Gabe Hady here, Bolsa-Fargo senior packaging and paper analyst, joined by my colleagues Richard and Bailey. We have with us this afternoon Arda Metal Packaging and representing company is CEO Oliver Graham and Stefan is here in the audience. Let's see here, as many of you know that Arda is a leading manufacturer of beverage cans globally, having number two, number three positions in North America, Brazil, and Europe. Kind of born out of the divested ball Wrexham combination just about ten years ago. So thank you all for attending. It's intended to be a fireside chat to the extent there are questions. Please feel free to ask. And with that introduction, Ali, if you want to make any opening remarks or we can go into Q&A. Maybe just a couple of themes from from today's questions or anything
like that. Yeah sure. No as you say we're coming up to our 10-year anniversary in in July so excited about that. It's been a great 10 years and I think we've we've added a lot to the company in that time and and really globalized what were three regional businesses born out of the two companies. So yeah very happy with where we're at. I think the themes of the questions have been a lot about growth you know the sector is in growth that's very positive in the packaging world and then resilience you know how do we see with the geopolitical environment how do we see the business and obviously you know both stories very positive I think at our Q1 we were able to you know give very positive messages on both those on those aspects and we see that from our peers as well so I guess that's a good opening remark to say you know we got off the year to a
can stop. Yep. One question that we're asking all of our companies, unfortunately, and part of it hopefully is transitory, but to the extent that, you know, we obviously have input cost inflation, we're seeing it most pronounced in petrochemical derivatives. I'm assuming inks, coatings, lacquers, things like that. But just from your vantage point as a CEO, you know, how do you view this inflation wave, compare, contrast that to kind of the pandemic maybe? Again, maybe it's a little bit different. But just, you know, is it durable? Is there a portion of it that we think
could be transitory? That's a good question. Every day, it's transitory. So I think it feels a bit a bit less broad based and then post COVID, which obviously there was a very sticky supply chain situation initially, which which took a long time to work out as people got those supply chains all back again and also you have the big energy shock following Russia Ukraine which was obviously a big deal and was very unmanaged for a while so we had energy prices at levels never seen before so so this one obviously energy is up but it's not up like that and in the meantime more resilience has been built into supply chains and and the European energy market compared to to then so so we don't see it at that level I think we do see an impact in coatings we mentioned it at the key one that we'd expect in the second half to have some headwinds from coatings but we also said we don't see that affecting our guidance so we can absorb that manage that and I think again to the point I made earlier I think the resilience of the model at the moment is pretty strong to this situation cans are winning in the pack makes they're also pretty good in times you know where people are you know facing cost of living issues and at the moment you know I think we we don't see major issues this year from from the
situation okay I want to get a couple different angles on on I'll call it costs as well as demand but I'm sticking with the demand cadence in the first half of the year or however you want to frame it would it make sense from your vantage point, and maybe the obvious answer is yes, then it's a function of just like what happens in the back end. But for customers to try to channel fill, I know you've kind of been asked the question about pre-buy, but you know, we've got a couple of events this year. It's not the first time again, and maybe it's the third time that customers are living through this, whether it's supply shocks and fears of availability of raw materials or otherwise. Is that something that make sense in beverage cans maybe on the filled side um you know filled product they can keep around for maybe 90 to 120 days yeah they tend not to and so they they tend to operate very just
in time supply chains the retailers the same they don't love holding a lot of stock we do build inventory for our customers in europe and north america in q1 and into first part of q2 and then we start to see it run down as we go into the summer so this is around the time we get a good sense of the of the real demand for the season because if that inventory is not flowing through then we understand that actually the demand signal is a bit softer than than everyone had expected and we're not seeing that so i think at the minute uh we're seeing a decent level of demand but i don't think we're seeing anything that i'd call a major sort of channel fill or pre-stock or
anything like that okay um going back to contracts and i have like i said a couple questions about this but we've we've lived through a couple of these shocks and i'm going all the way back to 2014 when it was first aluminum premium when none of us knew how aluminum actually moved around and then it was energy it was freight in 2018 and so you guys have done a really good job these different iterations of putting in new openers more frequent and or capturing more of the cost structure and pastor mechanisms can you give us kind of an update of of where we are in in terms of how broad those are. They differ by region. I know Europe is a little bit different, but again, the Russia-Ukraine incident, as you pointed out, that gave you an opportunity to say, you know, we need to have protections in place.
Yes, I think it's exactly right to say that over time, the industry has gotten much better at passing through these big commodity movements. So, I mean, you can even go back to 2008 when the industry was still taking some risk on LME, you know, which didn't end well for people. So, yeah, premium now is almost entirely passed through and increasingly fully hedged. The energy, you know, increasingly hedged, but also in some cases passed through in Europe. Freight in Europe and North America and Brazil pretty much fully passed through. So, and then in Europe, we actually do some hedging around that, which was a one-off benefit we mentioned in Q1. So I think you're right. The resilience of the model to these shocks is much higher. We also have diversified supply chains much more, qualified many more sources of metal, you know, diversified around coating. So no question looking at AMP today versus 10 years ago, the model is much more resilient to these kind of shocks.
Okay. All right. You guys spend more time in Europe, I think, more than you do maybe the U.S. So just I'm curious the sentiment over there. it feels like, and again, this is anecdotal, but folks have gotten a little bit used to having conflict and sort of in the backyard, if you will. Anything on travel season for 2026 that you're hearing customers talk about, maybe, you know, two trips in Europe proper versus maybe doing something, you know, outside of Europe, just the resilience of the consumer, anything like that
that you can offer up? Yeah, I mean, it's a little bit anecdotal at the moment, but I think that there is a sense that there might be more European travel and not out of Europe travel and even home country travel so you know the Middle East was quite a travel destination a lot of people would go to Dubai and places like that and then if you're trying to get to the Far East now the the air travel is much harder more expensive and so sort of cheap Far East holidays are also significantly impacted so so anecdotally I've heard of people saying that there's some significant uplifts in domestic tourism impacts which could be positive um you know for a domestic industry like like cans um just to have more people holidaying in in the region so um i think the european consumer is under pressure there's no question about it i mean this has been repeated shocks the energy price the the region is more vulnerable to energy shocks we don't have the sort of energy resources that the u.s has uh quite reliant on gas and and obviously that getting under pressure again though again much more resilient than it was in 2022 so the european union taking a lot of action um and the consumer definitely more a little bit more vulnerable to cost of living issues i think than than over here generalizing across many markets obviously so I think you do have some some dynamics there which are a bit less positive but on the other hand from a can point of view you just have this very significant under penetration of cans relative to the US apart from the UK everywhere other countries is significantly under penetrated you have a lot of glass still in the system which is obviously suffering some big cost headwinds and now with the energy situation unfortunately for them again facing some more cost headwinds you do have more anti-plastic sentiment more sustainability initiatives where can's recycling credentials are very important so i think there's a lot of positives for europe for the can industry and that's why you see the growth rates we've been getting that's why you see the investments going in and i think if you listen to the peers you know we're all commenting very favorably on the sort of time scales we think this can go for which is
you know, long-term growth. Yep. Um, I actually, I mean, I've, I've been getting questions about that in terms of, um, kind of the, the overall positivity towards European growth. Um, and if it can kind of be in that call three to 5% window, um, you must be looking, cheating and looking at my notes here. Um, front running questions, but I did want to ask, I mean, we used to get really good data from the VCME. I'm old enough and follow the industry long enough to, to remember that data actually have a copy of the report where we got substrate mix by country if you would when you study the countries you know you guys are bigger a little more prominent in Germany UK that you participate in can you talk about the major categories maybe I don't know five ten year increments or something like that or some benchmark that we could we could look at relative to the US in in terms of can penetration, maybe sticking with carbonated soft drink and beer. In the US, I think the latest data that we published showed at least this for off-premise consumption, close to 80% penetration for cans on beer, big number. Where you're at, and to your point, I mean, I think there's a little bit of a natural throttle in there in terms of it takes capital from your customers and filling capacity and stuff like that, but.
Yeah, I won't have the exact data, But what you can say is that the UK looks a bit like the US. So again a big off-trade penetration Altogether and a very big penetration in cans in the off-trade. So single-use glass down to relatively small percentages and no no returnable glass to speak of and And actually therefore the UK a lot of the penetration gains are also occurring in More on the soft drink side with the resistance to single-use plastic. So So you see that starting to pick up and get closer towards where the U.S. is now trending. But then you go outside the U.K., every other country in Europe is well below those sorts of numbers. And, you know, in Germany you still have significant two-way glass, which, you know, some of that will stay for sustainability reasons. But a lot will leave the market with the efficiency of the can and the retailers wanting to promote, you know, multi-pack cans to drive traffic. So wherever you look, soft drinks or beer, you find significantly lower levels of penetration compared to UK, US. And that's why you see this growth trajectory. And Germany is the lowest because of the deposit legislation that was put in place in 2003 that was very unfavorable to the can. There's just been this long trajectory back to get to more normal per capita consumption of cans. And we still see double-digit growth rates for cans in soft drinks in particular in Germany, you know, every quarter. and we are still getting actually now metal packaging Europe data but with a big lag for competition reasons and it is showing again you know this three to five is is very solid if not you know the lower end of it sometimes in terms of canned growth so every quarter we get them up the data for our markets every quarter we outgrow plastic we outgrow glass so that's a consistent trend for
two, three years now. Got it. I guess what's preventing is there is there a route to faster adoption? And again, is it just customer sort of stage gating their, you know, their investment? How should we think about that? I think it's
lots of factors. And that's why once it goes in, it's also hard to reverse because you've got everything from the from our customers thinking about their marketing campaigns, their promotions, their shelf space planning that they take to the retailer that innovation pipeline I heard from a customer last week that whereas they used to launch in single-use glass first to get that premium halo over the innovation can could come later now they launch them together you know straight into can as well so these are quite structural factors within our customers then you've got the retailers the shelf sets the the way they're thinking about it and then you get consumer habits and obviously you've also got filling capacity you know how many can lines have they got relative to glass filling or or plastic filling so all of it's quite a big structural element and as you move that forward into you know basically more cans you also start taking out some of those the capacity was there for the other substrates so yeah I think you know and then especially once you get to that point where the consumer is really saying this is where we're at I mean these are consumer goods companies they need to be where the consumer is at and if the consumers more at cans then that's what they'll respond to which was There's a debate for the U.S. this year, you know, everyone's like LMEs high, premiums high, some of which is hedged at the moment. But you've also got to deal with where the consumer is. And if the consumer is wanting the substrate, then you have to, to some degree, match that.
One last one on your sort of sustainability regulation or regulatory impulses. How does that affect the various substrates from your vantage point? I mean, it's a disadvantage to can. And I think it's a lot of times weight-based, which probably is negative for glass, unless it's returnable. And so there's a whole.
Yes. I mean, I think they're moving much more to real recycling. And real recycling is hugely in our favor because there are things that are recyclable, and then there are things that are recycled, and cans are recycled. and so that is where they're going which is true environmental performance depends on it actually getting recycled and actually coming back into the productive life of cans or other products and so that's massively in our favor if you look at recycled content targets and recycling rate come targets that's obviously huge in in cans favor and there are refillable targets so that could hold some of the glass situation more than you'd have expected but they've been calmed down a bit they started at some very high numbers they've they've come down and yeah some of the weight-based stuff is actually going away which you know it's still like there is some legacy and in some of the EPR legislation but largely now they're going much more to these real recycling environmental performances and then we're increasingly going to product carbon footprint I mean that's where our customers are taking us which is okay what is again the true product carbon footprint which is something we're all working on in terms of standards and which with the developments they're going on in the whole aluminium supply chain again I think will be very favorable to the can. So sustainability is definitely a part of why the can is
growing in the mix. And the U.S. is just waiting for Europe to get the map put together and they'll just replicate it? The U.S. is sort of traveling in a
different direction. What's interesting is global customers operating in Europe and also often signed up to, you know, science-based targets, they're equally putting pressure on us for measurement and reporting on these areas. So it's not just a European customer phenomenon. It is global customers as well.
Switching gears, North America. For RDoS specifically this year, you called it out as being a transition year. You weren't bashful about it. You're owning it for a variety of reasons. Can you just remind us specifically kind of what's embedded in that?
Yeah, so I think post-COVID we wrote as an industry quite a long set of contracts that all came out, so 25, 26, and so there were a big set of resets that occurred between 24 and 26, and at the last part of that we lost some volumes that were mostly about footprint situations, either customers closing filling locations and rationalizing or competitors having built plants that were then in more favorable locations or in one case we didn't build a plant that would have been in a more favorable location and therefore it went back to a previous supply location so mostly footprint perhaps a little bit of competitive activity some people wanting the sort of growth rates that we had in the previous few years so and that means our volumes in North America this year will be softer than the market which drags our overall global volume performance and what we see next year is we as part of those resets are actually picking up some locations and so next year we expect to grow roughly at or maybe even above above market so so we call it this transition year for that reason that we're a bit softer this year and we expect to be a bit stronger next year and yeah that's the guts of it point
of clarification um a little bit stronger next year like better than the market because we've got visibility into some of these wins um that transpired yeah exactly and i know you're gonna get frustrated with me if I were to put a number somewhere around that billion unit range is that directionally it's probably a little on the high side a
little on the high side okay but it's I mean it's a sort of meaningful meaningful
level of volume okay South America it's always been a little less linear down there in terms of growth rate even you know whether it's annual or quarter to quarter I don't know if every single one of my numbers down here right but for past six quarters down 15 up four plus 12 minus a lot of volatility you get the point what's driving some of that and i appreciate typically whenever we talk about the market down there we say hey listen you know roughly directionally 80 20 in terms of beer versus other drink categories and you've got a big beer customer down there that is has some self-make assets and they tend to move around their purchases so just help us understand you know there's anything else beyond that that we should be aware of yeah i mean i think it's 80 plus
percent there right the market so in cans um so i think it definitely feels like it's got more volatile post-covered and i think i think you can start with the consumer i think they were much less protected during covert so i think there's much more volatility in consumer spending and behaviors um depending on the state of the brazilian economy the elections the strength of the US dollar and the inflation that's coming through so I do think that that element of volatility is definitely there then I think if we look at our customer base that also I think become more volatile you now have more players competing harder in the off-trade Ambev obviously has come much more strongly into the off-trade in the last five years building their own as you say building their own manufacturing and that means everybody quarter to quarter is promoting harder at times or taking their foot off the gas and maybe going for a little bit margin so you do see strong effects based on customer mix and you see it in our pits depending on which customer is really pushing that quarter suddenly you can get a big uplift and equally then when they stop pushing the next quarter you get a big reduction and that I think I think you had some of that pre-COVID but I think you definitely have more of it now which overall is driving, you know, volumes and growth for the can. But it does mean we're, I agree, much more up and down than we used to be. So you sort of have to ride it out. I think you have to look through it for the year, not worry too much about month to month and quarter to quarter.
Okay. There's, I'll call them a new entrant, but someone who had not been down there, who's currently adding some capacity. Does that inform your view at all in terms of how you deploy capital at least down in brazil and i appreciate you know you've kind of two plants down there and
um yeah and we deployed quite a lot of capital down there um you know in the in the 22 23 time frame so we still have spare capacity in there so we no need at the minute to add him add any more capital i mean that was a very specific situation obviously with a customer building a new brewery and you know making a choice about who supplied it so i think that was um perfectly normal you know market activity if you like um and you know we expect over the stretch for brazil to be a growth market where everybody will get their share make their investments and and get good
returns um i think november 25 we nerded out a little bit and we're checking out a slide deck that you gave us some regional um category breakdowns and it's quite a bit different for you all, I would say, in terms of your regions. And again, we kind of talked about Brazil, but in the US, alcohol, a pretty low exposure for you all. Intentional or not, is that a market where you see opportunity? Or is it just a function of maybe legacy relationships? And similar question for Europe, you know, kind of your footprint and where you see opportunities? Yeah, it's clearly
So we, in the divestment, we got Wrexham's U.S. business and Wrexham is much more soft drinks focused than ball and obviously you have MCC in the market and you had RMMC in the market so you had players in the beer space that meant some of those volumes weren't available to the industry anyway but yeah we inherited Wrexham's business which was as I say much more soft drinks focused and then we aggressively diversified that with new customers, new categories but again principally in the soft drink space though obviously we did a big play into hard seltzers and cocktails and we still have you know a good portion of the business sitting in alcohol but not in mass beer so and and that portfolio has turned out to be a very advantageous portfolio the last five years because if you look at a lot of the growth in cans it was sitting in those categories and particularly in the customers that we'd um targeted and formed good relationships with so we saw a lot of innovation coming into cans coming into those players and those categories that we were they were we were in and we're still seeing that so even though we have some losses this year we can see very healthy growth in specialty cans in in some of those innovative and high-growth companies and attractive categories so so yeah it was somewhat intentional somewhat legacy but definitely played out well for the business and then Europe was ball Europe Ball was more beer focused and so you have a sort of 50-50 split there of beer and soft drinks which again played out very nicely for us in the over time nicely diversified but in the last two years beer clearly under more pressure so then you do see that last year and this year that the beer category is is suffering cans are still growing but relative to other categories less and you know we're comfortable with that though I think that we'll we'll continue to diversify customer base we've got good regional breweries as well as the big the big brewers and you know they're gonna sort themselves out that pricing got a bit high I think post-COVID they'll they'll address that they'll innovate so with no particular concern to that position but equally you know we're very happy to grow in the soft drinks categories as well thank you now to the the aluminum
question a couple aspects to it I'll try to put some numbers on things and I'm sure I'll get it wrong, but we're kind of using average 2024 as a baseline just because it's a decent reference point. And if the standard 12 ounce can costs some number and aluminum is call it 50% of that roughly, our math says it used to be about six cents. And now if we mark to market today, which to your point, the customers are hedged, they kind of layer things in on a three year rolling basis. But mark to market would be another six cents on the cost of a can. Again, it's elevated. Our metals and mining analysts spent a lot of time across the hallway today saying that there's potential aluminum shortages, which suggests prices stay higher for longer. But long-winded way to say, and we're starting to see it in some of the Nielsen data, at least domestically, where we saw the growth in the first part of the year, and it's slowed kind of to flattish as we sit right now. More on the go, which probably shouldn't be a surprise. You fill up $100, you don't go in for smokes and cokes. So my point is, I think investors have a little bit of PTSD from Q4 2022. As you look at your customers, as you think about kind of the consumer affordability, all of these aspects, and I'll call it inventory modulation, you feel like you're better prepared this time around to kind of peek around the corner
maybe it's a loaded question but just no I think I mean I do think Q4 22 is a very different story just because you know coming off the COVID wave there was a lot more hope and expectation in in forecasts right okay and so I think I think we're much more balanced capacity wise balance in terms of expectations than Q4 22 I mean I did say at the beginning this year that we have to be cautious in the face of that sort of headwind but what's been interesting i think is again customer dialogue that says look this is no longer just a cost issue you know it's not just our your costs have gone up so i immediately switched into another substrate there is now a significant amount of consumer and retailer demand around the cap that they can't just ignore and they're saying this to us you know it's not us promoting it that you know the consumer has shifted and isn't asking for single-use plastic for example and is looking more to the can and has got used to the fact that most innovation and new products are coming in cans and that that carries some halo with it so I think yes you know I think there is some significant inflation in the can but I don't think it's as simple as saying okay so then we just automatically switch out and I do think also all our customers took some very healthy amounts of price you know in North America in the last three years and so they have some room possibly to play and to play with the mix and not just immediately overreact so yeah I'm hopeful that I think if I look at the data I mean beer's what's really struggling right so energy CSD actually pretty healthy growth rates and energy on some tough comps and some new products that are hitting national distribution levels And so will inevitably slow down a little bit compared to last year. So I wasn't too concerned when I looked at that data. That looked like for the categories we're in, there's still some pretty healthy levels of growth.
Okay. Maybe I'll give you the opportunity for the, whether it's second quarter, I mean, a full your guide 650 to 675. Anything that you'd like to get out there for us? Numbers wise,
typically don't. Close to Q2. But yeah, nothing. I mean, I think that, you know, what we saw at Q1 looks about right, you know, from what we're seeing in terms of the way our business is playing out and the markets are playing out. So I think Europe volumes are very healthy we had a very strong q125 so our q1 in europe was a little weak this year we also had a slow ramp of some new of some new contracts that were coming on so q2 looks much more normal uh for our european expectations which is where we signaled it and the north american volumes still look softer than the market which we expected but the mix is good so you know we're feeling good about the u.s business operational performance very strong uh both sides of the atlantic and yeah brazil definitely a bit weaker than q1 but still within the rounds of expectation relative to the market and again nothing to worry about on the operational side so i think you know from an amp point of view 26 is is going well it looks like it's going well for the industry when we look at some of the peer commentary that's come out recently and i think again the sector is very
resilient in the face of its environment at the moment. Two things you brought up. Can size, I call it shrinkflation. I think one of the prior companies called it pack mix architecture, price mix architecture. Can sizes, are you limited at all? Have you been making investments in the back end to have a little more flexibility? Whether it's, you know, I think squat cans are something that's a little bit popular right now hit that 100 calorie price or whether price point or 100 calorie consumption point? No actually one one
thing I think we've done really well in the North American network the last few years is make it highly flexible so we're very resilient to different demand patterns in the season or in the inventory build and we also have particularly strong sleep capacity because we obviously built it for the seltzer boom but it's now playing out across a whole series of categories so that's been very good for us as a business and yeah multiple sizes of sleek are absolutely fine as you say as people are managing portion control that that's a good trend for us and we're well placed for it so and we have one or two more investments that we'll make in the North American Network I think just to again increase that flexibility give us all options between 12 ounce standard and specialty and we've seen that this year that we've been able to flip, you know, capacity into the specialty space, you know, to make sure we cover that side.
And then you mentioned a competitor had some constructive commentary, I'll call it. I think some investors reached out to us and said, you know, their numbers look a little overstated or, you know, bigger than they should be. But just does anything, again, knowing what you know from from being a competitor, Or is that sort of playing out as you expected from a competitive standpoint?
I think broadly, yes. I mean, we signaled that we lost some growth in Q1 from the metal shortages. So probably that ended up elsewhere in the market. I mean, I wouldn't say it's a huge effect, but we're pretty sure that some of that was picked up by the competition. So that could be a factor. But I think it looked, you know, off a smaller base, you know, with some of the contract resets, it didn't didn't look completely out of line to me the redundancies that you talked about building
in for metal sourcing and and things like that i know it's tough to tell we've got it changes by the hour it seems like um but aluminum availability expectations for disruptions um again it yeah no
concerns actually um obviously customers have been asking but actually you know the middle least isn't a huge factor in that in the in the setup for getting you know the ingots that come into our business and the coils sorry into our supply chain and the coils that we get so right now we're not seeing any concerns for 26 supply now that the you know the situation in the US with the the fire and the fires in the in the domestic mill are resolved and now that those two new mills are coming up you know situation looks pretty good. Is it
incongruent to think because I think cans can be up to let's say 99% recycled content you still might need a little magnesium in there or something like that but that maybe this is a bigger impetus to drive recycling and you know so that would not right you'd hope so I think US is below 60 well below 60 or
below 50 I mean it's a shocking number for a developed economy to waste that much of a valuable resource to be honest and very weird you know in terms of attitudes towards it but anyway I shouldn't criticize so yeah look you'd hope should you'd really hope so because it's a complete waste and obviously massively important to you know national security as well not to be wasting valuable materials like that right so these two mills will put a lot of pressure into that system whether they can really influence the the politics behind it at a state level to get the material back I don't I don't know I'm a little cautious to to pronounce because it's proved very difficult but
yeah I'd really hope so I think I actually an article hit a couple days ago that said that there was an investigation or maybe there's gonna be some pressure on exporting recycled from the US yeah UVC's yeah I'm not sure
doing a lot of that you're bringing in a lot and that may get shut down because you know there are markets out there saying why are we sending that to the us sure so i think that's a challenge you know and um yeah look it's a huge potential because you could transform the aluminum supply chain in
the us perfect i think uh with that we're out of time thank you very much ollie always a pleasure and finishes up for the day.