Good morning, everyone. Welcome to the Credit Suisse Ninth Annual Virtual Industrials Conference. I'm Curt Woodworth. I cover metals and mining and paper and packaging here at CS. I cover Ball and Crown, also cover the legacy Ardagh parent company. We're very pleased to have Ardagh Metal Packaging with us today at our virtual event. This was spun out of Ardagh and is basically comprised of the legacy assets of Ball and Rexam. We're very pleased to have the CEO of the company with us today, Oliver Graham, who has been with the company since that acquisition, and prior to that, was a commercial director at Rexam. Welcome, Oliver. We're very pleased to have you at the conference. I know investors are very well aware of your peer group.
They're getting to know Ardagh Metal Packaging more now that you're a sort of separate entity, but perhaps you could have some introductory comments. I know there are some slides prepared, and then we can get into the Q&A portion.
Sure. Yeah. Thanks, Curt, and thanks to Credit Suisse for hosting us today. You know, we're delighted to be in New York. As you say, Curt, we have a few opening remarks and some slides, and then we'll get into the Q&A. Welcome everyone joining virtually today. I'll run through these slides. I would just say, they do contain forward-looking statements, so we refer you to the disclaimer on slide two of the accompanying investor presentation, which is also now uploaded on our website. Just before I run through the investment case, for those less familiar with AMP, it's worth briefly recapping on this year's listing process.
Following the February announcement of the proposed combination with Gores, AMP, formerly wholly owned by the Ardagh Group, subsequently began trading on the New York Stock Exchange in August, in early August. The attraction of this route to market was that AMP could fully share with investors its long-term growth plans to take advantage of supportive megatrends. AMP has a meaningful free float of 25%, while Ardagh Group remains a supportive and committed long-term majority shareholder. If I turn to Slide three, we summarize the investment case. We're a pre-eminent pure play, 100% beverage can company focused on 100% sustainable products. We're the leading player in each of our markets. We're either number two or number three market share in all of our markets, and we're an outstanding ESG investment.
Our products are 100% infinitely recyclable, and aluminum is one material that can become 100% recycled in time. Our multifaceted growth is supported by long-term megatrends in each of our markets, as well as environmentally conscious end consumers who are driving an inflection point in beverage can demand. I'll speak to that in greater detail in a couple of slides. AMP has an entrepreneurial owner-manager culture with an experienced management team acting, you know, in the best interest of the business, have delivered consistently, particularly in terms of the increased diversity of the business from a customer point of view, and improved contract terms achieved over recent years. We have nimble decision-making because we understand risk in the business, and we have few layers of management. AMP also has outsized relevance for our largest customers.
As long-standing and deep beverage can relationships are complemented by the Ardagh Group's glass business. These very significant glass relationships, combined with our metal relationships, give us an outsized seat at the table that is completely unique in the beverage can industry. Finally, we have a clear and ambitious long-term growth plan. We aim to more than double EBITDA by 2024 on the back of an over 50% growth in capacity. This is all backed by attractive customer contracts. If I turn to Slide 4 just to give an overview of the business, we have 24 production facilities across Europe and the Americas. The 24th was acquired late last year, and we bought a site in Huron, Ohio, where we're now building both ends and. Okay. Apologies for that.
I'll keep referring to the slides there on our website. The numbering refers to slides on the website if people want to download, but obviously the commentary is relevant with or without the slides. Recap to the beginning of Slide four. You know, we're a leading global player, 24 production facilities across Europe and the Americas. The 24th we bought late last year in Huron, Ohio, and we've started ends production there, and we'll start can production there early in the new year. We have a well-invested asset base. These were good assets brought out of Rexam and Ball at the time of the divestment with highly experienced and best-in-class teams. AMP is a leader in specialty cans, with over 40% of our volumes being in specialty formats, which will significantly increase through our growth investment funds.
We have a diverse range of leading customers, many global in nature, names which will be very familiar to you, and with which we have deep-rooted, long-standing relationships and with whom we contract on a multi-year basis. Finally, as I outline later on, we continue to see strong market growth rates, which we expect to continue for the foreseeable future. On Slide 5 in the deck, we talk about our ESG proposition. We're a leader in sustainability, not only in our industry but across packaging. We have a clear sustainability strategy that covers all aspects, environmental, emissions, ecological, and social, and we recently published our 2021 sustainability report, extending our commitments out to 2030. On the environmental side, we have committed to science-based sustainability targets and have set a target for 100% renewable electricity by 2030.
On the ecological side, it's about ensuring and promoting the circular economy, for which aluminum is one material that can become 100% recycled in time. We have set a target of zero waste to landfill across our plants by 2025, and a 20% reduction in water intensity by 2030. Last but not least, we're a leader in social sustainability, focused on giving back to the communities in which we operate, as well as being committed to the diversity and inclusion agenda. This year, we announced a $50 million, 10-year investment to develop STEM education to over 500,000 students in the communities in which AMP operates across the U.S. On slide six of the deck, you'll see that strong industry growth in beverage cans is a result of multiple favorable mega trends which vary by geography.
In North America, new products and emerging categories are most significantly driving growth. The design and the sustainability positioning of the can, coupled with the shift to specialty cans, are key positives over other substrates. It's estimated that around 75% of all new product launches in North America are now in cans. Europe is leading the way on sustainability, and both consumers and regulators are driving increased use of aluminum in place of plastic. New products and specialty cans also drive this market. The Brazil market benefits from overall GDP growth and a change to one-way packaging away from returnable glass bottles. These mega trends will ultimately affect all markets and sustainability and new product trends driving growth in Europe now will be a tailwind in Brazil 5-10 years from now.
In addition, across the board, for retailers and others in the supply chain, the can's transportability, efficiency and robustness all enhance its appeal. In slide seven of the deck, you'll see the investment and demand outlook. Back in February, we outlined significant plans for $1.8 billion of growth investment CapEx to drive a doubling of EBITDA out to 2024. The confidence in our growth investment plans is underpinned by our expectation that the growth of the foreseeable future in the industry represents an inflection point and a fundamental change in demand. The market is short and supply is unable to maintain pace with projected demand growth for years to come. Historically, the industry had grown at 3%-4% rates in established markets.
Those same markets, North America and Europe, today are growing at 5%-7% rate, with Brazil projected to grow up to 10% annually. Add to this, the level of can imports to the U.S., potentially reaching mid-teens billions of cans imported from around the world, as well as the backlog in PET niche conversion to metal due to a lack of supply, and it's clear it will take the industry several years to catch up to current demand levels. On slide eight, we lay out the shareholder value proposition for AMP and how we intend to allocate capital. Firstly, we see an attractive growth runway ahead of us and investing to support our customers' medium-term demand growth for sustainable packaging is a key goal of the company.
We aim to double our adjusted EBITDA between 2020 and 2024. Our growth projects are backed by customers under long-term agreements, with investments in 2024 largely focused on expansion within existing facilities. This facilitates timely and effective execution, for example, by tapping into our existing skill base and networks, as well as shortening lead times. As is evident, these projects are highly value accretive and are compelling relative to both market multiples and our own cost of finance. Our business model is highly cash generative, with low maintenance CapEx requirements reflecting a well-invested asset base, while we continue to focus on working capital optimization. Our financing costs are also low. This results in cash conversion based on adjusted EBITDA, less maintenance CapEx of some 90% in 2024.
With discretionary free cash flow before growth investments and startup of the order of $800 million. In the near term, we expect to primarily deploy this capital in pursuit of growth projects which are both value and free cash flow accretive. Returns to shareholders, most likely via dividends, will also be a consideration. In terms of leverage, we aim for a steady state level in the range of 3-3.5 times. We have strong access to capital markets, and we require no further equity to execute this growth plan. Before turning to the Q&A, just to conclude, an update on recent developments. Our market backdrop remains attractive and we have a clear roadmap to take advantage of this opportunity. We recently reported a strong third quarter despite some end market volatility.
Inflationary and supply chain strains are everywhere and seem set to continue, but our growth projects remain materially on track. AMP remains focused on medium-term growth, and two weeks ago, we detailed a new $200 million greenfield investment in Northern Ireland, which had been flagged in our third quarter results. The second project, noted in late October in the southwestern U.S., will be detailed in due course. We made a small bolt-on acquisition in Canada to enhance our ability and flexibility to support small customer growth. Finally, as I mentioned earlier, we published our 2021 sustainability report, which you can find on our website. Curt, with that, I'm happy to answer any questions that you may have.
Great. Thank you for the overview. I think when we look at sort of the history of Ardagh Metal Packaging, I think initially the business had fairly high concentration to more of some of the commodity beer channels. I know the company's done a pretty impressive job to reposition the mix commercially over the past couple years. Part of that transition was, you know, getting into energy, other areas like hard seltzer. You know, I'm just wondering, as you map out this pretty aggressive growth curve of 50% volume increase into 2024, can you help investors understand kind of the moving pieces of where that growth is coming from? You know, how much of it would, say, be alcoholic versus non-alcoholic?
In terms of the contract structure, how do you get confidence around, you know, strength of the contracts whereby in the event, such as we saw this year, where hard seltzers are disappointed, that the company has tactical flexibility or capability to pivot around, or the contracts provide some stability in terms of take-or-pay. Because I think there is a concern in the market that, you know, optically the growth looks very high, and how companies are gonna kinda deal with this transition because it will be lumpy at times, like we're seeing this year.
Sure. Yeah. Look, I think if you take the North America market, we see our growth coming from a whole range of areas, actually. We do still see some growth in hard seltzers, off a lower base from this year. You know, we paired that back this year in line with our customers. We still have some growth in our plan, part of which is already being sold in the market today and is actually a replacement of imported cans. Part of it is we expect some, you know, single-digit growth rate in the category once we clean out all the, you know, SKU proliferation and complication that came in this year, which I think just ended up confusing the consumer and not helping the category.
You know, there's been a good analogy drawn with the energy category, which went through a similar phase of, you know, everybody piling in, a loss of growth and then, you know, shake out number one and number two, then manage the category with the retailers, get good promotion, good innovation, and you'll get some growth. We still have hard seltzer in the plan, obviously to a lower absolute level than we would have seen 18 months ago. But that has been replaced by a whole series of other customers and categories where there's, you know, significant additional growth. I'd point to a couple of areas. In the alcohol space, it's really the ready-to-drink cocktails, which are going extremely well, and where we have some very strong customer positions. You know, a smaller one in the alcohol space is wine in cans.
That's going well for us in Europe and is coming now in America. It's really the broader soft drink space. We're seeing CSD, core CSD in growth and with projections that we've not seen in recent years. We're seeing the energy sector, as you said, also very strong. Not just the traditional players, they're very strong, but all the other new types of energy drinks that are coming to market with vitamins and enzymes and electrolytes. That's a very attractive space. All the sparkling waters and infused waters, very interesting space. We do see in the time of this plan that still water will come to the market in cans. We're not betting on it. We've not put a huge amount of capacity assumption around that.
We do start to see now new players come into the market with still water, more the new players than the incumbents, to be honest. We think that trend will accelerate through to 2025. If you took Brazil, it's mostly a beer story, as we said, two-to-one. If you take Europe, it's a broad-based story across beer and soft drinks. Again, some similar themes, energy, coffee in can, very big innovation category in Europe. You know, again, the broader soft drink space looking very positive. We think there is some tilting there of customer portfolios from PET into cans. You asked about the second part of your question, which is about contract structures.
You know, we have a range of volume penalties, if you like, ranging from, you know, traditional rebate structure right up to take-or-pay contracts with customers large and small. We're comfortable that those are very, you know, important penalties for customers. They're certainly not, it's not a free ride just to throw a, you know, a volume number over the fence and see if it plays out. You know, we're obviously conscious that there will be some incentive to do that, so we're looking always across the portfolio of our customers when we're planning new projects. And we're confident from the other market trends that the sort of projections we're seeing are reasonable. To your point, we're absolutely focused on diversifying the business.
You mentioned we were 70% or 80% with three customers in North America in 2016. Those three customers are now 30% of the business. You know, we remain very focused on that diversification. That's what helped us this year when, as you say, we had a bump in the road, which is normal. You know, these are consumer beverage categories. You can't rely on every customer in every category every quarter. You know, you get a bump, and then we were able to pivot away to very attractive other customers and categories and, you know, that helped support our results.
I mean, the fact that your volumes were down 6%, I know you said it's more of like a down 3% comp if you X out the cyber incident, but your EBITDA was up 15% constant currency on down volume. That kind of speaks to, I guess, tactical flexibility within the organization. Obviously, you need volume to really kind of monetize what's going on. Can you speak to how you see the return profile of the business going forward? I know you talked about a lot of the investments you're making are, you know, significantly IRR is significantly above your cost of capital. Can you kind of speak to the return profile going forward?
In terms of 2022, what are kind of the key milestones you're looking for in terms of, you know, monetizing this growth curve? Can you speak to some of the projects, the evolution of the projects?
Sure.
More in the short term?
Sure. Yeah, we look for around a 20%, pre-tax IRR, which obviously is a very attractive level to be at. We signaled that the overall capital portfolio was at that time trending between a 3-4 ratio of capital to EBITDA. I think that, you know, it is extending a little bit more around 4 at the minute with more greenfield and with some of the supply chain inflation. They're still very free cash flow accretive, still very value generative projects, and we're very disciplined around that. You know, to the point we made about shareholder value. You know, as long as we see those kind of growth projects and as long as we see the industry behaving rationally around growth projects, we will be looking to invest, you know, in those kind of opportunities.
If we didn't see that, then we clearly become very free cash flow generative for shareholders. In terms of milestones for next year, if you take North America, Olive Branch, you know, two big Sleek lines, they're ramped up now. You know, just a little bit of debugging on certain bits of equipment. Winston-Salem is coming up as we speak. The first line and the second line will come up early in next year. You know, a few bumps on that project with certain bits of equipment in the last few months, but again, nothing to materially disturb our projections.
Huron, as I said, is, you know, in production as we always said they would be, and cans will come up in Q1, Q2 next year, and that's on track. Now, again, you know, there are bumps in the supply chain, there's no question. You have components that you never expected to be short that are part of some other piece of equipment. You know, we are surprised every day, but our teams are working exceptionally well to overcome that. So far, so good on Huron, which obviously is a big part of the expansion for North America. Those are the three big projects in North America that will support the growth next year.
In Europe, you know, we have a project in the U.K., one in Germany, both again with minor delays, but, you know, coming up in the first quarter. In Brazil, we completed now an expansion in our Jacareí plant in São Paulo. So that's up and running, ready for the season, which we're just going into, the summer season. We've got everything in place for Brazil for the growth next year.
I guess with respect to the U.S. market or the North American market, you talked about, you know, potentially 14-15 billion of canned imports, you know, relative to, you know, market size of, say, 110, depending on how you define it. On top of that, there is onshoring, right? Like, we know Red Bull's building a couple facilities in the U.S.
Yeah.
I think there's you know, somewhat of a misunderstanding in the market that, you know, for Ardagh, the industry to grow mid- to high-single-digit % doesn't necessarily mean that's what kind of the end market is growing, right? Because theoretically, you're displacing a huge amount of imports, and then you have this onshoring component that doesn't show up in the Nielsen data, right? Because that's basically replacement capacity from Europe. I'm just curious, you know, as you think about growth, you know, how much of those imports do you think, you know, can be displaced by cans? Are you benefiting from onshoring?
Yeah.
With respect to the raw materials, you know, 50% increase in volume, that's a lot more can sheet, that's a lot more alloys and components. Do you feel the company is well positioned from a raw material standpoint to have adequate supply going forward?
Yeah. Look, I think the imports will definitely get replaced by domestic supply because they are very uneconomic from a US dollar point of view. They're very poor from a sustainability point of view. You know, you think of the additional freight and CO2 of transporting empty cans all over the world. They also cause significant, potentially significant quality problems if you don't manage it very carefully, because, you know, they're being transported long distances, can get damaged. You know, you've got longer time periods between production and filling. Nobody likes imports. I mean, maybe there'll be a small volume out of Mexico, Canada or something like that. Certainly, you know, to bring cans out of China, the Middle East, South Africa, that is not a sustainable thing to do on any dimension.
Those imports are all gonna get replaced, which is, you know, it's effectively five can plants you've got to bring up to replace them. As you say, we've got growth in the market. We've got, as you say, the Red Bull phenomenon, where a billion, you know, a few billion cans are being, you know, localized and more will be, you know, going forward. Yeah, exactly. To your point, I think we've got another effect, which is inventory. One of the reasons I think you've seen some of the announcements in the industry in the last, you know, few weeks is because all of us are struggling to be efficient with our capacity at such low inventory levels.
It leads to increased changeovers, and that actually gets you in a vicious circle of you're struggling to keep up with customer demand, so you do more changeovers to keep customers running, and then you end up with less capacity because you're stopping, and then, you know, you can't keep up with customer demand. I think that's partly why you've seen some of those moves. You've probably got another $4 billion or $5 billion to normalize inventory. If you think $20 billion in the industry is actually just inefficiency or imports, again, you know, now we're up to six, seven can plants that need to be built and run. I think the thing people miss is how hard it is to bring up can plants in really good ways. You know, that's not an easy thing to do.
It's particularly not an easy thing to do in today's supply chain environment, today's labor environment. We also think the capacity will come a bit slower. We have come across investors who say, "Oh, well, I took that announcement and assumed that capacity was available in the second quarter after the announcement." That's not how it happens. I mean, it's not even planned that way, right? It'll be planned with the first line, and then three, six months later, the second line and the third line, you know, typically. You know, that's if it goes well, and it's easy for things not to go exactly to plan.
Yeah, I think that's why we're feeling what we're feeling, which is customers are still coming to us for more, and we're still having to say no, as we look into 2022.
Okay. Then from sort of a balance sheet cash flow perspective, obviously the reinvestment requirement is very high in the business right now, but can you speak to kind of long-term thinking around capital return, target leverage, will there be scope for shareholder returns during this growth phase?
Yeah, I think we think there will be. You know, I think it'll be in the form of dividends, not in terms of share repurchase, because we don't want to diminish the size of the free float.
Yeah.
You know, we cited a couple of numbers, right? EBITDA minus maintenance at 90%, you know, would generate $800 million of discretionary free cash flow before projects off an EBITDA of $1.1 billion. That's $1.15 a share of discretionary free cash flow generation in 2024. Obviously, we're planning to spend some of that on projects, but again, I think there will be that capacity in the business to pay dividends. We're targeting 3-3.5 times, but we're pretty relaxed if we're a little bit outside that envelope, at different periods to take advantage of these growth opportunities. Yeah, I think the simple answer is we do see the ability to give shareholders some returns that way as well.
Okay. Then I know we're kind of up against time, partly because of the technical difficulty. You know, when you look at your business, your specialty mix is very high, and I'd argue your volume growth is probably best in class relative to the rest of the industry. You know, strategically, what do you think, you know, Ardagh Metal Packaging does differently from others? You know, how do you try to differentiate maybe your value proposition relative to your peers? I know, you know, everyone is fairly confident in an oligopolistic sector, maybe we could kind of end on that.
Yeah, look, I think we bought Ball and Rexam assets, so it's not that we're saying we're dramatically different. We have good teams, good assets. I think that we're in some growth spaces, partly targeted, partly due to some legacy. U.K., Germany, strong market share, strong growth. We're in some growth categories in the U.S., you know, again, due to some moves we made in the 2016 to 2020 period. In Brazil, there's been some repositioning on the customer side of their supply position. I think that's been advantageous to us. I think we do take customer service and customer relationships very seriously. Not to say our competitors don't, but that's playing out. I do think that glass metal position is underestimated.
The advantage of the majority shareholding in Ardagh Group is we can talk to customers across the two substrates. We don't mix any of the sales teams, we don't trade any value, but we do have a completely different strategic relevance to very big customers from having the two substrates, and that's a unique positioning. I think there's a number of things there. You know, the competitors are very good too, but I think we have a number of things there that mean that, you know, that's why we're getting that growth, and that's why we're confident in the plan through to 2024.