Yahoo Finance Ardagh Metal Packaging S.A. (NYSE:AMBP) Q4 2023 Earnings Call Transcript
Ardagh Metal Packaging S.A. (NYSE:AMBP) Q4 2023 Earnings Call Transcript February 22, 2024
Ardagh Metal Packaging S.A. misses on earnings expectations. Reported EPS is $0.01 EPS, expectations were $0.04. Ardagh Metal Packaging S.A. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Welcome to the Ardagh Metal Packaging S.A. Fourth Quarter 2023 Results Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Stephen Lyons, Investor Relations. Please go ahead.
Stephen Lyons: Thank you, operator, and welcome everybody. Thank you for joining today for Ardagh Metal Packaging's fourth quarter 2023 earnings call, which follows the earlier publication of AMP's earnings release for the fourth quarter and the full year. 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 related materials for the fourth 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.
Oliver Graham : Stephen. 2023 represents a year of transition for our business as the team navigated a challenging macro demand environment, and took decisive action on our footprint and inventories to position the business for growth in 2024 and beyond. Despite the market context in particular softer European demand, we achieved record global revenues and shipment volumes, which grew by 5% for the full year and 2% in the fourth quarter. Our Americas segment grew at an almost mid-teens percentage, driven by strong growth in both regions. Our actions on energy pass-through to our customers in Europe resulted in stronger inflation recovery, but this was more than offset by unfavorable volume mix effects with a significant decline in production activity and shipments experienced in the second half of the year, which also impacted fixed cost absorption.
In Brazil, full year shipment growth was below initial expectations due to consumer weakness and customer mix, which included the customer restructuring that is now resolved, but with an encouraging sequential improvements in shipment trends during the second half and a strong Q4 against a weak prior year comparable. Our team's efforts on working capital management in this challenging environment generated a near tripling of cash from operating activities, resulting in AMP ending the year in a robust liquidity position. Our fourth quarter performance was negatively impacted versus our expectations by weaker-than-expected volume and mix effects in Europe, which was partly offset by a stronger performance in the Americas. European shipments deteriorated towards the end of the quarter and well below retail scanner trends, which were more positive reflecting what we view to be largely customer destocking actions.
There was a clear divergence of performance by customer and geography and with a gravitation towards value brands and private label. Our confidence in a stronger performance in 2024 reflects our expectations for volume growth in all regions leading to improved cost absorption, in addition to our footprint actions. Inflationary pressures are moderating and the beverage can continues to win share as the package of choice by customer innovation and its sustainability advantages. We are committed to balancing our network capacity with demand through a mix of curtailment and longer-term action as appropriate. The two remaining steel lines in Weissenthurm, Germany closed at the end of the year as previously indicated. In North America, we closed our two lines facility in Whitehouse, Ohio this month, which will improve network utilization to a more appropriately balanced position.
These permanent actions will optimize our network and drive earnings improvement. With our well-invested global manufacturing base and a strong diverse mix of customer relationships, we remain well placed to benefit from a normalization in demand, which should drive further earnings growth over the medium-term. During the quarter, the publication of our 2023 sustainability report highlighted our progress on sustainability initiatives. The recently announced supply agreement with Novelis in North America for supply from its greenfield development will further contribute towards AMP's metal decarbonization strategy. AMP alongside other industry stakeholders participated in a call for action at COP 28, and we look forward to updating you on further progress on sustainability during 2024.
Turning now our attention to AMP's fourth quarter results. We recorded [Technical Difficulty] fourth quarter of $1.1 billion, an increase of 5% which reflected favorable volume mix and higher input cost recovery partly offset by the pass-through to customers of lower input costs. Adjusted EBITDA of $148 million was down 7% on the prior year, with growth in the Americas more than offset by a decline in Europe, in excess of our expectation, which reflected customer caution and apparent destocking against a weak consumer backdrop. Total beverage can shipments in the quarter were 2% higher than the prior year, with 14% growth in Americas offsetting a 10% decline in Europe. We had a strong cash performance with adjusted operating cash flow approaching $500 million for the quarter and $680 million for the full year.
This reflected our team's focus on working capital, in particular inventory management and our ongoing reduction in capital expenditure. Turning now to AMP's results by segment. Revenue in the Americas in the fourth quarter increased by 11% to $705 million, which reflected shipments growth partly offset by lower input costs. In North America, shipments grew by 8% for the quarter and 13% for the year. Our shipment growth was broadly in line with our expectations, which drove record profitability. This strong outperformance versus the market reflects the contribution from customer contract commitments arising from our investment program as well as the diverse mix of our portfolio weighted towards non-alcoholic beverages including, the high-growth functional energy drinks segment.
Looking at the market overall, demand remained somewhat constrained by higher retail pricing and lower levels of promotional activity than historical norms. Industry demand trends improved in Q4 and we expect further improvement into 2024, as input costs moderate retail pricing stabilizes and consumers see real wage growth. We're encouraged by our strong annual growth in shipments in 2023, our pipeline of contracted growth and good early momentum so far in 2024. This supports our forecast for shipments in our North American business, the growth by a mid- to high single-digit percentage this year versus a low single-digit percentage growth for the industry. In Brazil, fourth quarter shipments increased by 34% against a weak prior year comparable, outperforming the mid-single-digit increase in the market.
We experienced encouraging sales momentum with a number of key customers. Shipments grew by 3% for the full year, which was slightly ahead of the market. We forecast modest shipments growth for our Brazil business in 2024, and we continue to balance our capacity through curtailment of our network. We are confident in the growth potential of the business, but remain cautious in the near term given the softness over the last two years. The market has started the year strongly, but we would highlight the earlier date for Carnival this year which may have had some impact in pulling forward demand. Adjusted EBITDA in the Americas increased by 3% to $117 million in the fourth quarter as the contribution from higher volumes was offset by favorable prior year effects, which included a contribution from unfulfilled customer contractual volume commitments.
In 2024, we expect shipments growth in the Americas of a mid-single-digit percentage. Shipments growth and improved fixed cost absorption will drive growth in adjusted EBITDA in 2024. In Europe, fourth quarter revenue decreased by 10% on a constant currency basis to $427 million compared with the same period in 2023 principally due to unfavorable volume mix effects partly offset by a higher input cost recovery. Shipments for the quarter declined by 10% on the prior year, as sales volumes decelerated sharply towards the end of the quarter. For the full year, shipments declined by 2%, with growth in the first half more than offset by the second half deterioration. Consumer demand remains weak given household financial pressures, but the decline in shipments experienced by ourselves and the industry was broad-based and significantly in excess of retail scanner trends in the quarter.
We believe this reflected elevated customer destocking into the end of the year. Scanner trends also showed an improvement in consumer volumes towards the end of the quarter with our shipments experience as customers took increased levels of downtime, over the holiday period. Fourth quarter adjusted EBITDA in Europe decreased by 35% at constant currency to $31 million due to volume mix effects and reduced fixed cost absorption, which offset stronger input cost recovery versus the prior year. Reduced production activity as finished goods inventory was rightsized earlier than expected, resulted in higher fixed cost under absorption and a lower margin contribution than expected from the period-end contract asset. We took action on our footprint with the closure of Weissenthurm steel lines at the end of the year, and we will continue to keep our network under review to balance supply with demand and improve efficiency.
For 2024, we expect low single-digit percent shipments growth with a stronger performance in the second half. Volume growth and improved fixed cost absorption will drive adjusted EBITDA growth in 2024, but partly offset by competitive pressure on a small portion of our business and some upstream cost increases, reflecting elevated energy costs. I'll now briefly hand over to David to talk you through our financial position before finishing with some concluding remarks.
David Bourne: Thanks, Ollie, and hello, everyone. We ended the year with a liquidity position in excess of $800 million, ahead of our expectation. The success of our working capital initiatives resulted in an inflow for the full year of $270 million, ahead of our most recent guidance of $200 million. During the period, our team responded to customer de-stocking in Europe to right-size our finished goods inventory, which followed similar action in the Americas in previous quarters. This resulted in adjusted operating cash flow of $680 million for the year, up from $255 million in the prior year. Our expectation for 2024 is for a further working capital inflow across the full year after our usual seasonal outflow in Q1. AMP incurred maintenance CapEx of $112 million, growth CapEx of $266 million and growth investment via lease additions of $71 million in 2023.
Total growth investment of $337 million was tightly managed below our initial guidance of just under $400 million, and represents a 45% reduction versus the prior year. Our growth investment program is substantially complete with growth CapEx in 2024 to reduce to approximately $100 million, which mainly comprises flexibility enhancements to our network and the final cash flows for some of the growth projects concluding. We anticipate a further reduction in growth CapEx again in 2025. Our leverage metric ended the year at 5.5 times net debt to adjusted EBITDA, falling by 0.2 times in the quarter, supported by lower net debt arising from strong cash flow generation. We anticipate modest de-leveraging on a full year basis during 2024 and a more meaningful reduction thereafter.
Note that in addition to our strong liquidity position, we have no near-term bond maturities and no maintenance covenants on our bond. We have today announced our quarterly ordinary dividend of $0.10 per share to be paid later in March, in line with guidance and supported by our robust closing liquidity position, and the cash generation potential arising from our earnings growth and completing growth investments. There is no change to our capital allocation policy. With that, I'll hand back to Ollie.
Oliver Graham: Thanks, David. And before taking questions, I'll just recap on AMP's performance and key messages. So firstly, global shipments grew by 2% in the fourth quarter and by 5% for the full year. North America shipments growth was consistently strong and in line with expectations. Brazil shipment trends inflected positively during the second half and Europe shipment trends deteriorated during the second half, but retail scanner data tracked ahead of shipments and would support a more positive market outlook for 2024, in line with historic norms. In response to challenging market conditions, our team successfully optimized our cash generation through disciplined working capital deployment and inventory rebalancing. We ended the year with a strong liquidity position in excess of expectations.
2023 represented a transition year for AMP, where our team performed at a high level to balance the business. Our continued shipments growth, permanent capacity actions, focus on operational excellence and tight control of SG&A should all result in stronger adjusted EBITDA generation going forward. Our current view of the market leads us to project global shipment growth for AMP in 2024 approaching a mid-single-digit percentage. Full year 2024 adjusted EBITDA is projected to grow by 5% to 10% into a range of $630 million to $660 million. Our EBITDA guidance is supported by shipments growth with improved fixed cost absorption, accelerated by the completion of finished goods destocking and footprint rationalization. In terms of guidance for the first quarter, adjusted EBITDA is anticipated to be in line with prior year with growth expected in the Americas but with Europe slightly lower as we remain cautious on production with volume recovery weighted towards the second half.
Having made these opening remarks, we'll now proceed to take any questions that you may have.
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