Ardagh Metal Packaging (NYSE:PKG) (AMP (OTC:AMLTF)) surpassed its second-quarter earnings projections for 2024, marking another consecutive quarter of outperformance. The company reported a 3% increase in global beverage shipments and an 18% rise in adjusted EBITDA across both segments, despite revenues remaining flat due to decreased input costs being passed on to customers. AMP raised its full-year adjusted EBITDA guidance to between $640 million and $660 million.
Additionally, the company has made strides in sustainability, secured a $300 million financing agreement, and announced a quarterly dividend of $0.10 per share. Despite a 7% decline in beverage can shipments in Brazil, the region is expected to see growth above mid-single digits.
Key Takeaways
- Ardagh Metal Packaging (AMP) reports strong second-quarter performance, with a 3% increase in global beverage shipments.
- Adjusted EBITDA rose by 18% in both segments, and full-year guidance improved to $640 million to $660 million.
- AMP secured a $300 million financing agreement, improved its liquidity position, and announced a $0.10 per share dividend.
- The company expects continued strong EBITDA growth and improved operating cost performance in the second half of the year.
- Beverage can shipments in Brazil decreased by 7%, but the overall market is projected to grow above mid-single digits.
Company Outlook
- AMP anticipates shipments to grow approaching mid-single digits for the full year.
- The company is optimistic about earnings growth in 2025 and 2026, driven by volume growth.
- AMP expects to continue reducing net leverage ratio and targets a year-end net leverage of 5.2 times.
Bearish Highlights
- In the Americas, revenue decreased by 1%, and energy drinks experienced weakness in Q2.
- In Brazil, a 7% decline in beverage can shipments was reported due to customer mix issues and unexpected downtime.
Bullish Highlights
- Revenue in Europe increased by 2%, and adjusted EBITDA rose by 23%.
- AMP remains strong in Germany and expects continued can market growth in the region.
- Cans are gaining share in Europe, especially in the beer and soft drink sectors.
Misses
- Despite overall strong performance, AMP did not experience the desired speed in promotional activity to drive significant volume increases.
Q&A Highlights
- The company discussed its free cash flow forecast and leverage position, stating no significant change for FY 2024.
- AMP plans to reduce usage of ABL and factoring facilities through cash utilization.
- The weakness in the energy drink category is seen as temporary, with a recovery expected next year.
In conclusion, Ardagh Metal Packaging (AMP) has presented a robust financial outlook, with improvements in key performance indicators and a positive forecast for future growth. The company's focus on sustainability and market trends, along with its strategic financial management, positions AMP favorably for the upcoming years. However, challenges in specific market segments, such as the energy drink category, will require careful monitoring and strategic responses to maintain the overall upward trajectory.
InvestingPro Insights
Ardagh Metal Packaging (AMP) has demonstrated resilience with its latest earnings surpassing projections, revealing a robust financial position. InvestingPro data accentuates this positive outlook with key metrics that investors should consider:
- Market Cap (Adjusted): AMP's market valuation stands at a solid $2.19 billion, reflecting investor confidence in the company's market position and future growth prospects.
- Dividend Yield: With a generous dividend yield of 10.67%, AMP is an attractive option for income-seeking investors, especially in contrast to the current low-interest-rate environment.
- Revenue Growth: Although modest, AMP's revenue has grown by 2.97% over the last twelve months as of Q1 2024, indicating a steady upward trend in the company's earning capacity.
In addition to these metrics, InvestingPro Tips provide further insights into AMP's financial landscape:
1. Net income is expected to grow this year, which aligns with AMP's optimistic outlook for continued EBITDA growth and improved operating cost performance.
2. Analysts have revised their earnings upwards for the upcoming period, suggesting that AMP's financial results may continue to outperform expectations.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips that could provide deeper insights into AMP's financial health and future performance. To access these insights, visit https://www.investing.com/pro/AMBP and consider using the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. There are 9 more InvestingPro Tips available, offering valuable perspectives for a well-rounded investment decision.
Full transcript - Gores Holdings V (AMBP) Q2 2024:
Operator: Welcome to the Ardagh Metal Packaging S.A. Second Quarter 2024 Results Call. Today's call is being recorded. At this time, I'd like to turn the call 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 second quarter 2024 earnings call, which follows the earlier publication of AMP's earnings release for the second quarter. I am 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 second 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 detail of AMP's forward-looking statement disclaimer and a 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: Thanks Stephen. AMP performed well in the second quarter and we were delighted to deliver a second successive outperformance versus our guidance. This is a testament to the resilience of our business, the strength of our customer and supplier relationships, and the commitment of our teams. Global beverage shipments grew by 3% in the quarter versus the prior year, with revenue broadly unchanged as favorable volume mix was offset by the pass-through to customers of lower input costs. Adjusted EBITDA grew by 18% with strong double-digit growth across both segments. Adjusted EBITDA growth, as anticipated, ahead of shipments growth for the quarter due to an improved operating cost performance and stronger-than-expected input cost recovery in Europe, which drove the outperformance versus our guidance. This increased our LTM adjusted EBITDA to $631 million, which we expect to increase further in Q3. The economic backdrop remains challenging with heightened political uncertainty, ongoing inflation, and pressured consumer spending. However, industry growth expectations in both Europe and Brazil have strengthened year-to-date. And following our strong first half performance, we have increased confidence in our full year outlook. And as such, we are improving our adjusted EBITDA guidance range to $640 million to $660 million. Continue to progress our sustainability agenda and recent notable highlights include the extension and for higher volume of a solar power purchase agreement to 2030 will cover up to 40% of German demand needs. Our Huron facility, which recently received an ISO 14001 certification, following which all global AMP production facilities are now accredited, demonstrating best practice environmental management and a commitment to ongoing improvement. The completion of our carbon audit for 2023 highlighted a significant reduction in Scope 3 emissions with the absolute emissions reduction more than compensating for the impact from business growth since 2020. And finally, we recently concluded our global biannual employee engagement survey with a significant improvement in participation rates across all regions. Looking at AMP's results by segment. In Europe, second quarter revenue increased by 2% to $566 million compared with the same period in 2023 due to favorable volume mix effects and foreign exchange, partly offset by the pass-through of lower input cost to customers. Shipments for the quarter increased by 5% on the prior year. Growth was broad-based as customers increased their focus on volume growth, favored the can in their pack-mix and build stock for the summer selling season, leading for sporting events such as the European Football Championships and Paris Olympics. Second quarter adjusted EBITDA in Europe increased by 23% on both a reported and constant currency basis. $79 million due to favorable volume mix and stronger input cost recovery. We expect the stronger input cost recovery to continue and to offset the pricing headwind that we had initially forecast for 2024. For full year 2024, we continue to expect low single-digit percentage shipments growth for our European business as we closely monitor demand patterns and the sell-through to consumers across the summer season. Overall, we're pleased that our full year expectation for Europe has been significantly derisked as this was the area of greatest uncertainty in our 2024 guidance. In the Americas, revenue in the second quarter decreased by 1% to $693 million, which reflected the pass-through of lower input costs, partly offset by favorable volume mix, equipments growth of 1%. Adjusted EBITDA in the Americas increased strongly by 14% to $99 million, with growth in both regions, which was driven by favorable volume mix effects and improved operating cost performance. In North America, shipments grew by 3% for the quarter as we lapped a strong prior year comparable of 18%, which reflected the ramp-up of new capacity. We continue to grow above the market, supported by our pipeline of contracted growth with particular strengths in CSD, sparkling water, and innovative soft drinks. Softer demand in the energy drinks category, which represents about 11% of our portfolio, leads us to modestly reduce our forecast for shipments growth this year to a mid-single-digit percentage versus low single-digit growth for the overall market. We're confident that the market growth rate will increase over time as customers demonstrate an increased focus on volume and innovation and sustainability trends support the growth of the infinitely recyclable beverage can in the pack-mix. In Brazil, second quarter beverage can shipments declined by 7% below industry growth of 8% due to temporary customer mix effects. The second quarter is the seasonal low period for industry sales, which includes downtime taking us from filling locations. Our shipments of ends grew by a strong double-digit percentage versus the prior year period. Overall, we're encouraged by the strong first half of the Brazil beverage can market, which we now believe may grow above mid-single digits percentage this year. Consumption has benefited from a supportive macroeconomic environment and beverage can growth has been further supported by the pack-mix shift back to one-way packaging. We continue to balance our capacity in Brazil through curtailment of our network, and we closely assess customer demand needs beyond the quieter winter period. Overall, in the Americas, we expect shipments growth in the order of a low to mid-single-digit percentage for 2024, slightly below our previous guide due to the softer energy decree in North America. Shipments growth and improved fixed cost absorption will drive adjusted EBITDA growth for the remainder of 2024. I'll now briefly hand over to David to talk you through some of our financial position for finishing with some concluding remarks.
David Bourne: Thanks Ollie and hello everyone. We ended the quarter with a liquidity position of $405 million, an increase from $329 million at the end of the first quarter, which is typically the seasonal low point for our business due to our working capital cycle. Adjusted operating and free cash flow for the quarter was ahead of expectations due to tight focus on cash management. AMP incurred total CapEx of $36 million for the quarter, which included $10 million of growth CapEx. We reiterate our expectation for growth CapEx for 2024 of approximately $100 million and maintenance sustainability and IT CapEx of the order of $120 million, in line with our steady long-term run rate. We anticipate a further reduction in growth CapEx again in 2025. Our net leverage ratio reduced to 5.8 times from 6.2 times at the end of the first quarter, and we expect a further reduction through H2 and for the ratio to end the year around 5.2 times. This will be supported by LTM-adjusted EBITDA growth, further working capital net inflows and lease principal repayments. We anticipate a more meaningful leverage reduction in the future years. We have announced today a new $300 million secured financing commitment from Apollo directly to AMP, which we expect to draw down in the third quarter and will be neutral to our net leverage ratio. This term loan facility is for general corporate purposes and increases our forecast for year-end liquidity for approximately $0.9 billion. The facility is subject to customary closing conditions, banks [indiscernible] with the existing secured bonds is not callable for the first year and is scheduled to mature in 2029. The facility also preserves the flexibility to continue to pay the current level of ordinary and preferred share dividends, but cap dividend payments at the current level while the facility remains in place. Accordingly, we have today announced our quarterly ordinary dividend of $0.10 per share to be paid in September, in line with our guidance and capital allocation policy which remains unchanged. We would also reiterate that AMP operates with a stand-alone capital structure, which is structurally and legally separate to that of Ardagh Group, our 76% long-term majority shareholder. With that, I'll hand back to Oli.
Oliver Graham: Thanks David. So, before moving to questions, I'll just recap briefly on AMP's performance key messages. So, global shipments grew by 3% in the second quarter, with Europe growing by a strong 5% further building on the growth in the first quarter. We continued to outperform the market in North America, growing by 3% despite lapping a strong prior year -- of 18%. Adjusted EBITDA growth for the quarter was ahead of guidance for a second successive quarter with both segments delivering double-digit year-over-year growth, and our strong first half performance gives us confidence to improve our full year adjusted EBITDA guidance range to $640 million to $660 million. Our EBITDA guidance is supported by global shipments growth approaching mid-single-digit percentage, improved operating cost performance, and stronger input cost recovery, and we expect continued strong adjusted EBITDA growth in the second half of this year. In terms of guidance for the third quarter, adjusted EBITDA is anticipated to be in the order of $185 million, with growth across both geographic segments and compared with prior year adjusted EBITDA of $171 million on both a reported and constant currency basis. So, having made these opening remarks, we'll now proceed to take any questions you may have.
Operator: Thank you. [Operator Instructions] We'll go first to Stefan Diaz with Morgan Stanley (NYSE:MS).
Stefan Diaz: Hello everyone. Thanks for taking my question. Maybe to begin, liquidity improved ahead of your expectations and we usually see a working capital release in the second half. Can you expand on why you decided to secure that $300 million financing agreement?
Oliver Graham: Sure. Yes, I'll start, and then I'll pass it to David. So, I think we wanted to demonstrate the resilience of the business and the strength of our balance sheet, and we wanted to increase that resilience and strength a quarter where we had a credit downgrade. And so we decided to take that action to get us to nearly $1 billion of liquidity at year-end, which will also put us in a very good position into next year. So that was the overall objective, and I think that, that will carry us well through the next 12, 18 months. David, do you want to add anything?
David Bourne: Yes, I'll just add to that. Despite that, there's no significant change to our free cash flow forecast or to our leverage position for FY 2024, which as I outlined in the prepared remarks, fall to 5.2 times. So, we aim to utilize that cash to lower our usage of the ABL facility and some of our factoring facilities. So we see it as a very low-cost option in order to strengthen and project that strong business resilience. And for modeling purposes, I know some people will ask, we kind of expect that facility will incur a net interest cost of around about $10 million per ounce. So, it felt like a low-cost option to take out.
Stefan Diaz: Great. Thanks for the color. And I know you're not big in mass beer in North America, but maybe you could expand on what you're seeing by category in the region, particularly in energy?
Oliver Graham: Yes, certainly. So, I think we're seeing strength in the soft drinks arena. So, carbonated soft drinks, particularly sparkling waters, very strong. We see a lot of strength in our portfolio in sort of innovative soft drink. So, the sort of gut health sort of wellness position is going extremely well in the market and in our portfolio. It is on soft drink side, yes, the energy has been the one that was weak in Q2. It's a big category. It's had a couple of great years, and it seems to be taking a bit of a breath at this point and we expect it to return to growth. There's a lot of innovation in that space. Some new players where their growth is naturally plateauing out a bit after, again, a couple of amazing years. But that has been a bit softer in the quarter than we'd anticipated. And then if you go into the alcoholic side, actually cocktails, mixed flavored cocktail is very strong, both in the market and in our portfolio. And then we're growing into beer, but we can see the beer is a bit weaker on the scanner data, but we do have growth in that category this year through contractual gains.
Stefan Diaz: Great. Thank you so much. I'll turn it over.
Oliver Graham: Thank you, Stefan.
Operator: Thank you. We'll take our next question from Mike Roxland with Truist Securities.
Mike Roxland: Thank you, Ollie, David, and Stephen for taking my questions and congrats on the continued progress.
Oliver Graham: Thank you.
Mike Roxland: First question I had is how much of the demand growth that you're seeing in Europe, this quarter, last quarter, do you think it could be attributed to a pull forward of demand related to the Euro comp to the Olympics? Just want to get a sense of whether there has been pull forward of demand and whether there could be some mean reversion or some softer growth in the back half of this year.
Oliver Graham: Yes. Good question. I think we see aside from the euros and the Olympics, we do see customers leaning back into volume to their revenue growth this year, which we had anticipated. We also see the can gaining in the pack-mix with the efficiency of the can and also the sustainability credentials. So, we think those are just more the factors that we used to benefit from that are coming back after a year or two of lesser growth with the inflation in the market. So, we're not putting a huge amount of this on the euros or the Olympics. There was a lot of innovation in our portfolio in the first half, which you could put down to some promo SKUs as well as new products. And so we've got a lot of requests for fresh production through Q2. And in fact, we probably could have had another point or 2 of growth if we've been able to produce all of it. But inventories were low, both on the customer side and on our side going into Q2, and that did put pressure on our fresh production capacity. So, yes, I think you'd expect the euros and the Olympics to have had an effect, but we think the main thing that's going on is a reversion to the traditional growth of the European beverage can market, which has always been very, very healthy. We are being cautious in our guidance. You can see that because we do want to go through the summer period and make sure that there aren't some pull-forward effects. But at this point, July is looking very strong. It would be above our Q2 performance at this point if the trend continues. So, we've got -- we probably are being a little bit cautious as we look into the second half.
Mike Roxland: Got it. That's very helpful and thank you. And then just two quick questions to finish it off here. Last call, you mentioned that you may find offsetting cost actions to drive better price cost. Any color you can provide on what those cost actions might be? Have they been implemented? What's your take on the amount of the company could benefit from and over what time period? And then just lastly, you mentioned increased flexibility that you're building into your North American network to respond to challenging changing market, customer demand patterns. Any additional color you can provide on that as well? Thank you.
Oliver Graham: Sure. Yes. So look, on the first one, I think we mentioned in the prepared remarks that we did have improved input cost recovery in the quarter versus our expectations at the beginning of the year. So, in some of our bigger categories also energy, and that has offset what we initially coming into 2024, I thought might be a pricing headwind in Europe. So, I think we've got a good balance now of pricing cost in Europe, and that helped us outperform our guidance and also raise our full year guidance. We do see ongoing improved operating cost performance as we grow into our capacity and with the various efficiency programs we have in our business. So, we do anticipate further cost reduction as we go into 2025 and 2026 across the business. In terms of North America, yes, we have adjusted our footprint now returning to some standard capacity 12-ounce, 16-ounce and also adjusting our footprint to take into account 26 ounce. So, we are now very well positioned for the -- all the trends that are in the market and can adapt as needed. And we do anticipate, therefore, being able to fully utilize our capacity over the next couple of years.
Mike Roxland: Thank you. Good luck in the quarter.
Oliver Graham: Thanks Mike.
Operator: We'll take our next question from [Indiscernible] with Bank of America (NYSE:BAC).
Unidentified Analyst: Yes, hi guys. Good morning. Thanks for the time. So, in the Americas, despite volumes only coming in at low single digits overall and a decline in Brazil, you still had pretty solid margins in the segment. So, I know you called out input cost recovery, but was there perhaps anything on the mix side that allowed you to perform the way you did in that region?
Oliver Graham: Yes, a little. So, I think we did have some positive mix. And then we had clearly a better cost performance was a significant driver again as we grow into our operating footprint and also we have rationalized our footprint, which we don't like doing from a team point of view, but it was necessary to do with the capacity we were carrying in North America. So, that also helped our cost performance. We've done the same thing in Europe with the steel line. So, clearly, both on the input cost and on the operating costs, we delivered a better performance and then a little bit of mix. And yes, look, I think we also had good end sales in Brazil, which you can count as a mix effect in the quarter, which also was positive to margins. And then actually, again, looking into July, growth looks pretty positive in -- particularly in North America, would be above again the Q2 number. So, we're feeling pretty good about our performance there. We're over 7% year-to-date in the first half, which matches pretty much anyone in the market and is clearly ahead of market growth. So, we're looking positively to the year-end. Even though we've got, again, some very tough comps. I think we have a 20% comp in Q3 and 12% in Q4. So, very strong growth in 2022, it does provide what we can achieve this year, but we're still expecting to be -- through the remainder of the year.
Unidentified Analyst: Okay, that's helpful. And then I guess as we just move more into 3Q and 4Q, I know you called out an uptick in promotional activity, what is that kind of above what you were observing last quarter? And how do you expect that to impact volumes here in the second half?
Oliver Graham: Yes, I think, again, we've been saying it for 12, 18 months. So, we do expect it to normalize over time. I think it has continued to do that in Q2, and we'd expect it to continue to do it. It's probably been slower than we anticipate, our customers were able to achieve more on price than we might have thought. And not surprisingly, therefore, did so. But we think for the revenue growth, they want, they will have to lean more on volume going forward because I think they are reaching the limits of pure price. So, we do expect continued improvement in promotional activity in all of our markets going through the remainder of the year.
Unidentified Analyst: Okay. Thanks. I'll turn it over.
Oliver Graham: Thanks [Indiscernible].
Operator: Thank you. We'll take our next question from Josh Spector with UBS.
Josh Spector: Yes, hi. Good morning. I wanted to follow-up on the North America volumes. So, to the point that you mentioned 3Q has a pretty tough comp. And I mean, I think your guidance implies that your volumes will grow, call it, a couple of percent in the second half. Is that the right way to think about that? Or would you expect that to accelerate at all when you talk about outperformance versus the market?
Oliver Graham: No, I think it's probably a bit ahead of a couple of percent in our numbers, right, to get to mid-singles. But I don't think we see a particular acceleration. I mean the market -- we're calling it low single, but it looks like it's more at the lower end of lower end of -- at the minute. So, mid-single will, in our view, clearly be a beat to the market by some distance. So, yes, the way we're seeing it is that we should land in that mid-single area, and that would mean would be low to mid in Q3 and Q4.
Josh Spector: Thanks. That's helpful. And I just wanted to ask on volume leverage here. I mean, you alluded to some additional cost help over the next couple of years. I mean your EBITDA growth relative to volumes is maybe a little bit more than 2x this year. I guess as we frame 2025, 2026, how should we be thinking about that leverage or I guess it's easier if you want to separately quantify the cost savings different versus the operating leverage? Thank you.
Oliver Graham: Yes. Obviously, we're not guiding 2025, 2026 yet, but we do anticipate good earnings growth into those years with the volume growth. And we talked, I think, at the beginning of the year about having a $30 million to $40 million and sitting in our business from under-absorbed fixed costs. So, we'd expect that to work out over the next one to two years. And that will give -- I mean, I haven't got the exact math to hand, but that clearly will give a ratio that's positive between EBITDA growth and volume growth. So, we'll guide more on those numbers, obviously, in early 2025.
Josh Spector: If I can just quick follow-up there. Is that $30 million to $40 million under absorption, how much do you think you're benefiting from this year?
Oliver Graham: Sorry, Josh, that break up, how much do we think--
Josh Spector: How much do you think that $30 million to $40 million under absorption coming into this year is actually helping 2024?
Oliver Graham: Well, probably about a third -- half is helping 2024. We talked about, I think, a $20 million cost improvement. Is that right, David?
David Bourne: Yes. So, we would have said we had $60 million coming into the year, and we'll have $30 million to $40 million coming out of the year, Josh.
Josh Spector: Very clear. Thank you.
Oliver Graham: Thanks Josh.
Operator: Thank you. We'll go next to Anthony Pettinari with Citi.
Anthony Pettinari: Good morning. You talked about cans gaining you talked about cans gaining in the pack-mix in Europe. And I'm wondering, as you look across the portfolio, both Americas and Europe, which categories or countries are cans gaining, maybe most rapidly from glass or maybe plastic or other substrates? And conversely, are there categories or countries where can share is stagnant or maybe even giving back some share?
Oliver Graham: Yes, good question. I think Europe, it's a bare story relative to glass. So, I think glass has obviously had a lot of energy cost headwinds in the last two years with the Russia-Ukraine conflict, and so the can is sitting at a lower cost position. And when you're in mass beer margins are not particularly high through the chain. So you need to optimize on the pack. And so I think cans are benefiting from that this year if you look across the beer portfolio. And then I think relative to plastic, obviously, it's mainly the soft drinks part of the portfolio where we see our major customers are making commitments around virgin plastic and overall recycled content, which I think is broadly helpful for the can. So, we do see the cash in those soft drinks categories. I can't think of a category in particular, where we're going backwards. Obviously, there are some categories where we're still low share, spirits, still waters. But overall, when we look across the piece, we're generally, I think, gaining share in the pack-mix. And in Brazil, it's a big shift out of two ways we've talked about before into one-way packaging. And some of that is going into one-way glass, but a lot of it is going into cans.
Anthony Pettinari: Okay, that's very helpful. And then just two quick follow-ups on Europe. There's some fairly stringent environmental regulations around single-use packaging that are set to be enacted in Europe? And as you think about the impact on the can over the next five, 10 years versus other substrates, any quick thoughts on that? And then just finally, Germany, obviously, biggest market in Europe, but has some kind of maybe a special relationship with glass. I don't know if you can talk about sort of the long-term opportunity for can penetration in Germany specifically?
Oliver Graham: Sure. So when we look at the European legislation overall, we're pretty comfortable that the can will benefit, particularly because of regulation around recycled content, where the can is extremely strong. But also, if we look at our pathway on decarbonization, the actions that we're taking that our suppliers are taking, it's also a very positive story. Clearly, there's some element of returnable packaging in the EU legislation, but there's already a decent amount of returnables in the European market. So, we think, overall, when we look at it, the can will do very well from most of that legislation. And then in Germany, I mean, we're on this very long-term recovery from 2003 when the deposit scheme that was put in was very ill designed and very favorable to glass, as you say, and so that's why the German market has grown at 10% or 15% a year since then and still has that kind of growth rate. So, we don't see that changing in the near term because it's just a recovery to a more normal pack-mix once the deposit scheme was fixed and people could find a return path for can. So, Germany remains very good growth, and we think it will do that a number of years to come.
Anthony Pettinari: Okay, that’s very helpful. I'll turn it over.
Oliver Graham: Thank you, Anthony.
Operator: Thank you. We'll take our next question from Mike Leithead with Barclays (LON:BARC).
Mike Leithead: Great. Thanks. Good morning guys. First question, can you just remind us just where you currently stand on the previous North American customer volume dispute. I think as of earlier this year, you're still in some litigation. Just any update you can provide? And relatedly, are you assuming any financial recovery in your numbers at this point?
Oliver Graham: Yes. Look, obviously, we can't give any running commentary on the call, but we're making progress. We're still very optimistic about our contractual position. None of the -- there's nothing in any guidance we've given to the market on that situation.
Mike Leithead: Got it. Fair enough. And then, David, can you just remind us on your cash interest expectations for 2024 as we already start looking ahead to 2025. I appreciate it's still early, but when we factor in the new term loan, some lease repayments. What should cash interest at least initially look like for 2025?
David Bourne: Yes, Mike. I mean for 2024, we've said $200 million-ish and actually, that won't change this year as a consequence the term loan facility, given the timing of that and given the use to push to that. For 2025, I would model that $10 million higher at this stage as I referenced earlier, I think that's the net cash cost given the use we'll put the loan facility to off that. And we'll see what the other puts and takes are closer to the time when we do our budgeting and give our guidance in February.
Mike Leithead: Great. Thank you.
Oliver Graham: Thanks Mike.
Operator: We'll take our next question from Roger Spitz with Bank of America.
Unidentified Analyst: Hi, this is Olivia on for Roger. Thanks for taking our questions. So, with regarding the July 2024, $300 million Apollo term loan due 2029, what is the interest rate on that term loan?
David Bourne: The dealer is a private deal and is subject to customary closing conditions. So those terms are private at the moment, but I think I've given you good modeling guidance on what the net interest cost will be for the business, we believe after we put that cash to use.
Unidentified Analyst: Okay. Thank you. And then the other question that we have can Apollo facility be used to take out the preferred? Or is it prohibited?
David Bourne: In theory, it could. That's not our intention.
Unidentified Analyst: Okay. Thank you.
Operator: Thank you. We'll take our next question from Richard Phelan with Deutsche Bank (ETR:DBKGn).
Richard Phelan: I was pursuing the same line of questions as the question here just before this, which is the annual interest when you say a net interest cost. Obviously, that seems low in the context of the current facilities. And I was wondering if that was the $10 million net interest just go only reflected the commitment fee and not the incremental interest if it was fully drawn?
David Bourne: No. So, we're saying that we think will be the net interest cost to AMP from fully drawing the facility, which we intend to do during the course of Q3 and then putting that cash flow to use within the business. So, think about ABL utilization, which currently has an effective interest rate of -- it's about 5.25%. I think about some of the factoring that we do. Those are the sorts of uses that we anticipate.
Richard Phelan: Okay. And in addition to the potential but not intention to buy preferred, can the same thing apply to other bonds in the capital structure, the same way that the portion of the new Apollo facility at Ardagh Group S.A. is intended to purchase bonds in the secondary market at that level?
David Bourne: Yes. Look, this will be cash that sits on our balance sheet. As I said in my prepared remarks is no anticipated change to our leverage position as a result of the cash raise, it's to strengthen our business resilience and to demonstrate that strength across our commercial relationships.
Oliver Graham: And I think our bonds really don't return current until 2027, 2028, 2029. So, there's no real need.
David Bourne: There will be no incentive for us to do anything with those.
Richard Phelan: Understood. And last point, just to reconfirm, I thought I heard year-end net leverage target, which was 5.2 times. Is that correct?
David Bourne: That's correct.
Richard Phelan: Great. Thank you very much.
Oliver Graham: Thank you.
Operator: We'll take our next question from George Staphos with Bank of America.
George Staphos: Hi, everyone. Good morning. Thanks for taking our question. So, to the extent that you have a view on this that you can share from your customers, how long do you think the weakness in energy will last? And what do you think is driving it? You mentioned basically comparisons being difficult. As the markets lapping the progress of new entrants, how much of it do you think is a function of macro and the demographic of some of the larger brands and in turn, that being a function of being impacted by inflation? What are your thoughts? When is the pickup guys? And then I had a couple of follow-ons.
Oliver Graham: Yes, hi George. Yes, I think it's early to know is probably the honest answer. There are some talk about some relatively temporary effects. There's lower footfall in convenience, particularly gas stations, with higher gas prices. There was some talk, I think, from one of the big CSD players that the hydration portfolio really popped with the hot weather and that of mine had been a negative for the energy category. So, there's possibly some temporary factors in there, and we'll only know that as we go through the remainder of the year. I think clearly, they had a couple of years of fabulous growth, so they're lapping some pretty big comps. And we also have some consolidation sector with some M&A activity that happened. So, I think there's a lot going on. There was some very good innovation in category coming out of COVID and some new players who really hit the mark in terms of consumer trends. My anticipation is that we won't see a huge recovery this year, but the category to get back into growth next year. Just based on our experience of it over the last 30 years where you've got some very strong players, some very strong innovative activity, and it's been an extremely high-performing category in all regions, but particularly in North America. So, I think our best guess, George, would be next year, but we need to see how much of this was temporary and how much of it was some underlying factors.
George Staphos: No, I appreciate that, Ollie. Second question, one of the other beverage packaging companies was talking about the fact that within North America within the U.S. and not trying to take political sides, the uncertainty on the election is maybe causing downstream uncertainty in terms of promotional programs, marketing, operations and in term of net feeding back into demand. Are you seeing any signs of that in terms of your conversations with customers or your conversations with other CEOs and what their plans or not at the moment given the uncertainty?
Oliver Graham: No, I mean I think -- I sort of feel what we're seeing is that clearly, there's an attempt to reduce economic activity in the U.S. to bring inflation down. That is putting some degree of additional pressure on consumers who traded with a lot of COVID-support payments in the previous couple of years. So, there is a bit more stress on consumers, although there is now something approaching real wage growth again. So, I think we more see that in the result of what's been a couple of years of pretty significant price rises by our customers, which they found largely stuck and so then they kept going. And so I think we've got to a place where those prices are pretty high. Consumers are in their disposable income under a little bit more pressure. And so the economic activity is just a bit more muted, which I think is the design, right, if you want to bring down inflation. So, that's, I think, the backdrop for me, more than political, but obviously, we're less in the U.S. We don't hear that from the team. I think that what we believe is that revenue growth will continue to be a target for our customers. We believe that means they will lean into volume to get that revenue growth because we think that price lever is reaching its limit. And we believe the can is very well placed for that because we're very efficient through that chain, and we've got the right credentials. So -- that's why we remain very constructive on the North American market. And again, we've had great performance in North America for the last couple of years, over 7% year-to-date, very good July. So, we're feeling very constructive about the market.
George Staphos: And off of that segue both for North America and also Europe, you mentioned that your July trends are better than 2Q, you're perhaps building in some conservatism. Are you seeing -- or what are you seeing that is giving you a reason to maybe build in some conservatism into the back half guidance and on sell-through recognizing -- we all like prudence from our management team. So, we'd rather what you're doing then over optimism, but are you seeing anything that gives you pause in terms of the demand trend? And then lastly, you mentioned I think in North America that there was some volume that you missed on because you just didn't have the capacity to produce it. Are we getting to a point where maybe you need to consider another facility? Or said differently, what amount of creep, what amount of productivity and growth CapEx driven capacity growth can you see over the next several years without putting on a new facility? Thank you and good luck in the quarter.
Oliver Graham: Thanks George. No, actually, that comment was more about Europe. So, what we saw in Europe was that we've been very cautious on inventory build. Our customers have been very cautious on inventory build. So, we saw a big destock in Q4 that I think the whole industry has commented on, we saw a bit of a recovery in Q1. But as it turned out, the summer was much stronger than anticipated. And then the second effect we saw was a big demand on new labels. So, a big demand on fresh production, which does unfortunately reduce the efficiency of our facilities because we're doing more changeovers. So, we lost some production capacity as a result of that in the middle of a pretty strong demand season. And that's why I said I could imagine we've done another point of growth if we'd had that capacity or the correct inventory already built. So, I don't think that's telling us too much about needing to build additional capacity because, A, I think customers will be more cautious on inventory and perhaps on contracting going into 2025, and I think also, we are still bringing up some capacity, particularly in La Ciotat in the south of France. So we will have some additional capacity going into 2025. So, -- and then sort of turning that to your broader question, I think across both North America, Brazil and Europe, we do see that we can grow at least into 2025 and probably into 2026 with the current footprint as we -- because we are still ramping. We're still generating additional efficiencies and we are driving efficiencies generally in our portfolio. And then to your first question about the EU demand trends, we did see some slightly negative numbers in May on a sort of overall volume level for Europe in certain categories, not on the can side, but -- and that was linked to some very poor weather in Northern Europe at that time. So that gave us a little bit of a pause, but the weather in the summer is looking pretty good at the minute. And again, July looks strong. Our constraint at the moment is mostly, again, our low inventory levels and our production capacity rather than demand. So, it's possible we're being on the cautious side, but as you say, we'd rather be there than over lead.
George Staphos: Appreciate all that Ollie and sorry about the mischaracterization Europe versus North America. I'll turn it over. Thanks guys.
Oliver Graham: No problem. Thanks George.
Operator: We'll take our next question from Gabe Hajde with Wells Fargo (NYSE:WFC).
Gabe Hajde: Ollie, David, good morning.
Oliver Graham: Good morning Gabe.
Gabe Hajde: I wanted to ask about the sort of implied guidance for Q4 at 155. And you talked about increased end sales -- excuse me, down in Brazil and just the mix effect of that. I mean, generally speaking, you heard others comments, you tend to sell can in an end. It's got to be filled at some point. So, the implied 155 is sort of in between, what, 2021 and 2023 in the fourth quarter. Is there anything else, again, maybe going with this conservatism question that would say, profit to be down even if volumes are up more in the Americas versus Europe because I think you guys had to throttle back production in Europe. So, how do you expect a pretty good fourth quarter if you get the volume growth or that materializes the way you'd expect on the profit side?
Oliver Graham: Yes. Look, I think to your point, we're planning to sell cans and ends. And one of the problems is that we report this all quarterly. And so you do particularly with the Brazil situation, get some timing effects. But by the end of the year, we don't anticipate for that to have been in a different sale of [indiscernible] in Brazil. So, you're right, there's some amount of what happened in Q2 that can reverse slightly out in the remainder of the year. But then overall, we see that balance across the year. I don't think there's anything else, but I'll check with David that's affecting our H2 guide in North America is particularly negative EBITDA to volume. So, I think this is more our overall commentary that we're still being relatively cautious, again, particularly around the European situation, but also just being cautious around H2 generally to make sure we hit our guidance. David, would you add anything?
David Bourne: No, clearly, we do expect to see growth in the Americas segment for H2.
Gabe Hajde: Okay. And then maybe this is, again, getting to the conservatism, but I think the June data, as we can see it for the two big categories in Europe beer and carbonated soft drinks, fell off a decent amount in June. Now, again, the timing of which is a little bit funky based on when the Euro Cup started and what data we get. I'm just curious, is that from your vantage point, maybe an on-venue versus off venue issue? And again, you're not seeing anything in terms of customer sell-through?
Oliver Graham: Yes. Look, as I say, I mean, July is looking pretty strong. We have tough comps in both Europe and North America in August. So we'll look less strong. But we're not seeing anything really clear in the data yet that says there's a big cutback. But we are being cautious because like you, we've seen some of these less positive numbers. But generally, the can is -- in the mix is doing pretty well. So, that can explain some of these gaps between overall volume numbers and can volumes and growth. And certainly, we've largely been approached through this season by customers for more. I think they did go in pretty low stock. And so that's been the general message throughout. And as I said, we would have probably sold more if we've been able to produce more. So, nothing yet to support a more bearish view, but we are being cautious because you're right, some of that market data is not as positive as what we're seeing.
Gabe Hajde: Okay. And last one for me. Thinking about 2025, 2026, just from a contracting standpoint, I think the industry, generally speaking, was prudent to forward contract out when things are pretty tight. Maybe two-part question. One in Brazil, is it the second quarter weakness, if you want to call it that, truly more geographic related in terms of where product is being produced? We've seen a little bit, what feels like a little bit of movement around down there, which generally speaking, is not a good thing. And then in North America, can you just remind us when kind of your next big contract shows up, I think it's 2027, but I could be wrong?
Oliver Graham: Yes. So, we've got some contracts that come up at the end of next year in the soft drink space that we've referenced before that we'll start talking to customers about this year and next year. We've got other contracting activity now already going on. So actually, the situation we came out of COVID with significant numbers of contracts in this sort of time period, some of that is moderating as we want to move earlier or we've -- there have been different situations. But yes, there are a couple of the biggest soft drinks positions in North America that come free at the end of 2025 and I think one in the end of 2026. So, we'll be contracting those. Clearly, there's been constructive action in North America on capacity by ourselves and others. So, we're largely constructive about those situations. In Brazil, we didn't get impacted by the flooding and other natural events. So this is what a customer mix issue. Mainly, we had a very strong H2 last year on the customer mix side. And then we're slightly on the wrong side of that with one customer. And then it has also some downtime that we didn't anticipate towards the end of the quarter. So we expect that to pick back up in H2.
Gabe Hajde: Got it. Thank you.
Operator: Thank you. We'll take our next question from Arun Viswanathan with RBC (TSX:RY) Capital Markets.
Arun Viswanathan: Great. Thanks for taking my question. Hope you guys are well. So, just two questions. I guess, first off -- the first question is just on the category mix and promotional activity. So it sounds like there has been an uptick in promotional activity with NAVs, but do you see that maybe crossing over to the beer side at some point? And if so, how much? And then the second question I had was really around your own kind of mix. Given that there has been a little bit of a slowdown on the energy side, maybe that's impacting your slim can capacity. Could you just kind of review kind of your ability to flex to other product sizes, if necessary and if that's also a limitation? Thanks.
Oliver Graham: Sure. So no, I think -- I mean the main -- being impacted by the by the energy category issues is 16-ounce. So more a standard can with -- and yes, look, I think I mentioned it earlier in the call, but what we've done -- we built a lot of sleek capacity. So, slim is the term in the U.S. We built a lot of sleek capacity in -- through COVID to deal with the seltzer growth that was anticipated. And what we've been doing is converting some of that back to standard with cans so 12, 16. And I think that just means we're in a very good place to deal with whatever trends we get over the next couple of years. So, we're in a good spot there. And then in terms of the category mix and the promos, I mean, I think we are just seeing and it's in the data and increased tick up in promo activity quarter-by-quarter, but just not necessarily at the speed we -- that hope for the debt necessarily that is needed to really drive very big increases in volume. So, again, we expect that trend to continue because you look at where pricing is sitting, it's clear, it's meeting some degree of consumer resistance and our customers will want some revenue growth. So, we do anticipate that they will keep pushing on the volume lever in the next year or two.
Arun Viswanathan: Great. Thanks a lot.
Oliver Graham: Thanks Arun.
Operator: Thank you. We'll take our next question from Stefan Diaz with Morgan Stanley.
Stefan Diaz: Great. Thank you for taking my follow-on. Maybe just one more quick one for me. As we look into 2025, your growth investment plan is largely finished. You're benefiting from customer wins here in North America here in 2024. But maybe outside of any category or customer differences, are there any idiosyncratic tailwinds that you believe would drive Ardagh to outperform the market as we look into 2025, 2026?
Oliver Graham: Not particularly. So, I think the growth from contractual positions that were largely arranged in the COVID and post-COVID period that they're largely complete. So, we're not anticipating any particular additional gains. It's never been something we particularly targeted for the business. So there's nothing I'd call out there. Clearly, we have had good run with customers, which I think is about the delivery we provide quality and service and the relationship. So I wouldn't rule it out either that we could grow slightly ahead. And then it's really about the mix which categories we're in and where they grow, which again, we're relatively light mass beer in the U.S., which has been a category under pressure. And actually, I realize Arun asked about promotions there. I think promotions will come back into that category more over time. But clearly, it's under pressure from changes in drinking habits in younger consumers as well. So we are a bit lighter there, which could give us a tailwind has done in the last couple of years. And then Europe, we're very broad-based. So no particular obvious thing that we are strong in Germany, which we called out earlier in the call as a higher growth market. So that could be a tailwind. And then in Brazil, we're all -- it just depends again how the customers go. So, yes, looking into 2025, 2026, we're probably more looking into market growth plus a little bit maybe.
Stefan Diaz: Great. Thank you.
Oliver Graham: Thanks Stefan.
Operator: That will conclude our question-and-answer session. At this time, I would like to turn the call back over to Mr. Graham for any additional or closing remarks.
Oliver Graham: Thanks Katie. So, look, just to summarize, our Q2 earnings performance was ahead of expectations. That's the second successive quarter we've done that. Strong performance, both Europe and Americas, but particularly Europe, which gives us the confidence to raise our guidance range for the full year. And I think that 2024, the big trend we're seeing is that we see increased predictability across our markets, and that's very encouraging looking into the second half and into 2025. So, we look forward to talking to you at our Q3 results. Thanks very much.
Operator: Thank you. That will conclude today's call. We appreciate your participation.
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