Ardagh Group S.A. (ARD) on Q1 2021 Results - Earnings Call Transcript
Operator: Good day, everyone, and welcome to the Ardagh Group First Quarter 2021 Investor Call. Today’s conference is being recorded. At this time, I'd like to turn the conference over to Mr. Paul Coulson. Please go ahead, sir.
Paul Coulson: Thank you. Well, welcome, everybody. We hope you all remain safe and well, and we thank you for joining us today for our first quarter 2021 earnings call, which follows the release earlier today of our results for the quarter. I'm joined today on the call by David Matthews, our CFO; Shaun Murphy, our COO; Oliver Graham, the CEO of Ardagh Metal Packaging; and John Sheehan, our Corporate Development and Investor Relations Director.
Operator: Thank you, sir. We'll take our first question from Mike Leithead with Barclays.
Michael Leithead: Great, thanks good morning and good day guys. First question, just on the outlook. I appreciate the guidance is unchanged. But if you just think through your different substrates or regions, has that composition of earnings generation changed at all? Or would you say it's fairly similar to how we started the year?
Paul Coulson: I think it remains. I mean, obviously, Metal Packaging is performing well. I don't think we want to break out the guidance anymore that we've done already.
Michael Leithead: Got it. Fair enough. And then, Paul, I think you mentioned again today the potential for an exchange offer that could involve some switching of people from ARD shares into AMP shares. My question is following the close of the AMP transaction, would there be some sort of lockup period that would need to pass or expire before you can make such an offer? Or could you theoretically make such an offer fairly quickly after the AMP transaction closes?
Paul Coulson: No lockup as such, and we could make such an offer fairly soon after the AMP transaction closes.
Michael Leithead: Great, thank you.
Paul Coulson: Thank you.
Operator: Your next question comes from Arun Viswanathan with RBC Capital Markets.
Arun Viswanathan: Yes, thanks for taking my question. Good morning.
Paul Coulson: Good morning.
Arun Viswanathan: I guess, I just wanted to catch up on Glass, maybe. Could you elaborate a little bit on how you see that market evolve over the next couple of quarters? And are there any nuances in different categories? We have seen a little trail off in wine because of the growth on the seltzer side. Have you seen that as well?
Paul Coulson: I think right across our Glass business, we're seeing good demand. So in Glass North America, we're seeing very good market conditions in terms of demand. And we're selling all the glass we can. And as I said in my earlier remarks, what we want to do is focus on improve – converting that strong demand into increased profitability.
Arun Viswanathan: Okay. And then what about the cost side? Are there any cost pressures that you guys would point out? Metal is obviously a pass-through, but anything else as far as logistics or raw materials?
Paul Coulson: Well, I think the main one we highlighted on Glass has been in North America, it's been logistics and freight, which in common with a number of other people.
Arun Viswanathan: Okay, thanks.
Operator: All right. Next question will be from Anojja Shah with BMO Capital Markets.
Anojja Shah: Hi, good morning.
Paul Coulson: Good morning.
Anojja Shah: Just to build on that Glass question. You did mention an improving demand outlook in Glass North America better than you've seen in a while. Can you dig into maybe why that is or what's any specific end markets? Or just any more color you can give around that?
Paul Coulson: Well, I think its right across the piece. We're seeing good demand. I mean, obviously, the pandemic has increased food consumption in glass as well as in food cans. But right across the piece, we're seeing good market conditions. And certainly our network is certainly in balance, probably – we're really probably very tight on capacity. So we – and looking forward for this year, anyway, we're seeing pretty good market conditions. And so as I say, it's right across the piece.
Anojja Shah: Okay. Great. Thank you. And over in Europe for Glass, can you give some more details on the lower engineering activity that you called out?
Paul Coulson: John, would you like to comment on that?
John Sheehan: Yes, sure. We have an engineering business, as you know, for many, many years. Quarter-to-quarter, it can be a bit lumpy. So it impacted our revenue line by $5 million or $6 million in the quarter, but there was minimal impact on EBITDA. You can see that EBITDA in Glass Europe was up 8% or 9%. So it tends to be just a little bit lumpier, but there was negligible impact on earnings.
Anojja Shah: Great. Thank you very much.
John Sheehan: Thank you.
Operator: Your next question comes from the line of Roger Spitz with Bank of America.
Roger Spitz: Hi, thanks very much good afternoon. What was the amount of the $423 million of off-balance sheet securitization in Q1 2021 that was attributed to AMP? In December 2020, you put that at $300 million?
Paul Coulson: David?
David Matthews: Roger, it's at about the same level. Overall, it's around $400 million, $420 million, about 3/4 of that is on the Metal side of the house, and 25% of it is in Glass. So similar sort of proportion.
Roger Spitz: Perfect. The – for the full Ardagh 2021 outlook, cash flow items, you reconfirmed the EBITDA of $1.28 billion to $1.30 billion. Would you be reconfirming the other items, for instance, the $380 million maintenance CapEx, 90 lease payments, et cetera?
David Matthews: Yes. Maybe I could just run through that. I think what we said last time, this working capital outflow of 50, maintenance CapEx, $380 million, leases around $100 million, and then the BGI is $900 million. And I think what we said is interest $285 million and tax $75 million. So if you add that lot up and take it off the midpoint of the EBITDA guidance, you get a free cash flow outflow of around $500 million for the year.
Roger Spitz: Okay. Great. And then lastly, would you be interested in providing AMP's Q2 2021 EBITDA and 2021 EBITDA updated guidance?
Paul Coulson: So we'll start to give separate guidance, Roger, when the companies are – this merger is formalized. What we can say is that AMP's trading performance is well on track in relation to the numbers that we published with the SEC as part of the transaction. So the $650 million plus EBITDA this year is on track.
Roger Spitz: Great. Thank you very much.
Paul Coulson: Thank you.
Operator: We'll take another question. This one is from Bob Amenta with JPMorgan Asset Management.
Robert Amenta: Yes. Thank you. Just following up a little on Roger's line of questioning. So from – not counting the proceeds from the bond deal, you had about $7 billion of debt. Then now you say, I'm just a little confused on the April 1, comment in the release. You got $2.3 billion. Are you still getting another $1.1 billion to get to that $3.4 billion or it was $2.3 billion? I'm just wondering now…
Paul Coulson: No. You're quite right. We get the other $1.1 billion when the transaction closes. So it's still $3.4 billion.
Robert Amenta: Okay. So if I take out the metal bonds off and the cash that's held off that. You had about $7 billion of debt, and you got about $3.4 billion of cash coming in against that in addition to the $900 odd million of cash you had on the books?
Paul Coulson: Yes. That's correct.
Robert Amenta: Okay. And is there – and maybe you haven't discussed this yet, but is there any limits or any plans to send some of that cash, what I would say, up out to the – like Ardagh Finance to those other bonds? Or have you discussed that yet? Or do you have a target leverage with $600 million of Glass EBITDA, LTM, and I'm sure you feel that's going to go higher given last year was kind of an aberration. But do you have a target at that level of what kind of net leverage you'd like to have, so on that $600 million of EBITDA?
Paul Coulson: Well, it's more than $600 million. But let me first of all say that in regard to use of proceeds, as we indicated in our call in February last, when we announced the transaction, we intend to repay some $2 billion of our existing debt with the balance, some of which will be to call the remaining $800 million of our 6%. $25 million unsecured notes, with the balance probably expected to be applied to mainly reduce U.S. dollar secured debt. And then the balance of $1.4 billion will be retained for general corporate purposes, including shareholder distributions. But we haven't made any decisions on that yet. And what we will do is we will – with – at the stage of our Q2 results, come forward with guidance on leverage in the separate businesses or in AGSA going forward and what we intend to do cash wise. But do remember that not alone do you have the – at AGSA, you'll have the Glass EBITDA, but you will also have the Trivium stake to 42% in Trivium. And more importantly, you'll have the 80% stake, which currently has a transaction value of $5 billion in AMP itself. Okay?
Robert Amenta: Right. Yes, I guess I was focused more initially on cash flow. I know you're planning on a dividend from AMP, maybe not this year but down the road. But – and then just lastly, for 2021 of all the CapEx you mentioned, can you just – for the Glass business, roughly what is just the Glass business EBITDA – I'm sorry, CapEx for this year?
Paul Coulson: David?
David Matthews: Yes. Of the maintenance CapEx at $380 million, about $250 million of that is in Glass. And of the business growth investments, spend that we're having about $100 million of that is Glass and $800 million of that is Beverage.
Robert Amenta: Okay, perfect. That's all I had. Thanks.
Paul Coulson: Thank you.
Operator: All right. Next, we'll go to Travis Edwards with Goldman Sachs.
Travis Edwards: Hey good morning and thanks for the color. I just had a quick question, if you don't mind refreshing us. Can you – and I know you have more of a bias towards off-premise consumption on the Glass side, but can you refresh us on what your mix is in Europe and North America, just between sort of off-premise and on-premise?
Paul Coulson: John?
John Sheehan: Yes. Obviously, we supply the containers, we don't have full visibility where they go, but we would recommend that 80%-plus of what we do is into the off-premise sector. And it's probably highest on-premise in terms of Glass Europe. But our volumes there even against a pre-pandemic period in the first quarter, where they were slightly up year-on-year. So given that Europe was lockdown for most of the first quarter of this year, it's been very resilient, but somewhere around 80% is off-premise.
Travis Edwards: That's really helpful. And as you think about sort of the path to recovery there, obviously, some volume strength still, but do you have any sort of expectation when you get to pre-pandemic levels? Are you generally there? Again, hard to say with a lot of moving pieces, but any color on sort of your path to pre-pandemic levels?
Paul Coulson: Well, I think we're very pleased with the demand. Well, obviously, the demand in beverage cans is growing very strongly, and we're completely sold out as are our peers. So that side of the house as well. We're very happy with what's happened in Glass Europe so far and its recovery and also with the demand in U.S.
Travis Edwards: Got it. Thank you. Good luck this quarter.
Operator: All right. It looks like we have no further questions at this time. So I'd like to turn the call back over to Mr. Paul Coulson for any additional or closing remarks.
Paul Coulson: Well, thank you, everyone, for joining us today. And we look forward to talking to you again with our Q2 results in late July. Okay. Thank you, everyone, for joining us. Bye-bye.
Operator: That does conclude today’s conference. We thank everyone again for their participation.
