Ardagh Metal Packaging(AMBP) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for Q4 2022 was $1.1 billion, representing a 5% growth on a constant currency basis, primarily due to the pass-through of higher input costs [6][7] - Adjusted EBITDA for Q4 2022 was $159 million, showing a modest increase compared to the prior year on a constant currency basis [7][11] - For the full year, adjusted EBITDA declined by 1% on a constant currency basis due to input cost pressures and fixed cost under absorption [4][11] Business Line Data and Key Metrics Changes - Total beverage can shipments in Q4 2022 increased by 1% year-over-year, with growth in Europe and North America, while Brazil experienced a decline [7][9] - In North America, shipments grew by 3% in Q4 and 5% for the year, despite inflationary pressures impacting demand [8][10] - In Brazil, Q4 shipments declined by a high single-digit percentage, underperforming the market, which recorded low single-digit growth [9][10] Market Data and Key Metrics Changes - The European market saw a 12% increase in revenue for Q4 2022 on a constant currency basis, mainly due to higher input costs [11][12] - Consumer demand in Europe was resilient, particularly in carbonated soft drinks, despite some softness in the beer market [12][13] - The company anticipates low to mid-single-digit growth rates in Europe and low single-digit growth in North America and Brazil for 2023 [4][5] Company Strategy and Development Direction - The company plans to reduce growth investments to balance supply with demand and focus on adjusted free cash flow generation [5][19] - AMP aims to capitalize on sustainability trends and innovation in the beverage can market, expecting to grow ahead of the market globally [4][20] - The company is committed to a disciplined capacity management approach, including the closure of a legacy steel line in Germany [14][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in delivering significant growth in earnings and cash flow in 2023, despite challenges faced in 2022 [4][19] - The outlook for the beverage can market remains positive, with expectations of a return to promotional activity in North America and a recovery in Brazil in the second half of 2023 [19][76] - The company is actively managing energy costs and has hedged its energy requirements for 2023, improving the near-term energy outlook [13][71] Other Important Information - The company ended Q4 2022 with a liquidity position approaching $1 billion, including $555 million in cash [16][17] - AMP announced a first-quarter dividend of $0.10 per share, indicating a sustainable dividend supported by stronger cash generation [18][19] - The company expects to generate positive adjusted free cash flow in 2023, with a significant reduction in growth investments anticipated [18][19] Q&A Session Summary Question: Details on Americas volumes and guidance - Management noted that softer market conditions in Brazil led to customers rebalancing their supplier portfolios, impacting volumes [25][26] - The expectation for Brazil's market growth is high single-digit for the full year, with EBITDA growth weighted more towards North America [30][31] Question: Year-over-year free cash flow bridge - Management provided details on working capital inflow, business growth investment, maintenance CapEx, cash interest, and taxes [34] Question: Hard Seltzer demand forecasts - Management anticipates flat to slightly negative growth in Hard Seltzer, with other beverage categories expected to grow [36] Question: EBITDA shortfall unpacking - Management attributed the EBITDA shortfall to European energy issues, metal mismatches, and volume mix impacts [39][40] Question: 1Q volume trends - North America showed healthy January performance, while Brazil remained soft, with expectations for improvement in the second half [42] Question: Fixed cost under absorption normalization - Management expects normalization of fixed cost absorption during 2024, with a significant drag in the tens of millions [44] Question: Capacity expansion plans - The third line in Huron is expected to come online this year, with greenfield projects delayed until demand permits [46][47] Question: Balance sheet leverage - Management aims to modestly deleverage in 2023, with a more significant reduction expected in 2024 as growth investment requirements decrease [59] Question: Promotional activity impact on growth outlook - Management indicated that while promotional activity is a factor, it is not solely relied upon for growth guidance [60][61] Question: Capacity adjustments if growth does not materialize - Management stated that they continuously review capacity and will make adjustments as necessary to align with market conditions [64][65]