.5 billion. Cash outflow in the period beat our expectation but reflected the usual seasonality in working capital with a working capital outflow in the quarter of $346 million. We will continue to focus on working capital efficiencies, and our guidance for a full year working capital benefit of approximately $100 million remains unchanged. In the quarter, AMP incurred additional growth CapEx of $90 million and maintenance CapEx of $36 million. As previously indicated, our revised growth investment plans are well advanced, and cash outflows comprised the finishing of projects already underway.

Our expectation of the current year is unchanged, which includes growth investment of just under $400 million with a cash flow element under $300 million. Net leverage at the end of the quarter, up 5.8x LTM adjusted EBITDA, was modestly better than our expectation and was despite a strengthening in the euro-dollar rate into the end of the quarter. As a reminder, currency effects are broadly neutral from a leverage perspective in the medium term. Our bonds have been issued on fixed rate terms and not mature before 2027. As mentioned, our great investment plan is well advanced, which strongly supports earnings and cash flow growth, lowering net leverage back to 2022 levels by the end of the year and with a meaningful reduction anticipated in 2024.

We have today announced our quarterly ordinary dividend of $0.10 per share to be paid later in June, in line with our guidance and supported by our improving cash generation outlook. Our capital allocation strategy will continue to prioritize dividend sustainability and deleveraging in the near and medium term. With that, I’ll hand back to Ollie.

Oliver Graham: Thanks, David. So before moving to take your questions, I’d just like to recap on AMP’s performance and key messages. Our global shipments grew by 3% led by growth of 5% in North America and with a solid performance of 2% in Europe. Both businesses performed ahead of our expectations, offsetting a softer performance in Brazil and supporting the delivery of our adjusted EBITDA guidance. We’re encouraged by the early signs of a return to promotional activity and the easing of customer input cost inflation, which supports our expectations of improved H2 volumes. We will continue to closely monitor demand conditions and balance our capacity in a disciplined manner. Our actions taken on cost recovery and our well-advanced investment program will drive adjusted EBITDA growth and significantly improve adjusted free cash flow generation in 2023 and beyond.

This, in turn, supports our dividend policy and balance sheet deleveraging. We reaffirm our guidance for 2023, which assumes global shipment growth of a mid to high single-digit percentage and adjusted EBITDA growth in the order of 10% weighted to the second half due to more favorable prior year comparisons and improving volumes. In terms of guidance for the second quarter, adjusted EBITDA is anticipated to be in the order of $170 million, which compares with the prior year adjusted EBITDA of $180 million on a constant currency basis. Having made these opening remarks, we’ll now proceed to take any questions that you may have.

Q&A Session

Operator: Thank you. . We will take our first question from Anthony Pettinari from Citi. Please go ahead.

Anthony Pettinari: Oliver, the full year guidance, I think, implies a pretty strong second half earnings inflection, and I’m just wondering if you can speak to that. And is that driven primarily by kind of volume recovery or maybe cost? And then if there’s any sort of trigger date for contract resets for PPI or any kind of mechanism like that, that we should keep in mind as we kind of think about the rest of the year?

Oliver Graham: Sure. Yes. Anthony. So look, I think there’s a couple of things in the full year guide. There is some acceleration in volume received in our guidance in the second half, and we can talk more about the markets and why we’ve got that assumed. But then there is also an acceleration of our inflation recovery. I referred to it in the remarks, but there’s some drag in Q1 from the timing of the recognition of those PPI mechanisms into EBITDA, and that drag has gone after Q1. So we also get some enhanced inflation recovery in the subsequent quarters.

Anthony Pettinari: Okay. That’s helpful. And I guess you’ll talk about the regional trends maybe in some of the other questions. But just switching to the dividend, I think you referenced the sustainability of the dividend. Just wondering if you could kind of walk us through kind of the puts and takes on cash and maybe cash step-up next year and the sustainability of the dividend trading at a double-digit yield currently.

Oliver Graham: Yes. I’ll give an overview, and then I’ll let David cover anything further. But obviously, the main thing that’s going on for our business at the moment is that the capital expenditure we have this year is just the wrap-up of the projects that we’ve essentially more or less completely finished. So we have some payments this year. So the cash CapEx, I think of the order of $300 million, some leasing activity on top of that. And therefore, there’s a very meaningful step-down into 2024. We haven’t guided on it, but I think that some of the market numbers we’ve seen are in the right order. So that big step-down is what then allows us to grow, as we say, investment-free into our capacity. Then that gets us into a very sustainable position for funding the dividend. I don’t know, David, if you want to add anything to that.

David Bourne: I think that’s right. I think it will be adjusted free cash flow positive for this year. You can see some EBITDA growth into next year and then the BGI drop. I’d say you put those 3 components together, you’re at or very close to covering the dividend mix.

Operator: Our next question is from George Staphos from Bank of America. Please go ahead.

George Staphos: Maybe just because Anthony set it up, I’ll cover the dividend. I was going to hit it later. But taking it in a different perspective, right, the market is putting a yield on the dividend of around 11%, which suggests investors put a high-risk factor on that dividend. So if you agree with that premise, and the numbers are the numbers. Why have a dividend that high and at that level relative to your equity and relative to your cash flow now?

Oliver Graham: Look, I think we’ve signaled along that the dividend is demonstrating the cash-generative nature of the business. And as we pivot from a strong investment period into a period where we’re running to fill the capacity and drive cash generation, we think the dividend becomes completely sustainable and is a very good fit for our proposition. So I think we’re committed to it. We see as we drop off the capital expenditure into the back half of this year and into next year that, that it fits very well with our proposition.

George Staphos: Yes. And Ollie, I’ll take that at surface level, and that’s great. The point I’d make is the market is putting a very high return on that. So in theory, you might get a lower cost on other cash utilization relative to the dividend where the market is putting a 11% yield on. But in any event, perhaps we want to solve that on this call, but that’s the only thing I’d point out there. On the promotional activity, what gives you the confidence that — and you mentioned, I think, in non-alcoholic that you’re starting to see some activity and some improvement, but why should we expect that, that’s going to continue going forward? Whatever your customers told you specifically in terms of why you think promotional activity is going to pick up, particularly in non-alc, over the rest of the year?

Oliver Graham: No, absolutely. So look, I think on this promotional question, there’s a couple of fundamentals that we should touch on, and then we should talk about the timing of it returning. But the fundamentals are that these are very promotional categories. They’re very elastic categories, and demand does expand with promotional and with price. They’ve always been very promotional, and there’s no reason, I think, to believe that won’t reassert itself at some point. We’ve seen a very unusual period where price is rising and volumes are dropping less than historically, but we’re clearly reaching the limits of that now. So I think that there’s no reason to believe, although our customers are clearly using more advanced analytics to target promotions and I clearly will have learned something from the last 12 months.

There’s no reason to believe we don’t revert to a more normal promotional activity for these categories. And then the second fundamental is that inflation is moderating. And so you’d expect to see overall average pricing moderating relative to wage growth and other factors. And then in terms of why we’re confident in timing through the rest of the year, I think that we’ve had signals from customers that they’re looking into additional promotions for Q2 and beyond. I think that they’ve got some firepower particularly as the LME comes off, they can actually do some promotional activity without actually damaging margin. As I say, I think they have reached the limit of sales growth without driving some volume. I think the price lever is at that limit.

And then, finally, they’re not just saying to us, right? They’re saying it publicly, and I think the major CSD player in the last week or so has absolutely signaled that they want to both carry on hitting the higher end of the market, but definitely hitting the lower end and the more economically challenged consumers because they don’t want to lose those consumers to their brand. So I think when you add it all together, it makes all sorts of sense that you’d see some increased promotional activity as we go through the year. And that’s what we thought when we gave our full year guidance, and our opinion on that hasn’t changed.

George Staphos: Thanks for that, Ollie. My last one, I’ll turn it over. So we have volumes, we’re getting to pick up. You have accelerated improvement in PPI recapture or mechanisms yet were down year-on-year in EBITDA 2Q versus 2Q last year. Can you give us a rough bridge, David, in terms of how we go from roughly $180 to the $170 2Q versus 2Q? Thank you, guys.

Oliver Graham: Yes. Go ahead, David.

David Bourne: Yes. Sure. So effectively, in Q2 last year, you had the Brazil reopening, which was a volume coming in the offseason from transitioning out of COVID, which gave a very unusual offseason pattern. And that explains the entirety of the bridge. In fact, it’s more than minus 10%. It’s near or minus 20%, and then you’ve got the other growth components bridging back up.

Operator: From Morgan Stanley, we will now go to Angel Castillo. Please go ahead.

Angel Castillo: Just wanted to maybe expand a little bit more on the customer dynamics. You mentioned the promotional activity. Could you talk a little bit about maybe the buying patterns, the destocking trends that you’ve seen? So maybe what are you hearing in terms of their level of inventories? And I think one of your peers talked about potential buying patterns in Europe where customers are maybe delaying a little bit of buying, maybe until we get a little bit closer into the summer season. So what are you seeing across the regions in terms of the buying patterns as well?

Oliver Graham: So let’s go region by region. I think in Europe, we see that the consumer is still resilient, but they are clearly under pressure. So energy costs have risen very significantly as a proportion of household income. And so I think what that means, there’s a volatility in demand patterns customer by customer. So soft drink is definitely a bit stronger than beer. But even within beer, we have some very high performers. Typically, companies focused on the economy segment. So either brand, branded economy segment or own label performing extremely strongly. So I don’t think you’ve got a single picture for the market. You’ve got different players performing differently. And therefore, you’ll see in our results and our peers’ results probably some different results linked to customer mix and which customers you’re in by region.

So as I say, we definitely have some strength in beer, but we also have some weakness at the higher end. And we also just have some one-off effects in our results. We’ve got some filling that moved to the Nordics where we don’t have capacity. We’ve got some still water filling that’s moved back to the U.S. So there’s also some one-off effects in Europe. So that’s why we still think it’s a low single to mid-market this year. And I think it just will depend a lot on which customers and which segments you’re in. If we turn to North America, there’s clearly strength in the soft drink side, CSD and especially the energy space, which is very hot, still a lot of innovation in that space, exciting new companies. And we can see and the beginnings of that coming across into the sports drink space.

We believe that’s a very strong space for the cans to grow share, currently very underpenetrated and lots of room for healthier options there as well. So I think North America, this 83% innovation number is really playing through into the market, and we’re seeing that in the results. Obviously, there’s still softness in key areas. So seltzers for us, we had softness in particular with one customer there. We also had softness with the beer customer. And that linked to their overall market weakness. So I think that’s where there is some softness. Again, clearly, with the events of the last few weeks, there’s going to be very different outcomes for different players in the market, depending on which customer they’ve got on the beer side. So I think we’ll again see some volatility in results across the can makers.

And then we — in North America, we had a couple of contract gains. Those are linked to when the market was very tight, and customers were diversifying a bit. And we can see those in our results, which is why we think we’re a little bit ahead of the market. The market we put, probably a low single digit for the quarter, mainly on the back of the strength, there’s still growth in some of the newer players in the market. I think that the existing players in the market is probably around flat. And then South America, it did grow the market, high single digits, but against a very weak comparator of Q1 ’22. So look, overall, it is soft. We definitely had some brighter spots with some customers recovering, but we also had some weaker spots, especially as we had a very strong first half with a couple of customers last year.

And so that’s a tough comparator for us. And as David just mentioned, we’ve got a very tough comparator coming in Q2 where post COVID, the market opened up very fast and very strong. And we don’t see that happening this year. We see the growth coming much more in the second half when the LME hedges roll off some of the other input cost inflation moderates, and we’ll see the big customers going back into retail away from returnables and discounting much more. So that’s how we see the 3 markets at the moment.

Angel Castillo: That’s very helpful. Thank you. And maybe just to clarify on a couple of those points. I think you said Europe looking just to mid-single digit. I think if I recall correctly, your last quarter, your thought process was maybe industry does mid-single digit, and Ardagh, maybe is closer to low single digits. Is it fair to assume now that given what you’re seeing, maybe there’s a little bit of optimism that Ardagh can also kind of start to approach into the mid-single digits? So just to clarify that whether it’s kind of…

Oliver Graham: No, I certainly would say that. Yes. No, I wouldn’t say that. We’re 2% Q1, and we could tick up a little bit from there. But I think we still think there are other categories and other customers where there’s a bit more strength that we don’t play in, particularly on the energy drink side. So I think we’re still guiding to low in the market, low to mid.

Angel Castillo: Got it. Okay. And then lastly, just I guess on the curtailments. What type point should we kind of look out for in terms of when Ardagh might consider kind of restarting that? Or are we operating at a high level?

Oliver Graham: Well, we said at the full year, we’re curtailing over $1 billion in Europe this year and over $2 billion in North America. We continue to monitor that, obviously, on a month-by-month basis, and we continue to monitor our overall capacity because we do intend to keep utilization in the 90s over the next few years.

Operator: We’ll now move to Arun Viswanathan from RBC. Please go ahead.

Arun Viswanathan: I guess first question is on Europe. There’s been a lot of inflation there over the last couple of years. Some of your peers have commented on restructuring the contracts to recover some of that through pricing. Is that part of your European outlook as well? And what’s the update on progress if those initiatives have been part of your strategy? Thanks.

Oliver Graham: Yes. Sure. Hi, Arun. So look, I think it’s unchanged from the full year. So we completed all that activity last year in terms of getting to more direct energy pass-through mechanisms with customers, particularly large customers. We hedged out all our risk for this year, last year and confirm with customers that they were comfortable with that position, which is higher than spot because of the unexpected drop in the energy market. But as I say, all of those activities were completed last year. And so the guide we gave at the full year, which is we are expecting to over recover on inflation over the course of the year relative to our cost inflation ’22 into ’23, that guide remains intact. We will have an over recovery this year and that gets us probably 75%, 80% back to 2021 margin levels in Europe, and we’re hoping to regain the rest into ’24.

Arun Viswanathan: Okay. Thanks. And just so on that note then, does your European business take a step down from here? And maybe you can just characterize what you’re seeing in Europe from a demand perspective. We’re seeing some crosscurrents, some categories are weaker, but then and maybe related to the consumer. Is that what you’re seeing as well or maybe just comment overall on the outlook there.

Oliver Graham: No. Our European business takes a step up from here because we lose the drag from the accounting treatment on some of the inflation pass-through. So the European business takes a step up from here. And yes, back to my previous comments, what I think you’re seeing in Europe is a lot of volatility in demand across different players because they’re operating in different parts of the market. And right now, you need to be operating in economy or price competitive parts of the market or you need to be discounting into those parts of the market because the consumer is under pressure. So what we see is a lot of variation between customers depending on their pricing strategies. We definitely see soft drinks a bit stronger than beer overall.

We suspect that energy drinks is also a bit stronger, though, again, we don’t have the big share of that market, we have good share, but not the big share. And overall, we think the European market is pretty resilient on the can side, very strong sustainability tailwind still, and again, good innovation coming into the can.

Arun Viswanathan: And just a question on North America. You mentioned increasing promotional activity in non-alcoholic. Could you comment on that in the context of capacity? It appears that a couple of years ago when the market was really tight, pricing was achievable. Now potentially, the market is a little bit more balanced. So if the beverage companies do increase their promotional activity, does that result in maybe some give back of price or especially with considering the deflation. How would you kind of characterize the competitive environment in cans in North America?

Oliver Graham: We’re highly contracted and so are our major peers through the middle of the decade. So we’re not seeing any significant price activity. There’s a little bit of the margins on the spot market with small volumes typically to smaller players, but we don’t see anything significant. And if you look into the can side that are selling well at the moment, we don’t see room for lots of movement there. So yes, nothing to report there.

Arun Viswanathan: So if you put all that together, would you characterize, if you can just help us understand the supply-demand balance in each of these markets. So the U.S., again, we’ve gone through a period of capacity build-out on an oversold market, and there’s been some rationalization. So are we balanced in the U.S.? I guess maybe if it’s more helpful to talk by categories, that’s fine and you could do that. And then also similarly in Europe and Brazil, how did you characterize the supply and demand? Thanks.

Oliver Graham: So I think the way we’d characterize that is the major players are taking action to keep ourselves balanced and to keep utilization in the 90s. And we’re doing that either through some closures, as we’ve signaled in our Europe business, with the steel line, all we’re doing it through curtailment actions, so taking down capacity and reducing cost as far as possible through that because we intend to run in the 90s, and that’s the situation we’re going to monitor. We’re confident our peers will monitor that in the same way. And so I think that although there is capacity in the market, I think it’s being managed in a good way. And I think that’s true also in Europe where there’s probably a bit less capacity being built out in the last few years and similarly in Brazil where the market is a bit softer. So there clearly is capacity available in all 3 markets, but I think everybody is making sure to take the actions to run at a good utilization level.

Arun Viswanathan: And just one last one. So when you think about the IPO trajectory, obviously, there’s been some changes there. So how are you thinking about achieving maybe the ’21, sorry, the ’24 numbers around $1.1 billion of EBITDA? When are we on path to maybe see that?

Oliver Graham: So they’re clearly not in 2024, and we’ll guide each year as we go. I think we said at the full year, and so we can repeat, there are 3 elements that mean that we won’t get to 1.1 without further action those three elements of foreign exchange, so that can obviously move. The second element is, we’ve not built out all the investment in the original program, so particularly the Brazil greenfield. And the third element is that our program included a significant proportion of seltzers, which had a very strong mix impact in our numbers. So that’s also a drag. And we’re not giving exact numbers on any of this, but it means that it won’t be ’24, and it won’t be at that level. But that said, I think we’re sitting nicely now with a period of growth in the industry about which we’re very confident and with no need to do further investment and with a good set of new and efficient assets. So I think we’re well placed for the growth that’s about to come.

Operator: Our next question comes from Kyle White from Deutsche Bank. Please go ahead.

Kyle White: I wanted to go back a little bit to the curtailment actions, but also to I think you mentioned in some still water over in Europe moving to the U.S., and I believe you have a key customer there that is relatively small but seen pretty strong growth rates. As that moves to the U.S., are you going to get that business, do you need to make any investments for it? And then also, what does that mean for your European footprint in terms of now potentially having some excess slack over in the Austrian region?

Oliver Graham: Yes. I mean it’s not the biggest situation. So I’m just mentioning it, is more kind of, that’s a one-off example of some things happening in the first quarter, we’re not picking up in the U.S. because of the geographical footprint, but it is actually them planning — they’re planning to launch in Europe. So we’d have to backfill it that way. So it’s got no meaningful impact really on our capacity position. And overall, in Europe, I think with the actions we’re taking, we’re pretty balanced there. I mean that category, though, overall, I think, is beginning to move. And we always said, for us, it was a sort of mid-decade opportunity. There clearly is now action there, new brands, new activity and people very interested in it.

So we’re still excited about it. We’re not letting any of the bank on it, but we’re still excited about the still water category. And as I said in my other remarks, I think there’s a few other categories very ripe for the can, including the sports drink as well. So there’s some good space for additional innovation still to come.

Kyle White: Appreciate that. And then I know you’ve given a lot of color regarding the categories in some of the regions. So I was wondering if you could just give us a little bit more details on particularly in North America, just how the quarter progressed from a shipment standpoint and then maybe what you’re seeing in shipments here in April?

Oliver Graham: Yes. We had a decent start. I think March was slightly weaker than expectations, and April similarly, but we’re looking into May and June where we see some good demand. So yes, no particular trend, I think in there. There’s just some ups and downs and I think that goes back to the fact that the market remains a little bit volatile. I mean clearly, nothing like last year, but a little bit volatility to the pressures on the consumer. Some of the pricing actions that are being taken that are very different across our customer base. So mix is important, and it can vary quite a bit month-to-month.

Kyle White: Got it. And then just last one here on CapEx. I believe all your growth investments will be largely completed in terms of the one that we expect to do. And I don’t have any further kind of capacity expansions in 2024. So if that’s the case, how much lower can your CapEx go? And what’s kind of a good normalized CapEx range for you?

Oliver Graham: Yes. Look, it’s going to go very meaningfully lower. So in the $300 million, it will drop by a lot. I think the market has got a couple of $100 million down from that. We’re not disagreeing with that. We haven’t guided to it. And then our maintenance runs in the sort of 120, 130 level. So that’s typically what we’re looking at there. And as you put those numbers together with some EBITDA growth, that’s why you can see we’re very confident in the sustainability of the dividend.

Operator: From Wells Fargo Securities, we will take the next question from Gabe Hajde. Please go ahead.

Gabe Hajde: I had a question, two actually, on Brazil. And appreciating that you can’t speak for kind of your sister organization. They’ve chosen to kind of accelerate their glass investment, and then you guys have sort of delayed the greenfield investment that you’re going to make in cans down in Brazil. And so I’m curious if you can explain to us just from a, I guess, short-term/long-term perspective. In the short-term here, it feels like there’s sufficient capacity, by our estimates, kind of mid-70s utilization and as well as pressure on the consumer. On a long-term basis, to the extent that there is a transition from returnable glass to one-way packaging kind of both substrates can win in that environment from a number of units perspective.

So just anything that you can speak to in terms of one substrate winning or not in the beer category down there and then what we should be looking for in the outside world that could kind of reaccelerate that transition to one way versus returnable.

Oliver Graham: Yes. Look, I think in one-returnable transition to one-way transitions to one-way can glass because the customers want to use the shelf and have some premium positioning around glass and then some mass volume driving around cans. And actually, what’s happened in Brazil historically is that was held back by a lack of one-way glass capacity. And so the cans took all the growth as the returnables declined. And so I think customers in Brazil are still short and importing the one way, and that explains why you might see investments there. Whereas as you say, I think there’s sufficient capacity on the can side at the moment that carries through a couple of years of good growth now, particularly with the investments we’ve done in the one way completing this year.

And then I think what drove the shift out of returnable and has driven it in all markets as GDP per capita rises is that as consumers get richer, they don’t like returnable and retailers and mass retailers, in particular, that grow with economic development also particularly don’t like returnable. And so you get the shift into one-way packaging. And that’s a fundamental shift, and we expect that to continue once the normalization occurs around the very high inflation that’s occurred on the can in the last 6, 12 months in Brazil, which we talked about and others have talked about, that’s about the LME and where our customers have to hedge LME, and it’s also about the fact that with dollar price elements of the can, which in a devaluing currency environment obviously increases inflation.

So those are a set of one-offs that will unwind during this year. And then I think you’ll see that the competition or return to the off-trade into the cans and to the extent they can source it one-way glass, because that’s where market share will be gained and that’s what led to the shift out of returnable over the last few years was the fact that players didn’t like losing market share. So as I say, we think that’s a fundamental shift. We think you can track off-trade penetration in cans and that, that will return to its growth pattern like it has for every other developing market over the years. And returnable systems then eventually do collapse because they lose scale. So yes, keep an eye on off-trade penetration of cans is the number to look for.

Gabe Hajde: Okay. Perfect. Thank you. And then I don’t know exactly, I know it varies jurisdiction, a jurisdiction in terms of bankruptcy protection rights, but will this enable sort of that customer to come back and renegotiate contracts with yourselves and, presumably, those others in the market? And could that possibly trigger just sort of a repricing event across the space? Or is that just sort of a tail risk or something I’m kind of making up in my head?

Oliver Graham: No. Look, I think we’ve also evaluated that risk, and we regard it as very low. So I think that this obviously mainly allows them to trade effectively and come to some sort of plan with creditors. And we, as I say, we’ve done our assessment on that with our security position, and we’re comfortable with our position.

Gabe Hajde: Okay. One last one on Europe. To the extent that you have sort of implemented what I’ll call the pass-through model for energy and other inflationary components into your contracts for that geography, should we then think about, all else equal, if ’23, there’s deflation relative to ’22 that you would be passing that on to your customers in ’24? And again, sort of, I don’t know, maybe 6 to 12-month lag, maybe it’s 12 months entirely. Just sort of how to think about that because I think the business model now has probably changed. Again, I guess the one thing we need to be mindful of is, obviously, to the extent you guys have hedged energy for this year, that may not necessarily be the case on a go-forward basis.

Oliver Graham: Yes. So exactly. So for ’23, there’s no impact of the falling energy because we’re fully hedged, and the big customers were comfortable with the decisions we took there and accepted those into the ’23 volumes. So yes. But on the direct energy pass-through, as energy falls, that will get passed through back to customers. On the normal PPI resets, typically, we don’t see a negative in our costs because of labor and some other cost elements. So that typically has a floor. But on the direct energy piece, yes, there will clearly be some get back with the dropping of the energy price.

Operator: We will now move to Jay Mayers from Goldman Sachs. Please go ahead.

Jay Mayers: So I guess a quick one and then a high-level question for you. The quick one is just of the curtailment you guys have talked about for this year, the 1 billion in Europe and 2 billion cans in North America, have you started that yet? And if so, how far along are you? And then the high-level question, yourself and some of your peers are taking actions to kind of curtail volumes and balance the market out, but there are still some new entrants who are talking about adding some pretty meaningful capacity. Can you just talk about how you think that can impact the market here in the near term? Are you feeling pretty good about your contracted position? Is there ability for some shift there? Are they going to have a hard time kind of breaking in with the amount of contracted revenue that you feel like the industry has right now? Any thoughts there would be appreciated.

Oliver Graham: Sure, Jay. So the quick answer to the quick question was, yes. We’ve started those actions, and we’re well into them, and we’ll be monitoring the extent we need to do through the year. In terms of the other players, I think most of them did get some degree of contractual coverage on their investments. And so we don’t see that impacting us because those are known events in the near term. So again, sort of through to the middle of the decade. Now whether they’re getting the volumes that went with those contractual coverage, we don’t know. And so we can’t speak to what impact that’s having on them and their position. But at the minute, we don’t see that significantly impacting on us again for the next year or two because of our overall position on contracts.

Jay Mayers: And you mentioned earlier that kind of the marginal or kind of spot can out there, there has been some pricing pressure. Would you attribute that to the new entrants or just kind of the overall supply-demand balance in the North American market right now?

Oliver Graham: Probably mostly around the new. And again, we’re talking about prices coming off historically very high levels because of the market was so tight. So we’re still talking about pricing being in healthy margin territory. But just with that additional availability, clearly, some of that is coming on to the market. But as I said, I think it’s really at the margin relative to the overall volume being shipped in the market.

Operator: From Bank of America, we will take our next question from George Staphos. Please go ahead.

George Staphos: One longer-term question, one sort of short-term financial question. The first one, so look, when we’ve looked at packaging markets over the years, over time, within one-way packaging, cans almost always went out over one-way glass because you have distribution efficiencies. You have billboard. There have been some times, we have off trends, but generally, that’s been the trend. With that being said, within Brazil, what are your customers telling you in terms of their intention two years, three years from now in terms of can in one way versus glass in one way? The second question I had shorter term, payables look like they were down from fourth quarter, and you also mentioned a little bit more use of working capital to start the year.

If you mentioned what the cause of that or those factors were, I apologize for missing it, but could you again review what was happening with payables? Why the drag on working capital, why you expect to get it back to the source of $100 million, I think you said for the year? And good luck on the rest of the year.

Oliver Graham: Thanks, George. I’ll take the first and hand over to David on the working capital. I mean, George, it’s true that you get some share shifts in some markets over time from one way to cans, particularly in North America. But actually, if you look across broader markets, there’s a stabilization that occurs at a certain point where the customers and the retailers have respectively divided the categories into more premium positioning for the glass bottle one way and then, as I said, for more mass volume driving position for the can. And so you get typically a stabilization. And actually, in some markets, when they’re trying for revenue management, they will push glass for a while. And so our growth has definitely come when we’re talking about normal periods, 1%, 2%, 3%, before we had the big sustainability tailwind, a proportion of that was glass substitution, but often also two-way.

And so we would expect a continued growth like that but not necessarily at the level you’ve always seen in North America. And then in Brazil, our customers are not telling us very much because I think they’re very short one way. And so their main problem at the moment is to try and to get that from a position where there is almost no one way. And therefore, that growth we see having zero impact on our growth because our growth will be much more significant given the capacity position, given the consumer adoption of the can and given the significant shift we expect out of two-way. So overall, yes, here the point, but I think that the can growth will be good in Brazil going forward.

George Staphos: Yes. I appreciate that. I mean North America and Europe, you’ve seen cans grow versus one-way glass over the last 20 years or so and over the last 10 years. Brazil, we’ll wait to hear what you say, but I appreciate the thoughts there. David?

David Bourne: Yes. George, thank you. So to cover off your second point, working capital, if you go back to FY ’22, we had approximately $200 million outflow that’s partly as we came down in terms of the demand pattern from our initial expectations and had an inventory build with that. So we’re working very hard this year to get that inventory back aligned through the year, and that’s our $100 million working capital inflow for the year is our step along that particular journey. One of the first things you do along that journey is that is to kind of change of raw material buying patterns, and we calibrate that where your demand profile is, and we’ve been doing that during the quarter. As we step through that, of course, you get the benefit to raw materials, but you get the step-down in payables.

But that means that by Q2, you should see the working capital rightsizing for raw materials relative to payables as we go through that journey. So it’s just the transitional process that’s causing the payables to go down in Q1.

Operator: . We will take our next question from . Please go ahead.

Unidentified Analyst: Congrats on your results. So regarding your CapEx guidance for ’23, your guide is $300 million, and your cash flow generation alleviation depends a lot on CapEx cuts. Given the Q1 CapEx, how much above the average targeted quarterly level? What makes you confident your potential to realize this $300 million CapEx by year-end? Thank you.

David Bourne: Yes. So look, I mean, our investment profile is front-loaded in terms of, as we said in the opening remarks, we are finishing off projects largely that have been crystallized, started last year and under flowing through. So you will see a first half weighting to our business growth investment, then starts to tail off as we get towards the back end of the year.

Operator: . It appears we have no further questions at this time. I would like to turn the call back over to Oliver for any additional or closing remarks.

Oliver Graham: Thanks, Ellen, and thank you to everyone on the call. Just to summarize again, we met our Q1 guidance, and we reaffirmed our full year as we see a strengthening in the demand environment and improved EBITDA recovery through the year. We look forward to talking to you all at our Q2 results. Thank you.

Operator: That will conclude today’s conference call. Thank you for your participation. You may now disconnect.