Good day, and welcome to the Ardagh Metal Packaging Third Quarter 2023 Investor Call. Today’s conference is being recorded. At this time, I’d like to hand the call over to Mr. Stephen Lyons, Investor Relations. Please go ahead.

Thank you, operator, and welcome, everybody. Thank you for joining today for Ardagh Metal Packaging's Third Quarter 2023 Earnings Call, which follows the earlier publication of AMP's earnings release for the third quarter. We have also added an earnings presentation 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 third 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 details 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.

Thank you, Stephen. We delivered a robust performance in the quarter to achieve our guidance despite weaker-than-expected demand conditions in Europe. Americas performance was slightly ahead of our expectations, with North America benefiting from strong shipment growth, while Brazil was broadly in line. The deterioration in European demand during the quarter negatively impacted performance against our expectations, which we anticipate will persist into Q4. Our operating cash flow generation has significantly improved versus the prior year, underpinning our conviction in a strong full-year liquidity outturn. We now anticipate that full-year adjusted free cash flow post our growth CapEx, which is near its completion, will be approximately $100 million, which is double our prior expectation. Adjusted EBITDA for the company increased by 22% versus the prior year quarter. This reflected the contribution from increased shipments and a stronger recovery of input costs in Europe, predominantly due to the pass-through of energy costs. The prior year quarter also experienced a significant impact relating to metal valuation timing mismatches, which through our hedging actions and reduced inventory positions, we have substantially de-risked. Global demand remains restrained by sustained retail price inflation and household financial pressures. Against this backdrop, we recorded global shipments growth of 8%, which included 18% growth in the Americas, offsetting a 2% decline in Europe. Despite our strong shipment growth, current performance continues to be impacted by fixed cost under absorption. We are committed to a disciplined balancing of our network capacity ahead of a full recovery in industry demand through a mix of curtailment and longer-term action as appropriate. As previously outlined, we target utilization in the low to mid-90s. In our last update, we highlighted our intention to close our remaining steel lines in Germany by the end of the year, which will help to optimize our network and drive future earnings improvement. Further to this, we are today announcing that we are commencing a review of the possible closure in Q1 2024 of our White House production facility in Ohio, North America. While the possible closure of a plant is a difficult step to consider for our team members and our communities, we must take steps to balance capacity and demand. As part of our collective bargaining agreement, we have notified employees and union representatives, and a final decision is expected before the end of this year. Out of sensitivity to those possibly affected in the process, we will not be making any further comments on the review at this point. We continue to progress our sustainability agenda, and highlights in the quarter included the expansion of our Ardagh Education STEM program to Brazil, where our 10-year investment will benefit approximately 200,000 students across the communities in which we operate. Through the Can Manufacturers Institute in the U.S., we made further investment into recycling infrastructure and also launched a sustainable zero emissions distribution partnership in the Netherlands. We expect to shortly publish our 2023 sustainability report, further highlighting our progress, and we are pleased that this continues to be recognized externally, which includes the award of a platinum rating by EcoVadis to Ardagh Group, including AMP in the quarter. Turning our attention to AMP's third quarter results. We recorded revenue of $1.3 billion, which represented an increase of 10% as the contribution from higher volume mix and stronger non-metal input cost recovery more than offset the pass-through of lower metal prices. Adjusted EBITDA of $171 million was up 22% on the prior year. The impact from higher shipments and stronger input cost recovery was partly offset by higher operating costs due to fixed costs under absorption. Total beverage can shipments in the quarter were 8% higher than the prior year, with 18% growth in Americas offsetting a 2% decline in Europe. Our working capital net inflow of $53 million compares favorably with a net outflow of $50 million in the prior year quarter and drove strong overall cash performance. Now looking at AMP's results by segment. Revenue in the Americas in the third quarter increased by 8% to $732 million, which reflected shipments growth, partly offset by lower input costs, largely as a result of lower metal prices. In North America, shipments grew by 20% for the quarter. This strong shipment growth is driven by the contribution from customer contract commitments backing our investment program, setting a platform for future growth as well as the benefit from a diverse mix in our portfolio, which includes some favorable high-growth segments such as functional energy drinks. Looking at the market overall, demand remains constrained by sustained higher retail pricing and lower promotional activity, which although increasing slightly remains limited in terms of its depth relative to historic levels. Inflationary pressures are moderating, which gives some cause for optimism regarding a recovery in industry demand. What remains apparent through these demand pressures is that the Can is still winning in terms of substrate mix and also through the launch of innovative new products favoring beverage cans as the package of choice. We're encouraged by the increased annual growth in shipments across the most two recent consecutive quarters as well as our early momentum into the fourth quarter, and this supports our forecast for shipments in our North America business to grow by over 10% this year. In Brazil, third quarter shipments increased by 8%, outperforming the low single-digit increase in the market, which benefited from improving economic conditions and favorable weather towards the end of the quarter. Market demand overall remains challenged by consumer inflationary pressures and a higher mix of returnable glass bottles than anticipated in the market. Our relative outperformance reflected a recovery following customer destocking during Q2. We would note that negotiations between a major customer and its creditors are concluding, and an agreement has been reached under the court supervisory organization process. Our outlook is unchanged, and the agreement is expected to be ratified imminently. Following their destocking during the second quarter, more normal order patterns have now resumed. This recovery as well as other customer mix effects underpin our higher relative shipments growth versus the market in the period. Profitability was modestly impacted by some timing-related issues that should reverse in the fourth quarter. Our forecast remains for broadly flat shipments growth for our Brazil business in 2023, and we continue to balance our capacity through curtailment of our network. We reiterate our confidence in the medium-term growth characteristics of the Brazil market, which has historically been a highly attractive beverage can market. Adjusted EBITDA in the Americas increased by 2% to $104 million in the third quarter as the contribution from higher volumes was offset by higher costs, including fixed cost under absorption that remained elevated as destocking was prioritized in North America. This destocking is now complete and has helped underpin the strong cash flow performance and improved liquidity in the period. In 2023, we continue to expect shipments growth in the Americas of mid- to high single-digit percentage, underpinned by continued strong shipments growth in North America. Fixed cost under absorption, net of our mitigating curtailment actions, remains a headwind to our performance. We will continue to take the necessary actions to balance our capacity in line with demand conditions. And as mentioned, we have today announced the review of a possible closure of our White House facility in Ohio, which represents approximately 10% of our North American capacity. We anticipate a further modest sequential improvement in EBITDA into the fourth quarter supported by our momentum on shipments growth in North America and the seasonally stronger summer selling period in Brazil. Our performance versus the prior year will remain impacted by fixed cost under absorption and a non-repeating customer take-or-pay payment from Q4 2022. In Europe, third quarter revenue increased by 14% to $562 million compared with the same period in 2022, mainly due to more favorable input cost recovery. Shipments for the quarter declined by 2% on the prior year as momentum through Q2 and into the early part of the summer fell away, impacted by consumer pressures, adverse weather, and customer destocking. The softening in demand was broad-based across categories and end markets, but it was more pronounced in Germany, Central Europe, and in the beer market with the energy drink segment being one notable area of strength. Third quarter adjusted EBITDA in Europe increased by 76% to $67 million despite the lower shipments, which predominantly reflected improved input cost recovery, principally from the pass-through of energy costs. For 2023, we now expect broadly flat shipments growth, which assumes a mid-single-digit percentage decline in the fourth quarter. Reflecting this deterioration in demand, both from market weakness and customer destocking, we no longer anticipate a significant increase in adjusted EBITDA in the fourth quarter versus the prior year. As mentioned in our last quarter call, it remains our intention to optimize our footprint in Europe through the closure of our remaining steel lines in Weissenthurm, Germany, by the end of the year, and to fully migrate to two new efficient aluminum lines. And we are making good progress in our discussions with the workforce.

Thanks, Ollie. And hello, everyone. Moving now to our financial position. We ended the quarter with a liquidity position in excess of $0.5 billion, and we are no longer drawing on our ABL facility. Our adjusted operating cash flow in the period again performed strongly due to the success of our working capital initiatives. The further rightsizing of our North American inventory, which is now complete, impacted our EBITDA performance in the quarter, but this underpinned our strong cash flow performance, which was further enhanced by good progress on days sales outstanding for trade receivables. The success of working capital initiatives allows us to further increase our guidance for a full year working capital benefit to approaching $200 million. This compares with our initial guide of $100 million. Overall, our adjusted free cash flow for the first nine months of the year is $310 million better than the prior period equivalent. In the quarter, AMP incurred additional growth CapEx of $54 million and maintenance CapEx of $28 million. As previously indicated, our revised growth investment plans are well advanced, and cash outflows comprised the finishing of projects already underway as well as some CapEx to add flexibility to our network. Our expectation for the current year is unchanged, which includes growth investment of just under $0.4 billion with the cash flow element under $0.3 billion. We anticipate that growth CapEx will fall further to circa $0.1 billion in 2024 and beyond. Our leverage metric ended the quarter at 5.7x last 12 months adjusted EBITDA, supported by lower net debt and an improving LTM adjusted EBITDA. This represents a decline of 0.5x of leverage relative to the Q2 position, which we indicated represented a peak position. Supported by our stronger cash flow generation performance and expectation of a stronger year-end liquidity position of circa $700 million, we expect a further reduction in net leverage into year-end. In addition to our strong liquidity position, we have no near-term bond maturities and none of our fixed-rate bonds maturing ahead of 2027 with known maintenance covenants on our bonds. We have today announced our quarterly ordinary dividend of $0.10 per share to be paid later in December, in line with our guidance and supported by the cash generation of our business. Our capital allocation strategy will continue to prioritize dividend sustainability and deleveraging. With that, I'll hand back to Ollie.

Thanks, David. Before moving to take your questions, I'll just recap on the key messages and our performance. So we achieved our Q3 guidance by our global shipments growth of 8%, led by strong shipments growth of 18% in the Americas, offsetting a decline of 2% in Europe, where we do see demand weak into Q4. Our operating cash flow generation continues to perform strongly. And despite our lower earnings forecast for 2022, we're improving our free cash flow forecast and anticipate a stronger year-end liquidity position than previously forecast. And we remain focused on prudently managing our capacity, addressing our fixed cost under absorption and supporting future earnings improvement. We lower our guidance for 2023 to include global shipments growth of approximately a mid-single-digit percentage, reflecting the weaker-than-expected demand in Europe and expect adjusted EBITDA in the order of $610 million, which also reflects the weaker outlook in Europe. In terms of guidance for the fourth quarter, adjusted EBITDA is anticipated to be in the order of $158 million, which is broadly in line with prior year adjusted EBITDA of $159 million. Having made these opening remarks, we'll now proceed to take any questions.

We'll go ahead and take our first question from Mike Roxland with Truist Securities.

Looking at North America, volumes up 20% in Q3. Just wanted to get a sense of whether that was in line with your internal plan or better. Obviously, some of that's related to the new capacity you brought online. But just trying to get a sense. It's really very strong there, but trying to get a sense of whether that was better than you expected. And if so, what factors were driving that.

Yes. Thanks, Mike. I think it was a point or two above our internal expectation. We did have good growth prospects for this year in our plans, which we signaled at the beginning of the year, and we repeated in Q2. So I think it was better but not dramatically better than how we saw the year and how we saw the quarter. And as I said in my remarks, I think we're sitting on some nice growth spaces in the market with the functional energy in particular, but other innovation that's coming through to the market. I think the Can continues to be the home of innovation, particularly in North America, and we're seeing some great products come to market and really pop. And then we also had a strong performance in other categories. We had a good mix of locations and bottlers on the carbonated soft drink side. So yes, we definitely sat on the right side of the market in the quarter. I think we see the market broadly as others are seeing it. So it's probably sort of overall flat to slightly positive, with a balance that we see imports coming down in the import data. So domestic production will be a bit above, a few points above. So the market is still a bit depressed by the strong retail pricing that our customers have implemented in the last 12 months. But again, I think we see that washing out in the next few months. So we feel good about 2024 in terms of the market returning to growth, and we feel good about our growth prospects for '24 in North America as well.

Thank you for the insights, Ollie. I have a follow-up question. If demand is indeed as strong as you've indicated and you're expecting it to improve further in 2024, how do you view the portfolio rationalization you mentioned? I understand you may have limitations on what you can disclose. However, it seems logical that if conditions are improving and you're anticipating growth next year, it would make sense to have all your resources ready to meet that demand.

No, I understand the question. As I said, I think the market will improve next year. I didn’t say we’ll do better than our performance this year. I think that would be a strong statement at this point, and we’re not guiding on ‘24 yet, but we do see good volume growth in North America in 2024. So look, I think it’s simply a question of the growth that we originally expected, both on the side of the hard seltzers, but also generally in the market, and the last two years have been a big step down for all players and expectations due to the inflationary price environment. So when we netted all that out, looked out a few years, we were still carrying and we still are carrying too much fixed cost relative to that, even with the strong growth that we’ve had. So therefore, we felt it was appropriate to start the consultation process, which, as you say, I can’t say any more about that at this point.

And our next question comes from Anthony Pettinari with Citi.

In Brazil, you talked about customer destocking. And I was wondering if you could just help us understand where customers are in that process. And then with regards to glass containers, I think you talked about the Can winning globally. Just wondering how that dynamic is playing out in Brazil this year. And are there reasons to think as we look to '24 that cans may regain some share or hold share or lose share? Like how would you describe the dynamic there currently?

Sure, Anthony. Look, I think there's every reason to be positive about future Brazil demand in cans. The market's probably flat and should be flat to positive by the end of the year in what has been a very tough time for the Can, given the amount of inflation that came through from high LME, from the devaluation of the real, and all of that meant for metal costs going into cans. So I think as those effects normalize and we are seeing the economy improve, it's definitely having a better year than forecast. We'll see retail pricing on cans normalize, and we'll see growth back in cans. And I think there is a limit to the returnable recovery that's happened this year, so I think that will flatten out, and we'll go back to the old trends that we saw. But clearly, we've missed a year or two of growth. And clearly, therefore, the absolute volume in cans in the market at the moment is down than what everybody anticipated, and that's impacting our growth and the growth of others. And the destocking I mentioned, that was a very specific linked to the customer that went through the judicial reorganization. So I don't think we're seeing broad-scale destocking now. I think Brazil customers have rebalanced. We're seeing a good match between sales and shipments. And as I said, I think we've had signs of good growth in the market already in the last couple of months, and we'd be hopeful for that continuing.

Okay. That's very helpful. And then just shifting gears. You talked about the raised working capital guidance and the free cash flow performance, which is very helpful. Can you talk a little bit more about the dividend? The stock is trading, I guess, a 14% dividend yield. Understanding you're not giving guidance for 2024. I'm just wondering if you can maybe highlight some of the puts and takes for free cash flow maybe next year going forward, that can help us kind of think about the dividend and dividend sustainability.

Sure. I'll kick it off, and I'll pass to David for some other comments. But look, I think, as you say, we just had a very strong cash performance. We see that cash performance improving into the year-end, and we see our CapEx coming down in '24 and beyond because we've built out a very strong network with new efficient capacity that we can grow into for a number of years. So we think that, that underpins the dividend. We've got lots of other actions we can take, and we feel confident about that. So as far as we're concerned, nothing has changed. We think the dividend is important to our shareholders and is a core part of our capital structure. But I'll also pass to David for any other puts and takes on cash flow.

Yes. Thanks, Ollie. So obviously, we go into next year with enhanced liquidity from where our initial modeling was to start with. And as Ollie rightly alluded...

There's something going on with our line. Do you still hear me, Anthony?

I do. I do.

Yes. Perfect. Sorry about that. Thanks, Ollie. Anthony, so as Ollie alluded to, I think we go into the new year with stronger liquidity, which is clearly a positive. What we have is the impact of the reduction in our growth investment CapEx spend, which will be of the order of $200 million. And if you look at our working capital inflow this year, that’s also the order of $200 million. So you can think about the two in the same breath when you’re kind of thinking through 2024 and then probably modeling earnings growth over the top of that when we’re thinking about kind of free cash flow coverage of the dividend at that stage.

And our next question will come from George Staphos with Bank of America.

This is on behalf of George. We had conflicting calls this morning. Firstly, you experienced strong volume growth in the Americas overall, and I understand there's an issue with fixed cost under absorption. Are there additional factors affecting incremental margin that prevented more volume from translating into earnings? As we look toward 2024, you are indicating continued growth in North America. I'm curious about the earnings trajectory for the Americas as we head into 2024.

Yes. Thanks for the question. I think Ollie may have dropped off the line for a second, so I'll answer on his behalf.

I apologize for the technical issue. I'm not able to hear the question, but I will address the factors related to fixed cost absorption that may be affecting volume growth and earnings in the Americas. In Q2, we encountered a couple of challenges. Firstly, our production levels were lower, as we regulated inventories, which contributed to strong cash flow performance but impacted EBITDA relative to cash flow due to reduced production. We also faced some anticipated cost headwinds in Q3, including a provision release for Bang Energy following the takeover, which negatively affected North America in that quarter. In South America, we experienced a minor timing issue that also had an impact in Q3. Looking ahead to the fourth quarter, as I mentioned earlier, we will have a specific take-or-pay situation in North America that is not expected to repeat, which is a downside. Additionally, we had a very strong quarter for ends in Brazil in Q4 of last year, which we won't be able to replicate fully and presents a small negative for projected volume growth there. I hope this answers your question.

Great. Appreciate that. And understand you're fairly limited on what you can disclose. But just with regards to this potential closure in North America, are you able to talk about at all how this plant's cost position sits relative to the rest of your network? And then, I guess, as an overall industry, how would you characterize operating rates for the beverage can market at the moment in North America?

On the assumption, Ollie is having some technical difficulties, I will pick up the answers to that. So obviously, we are limited in what we are able to say while the White House negotiations kickstart, and we’ll see where that gets to. But White House is one of the highest cost plants in our network in North America and an older plant. Therefore, it has some fixed costs attached to it, which would be helpful for takeout. Typically, with the plant of that magnitude, you can model something in the low double digits in terms of the actual cost takeout for that plant. And on top of that, obviously, by spreading volumes through to other plants, you get some potential fixed cost overhead absorption benefits sitting over the top of that.

And we'll move to our next question from Arun Viswanathan with RBC Capital Markets.

Sorry about that. Just real quickly, the leverage is relatively high at 5.7x. Maybe you can discuss if the $100 million of free cash flow will be used, how would that be used towards deleveraging and maybe where you plan to end up in maybe fiscal '24 end.

Yes. David, do you want to take that?

Yes. Thank you for the question. I wouldn’t say as set out in our opening remarks, really, we have a very clear capital allocation policy. So with regard to dividends, they’re sustainable, and we’ll continue to adopt our $0.10 per quarter. Part on that, as backed up by the strong cash generation you’ve seen in the last quarter. We deleveraged by half a turn during this quarter from 6.2x, which we said will be a peak, down to 5.7. And we anticipate further deleveraging through to year-end.

Our next question will come from Gabe Hajde with Wells Fargo.

This is Alex on for Gabe. I just want to, first, I guess, ask about the softening in North America and it's now complete. Is that based on your conversation with the customers? Or is that based on order books? Can you just help us understand the destocking trend that you see in Q3 and then maybe the outlook into Q4 next year?

Yes. To clarify, we are currently in the process of destocking. We have been reducing our inventories in the second and third quarters, which explains the lower EBITDA growth relative to the volume growth we have experienced. This focus on reducing inventories is what has driven our cash flow. When we look at our North American customer base, we believe that most of the destocking has been completed. We are not holding a significant beer inventory, and we have not been directly affected by issues related to a specific brand in North America this year. While there may still be stock in the supply chain in certain market segments, across soft drinks, energy, and sparkling waters—the areas we operate in—we don't see customers with high inventory levels anymore. Additionally, it’s important to note that they are not holding onto high levels of costly imports that needed to be depleted. From our perspective, those issues have been resolved, and we have been aligning our inventories this year to enhance our cash flow.

Okay. That's helpful. In Europe, you mentioned softer demand conditions. Can you clarify if this trend has worsened from Q2 to Q3 and what your outlook is for next year?

Yes, right now we don't have strong visibility into next year. A major beer company mentioned they also needed more time for business planning, and we’re seeing this across all our customers in Europe as they go through their planning cycles. I suspect this will lead to a greater emphasis on volume compared to price because, given the summer's developments, it's evident that the pricing strategy has likely peaked. Additionally, input costs are easing. Therefore, we might prioritize volume over price as we head into 2024, but we haven't completed that planning cycle yet, so we lack detailed insights. We'll have more information to share in February. During the most recent quarter, we noticed a decline starting in early August. June was strong with 9% growth, followed by a solid July at 5%. However, we ended up with a decline of 6% in both August and September. The data from Nielsen and other market sources highlighted a drop in retail sales from July to August. This was likely due to a disappointing summer in Northern Europe combined with weaker consumer spending, which our customers did not expect. Consequently, they built inventory over the summer and when they realized the sell-through was insufficient, they reduced orders from us. We saw that impact in late August and September. Things have stabilized in October, although it remains somewhat fragile, it has definitely improved. Last year, we had a strong end to Q4 in November and December, so we are cautious with our guidance for the rest of the year. Despite ongoing pressures on consumers, I believe there are positive indicators for 2024. Wage growth should catch up with inflation, easing some cost pressures. Brands will likely focus more on volume after emphasizing price-based revenue growth over the past year. Therefore, we anticipate growth in Europe in 2024. However, at this point, we cannot specify exact figures due to the absence of detailed feedback from our customers.

Our next question will come from DeSilva with Square Asset Management.

Apologies. I just have a quick question, which is I've seen the growth CapEx guidance for this year, but could you give a guidance on total CapEx spend for this year? And equally, on the restructuring costs, is there any kind of indication on what will be the total restructuring costs of the facility closures and the timing of those?

David, do you want to take those two?

Yes, I’ll take the following. So full CapEx will be of the order of $0.4 billion in terms of cash CapEx. That includes maintenance and IT and sustainability spend of approximately $130 million, which is around about our usual number and is fairly consistent year-to-year aside from the business growth investment CapEx. In terms of closure costs, our financial statements will give you the numbers if you look at the exceptional section there for Weissenthurm concerning our current estimates around that. And clearly, White House is too early a stage of negotiation to comment on at this point.

I would now like to turn the call back over to Oliver for any additional or closing remarks.

Thanks, Elaine. And so thank you, everybody. Just to summarize, we achieved Q3 guidance as our performance in North America, backed by strong volume growth, was slightly ahead of expectations, and that offset some weakening demand in Europe. We delivered very strong operating cash performance again in the quarter, which reflected the success of our ongoing working capital initiatives. And as a result of that, we now expect stronger projected year-end liquidity at around $700 million. And we continue to manage our network in a disciplined manner to balance with demand. So with that, we look forward to talking to you again at our Q4 results. Thanks very much.

With that, that does conclude today's call. Thank you for your participation. You may now disconnect.