Silgan Holdings Inc. (NYSE:SLGN) Q2 2021 Earnings Conference Call July 28, 2021 11:00 AM ET Company Participants Kim Ulmer - Vice President, Finance & Treasurer Tony Allott - Chairman & Chief Executive Officer Bob Lewis - Executive Vice President & Chief Financial Officer Adam Greenlee - President & Chief Operating Officer Conference Call Participants Adam Josephson – KeyBanc Salvatore Tiano - Seaport Global George Staphos - Bank of America Mark Wilde - Bank of Montreal Gabe Hajde - Wells Fargo Securities I ...

Part I. Financial Information [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents Silgan Holdings Inc.'s unaudited condensed consolidated financial statements for Q1 2021, detailing financial position, performance, cash flows, and equity, and notes segment renamings - Effective with the first quarter of 2021, the company renamed its Closures segment to **Dispensing and Specialty Closures** and its Plastic Containers segment to **Custom Containers** to better reflect their product offerings and strategic focus[22](index=22&type=chunk) [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2021, total assets were **$6.44 billion**, total liabilities **$5.17 billion**, and stockholders' equity **$1.28 billion**, reflecting minor period-over-period changes Condensed Consolidated Balance Sheet Highlights (USD in thousands) | Account | March 31, 2021 | Dec. 31, 2020 | March 31, 2020 | | :--- | :--- | :--- | :--- | | **Total Current Assets** | $1,819,238 | $1,799,193 | $1,982,345 | | **Total Assets** | $6,441,472 | $6,511,586 | $5,528,538 | | **Total Current Liabilities** | $1,155,108 | $1,191,620 | $1,643,834 | | **Total Liabilities** | $5,165,116 | $5,258,713 | $4,507,963 | | **Total Stockholders' Equity** | $1,276,356 | $1,252,873 | $1,020,575 | [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Q1 2021 saw net sales increase **20.2% to $1.24 billion**, with net income rising to **$73.3 million** and diluted EPS to **$0.66** Q1 2021 vs Q1 2020 Income Statement (USD in thousands, except per share amounts) | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net sales | $1,238,110 | $1,030,384 | | Gross profit | $221,466 | $185,098 | | Income before interest and income taxes | $126,549 | $102,141 | | Net income | $73,281 | $57,600 | | Diluted net income per share | $0.66 | $0.52 | [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive income for Q1 2021 significantly increased to **$42.4 million**, primarily influenced by net income offset by foreign currency translation losses Q1 2021 vs Q1 2020 Comprehensive Income (USD in thousands) | Item | 2021 | 2020 | | :--- | :--- | :--- | | Net income | $73,281 | $57,600 | | Foreign currency translation | $(33,372) | $(36,439) | | Other comprehensive loss | $(30,853) | $(37,955) | | **Comprehensive income** | **$42,428** | **$19,645** | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Q1 2021 saw **net cash used in operating activities of $172.1 million**, with a **net decrease in cash and cash equivalents of $219.4 million** for the period Cash Flow Summary for the three months ended March 31 (USD in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(172,148) | $(168,136) | | Net cash used in investing activities | $(68,362) | $(104,441) | | Net cash provided by financing activities | $25,693 | $688,650 | | **Net (decrease) increase in cash** | **$(219,350)** | **$411,022** | [Condensed Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Total stockholders' equity increased to **$1.28 billion** by March 31, 2021, driven by net income, partially offset by dividends and other comprehensive loss - Dividends declared on common stock per share increased to **$0.14** in Q1 2021 from **$0.12** in Q1 2020[19](index=19&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed disclosures on revenue recognition, rationalization charges, long-term debt, financial instruments, and segment performance data Revenue by Segment (Q1, USD in thousands) | Segment | 2021 | 2020 | | :--- | :--- | :--- | | Dispensing and Specialty Closures | $509,352 | $357,151 | | Metal Containers | $554,081 | $508,519 | | Custom Containers | $174,677 | $164,714 | | **Total** | **$1,238,110** | **$1,030,384** | Rationalization Charges by Segment (Q1, USD in thousands) | Segment | 2021 | 2020 | | :--- | :--- | :--- | | Dispensing and Specialty Closures | $5,231 | $742 | | Metal Containers | $5,021 | $1,963 | | Custom Containers | $105 | $94 | | **Total** | **$10,357** | **$2,799** | - On February 10, 2021, the company issued **$500.0 million** of **1.4%** Senior Secured Notes due 2026 and used the proceeds to prepay **$500.0 million** of outstanding term loans, resulting in a pre-tax charge of **$0.9 million** for loss on early extinguishment of debt[32](index=32&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2021 financial results, highlighting a **20.2% increase in net sales** driven by volume and mix, strong segment growth, and the refinancing of debt to maintain liquidity [Results of Operations](index=20&type=section&id=Results%20of%20Operations) Q1 2021 consolidated net sales increased **20.2% to $1.24 billion**, driven by strong volume growth across all segments, particularly Dispensing and Specialty Closures - Dispensing and Specialty Closures segment sales increased **$152.1 million** (**42.6%**), primarily from a **9%** increase in unit volumes, the Albéa acquisition, and favorable foreign currency translation[75](index=75&type=chunk) - Metal Container segment sales increased **$45.6 million** (**9.0%**), driven by a **9%** rise in unit volumes due to high consumer demand for food cans[76](index=76&type=chunk) - Segment income for Metal Containers decreased by **$1.9 million**, primarily due to higher production costs associated with severe winter weather, investments in hiring, and a higher percentage of smaller cans sold[82](index=82&type=chunk) [Capital Resources and Liquidity](index=22&type=section&id=Capital%20Resources%20and%20Liquidity) The company's liquidity is supported by cash from operations and its credit facility, with **$500 million in new notes issued** to refinance debt and maintain ample borrowing capacity - In February 2021, the company issued **$500.0 million** of **1.4%** Notes and used the proceeds to prepay **$500.0 million** of outstanding term loans under its Credit Agreement[87](index=87&type=chunk) - At March 31, 2021, available borrowing capacity under the Credit Agreement was **$1.04 billion** and **Cdn $15.0 million**[91](index=91&type=chunk) - The company is in compliance with all financial and operating covenants in its financing agreements and expects to remain so during 2021[94](index=94&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=24&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks include interest rates, foreign currency, and commodity prices, with no material changes to its risk profile since the 2020 Annual Report - The company's primary market risks stem from interest rates, foreign currency exchange rates, and commodity price changes[103](index=103&type=chunk) - There has not been a material change to the company's market risk profile or management policies since the fiscal year ended December 31, 2020, apart from changes related to debt activities[104](index=104&type=chunk) [Controls and Procedures](index=24&type=section&id=Item%204.%20Controls%20and%20Procedures) The CEO and CFO concluded that disclosure controls and procedures are effective, with ongoing integration of acquired business internal controls for the 2021 annual assessment - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the reporting period[105](index=105&type=chunk) - The company is in the process of integrating the internal controls of the acquired Albéa Dispensing Business and will include them in the annual assessment for the 2021 fiscal year[107](index=107&type=chunk) Part II. Other Information [Exhibits](index=25&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL financial data files - Exhibits filed include CEO and CFO certifications under the Sarbanes-Oxley Act (**Sections 302 and 906**)[109](index=109&type=chunk) - The filing includes interactive data files formatted in **Inline XBRL**[109](index=109&type=chunk)

Financial Data and Key Metrics Changes - Silgan Holdings reported adjusted earnings of $0.75 per diluted share, a 32% increase from $0.57 in Q1 2020, and at the high end of estimates [10][15] - Consolidated net sales for Q1 2021 increased by $207.7 million or 20.2% year-over-year to $1.240 billion, driven by higher volumes and the inclusion of Albea Dispensing [16][18] - The company reaffirmed full-year guidance of $3.30 to $3.45 per diluted share, representing a 10.3% increase at the midpoint over 2020 levels [12][22] Business Segment Data and Key Metrics Changes - Adjusted segment income in the Dispensing and Specialty Closures segment increased by $25 million to $70.9 million, primarily due to higher unit volumes and a favorable product mix [19] - Metal Container segment achieved record adjusted segment income of $50.6 million, up $1.1 million year-over-year, attributed to a 9% increase in unit volumes [20] - Custom Container segment's adjusted income rose by $2.5 million to $24.6 million, driven by a favorable product mix despite resin cost impacts [21][90] Market Data and Key Metrics Changes - The company noted strong demand in end markets, particularly in pet food and beauty and fragrance sectors, with expectations for continued growth [48][80] - The impact of Winter Storm Uri was acknowledged, affecting logistics and raw material costs, but the company remains optimistic about market recovery [18][23] Company Strategy and Development Direction - Silgan Holdings is focusing on strategic positioning for growth, including the renaming of operating segments to better reflect product offerings [9] - The company is exploring new product development, particularly in sustainability, and is actively trialing alternative resins [102][110] - Management emphasized the importance of customer service and maintaining a culture of innovation as key drivers for long-term success [70][71] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in strong performance for the remainder of the year, despite challenges from raw material cost inflation and tough volume comparisons from 2020 [13][22] - The company anticipates a return to more normal resin cost levels later in the year, which should positively impact margins [12][52] - Management highlighted the ongoing demand for metal packaging and the potential for new customer opportunities following recent industry transactions [39][60] Other Important Information - The company confirmed free cash flow guidance of approximately $300 million for the year, down from $383 million in the prior year [23][54] - The hiring of approximately 100 new employees in the Metal Container segment was noted as a strategic investment to meet anticipated demand [30][76] Q&A Session Summary Question: Employment increases in Metal Containers and long-term outlook - Management confirmed hiring 100 new employees to support anticipated volume growth, indicating confidence in future demand [30][32] Question: Impact of recent European transaction on Silgan - Management acknowledged awareness of the transaction but did not foresee significant changes in market dynamics or risks [38][60] Question: Volume expectations and pantry stocking effects - Management clarified expectations for food can volumes to be up in 2021, supported by strong market trends and customer plans [46][49] Question: Earnings impact from resin cost inflation - Management indicated a more than $10 million negative impact from lagged resin costs in Q2, with expectations for recovery later in the year [50][52] Question: CapEx opportunities and M&A environment - Management expressed readiness to pursue CapEx opportunities aligned with customer needs and indicated a selective approach to M&A, focusing on strong cash-on-cash returns [107][111]

Sales Performance - The company achieved a 14% increase in unit volumes for metal food containers in 2020 compared to 2019, driven by higher demand for at-home food consumption [168]. - Net sales of the closures business reached $1.71 billion in 2020, reflecting a compounded annual growth rate of approximately 13.2% since 2003 [169]. - The plastic container business reported net sales of $651.5 million in 2020, with a compounded annual growth rate of approximately 6.2% since 1987 [170]. - In 2020, unit volumes for the closures business increased approximately 8%, primarily due to acquisitions and strong demand for consumer health and hygiene products [169]. - Consolidated net sales for 2020 were $4.92 billion, a 9.6% increase compared to 2019, driven by higher volumes across all business segments and acquisitions [186]. - Net sales for the metal container business increased by $84.8 million, or 3.4%, in 2020, primarily due to a 14% increase in unit volumes [188]. - Net sales for the closures business rose by $306.8 million, or 21.8%, in 2020, attributed to an 8% increase in unit volumes and the inclusion of acquired businesses [189][190]. - Net sales for the plastic container business increased by $40.4 million, or 6.6%, in 2020, mainly due to an 11% rise in volumes [191]. Financial Performance - Gross profit margin improved by 1.7 percentage points to 17.6% in 2020 compared to 15.9% in 2019 [192]. - Income before interest and income taxes increased by $152.9 million, or 42.5%, in 2020, with a margin increase to 10.4% from 8.0% [186][193]. - Net income for 2020 was $308.7 million, up from $193.8 million in 2019 [186]. - Selling, general and administrative expenses increased by $62.0 million in 2020, representing 7.7% of consolidated net sales [192]. - Segment income for the metal container business increased by $86.6 million, with a margin rise to 9.6% from 6.5% [194]. - Segment income for the closures business increased by $50.9 million, with a margin increase to 13.1% from 12.3% [195]. Debt and Financing - The aggregate interest and other debt expense as a percentage of income before interest and income taxes was 20.3% in 2020 [179]. - The company utilized $900 million of incremental term loans to fund the purchase price for the Albéa Dispensing Business in June 2020 [176]. - Total consolidated indebtedness was $3,272.0 million with cash and cash equivalents of $409.5 million as of December 31, 2020 [222]. - The company had $3,272.0 million of outstanding indebtedness as of December 31, 2020, with $925.8 million bearing interest at floating rates [240]. - The average outstanding variable rate debt in 2020 was 30% of the total debt, with 26% of the total debt being variable rate debt as of December 31, 2020 [253]. - A one percentage point change in interest rates for variable rate indebtedness would have impacted the 2020 interest expense by approximately $9.6 million [254]. Operational Changes - The company closed six metal container manufacturing facilities and three plastic container manufacturing facilities since 2015 to streamline operations and reduce costs [171]. - Approximately 90% of projected metal container sales in 2021 are expected to be under multi-year supply arrangements, which help mitigate cost volatility [172]. - The company plans to pursue further acquisition opportunities in the consumer goods packaging market to enhance growth and shareholder value [166]. - The company continues to evaluate acquisition opportunities in the consumer goods packaging market and may incur additional indebtedness to finance such acquisitions [234]. Future Outlook - The company anticipates continued strong demand for its products in 2021, particularly in the metal food container and plastic container segments [170]. - Projected capital expenditures are approximately $230 million in 2021, with annual expenditures expected to range from $200 million to $230 million thereafter [233]. - The company expects cash payments for federal, state, and foreign tax liabilities to be approximately $110 million to $120 million in 2021 [233]. Supply Chain and Risk Management - Approximately 19% of annual net sales in 2020 and 2019 were subject to customer-based supply chain financing arrangements [228]. - Approximately 14% and 18% of the Cost of Goods Sold in the Consolidated Statements of Income for the years ended December 31, 2020, and 2019, respectively, were subject to the Supply Chain Financing (SCF) program [230]. - As of December 31, 2020, outstanding trade accounts payables subject to the SCF program were approximately $225 million [230]. - The company manages exposure to natural gas price fluctuations through natural gas swap agreements, converting market pricing to fixed pricing [258]. - The company does not engage in hedging activities for raw materials due to the ability to pass on price changes to customers [257]. - The company has financed its European operations primarily with borrowings denominated in Euros to minimize foreign currency exchange risk [255].

Financial Data and Key Metrics Changes - Silgan Holdings achieved record financial performance in 2020, with revenue increasing to $4.9 billion, a rise of $432 million or 9.6% compared to the prior year [8][11] - Adjusted net income per diluted share was $3.06, up 42% from $2.16 in the previous year [8][12] - Free cash flow reached $383.5 million, or $3.44 per diluted share, significantly higher than $271.7 million in 2019 [9][11] - The company maintained a target leverage ratio just seven months post-acquisition, positioning for future cash deployment opportunities [9] Business Line Data and Key Metrics Changes - The Metal Containers business recorded net sales of $2.56 billion, an increase of $84.8 million, primarily due to a 14% rise in unit volumes [15][16] - The Closures business saw net sales of $1.71 billion, up $306.8 million, driven by an 8% increase in unit volumes and a favorable product mix [17][18] - The Plastic Containers business net sales increased by $40.4 million to $651.5 million, attributed to an 11% rise in volumes [19] Market Data and Key Metrics Changes - The company experienced strong demand in at-home consumption and personal hygiene products, which contributed to the overall sales growth [11][12] - The company noted a shift towards smaller metal packages and a favorable foreign currency translation impact of approximately $10 million in the fourth quarter [20][21] Company Strategy and Development Direction - Silgan Holdings is focused on growth initiatives, including the acquisition and integration of Albéa Group's dispensing operations and capacity expansion projects for health and hygiene products [9][10] - The company anticipates continued strength in its business franchises, with a full year guidance for adjusted earnings per diluted share in the range of $3.30 to $3.45, representing a 10.3% increase over 2020 [10][23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's future, citing strong performance and the ability to meet unprecedented demands during the pandemic [7][10] - The outlook for 2021 includes expectations for stable free cash flow around $380 million, with capital expenditures projected at approximately $230 million [25][26] Other Important Information - The effective tax rate for 2020 was 24.2%, slightly higher than 23.1% in 2019, influenced by prior year tax audit resolutions [14] - The company has increased cash dividends for the 16th consecutive year, returning $53.6 million to shareholders in 2020 [9][14] Q&A Session Summary Question: Pension expectations for 2021 - Management noted a significant recovery in pension income expectations due to improved equity market performance, shifting from a projected $10 million to $15 million drag to a benefit of around $10 million [30] Question: Volume expectations for 2021 - Management expects strong volume growth in the metal food can business, with Q1 volumes anticipated to be significantly higher than in 2020, driven by customer demand and capacity utilization [31][33] Question: Capital allocation and acquisition strategy - The company maintains a disciplined approach to acquisitions, with a leverage target of 2.5x to 3.5x net debt to EBITDA, and is open to opportunities that fit within its rigid packaging strategy [60][61] Question: Impact of inflation on raw materials - Management discussed the pass-through mechanisms for raw material costs, particularly in the plastics business, and noted that while costs are expected to rise, they are generally passed on to customers [46][48] Question: Recovery in the fragrance business - Management indicated a gradual recovery in the fragrance market, particularly in regions like South America and Asia, with expectations for improved performance in 2021 [66][69]

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Proposed Acquisition of Albea's Dispensing Business Deploying Strong Free Cash Flow to Build Shareholder Value January 27, 2020 Forward Looking Statements & Non-GAAP Measures Statements made in or during the course of this presentation which are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. These forwardlooking statements are made ...