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Edited Transcript of ARD.N earnings conference call or presentation 31-Oct-19 3:00pm GMT

Q3 2019 Ardagh Group SA Earnings Call

LUXEMBOURG Nov 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Ardagh Group SA earnings conference call or presentation Thursday, October 31, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David Matthews

Ardagh Group S.A. - Group CFO & Director

* John Sheehan

Ardagh Group S.A. - Group IR Director

* Paul R. Coulson

Ardagh Group S.A. - Executive Chairman & CEO

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Conference Call Participants

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* Anojja Aditi Shah

BMO Capital Markets Equity Research - Senior Associate

* Anthony James Pettinari

Citigroup Inc, Research Division - VP and Paper, Packaging & Forest Products Analyst

* Arthur Z De Almeida

Goldman Sachs Group Inc., Research Division - Research Analyst

* Arun Shankar Viswanathan

RBC Capital Markets, Research Division - Analyst

* Deborah Anne Jones

Deutsche Bank AG, Research Division - Director

* Randy Devin Toth

Citigroup Inc, Research Division - Associate

* Roger Neil Spitz

BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst

* Travis Edwards

Goldman Sachs Group Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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(technical difficulty)

our Food & Specialty division as -- classified as a discontinued operation within the group's results. This follows our announcement last July, but the Food & Specialty business would be combined with Exal to form Trivium Packaging. And I'm pleased to say that the Trivium transaction completed earlier today. We'll talk about that a little later in the call.

Looking to our results for the quarter. We delivered a strong performance, highlights of which are revenue of $2.4 billion, in line with the same period last year and with constant currency growth of 3% in continuing operations. Adjusted EBITDA of $424 million, an increase by 6% compared to the same period last year and slightly ahead of our guidance. Adjusted EBITDA from continuing operations increased by 9% at constant currency.

Adjusted EBITDA margin from continuing operations of 18.5% in the quarter and up 17.7% in the year-to-date. Three of our 4 divisions as well as our discontinued operation recorded constant-currency growth and adjusted EBITDA for the quarter. Glass North America continued to stabilize with adjusted EBITDA growth achieved despite ongoing volume softness, and this follows the actions that we've taken over the past 2 years.

Adjusted free cash flow for the group was $244 million in the year to date, an increase of 16% on the prior year. Adjusted earnings per share of $0.60 for the quarter, an increase of 15% on the same period last year and including the impact of lower depreciation charges arising from the Triviuim transaction. We ended the quarter with cash and available liquidity of $1.1 billion, and that's before the $2.5 billion cash inflow today from the Trivium transaction. Demand for our sustainable packaging products is very strong. We've increased our guidance for the full year in respect of continuing operations to reflect the stronger-than-expected third quarter return. So if I turn to reviewing segmental performance for the quarter, and my comments here will be focused on constant-currency results. Glass Europe performed well in the third quarter as a strong operating performance, combined with our diversified business mix and healthy market dynamics, more than offset some weather-related softness in beer markets. Revenue of $414 million increased by 4% compared to the same period last year, with good growth in the food business and increased activity in our engineering business.

Adjusted EBITDA increased by 11% to $108 million in the quarter compared to the same period in 2018. This growth primarily reflected an improved mix, a strong operating and price/cost performance and the impact of IFRS 16. The outlook for glass in Europe remains very positive. Consumers trust and appreciate purity infinite recyclability of the product, while our customers are attracted by stability to deliver their premiumization and sustainability objectives. We have a diversified business across Europe with a proven record of sustainability, quality and innovation, and have seen a strong and growing emphasis on partnering with our customers on a long-term contracted basis.

Market fundamentals are attractive, our inventories are low and our capacity for 2020 is, at this point in time, virtually all sold. Our glass business in North America continued to stabilize in the third quarter. In what remains a challenging market, this result reflects the decisive actions we've taken over the past 2 years. Revenue of $438 million increased by 1% compared with last year, with a 1% decline in volume mix in the quarter. This was offset by the pass-through of increased costs. Beer end-markets remain soft, partly offset by growth in wines and spirits. The capacity adjustments to rightsize our footprint, combined with initiatives to optimize our cost base since 2017, have enabled us to better manage softer industry demand, and our third quarter adjusted EBITDA increased by 15% to $77 million, including IFRS 16 effects. It is now a little over a year since the initial imposition in the U.S. of tariffs on Chinese glass imports. Since then, we've seen some moderation in imports from the peak levels, though they remain high by historic standards. We've previously outlined the initiatives we've undertaken to strengthen our business, including capacity reduction, target investment, end market repositioning and enhancing labor flexibility.

And in parallel with these actions, we, and others, recently filed an antidumping petition against the imports of Chinese glass containers. This petition is currently before the International Trade Commission and the U.S. Department of Commerce in Washington. As a producer of U.S.-made glass containers employing approximately 5,000 colleagues in high-quality roles, we're keen to see action taken against what we view as uneconomic and effectively subsidized dumping of product into the U.S. market. Given the level playing field, and the various internal improvements, which we are making, we believe that the U.S. glass business has a promising and profitable future. It is a scaled business, producing a premium, sustainable and infinitely recyclable product, which enjoys the food safe advantage over most other substrates. If I turn to our Beverage Can businesses, unit volumes shipped in the third quarter increased percent -- increased by 7% in aggregate, with strong demand in both regions. In Europe, revenue was $412 million. This increased by 4% compared with last year, with volumes up 3%. Adjusted EBITDA of $68 million declined by 6% at constant currency, reflecting the continuing impact of less than full recovery of input costs. Year-to-date, volume shifts in Europe is also up 3%, and market demand remains healthy with our available capacity for the year ahead, virtually all sold. We remain well placed to capitalize on this growth given our specialty footprint, which is being augmented by targeted investments as well as an improving cost base. In the Americas, metal beverage packaging markets remain strong, and our end market focus leaves us attractively positioned.

Revenue increased by 5% to $460 million -- $464 million in the quarter. Volume mix growth in the quarter was 11%, with strong gains made in both North America and Brazil. And these gains were partly offset by the pass-through of lower input costs. Business mix remained positive in both markets. And allied to a strong operating performance contributed to adjusted EBITDA growth of 18% to $67 million in the quarter.

Since the completion of the Beverage Can business, the acquisition of the business in 2016, the Americas business has made significant progress. Operating performance has been strong and targeted investments in our plant network, including the completion of our new ends plant in Manaus in Brazil in mid-2018, have enhanced an already strong footprint. In addition, we have considerably diversified our customer base and business mix, reorienting to better performing cash rate, whilst remaining focused on achieving value for all our products. We view prospects for continued growth through favorable end market exposure, ongoing tax mix shifts and gradual sustainability-driven conversion from other substrates as attractive. In both North America and Brazil, our available capacity is fully sold for the remainder of this year and for 2020. Demand is strong.

Finally, our Food & Specialty business, which, as I noted earlier, is now classified as a discontinued operation, recorded third quarter revenues of $649 million, a reduction of 2% from the prior year. This resulted from a second successive weak harvest in Europe, which more than offset volume growth in other areas as well as a delayed food pack in North America. In response to timely cost reduction initiatives across the business as well as the impact of IFRS 16 led to adjusted EBITDA growth of 6% to $104 million in the quarter. The dynamics of the European market remain attractive despite recent disappointing harvest in 2018 and 2019. Demand is stable, while the results of attractive growth -- there are also attractive growth opportunities in areas such as pet food and nutrition. A broad and well-invested footprint, combined with the continued focus on efficiency and cost recovery, will benefit future performance. In North American Food & Specialty, we have the industry's best invested asset base, following significant capital expenditure in the 2013 to 2015 period. It remains well placed to continue the strong progress made in recent years through a highly competitive cost base and a superior product offering.

And as with glass, Food & Specialty's sole focus on infinitely recyclable metal packaging, position it well to benefit from heightened consumer awareness and resulting brand owner engagement. If I could say a few words about Trivium. The transaction closed today, following which Ardagh will hold a stake of approximately 43% in the business, with Ontario Teachers’, our partners in the joint venture, hold a controlling balance of 57%. Trivium is the scaled player in metal packaging with over the 50 production facilities worldwide. They're principally located in Europe and the Americas, and generating pro forma annual revenues of approximately $2.7 billion. Trivium holds leading positions in substantially all the main markets it serves and enjoys a strong reputation for innovation, service and quality. And we look forward to working with Ontario Teachers’ in supporting Trivium and its management team, led by Michael Mapes to achieve its growth and development potential in the years ahead. Ardagh also received cash proceeds today of $2.5 billion, which we will use for cash repayments. We've today issued redemption notices related to this $2.5 billion and use of proceeds, and this is in line with what we set out in July. And the debt repayment will reduce year-end 2019 leverage to approximately 4.5x adjusted EBITDA, pro forma for the divestment of Food & Specialty. So that's 4.5x adjusted EBITDA at Ardagh [pro forma] for the divestment of Food & Specialty to Trivium. In terms of financing, we took advantage of a favorable market in August to refinance our $1.65 billion senior notes due in 2024, and we obtained significant interest cost savings and extension of maturities to 2026. We have no debt maturities arising in Ardagh before September '22 -- 2022. This refinancing, and in conjunction with the use of the Trivium proceeds to repay debt, will reduce our annual cash interest costs by approximately $180 million. This will further underpin free cash flow generation. So as we look to the future, we remain focused on working with our customers to meet their evolving needs for sustainable metal and glass packaging whilst at all times, trying to ensure that we derive appropriate value for our products. We've increased our full year 2019 outlook to reflect performance in the first 3 quarters, which were part offset by a slightly increased currency headwind since our last update.

Our revised guidance is now as follows. We expect adjusted EBITDA of $1.16 billion to $1.18 billion pro forma for the divestment of Food & Specialty. And this compares to previous guidance of at least $1.15 billion. We expect earnings per share of between $1.65 and $1.75 per share, and this will include, of course, the method of Food & Specialty to its end October divestment. Net leverage, as I said earlier, of approximately 4.5x adjusted EBITDA is expected at the end of December 2019, again, pro forma for the divestment of Food & Specialty and the receipt of the fund relating to that transaction.

So having made these opening remarks, we'll now be pleased to take any questions that you may have. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

The first question is from the line of Anthony Pettinari from Citi.

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Randy Devin Toth, Citigroup Inc, Research Division - Associate [2]

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This is actually Randy Toth sitting in for Anthony. I just wanted to focus on glass packaging in North America. You guys showed year-over-year improvement, while some of your competitors have struggled in the region. Can you just talk about current supply/demand dynamics in the region for Ardagh specifically, and then the industry more broadly?

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Paul R. Coulson, Ardagh Group S.A. - Executive Chairman & CEO [3]

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Well, as I said in my remarks, Randy, the market is soft in glass in North America. But we did anticipate this and took steps for the last couple of years to reduce capacity and to rightsize our capacity. And we're comfortable where we sit now. Pricing is weakish. There's too much capacity. And if you ask me about what the industry should be doing, I believe there's overcapacity there that the rest of the industry needs to do something about. We've done what we're going to do. We're comfortable where we sit. But I think, others will have to assess the situation and take out capacity.

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Randy Devin Toth, Citigroup Inc, Research Division - Associate [4]

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Got you. Understood. And then with all the cost-cutting you've done in North American glass this year and the capital you've put in through automation and your other various projects, how should we think about the step-up in earnings in 2020 in that business independent of any volume changes?

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Paul R. Coulson, Ardagh Group S.A. - Executive Chairman & CEO [5]

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I think, one should assume improvement. But it -- I think, as with all businesses that are stabilizing and working and operating in soft markets, I wouldn't be anticipating massive increases.

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Operator [6]

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Next question is from Jeff Edwards from Goldman Sachs.

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Travis Edwards, Goldman Sachs Group Inc., Research Division - Research Analyst [7]

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This is Travis Edwards. Just a quick question on fundamentals. I know last quarter, you talked a little bit about how you're thinking about past the expansion on the bev can side, I know with industry peers announcing more capacity expansion. I was just wondering if you've revised sort of how you're thinking about potentially bringing on new capacity if some of your volumes are constrained.

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Paul R. Coulson, Ardagh Group S.A. - Executive Chairman & CEO [8]

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Well, I think, obviously, along with the rest of the industry, we're experiencing very strong demand for our products. And as I said earlier, we have purchased no capacity to allocate to anyone in the regions we're operating. And we are looking at some interesting possibilities with customers. As I think I've said previously, we're likely to make such investments on the back of agreements with customers. We won't be building any new plants, but we will probably be adding selectively across our footprint in due course. We're looking now at our plans for the next 3 years. We're looking at our budgets. So I think when we come back to talk again in February, we'll be able to give a little bit more guidance on that. But we are looking positively at situations, which will give us appropriate returns and look after our customer demand.

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Travis Edwards, Goldman Sachs Group Inc., Research Division - Research Analyst [9]

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Got it. That's helpful. And then a question on the balance sheet. I know this comes up most calls, but with -- as you think about the timing of the HoldCo refinancing, it looks like though, again, that's going to be more a 2020 time frame. But are there any sort of benchmarks or thresholds that you're looking to hit ahead of that transaction, such as an overall OpCo leverage target or maybe a specific stock price? Are you just looking at broader market conditions ahead of that?

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Paul R. Coulson, Ardagh Group S.A. - Executive Chairman & CEO [10]

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Well, look. I think broad market conditions are very important in this regard. And we assess our financing situation and the markets on a very regular basis. And I don't think we're waiting for any particular stock price. I mean I think we would see in terms of guidance on the Opco. I think going forward, we expect to keep the Opco leverage. I mentioned, it will be at the end of this year, somewhere around 4.5x pro forma. And we would expect that to keep that in the range of 4x to 4.5x going forward -- 4x to 4.5x EBITDA going forward. You mentioned the HoldCo in 2020. That could come sooner if we see good market conditions. We haven't made any firm decisions or final decisions on that yet. But we're always looking, and certain markets at the moment are -- seem to be in good shape, and our debt is performing well.

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Operator [11]

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Next question is from Roger Spitz from Bank of America.

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Roger Neil Spitz, BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst [12]

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At September 30, 2019, how much was outstanding on your off-balance sheet securitization facility? And how much of that is related to the Food & Specialty Packaging that transferred to Trivium Packaging?

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David Matthews, Ardagh Group S.A. - Group CFO & Director [13]

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Yes. Hi Roger. It's just over $600 million at the end of September, which is broadly similar to the end of June. And just over $150 million, will be traveling to Trivium.

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Roger Neil Spitz, BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst [14]

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And I think of the $333 million capital leases at September 2019, how much will get shifted over to Trivium? Is this still -- I think, previously, you said around high 80s or something like that?

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David Matthews, Ardagh Group S.A. - Group CFO & Director [15]

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That's about right. That will travel also with Trivium.

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Roger Neil Spitz, BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst [16]

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Okay. And the other thing is, typically, you give forward -- one quarter forward EBITDA and free cash flow. I wonder if you might give us what your Q4 EBITDA guidance might be pro forma or with including Food & Specialty? And what your 2019 free cash flow would be, presumably, that would be with 10 months of Food & Specialty?

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David Matthews, Ardagh Group S.A. - Group CFO & Director [17]

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Yes. I think the easiest thing to do is to give guidance on the continuing operations because clearly, Trivium will drop away from this point forward. I think if you look at Q4, the guidance, if you look at the range for the full year, it comes out about $250 million to $275 million. And that compares to a constant currency last year of $247 million. And that's all continuing operations. In terms of free cash flow, what we said on the last call for continuing operations is about $350 million. Clearly, that will improve as we go forward into next year as a result of the refinancing, that Paul mentioned earlier on. But around $350 million free cash flow from continuing operations for '19 is probably a good number to be working on at this point in time.

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Roger Neil Spitz, BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst [18]

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Great. And just to be clear, that is before sort of the $90 million of quick payback capital?

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David Matthews, Ardagh Group S.A. - Group CFO & Director [19]

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That's correct. That's correct. It'll be a little lower than that because some of the short payback CapEx related to the discontinued operations. So 75-ish of the short payback CapEx related to continuing operations.

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Operator [20]

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And next question is from Anojja Shah from BMO Capital Markets.

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Anojja Aditi Shah, BMO Capital Markets Equity Research - Senior Associate [21]

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You had some impressive Beverage Can growth in North America, that 11% volume mix growth. Can you unpack that a little bit? How much is mix or the shift towards specialty cans? How much is just increased volumes? Any details you can give us there would be great.

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Paul R. Coulson, Ardagh Group S.A. - Executive Chairman & CEO [22]

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Yes. In the quarter, it was -- both regions were strong. What we saw was that we were high single digit in North America. We were significantly higher than that in South America and across both standard and specialty, it was very healthy.

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Anojja Aditi Shah, BMO Capital Markets Equity Research - Senior Associate [23]

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And then on the quick payback projects, did you have any contribution built in for 2019? And if so, how much? And then also 2020 EBITDA contribution?

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David Matthews, Ardagh Group S.A. - Group CFO & Director [24]

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There were some contribution coming through, just to remind everybody what we've done. We spent about $60 million last year. We're spending about $90 million this year. That's coming through during the course of this year. So once we get to 2020, the full benefits will start to come through from these various projects, which are sort of around 3 years payback period.

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Anojja Aditi Shah, BMO Capital Markets Equity Research - Senior Associate [25]

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And can you identify an EBITDA contribution and an amount or no?

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David Matthews, Ardagh Group S.A. - Group CFO & Director [26]

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Well, it's about 3 years, so once we get into 2020, it will be roughly sort of $40-odd million of continuing operations, because clearly, some of the short payback spend has also been in the Food & Specialty business, which will clearly travel to Trivium. So Trivium will get the benefits of that short payback CapEx and...

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Operator [27]

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Next question is from Debbie Jones from Deutsche Bank.

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Deborah Anne Jones, Deutsche Bank AG, Research Division - Director [28]

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My first question is you're one of the few companies that can look at both metal and glass and have a competition. Your comment about what's going to help them hit their sustainability goals. And I'm wondering if you could just give us some color on kind of the glass market? Are you having those conversations with your customers because it's clearly helping in metal? And I think for investors, it's a little less -- you can't really see if that's something that's going to help them meet these goals essentially?

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Paul R. Coulson, Ardagh Group S.A. - Executive Chairman & CEO [29]

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Well, obviously, Debbie, we're almost unique in that we have the 2 in our stable. We are -- yes, there are discussions. I think it's fair to say these discussions are intensifying, both in Beverage Cans and in Glass. I think you probably see Beverage Cans benefit from the sustainability tailwind before glass, although it will also come in glass, too. I mean, obviously, capacity in the European Glass is extremely tight anyway, not just for sustainability reasons, but because you've had a number of the bigger customers moving forward with premiumization campaigns on glass is seen as a way of doing that. And we've also seen very strong demand from glass customers and people who are already using glass as a substrate in Europe with a huge awareness -- a much more stronger awareness amongst our customer base of the importance of the supply chain and supply base in glass and looking for longer contracts to make sure that they have capacity available to them to support their brands as they go forward. I think there hasn't been a wholesale conversion, yes. But you're seeing, both in glass and in metal, obviously, as you can see from our peers as well, the effects of sustainability tailwinds coming there. We haven't yet seen mass conversions, but we are seeing a lot of new products launched in metal and some in glass as well. I think it will come probably slightly later in glass than in metal, but that's not to say that glass won't have an important role in the sustainability. And we're quite comfortable where we sit, having the 2 of them in our stable.

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Deborah Anne Jones, Deutsche Bank AG, Research Division - Director [30]

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Okay. And my second question. You talked about a lot of different things that could potentially be opportunities for you to invest in the coming years, just given the growth that you're seeing. I'm curious if we were to just isolate your footprint in Latin America, is that something that you're happy with at this point? Or is that also on the table in terms of potentially getting bigger in that region?

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Paul R. Coulson, Ardagh Group S.A. - Executive Chairman & CEO [31]

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Well, I -- we're delighted [with] our business in Brazil, and our team there has done a fantastic job. I was there 2 weeks ago with my colleagues visiting. And we have a terrific operation down there, which is growing very well. The market dynamics down there are very good, given one of the big customers is moving away from returnable glass bottles to Beverage Cans. So you've got very strong demand features down there. And we're well placed with the 3 plants we have there. The Manaus plant is already too small, the ends plant. And we're going to have to look at some expansion there. I think we're probably more likely to want to invest in Brazil than further appeals in Latin America, quite frankly. I think the focus of additional investment in our Bev can will be in U.S. and in Brazil and in Europe. We're evaluating the different opportunities that we have at the moment. And as I said earlier in the call, we'll come back to you guys in the new year when we've completed our budgets and strategic plans.

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Operator [32]

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Next question is from [Carl Griffiths] from Guggenheim Partners.

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Unidentified Analyst, [33]

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What's currently the pro forma LTM adjusted EBITDA for the continuing operations? And of that number, what's the impact from IFRS 16?

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David Matthews, Ardagh Group S.A. - Group CFO & Director [34]

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The LTM, at the end of September, is about $11.75 million and IFRS 16 in the 9 months is about $6 million. So clearly, the full year effect of that because IFRS 16 has only been in from the 1st of January. So putting in the full year for IFRS 16, it's about $80 million.

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Operator [35]

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And next question is from Brian Maguire from Goldman Sachs.

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Arthur Z De Almeida, Goldman Sachs Group Inc., Research Division - Research Analyst [36]

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It's actually Arthur Almeida, on for Brian. I was wondering if you guys could provide just a little bit more detail on the bev can expansion that you guys are planning. More specifically, since it won't be coming from new facilities, are you more likely to do it through speed ups or adding to existing facilities? And what kind of incremental capacity are you seeing in each region?

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Paul R. Coulson, Ardagh Group S.A. - Executive Chairman & CEO [37]

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Well, as I said when I was answering Debbie, Arthur, we're looking at various things at the moment within our existing regions. Things like speed ups are an obvious and very efficient way of increasing capacity and getting good return. Clearly, our focus in the regions and in the regions where we operate, the moment will be on making sure that we get very good returns on any investments which we make and that it's designed to support customers and is backed up by appropriate commercial and contractual ratings with customers. But we haven't yet -- we're -- we'll come back to that early in the new year when we've completed our budget process. But we are looking at various interesting projects, yes, but they will be within our existing facilities.

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Arthur Z De Almeida, Goldman Sachs Group Inc., Research Division - Research Analyst [38]

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So no specific number?

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Paul R. Coulson, Ardagh Group S.A. - Executive Chairman & CEO [39]

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No.

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Arthur Z De Almeida, Goldman Sachs Group Inc., Research Division - Research Analyst [40]

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Okay. Then just moving on to the contracts in the business. Now that the food business has been taken away from the Metal Packaging side of things. How does it look relative to the legacy segments in terms of pass-through timing and inclusion of non metal expenses in those pass throughs? Is it different? And in what way?

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Paul R. Coulson, Ardagh Group S.A. - Executive Chairman & CEO [41]

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I think in Europe, it's probably more favorable. The bias of the business in Beverage would be more tilted towards longer-term contracts on multiyear. Whereas in food, would be roughly 50-50. But the pass-through there on an annual basis has generally worked well. Also, it's an annual negotiation that you have in North America. All of our businesses have always had very clean and quick and efficient pass-throughs. And we have been adjusting some of our arrangements with customers over the past year to move from inappropriate PPI type [interstate] that were constructed to more actively match the cost of the product. So we've had some encouraging progress there. And we feel reasonably good about that.

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Operator [42]

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And next question is from Arun Viswanathan from RBC Capital Markets.

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Arun Shankar Viswanathan, RBC Capital Markets, Research Division - Analyst [43]

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I am just curious. So if you look at the glass business, obviously, you've gone through some [impinging] end market dynamics with weakness in mass beer. Is that your most profitable part of the glass business and most cash generative? I'm just curious because if the declines continue, would that continue to affect your EBITDA and cash flow generation?

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Paul R. Coulson, Ardagh Group S.A. - Executive Chairman & CEO [44]

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No. I think -- look, I think it's about balancing the business in the different sectors and depending on the plants and the machine lines you have, et cetera, configuration is different for different aspects of the business. Yes, the beer market has been weak, but there -- we -- as I said at the outset, we believe that we are well positioned now with our footprint to deal with the softer market as it is. And so we're comfortable with that. So I don't -- we're not concerned in relation to seeing a drop-off in EBITDA if there's further weakness in beer. I think there's other sectors there where we have [been getting] some growth. We've seen a reduction in, thankfully, in Chinese imports, as I said earlier. I hope that further tariffs are imposed as a result of the actions we and others in the industry, have taken with the ITC in Washington. And following that, I hope that, that will also lead to improved volumes through reduced imports. But we'll see. I mean I think it's more about being balanced than having the right portfolio plants and the right footprint to deal with the smaller market that we find ourselves in from previously. (inaudible) what we do in North America now, just to give -- we have pivoted way in part over the past few years. And in terms of capacity, we have taken as of the 20% of our market capacity over the past couple of years. So that's just been very positive.

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Anthony James Pettinari, Citigroup Inc, Research Division - VP and Paper, Packaging & Forest Products Analyst [45]

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Right. That's helpful. So just on the metal side. There's been some capacity additions that have been announced by some of your peers. I guess, how are you viewing your footprint, both in North America and Europe? And maybe even Latin America? Do you see the need to build any greenfield plants? Or are there brownfield opportunities? Or are you comfortable with your footprint as it stands?

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Paul R. Coulson, Ardagh Group S.A. - Executive Chairman & CEO [46]

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We -- as I said earlier, we see opportunities in growing capacity selectively in some of our existing plants, in all 3 regions, in all 3 areas. But we do not see any greenfield plants. No. And we don't see, also, any likely development outside of the regions in which we operate for the moment. But we see good opportunities within the U.S., Brazil and Europe.

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Operator [47]

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(Operator Instructions)

Next question is from Roger Spitz from Bank of America.

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Roger Neil Spitz, BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst [48]

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Thanks for the follow-up. Starting with the pro forma guidance, midpoint $1170 million and down to the $350 million free cash flow. Can you provide the base CapEx, cash interest, cash taxes, working capital, restructuring or other items that might go in between those 2 numbers?

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David Matthews, Ardagh Group S.A. - Group CFO & Director [49]

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Yes, I can do that. I think this is continuing operations starting $1170 million, CapEx around $420 million, [interestingly] the benefits of the funds coming in from Trivium, that will be about $310 million. Tax around $80 million. And then the working capital inflow, which will be broadly offset by the capital amount that you have to pay out of the leases that have changed the results of IFRS 16. So that comes to just slightly north of $350 million.

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Roger Neil Spitz, BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst [50]

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Perfect. And should we think of 2020 CapEx in the same $420 or should we think of a different number there?

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David Matthews, Ardagh Group S.A. - Group CFO & Director [51]

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Well, I think we're going to come back and update you in February, as Paul has said a couple of times on this call. We're looking that's a very interesting opportunity -- investment opportunities. So we'll come back and update you in February with this as a core level of maintenance CapEx and how we see investment CapEx sitting on top of that backed by the customer contracts and very good returns.

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Roger Neil Spitz, BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst [52]

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Okay. In terms of -- I just wanted to clarify 1 thing what was said earlier when you said the HoldCo refi could come before 2020. Maybe that was said or I didn't hear it correctly. Did you mean historically is before fall of 2020, did you mean before fall 2020? Or could it actually happen in November, December 2019.

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Paul R. Coulson, Ardagh Group S.A. - Executive Chairman & CEO [53]

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I think we're watching -- we review the markets all the time. And I was asked specifically, will it be 2020. It could still be 2020, but it could be sooner. We haven't made any firm decisions on that. Our markets are attractive, as we see them at the moment. So we are, certainly having completed the Trivium transaction today, assessing our options. But as I say, no firm decisions yet, but we've started to seeing some attractive ideas put to us. And we -- it's possible we could look to deal with the HoldCo sooner rather than later.

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Randy Devin Toth, Citigroup Inc, Research Division - Associate [54]

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Got it. And lastly, in North American beer, do you think you gained share in this segment, mainly because the others lost more than you?

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David Matthews, Ardagh Group S.A. - Group CFO & Director [55]

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I don't think particularly, we have a reasonable representation in the craft market, but the general beer market has been done, pivoting some of our volumes away, and basically taking a capacity that's worked in our favor rather than the share gain.

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Operator [56]

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Next question is from [Kevin Beckett] from DoubleLine Capital.

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Unidentified Analyst, [57]

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In terms of the cost inflation you're seeing out of Europe in metal bev can, what are the main buckets of that? And are you seeing those trends within Food & Specialty?

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Unidentified Company Representative, [58]

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Not what we're probably referring to there, principally, was a couple of years, we had a number of contracts that were up for renewal and there was new capacity coming into the market at the time. So the recovery provisions that we have in a number of those contracts wouldn't be as good as we might like. So we've had that for the past couple of quarters and probably with us for another couple as well. And it relates to non metals or things like labor, energy, things like that. And it's been in the beverage side, principally.

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Unidentified Analyst, [59]

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And are you seeing those same trends within the Food & Specialty segment?

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Paul R. Coulson, Ardagh Group S.A. - Executive Chairman & CEO [60]

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No, there's more of an annual -- as I said earlier, that business has [50-50] between annual. So the reset happens more frequently, and it hasn't been the same challenge. It's related to specific circumstances there, but 2, 2.5 years ago.

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Operator [61]

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Next question is from [Amelia Avellan] from Tikehau Capital.

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Unidentified Analyst, [62]

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Actually, my question was also around sort of the weaker profitability, so in metal Europe. So you're saying it's like costs that haven't -- I didn't quite get the answer, sorry, if you can...

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Paul R. Coulson, Ardagh Group S.A. - Executive Chairman & CEO [63]

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Yes. Non-full recovery of certain non metal costs. Volumes in this business have been good. You've seen there, they're over 3% in the quarter and in the year-to-date. So the market is healthy, but we just have to cycle through a few of these contracts going back then. But the fundamentals of the market demand are very healthy.

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Unidentified Analyst, [64]

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And when are those contracts due for renegotiation?

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Paul R. Coulson, Ardagh Group S.A. - Executive Chairman & CEO [65]

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Well, it should roll off over the next few quarters.

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Unidentified Analyst, [66]

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Okay. So you expect another couple of quarters of weakness?

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Unidentified Company Representative, [67]

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I think that's reasonable. Yes.

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Operator [68]

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And there are currently no further questions registered. So I'll hand the call back to the speakers. Please go ahead.

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John Sheehan, Ardagh Group S.A. - Group IR Director [69]

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Well, thank you very much, everyone, for joining us today, and we look forward to talking to you in the new year when we present our annual results. Thank you very much, indeed.

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Operator [70]

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This now concludes the conference call. Thank you all for attending. You may now disconnect your lines.