Ardagh Group S.A. - Q3 Quarterly Results Call - ARDAGH METAL PACKAGING SA

Explicit Guidance:

• AMP (Metal Packaging) Full-Year 2026 Adjusted EBITA: Upgraded to a range of $785–$795 million, reflecting moderate growth ahead of the previous guidance.
• AGP (Glass Packaging) Full-Year 2026 Adjusted EBITDA: Reaffirmed at previously lowered levels despite high energy prices; no additional downgrade issued.
• AGP 2026 Financial Projections (Constant Currency):
  • Capital Expenditures: Approximately $330 million (catching up on maintenance capex).
  • Cash Interest: Approximately $380 million.
  • Cash Lease Payments: Approximately $110 million.
  • Cash Taxes: Approximately $40 million.
  • Cash Operated Exceptional Costs: Approximately $40 million (facility closures, IT separation, SG&A reduction).
  • Strategic Exceptional Costs: Approximately $45 million (IT separation, SG&A reduction).
  • Working Capital: Expected to remain a source of cash (positive inflow).
• 2027 Outlook: No specific quantitative guidance provided for 2027; management intends to release full-year 2027 budget and outlook in February 2027.

Business-Segment Outlook:

• AMP (Metal Packaging): Expects continued global beverage can shipment growth; plans to accelerate growth investments in Europe driven by strong customer demand.
• AGP Europe & Africa:
  • Shipments: Full-year 2026 shipments expected to decline by a low single-digit percent (improved from previous "low mid-single-digit" guidance).
  • Mix/Volume: Forecast slightly stronger shipments in Europe and Africa to offset softer North American volumes.
  • Europe 2027 Capacity: Expects network to be closer to fully booked despite an anticipated mid-single-digit percent decline in total shipments, driven by margin-enhancing portfolio actions and a highly utilized footprint.
• AGP North America:
  • Shipments: Full-year 2026 shipments expected to decline by a low to mid-single-digit percent (downgraded from previous "low single-digit to climb" expectation).
  • Categories: Significant declines anticipated in spirits and wine due to changing customer tastes; beer growth expected to be below expectations.
  • Capacity: Ongoing curtailment of inventory and capacity expected to continue through the remainder of the year.
• AGP Africa:
  • Shipments: Full-year 2026 shipments expected to grow by a mid-single-digit percent.
  • Ethiopia: Plant restarted in September 2026; operations will run below nameplate capacity until demand recovers.
  • Kenya: Furnace rebuild ongoing; production resumption expected next month.
  • South Africa: Two furnaces remain mothballed (approx. 10% of nameplate capacity); inventory reductions completed to match operating capacity.

Market and Competitive Outlook:

• Demand Trends: Global glass packaging volumes forecast to decline slightly in 2026; North America facing significant destocking and weak demand in wine/spirits; Europe facing challenging demand but stabilizing.
• Pricing & Costs: Energy prices in Europe remain persistently high; management continues to negotiate fair recovery of under-recovered inflation for 2027 contracts (effective Jan 1).
• Competitive Landscape/Imports:
  • North America: Imports increasing in high single digits; primary import source now Mexico, not China; concerns regarding dumping and lower labor costs abroad.
  • Europe: UK trade authorities have imposed countervailing tariffs on glass imports from China to level the playing field for domestic manufacturers.
• Capacity Utilization: Europe planning to remove 450 kilotons of capacity permanently in 2026 to balance network with demand; expects improved utilization rates in 2027. North America currently curtailing ~3% capacity.

Macro / Industry Outlook:

• Energy Markets: Acknowledges deterioration in global and European energy prices (oil and gas) for 2026 and future; expects volatility to persist.
• Inflation: High inflationary pressures continue in Africa and Europe; input cost recovery mechanisms in place.
• Regulation/Trade: Anticipates continued scrutiny on trade practices; UK tariffs on Chinese glass expected to support domestic manufacturing resilience.
• Economic Environment: Described as "uncertain" and "volatile"; management notes difficulty in forecasting due to geopolitical instability (Middle East, Ukraine war) impacting energy costs.

Strategic Initiatives:

• Capacity Rationalization (Europe): Discussions ongoing to close two furnaces (Holmegaard in Denmark and Nottingham in UK) and previously shut down capacity in Germany (Germersheim) and Poland. Expected to permanently remove 450 kt of capacity.
• SG&A Efficiency: Actions to improve efficiency in regional and corporate functions expected to complete by end of Q1 2027, with savings realized thereafter.
• Organizational Restructuring: Regional CFOs to move from reporting to Group CFO to reporting to Regional CEOs to decentralize decision-making; similar changes in procurement and logistics.
• Portfolio Management:
  • Trivium Packaging: Entering agreement to sell minority stake to American Industrial Partners; transaction valued at ~$3.4 billion; expected to close mid-2027; net cash proceeds to Arda of approx. $90 million for reinvestment or debt reduction.
  • AMP (Metal Packaging): Board authorized advisors to prepare for potential sale; process re-engaged after Luxembourg court injunction was withdrawn (Oct 14, 2026); no definitive timeline set.
• Ethiopia Restart: Facility restarted in September 2026 via customer volume commitments.

Risks and Headwinds to Outlook:

• Energy Volatility: Persistently high energy prices could erode margins if cost pass-throughs are insufficient or delayed.
• Demand Volatility: North America faces significant destocking and weakness in spirits/wine; Europe faces underutilized capacity due to weak demand.
• Regulatory/Legal: AMP sale process remains subject to regulatory approvals and court proceedings; future injunctions could delay transactions.
• Geopolitical: Ongoing conflicts (Middle East, Ukraine) driving energy cost escalation and supply chain disruptions.
• Pricing Power: Challenges in passing through inflationary costs to customers in certain markets or categories (spirits, wine).
• Operational: Facility closures may incur uncertain cash costs (TBD) and potential workforce impacts.

Management Tone on the Future:

• Confidence: "Resilient" performance despite headwinds; confidence in energy hedging strategy which covers >90% of anticipated energy requirements into 2027 and extends to 2030.
• Cautious Optimism: Hopeful that 2027 network will be better balanced; acknowledges the need to "step back" and re-evaluate assumptions before setting 2027/2030 targets.
• Discipline: Focus on "foundational pillars" of the CLEAR RDoS strategy; emphasizing cost discipline, efficiency, and simplification of organizational structure.
• Transparency: Firmly declines to provide 2027 guidance until February, citing the volatile and assumption-driven nature of the environment.

Miscellaneous:

• Shareholder Returns: $90 million from Trivium disposal proceeds intended for debt reduction or reinvestment.
• Liquidity: Net leverage (excluding AMP) at 5.0x adjusted EBITDA as of Sept 30, 2026; Total cash and liquidity (excluding AMP) at $734 million.
• Debt Actions: $90 million of preferred share proceeds used in July 2026 to redeem first- and second-lien notes.
• Geographic Constraints: No operations in France; therefore, limited exposure to local unrest.