Everybody, next up we're very pleased to be having Ardagh Metal Packaging. I'm George Staphos from B of A on Americas Paper and Packaging. We're delighted to be hosting David Bourne, Chief Financial Officer of the company, and Oliver Graham, Chief Executive Officer of Ardagh Metal. Ollie, as you know, is Chief Executive Officer, position he's held since January of 2020 before taking up that role. Ollie was CEO of Metal Packaging Europe, with responsibility also for Metal Packaging Brazil, having joined Ardagh in 2016. Gentlemen, welcome. Thanks for being here. Looking forward to a very engaged discussion with, you know, a really nice room here today. So thanks, everybody. I guess it was only last week. Probably things didn't change all that much. Let us know if it did.
Remind us what the key assumptions are baked into your guidance for 2024, the $630 to 660 million of EBITDA, and how, to the extent that you can comment, although we are kind of 2/3 through the quarter, you're tracking against that.
Sure. Yeah, thanks, George. So obviously the big underpinning to the guidance is always volume. So if we go region by region, we assume that Europe will grow as a market in the low-single-digit and that we'll be in a similar place as the company. We assumed in North America also a low-single-digit market, but there we assumed, we're forecasting a mid- to high-single-digit growth for AMP off the back of some contractual wins, which I think, you know, we've discussed at prior occasions. And then in Brazil we see the market low-single-digit. It could be higher. It could be a low- to mid-. There's always upside in Brazil when it comes back. And we forecast some modest growth for us. We're lapping some tough comps in the first part. And so we've got modest growth in Brazil.
That all adds up to a couple of billion of volume growth, which is the underpinning to the $50+ million of the guide we gave on volume mix. Which to clarify, because I think we picked this up on one-to-ones, that's about $30 million of actual volume on the EBITDA layer level and about $20 million from fixed cost absorption, as we grow into the capacity that we've built. Then another $20 million of the guide, a little bit over, is on cost savings. We've closed a couple of facilities, Whitehouse this month in Ohio, and the steel lines in Weißenthurm in Germany at the end of last year. Then we have some other operating cost benefits, SG&A benefits. That leads you to about a $20 million+ improvement on the cost line.
And then the drag that we called out is a sort of mid-teens on price cost. That's a couple of factors, mostly Europe, say 2/3 Europe, around the fact that the market was a little bit more competitive in the autumn when the open volumes were being renegotiated. We have some energy costs coming down to us from upstream. And so those were more difficult to get into the market in that environment. Then the rest is just some price positions elsewhere that are normalizing as customers grow. So that's about a mid-teens drag. So that gets you, you know, to the top end of the guidance. And the caution in the guidance, I suppose the range is really around Europe, where we did have a tough second half, so did the competition. So we could see that customers were cautious.
So we're also being a little bit cautious coming into the year. But I think it's fair to say, you know, and I said it on the call, but it's continued into this week that we have started the year very well. We're ahead of plan in all three regions, including Europe. Oh, there's clearly some carryover in Europe from, you know, November, December into January. So we have to be a little bit careful with that number. And we have a tough comp in March in Europe, which I mentioned. But if I look at all three regions, you know, they seem to be in good shape. And another encouraging statistic, you know, that we've got now is that actually the beverage can grew by 1% to 2% in the top markets in Europe in Q4.
So you don't see that obviously in the volume data for our customers because it's all a mix of substrates, but it demonstrates the way the beverage can is still winning in the pack mix. And therefore, even when you get lower volume growth overall in packaging, beverage packaging, we're still getting growth as we saw in Q4 in Europe, which is pretty striking when you think about the numbers that all three major can makers have posted, and also shows you there was a big destocking effect in Europe in November, December.
So that carryover, Ollie, if you can, sort of dig a bit more into that. So you think there's still potentially a little bit more destock that needs to occur in Europe, or we think we're done with that, consumption has settled out, and it's just a question of what the inflection and the ramping growth will be?
Yeah, I think that's where we are now. I mean, there was clearly a, you know, a significant gap between retail sales and our shipments in Q4 in Europe. So we think that was pushed pretty low in terms of our customers' stocks. And we could certainly see that in our January numbers that, you know, a few big players pulled pretty hard to rebuild stocks in January and are still pulling well into February. So we think that's a good sign. And then obviously that 1% to 2% for the market overall was a good sign in what was a pretty weak consumer environment and also an environment where our customers had gone strongly on price. And certainly the ones that went strongly on price suffered significantly on volume.
Understood. And if we can talk a little bit about Brazil, you're again up against somewhat tough comps, you said. If you can have us, if I heard that correctly, if you can have us take away what you would expect in terms of progressions, not, you know, week by week and so on, but just where should you have your strongest quarters? Where should you have your weakest quarters in terms of that modest growth, maybe low single digit to mid single digit growth?
Yeah, I think Q1 will be difficult because we had some volumes in last year that then got mixed up with all the situation with returnables and with the situation in North America as well on that major brand issue. So, I think Q1 will be more challenged. Q2 should be better. Then we had a strong Q3, Q4 last year, so we're probably lapping pretty much, you know, line ball with Q3, Q4. So probably Q2 would be our strongest quarter. It would be what we'd anticipate.
Thank you for that. Any questions from the audience as we start? Linda's in the back with the microphone. What are you seeing right now in terms of promotion from your customers? Very frequent topic these days. What's your sense as well, relatedly in terms of innovation? Are there? I know you can't necessarily give away details in terms of what some of your best customers are thinking, but conceptually, what should we think about in terms of innovation driving volume in the next, you know, one, two, three years?
Sure. So I think it's clear that soft drinks promotions have ticked up. You look at 2023, it's better than 2022, which is better than 2021. We're not back at 2019 levels in North America. And, you know, we may not get fully back there, but I think it's clear there's a lean back towards promotional activity in the data we're seeing on the soft drink side. We see it much less on the beer side with all the disruption in that market last year in North America, but we're much less exposed to that. So that's less impactful for AMP. And we'd be hopeful that there continues to be a lean in towards volume by our major customers this year with input cost moderating. They, I think, reached the limits to some degree of the price lever in terms of revenue growth.
So, and we see that in some of their results now. So we remain constructive that, you know, retail pricing will continue to improve from a consumer's perspective, particularly as consumer real wages catch up. And we see the same phenomenon in Europe, I think. I think the retail sector overall in Europe has said enough of this. You know, we accepted some inflationary pass-through when it was very extreme, but the big retailers in Europe have very strong value propositions around value for money. And they're basically saying that's, you know, we're done with this. And now we're going back to the last 30, 40 years, which is, you know, pretty strong competition on price. And obviously beer and soft drinks have always been a big part of their proposition. So we do see retail pricing, we think, getting more competitive.
And again, we think consumers are getting some degree of real wage growth. Obviously the economies remain troubled. So we're not being overconfident, but we're cautiously optimistic that they'll lean more into volume this year than last year. On the innovation front, I mean, I think the soft drink space is super active. You know, you see all these healthy drinks, the Poppis, the Olipops. You see all the functional energy drinks, the Celsiuses, the Alanis. Very hot spaces. Still activity in FMBs and other, you know, mixed alcohol spaces, a bit less meaningful, overall and for us. So the soft drink space is definitely where we're seeing, you know, most of the activity that looks very strong, sparkling waters, flavored waters, and obviously still water with brands like Liquid Death.
Do you think there'll be, to the extent that you let me put it differently? How many new products are you working on now, roughly, relative to, say, three years ago? Innovation is good, you just said. It's mostly in non-alc. How does that weigh out in terms of your activity versus a couple of years ago?
Oh, yeah, I think it's definitely advancing each year because, I mean, this stat that we all know, right, that over 80% of innovation is in North America, beverage innovation is going into the can, is leading to that, you know, process where we get more and more. We also have the digital print companies, Hart in North America and NOMOQ in Europe that get a lot of small innovative companies coming to them with new products. So we see that pretty early. So yeah. And then actually we have an interesting stat in Europe, that we've got double the new labels into the business in January, February than we had this time last year, which again is a sign of SKU growth.
Though, I mean, we've got to be careful. We've got the Euros. We've got the Olympics. There may be quite a bit of promo, and special edition type activity in there, but it's still interesting. So yeah, we feel very good about the way the can is the main vehicle at the minute for beverage innovation.
Of the other substrates, are you seeing any momentum in terms of new product introductions? We've actually picked up surprising tick up in paperboard in beverage new products, but that's not necessarily going to compete head on head with where the can is. But what are you seeing, if anything at all?
Yeah, they across the board, the still side of the portfolio, it's true. And we're obviously more carbonated. Well, I think all three regions, you know, but particularly where we've got the good data, North America and Europe, we can see that the beverage can was winning in the substrate mix last year, even when volumes were down. We were down less than the other two substrates. So at the minute, what we're seeing is that innovation trend, the sustainability trends do seem to be supporting the beverage can.
Thank you. Any questions from the audience? Ollie, David, maybe, as we continue. You know, Europe was a bit tougher for the companies in Q4 . Sure, sequentially things look like they're getting better. But what's been going on in terms of consumption, to the extent that you can share in terms of why it looks like it's been a little bit of a weaker region, not just for yourselves, but for other players in beverage cans, for sure.
Sure. Yeah. I mean, look, clearly there was a big cost of living squeeze. So, I mean, energy, even though it's now normalizing, has gone through the biggest shock we've ever seen on mainland Europe with the war. You know, in 2022 we were hedging at ten times normal rates at times. And so, you know, even though governments protected the consumer and got it into range of, you know, two or three times, still a massive impact on consumer budgets. And then you add into that interest rates going up. So people coming off fixed rate mortgages into variable rate interests, suddenly their mortgage cost could go up four times. So you certainly saw the consumer under pressure across the continent.
And into that environment, if people got pricing wrong, inverted commas, so if they priced too high, there was much more elasticity than usual. So you'd see complete loss of sales if people priced, you know, too high. And what we saw was the value brands, the brands that were serving, you know, retailer owned brands doing much better. And we saw some key major branded players doing much worse. And their, you know, results have come out recently. So you can see them, particularly on the beer side. So we saw it strongly on the beer side relative to soft drinks, which performed a bit better and energy also more resilient.
So I think it was all about, you know, the consumer was under pressure, input cost had risen, our customers took different decisions on pricing, which they didn't have great visibility on how those were going to play out. And we do see that customers in Europe are still struggling to forecast. I mean, we had a big soft drinks player last year, mid-year, thought they were going to grow 2 or 3 points, you know, didn't. We're, you know, you've seen Heineken with the guide for the year of low to high, you know, digit, single digit profit growth. That's a pretty wide range for a mass beer player. So you can see they are all still trying to pick exactly where the consumer is at, and we think that'll stabilize during this year, but it was obviously a difficult time for the last 12 months.
Thanks, Ollie. And then if we can talk about some of the customer issues, not the right term, but, considerations that you've had in Brazil, where we had one of the brewers had some financial challenges. There were some other customers that shifted from one supplier to another. Where are we in that trend, if you will, right now? And is your volume pretty much stabilized? Have the customers stabilized? And what's embedded in terms of any customer difficulties relative to that, you know, low- to low-single-digit growth that you're targeting right now in South America?
Yeah, I think all good on that front, to be honest. I think they clearly went through a judicial restructuring process. One of the major brewers down there, a big customer of ours. They got through that very successfully. They traded extremely well in Q4, and started the year in good shape. So I think that's all very positive in terms of, you know, what was an unexpected event last year. Yeah, that other major brewer than in Q4 2022, it's true. They pushed volumes a little bit away once they hit some minimums. Again, much more stable in our mix now, traded again well in Q4, starting the year strong.
And then, you know, obviously I think we're seeing also the major brewer down there didn't, you know, reduce their can volumes as much as we might have expected last year with the shift to returnable and again started the year very strong. So we see the market. We get good data on the market there, you know, up 20% in January. We were not up that much, but, you know, it's very good news for the market. So I think, yeah, we're feeling good about Brazil. Once Brazil comes back, it will come back very strongly.
Thanks, Ollie. Any questions from the audience? We've been talking about top line, volume trends. We'll get to earnings, in a minute. Kajedra?
So actually two questions from me. One on your views on the demand outlook for the medium term, given that we have seen some slowdown in the bev can side. So where do you see that heading into medium term beyond 2024? That's the first question. Second question was on your can sheet supply side. So we are seeing more can sheet capacity come online in the North America. So how do you see that? Do you see that as a tailwind in terms of the pricing you can get, or do you see that as a neutral? Like, how does that impact you? Is that a positive? That's a positive from the supply security, for sure. But just in terms of pricing, how do you see that?
Sure. Taking that second one first, I think, as you say, it's very positive from a supply security point of view. It's also very positive from a sustainability point of view. We think those new mills will be extremely efficient and also very strong on trying to use renewable energy and also getting recycled content into the mills is going to be a big priority. So we think that's all good news from the beverage can perspective. Obviously they were big investments. So I think the whole industry has supported them in terms of making sure that those investments would pay back. So I don't see that it's some huge pricing game. It was much more about security of supply, especially with all the geopolitical risks we have and the amount of metal that was being brought into North America.
So, you know, extremely positive, from our perspective, those two developments. And then the medium term trends that I always say, if you go back to 2019, Europe beverage can market grew at 6%. I think Brazil grew at 10% and North America grew at 3% to 4%. So this is pre-COVID, pre-anything, you know, and there's no reason. The fundamentals are the fundamentals that were there then, which is that there's innovation going into the can and there is a sustainability tailwind for the can. And, you know, I know we'll talk about it more, but I think that's only strengthening at the moment. So, so yeah, we remain very constructive, obviously, about the way the beverage can will grow, either from liquid growth, from this innovation or certain categories like energy, or from pack mix shift, which we see in all three of our major markets.
Ollie, those growth rates, if you can go over them again, is that what you would expect on a going forward basis, you know, past 2024, 2025, 2026?
Yeah, look, I think, you know, we obviously we're going to be cautious at this point after the last two years, you know, nailing our colours to that mast. But I think there's absolutely no reason why Europe can't be a, you know, low to mid single market. There's no reason why Brazil can't be a mid market. And there's no reason why North America, which is now, you know, 120 to 130 billion cans, can't be a low singles growth market. So yeah, we feel very constructive about those medium term trends. And obviously the last two years, a whole series of shocks, which were not anticipated.
Thank you. Maybe we'll do one more question on innovation top line. So the fact that we're seeing modest growth, the fact that we're seeing improved promotion, it does sound like there's a lot of depth of promotion. I don't know if you'd agree with that.
Probably fair. Yeah.
What else can the your customers do to bring innovation and excitement to the category? I mean, we've had flavor extensions. We've had new products. What's left to do? I know that's a very, very sort of open question. And if that hits, is that what we need to get low single-digit growth in North America, or that would be incremental? And.
Yeah, no good question. That's a really good question. So look, I think we're seeing in our portfolio these very hot spaces. So, I mean, where they generate excitement is by riding the mega trends, you know, in the market. And those mega trends, long term mega trends around health and wellness in particular, are still playing out. So as I said, I mentioned, you know, Poppi's, the Olipops, the sort of health soft drink space is very active. And I think there is a lot of excitement around that sort of space. And that takes you right across, obviously, into flavoured waters, sparkling waters, all sorts of interesting spaces where there is a lot of growth.
And then the other one has been this, you know, again, in the sort of health wellness gym, you know, active, area has been around these energy drinks that are picking up a lot of consumption, you know, off the back of either the gym culture or other active lifestyle type cultures. We see clearly influencers and social media playing their part, generating excitement, right? So we see products in our portfolio go from almost nothing to 500 million cans last year, you know, off the back of those kind of marketing initiatives. So you see a lot of excitement generated around particular products off the back of celebrity endorsement, which, you know, is a new thing really that we've not seen before.
What are your customers saying about what they either excited by and they can use for an innovation angle or concerned by because of consumption and what it would mean from GLP-1 and what that effect is going to have over the next what effect will be seen over the next couple of years?
I mean, we honestly haven't heard a huge amount about it from our customers. You know, it still feels very early to know the uptake and persistence of the drugs. It feels very early to be absolutely sure what impact they'll have on different drink types as opposed to food. And what we've seen.
We've heard there's more of an effect on beer versus soft drink at the last panel.
Yeah. So look, I think that our customers have always been extremely good at, you know, pivoting their portfolios to different issues that they've faced. And this is not a totally new one, right, in terms of sugar and other challenges. So, you know, with the innovation we're seeing in those healthy drink spaces and with the way big customers can orient their portfolios, we're still feeling pretty confident that they've got time, you know, they've got some runway to do that. They're not really talking to us about it if we think about certainly the near term, the next year or two. So yeah, I think we just feel we need time for that all to play out.
Yeah, I think what we're seeing because of the innovation in the category, we're seeing it becomes a bit more of a game of portfolio, you know, making sure you're with a number of customers in a number of categories and some will do well one year, some will do less well the next. And you know, we see that in the results of the can makers.
To the extent that you can comment, what operating rate do you think you'll be running at? What operating rate do you expect for the industry, to the extent that you can comment for the industry across your major regions?
We think that both we and the industry are running in the low 90s in Europe and North America this year, and that, you know, both we and the industry, without a doubt, could take out some capacity. Obviously, there's been some permanent takeouts in North America. We also took out, as I mentioned, the steel lines in Europe. We will keep under review, obviously, our overall capacity position relative to the growth to make sure that we stay in balance.
Brazil, a lot of mid, including curtailments from what you see.
Well, we'd be low pre-curtailment. So we think the markets are in the low 90s pre-curtailment, which is a constructive place to be because it means you don't need a huge amount of curtailment to get into the mid 90s, which is where the industry needs to be. Once you've got geographic and seismics and seasonality, once you're in the mid 90s, the industry feels pretty full. So we think, you know, that sort of space. Brazil will need to curtail to get into the early 90s. So we brought up a line last year and we'll basically take down one of the old lines in the same facility, for at least this year, you know, possibly next as well, depending on how the market develops.
Okay. And so to the extent that, we obviously had good growth over a period and then we saw capacity respond, what were the learnings from that and how will you, if at all, differently manage your capacity growth relative to the signals that you see in terms of demand and innovation and demand from your customers to add capacity? Is it going to be a bit more conservative or how will you allocate capital differently based on the last few years?
Yeah, I think the whole industry is being a bit more cautious in the next year or two. You know, if you think of what impacted us, clearly the Hard seltzer was a big piece of it. I mean, to be honest, we mentioned it, I think, on this conference. You know, we waited and waited, but eventually we went behind it. And I think everybody thought, even if it wasn't going to grow 100% every year, I don't think we thought it would go negative 15% every year. So I think, you know, learning from that obviously is that these alcohol innovations, even when you wait as long as we waited, they can still be a bit fashionable. So we obviously did learn that lesson. From a contract point of view, we had some strong contracts in that space.
You know, again, it's public that we've addressed those situations. Then I think, you know, if you take the other big shock was obviously the inflation, the Russia-Ukraine war, you know, obviously the situation with a major brand in the US I mean, I guess the learning from that is that very unexpected things can happen. Yeah, I think clearly the industry overall is going to be a bit more cautious in the near term. I don't see contracting changing hugely in the market that we've got today. And, you know, we've got plenty of runway on our capacity anyway.
That was one of my next questions. So as we sit here today, given your capacity, when do you think you need to start thinking about adding capacity? It sounds like South America's a little bit farther behind, but North America and Europe, do you have a couple of years to grow?
Yeah, I think we've got a couple of years. I mean, it's clear in the next year or two, you know, we don't need any on the base of our plan. And then obviously it depends how the markets go for 2026. So yeah, I think it's that kind of time scale that we'd need to start thinking about it depending on, you know, particular geographies, regions, dynamics. Sometimes you may have to tweak a little bit like we did in North America last year to get standard cans into the mix. And also with the closure of Whitehouse, we had to bring a can size into Chicago. So sometimes you're doing those minor network investments, but I think major capacity additions, yeah, we're a good couple of years out.
There’s a lot of discussion in the last couple of years about the potential for renegotiations. Potential is not the right term, but the fact that many of the contracts that had been entered into in the late teens were going to be coming up for renewal. Any observations you’d leave with investors in terms of what opportunity, what challenges, that timing might mean for you or really nothing to worry about because of what we talked about in terms of operating rates and what we’re seeing elsewhere in terms of top line?
Yeah, I think we're reasonably comfortable with that position now with the industry moving into the low 90s with, you know, obviously everybody really balancing their positions. So yeah, we have a, you know, number of positions in 2025 and 2026 that need to renew. But we're feeling pretty constructive about those, you know, with where pricing is sitting and where capacity is sitting. So yeah, we're relatively comfortable on the North America side. Europe's more of a rolling set of renewables. And Brazil, yeah, similarly, more a rolling set of renewables. So yeah, nothing that's particularly concerning us at this point.
All right. So it sounds like the year has started off at least as well as you had guided, recognizing that was a week ago. But again, we're two-thirds of the way through the quarter. If you're in our seat, what two or three things would you be really tracking this year in the quarter and in the year to determine how you are sort of resolving yourself relative to that guide? Is it all around volume or is there anything else that you would have us focus on?
Yeah, look, I think beverage can makers are heavily around volume. We have big fixed costs once we're in the year. You know, that's what you're playing with. So and then as we called out, I think Europe is probably the key determinant between some, you know, the more conservative end and the top end of the guide would be fair. I think David, is there anything else you'd mention?
Yeah, no, I think I think that that's pretty much spot on. Yeah, it's a volume story and it's the fixed cost absorption that comes with that volume growth into our existing capacity.
David, over the next few years, I mean, when you did the SPAC, you had longer term plans in terms of EBITDA growth and return on capital growth. As you sit here today, I don't, I'm not going to pin you down to the quarter, right? But, you know, say two years, three years from now, what level of return on capital or what level of EBITDA growth would you like to see in the business?
I think certainly we see sequential EBITDA growth year-over-year through 2025, through 2026 and kind of, you know, the earning power of the business is somewhere in the eights. And, you know, ultimately by the time we'll get there, we'll kind of see that play itself through. But I think with the capacity we have in the business, the ability to grow into it, the overhead absorption that comes with that, you know, effectively that's what the asset base will support in the medium term.
Thanks, David. I think that's all the time we have for now for Ardagh. If you would, please join me in thanking Ollie and David for a great presentation. Thanks everybody for your questions and attention.