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side of the day. Gabe Haiti here, Wells Fargo Senior Packaging and Paper Analyst, joined by my colleagues Richard and Bailey. We have with us this afternoon Ardaw Metal Packaging and representing the company is CEO Oliver Graham and Stefan is here in the audience. let's see here as many of you know that Arda is a leading manufacturer of beverage cans globally having number two number three positions in North America Brazil and Europe kind of born out of the divested ball rexam combination just about 10 years ago so thank you all for attending it's intended to be a fireside chat to the extent there are questions please feel free to ask and with that introduction ollie um if you want to make any opening remarks or we can go into q a um maybe just a couple of themes from from today's questions or anything like that yeah sure um no as you say we're coming up to our 10-year anniversary in in july so excited about that it's been a great 10 years and i think we've we've added a lot to the company in that time and and really globalized what were three regional businesses born out of the two companies so so yeah very happy with with where we're at i think the themes of the questions have been a lot about growth you know the sector is in growth that's very positive um in the packaging world and then resilience you know how do we see um with the geopolitical environment how do i see the business and obviously you know both stories very positive i think at our q1 we were able to you know give very positive messages on both those on those aspects and we see that from our peers as well so i guess that's that's a good opening remark just to say you know we got off the year to a good start yep uh one question that we're asking all of our companies um unfortunately and part of it hopefully is transitory but um to the extent that you know obviously have input cost inflation we're seeing it most pronounced in petrochemical derivatives um i'm assuming inks coatings slackers things like that but just um from your vantage point as a ceo um you know how do you view this inflation wave compare contrast that to kind of the pandemic maybe um again maybe it's a little bit different um but just you know is it durable is there a portion of it that we think could be transitory that's a good question every day it's transitory um so um i think it feels a bit a bit less broad based than um than post covered which obviously there was a very sticky supply chain situation initially which which took a long time to work out as people got those supply chains all back again and also um you had the big energy shock following russia ukraine which was was obviously a big deal and was very un managed for a while so we had energy prices at levels never seen before so so this one obviously energy is up but it's not up like that um and in the meantime more resilience has been built into supply chains and and the european energy market compared to to then so so we don't see it at that level i think um we do see an impact in coatings we mentioned it at the q1 that we'd expect in the second half to have some headwinds from coatings but we also said we don t see that um affecting our guidance so we can absorb that and manage that and i think again to the point i made earlier i think the resilience of the model at the moment is pretty strong to this situation cans are winning in the pack makes they're also pretty good in times you know um where people are you know facing cost of living issues um and at the momento think we we don't see major issues this year from from the situation okay i want to i get a couple different angles on on we'll call it cost as well as demand but um sticking with the demand cadence um in the first half of the year or however you want to frame it um would it make sense from your vantage point and maybe the obvious answer is yes then it's a function of just like what happens in the back end but um for customers to try to channel fill i know you've kind of been asked a question about pre-buy but But, you know, we've got a couple of events this year. It's not the first time. Again, maybe it's the third time that customers are living through this, whether it's supply shocks and fears of availability of raw materials or otherwise. Is that something that makes sense in beverage cans? Maybe on the filled side, you don't know, filled product they can keep around for maybe 90 to 120 days. Yeah, they tend not to. And so they tend to operate very just in time and supply chains. retailers the same they don't love holding a lot of stock we do build inventory for our customers in europe and north america in q1 and into first part of q2 and then we start to see it run down as as we go into the summer so this is around the time we get a good sense of the of the real demand for the season because if that inventory is not flowing through then we understand that actually the demand signal is a bit softer than than everyone had expected and we're not seeing that so i think at the minute we're seeing a decent level of demand but i don't think we're saying anything that i'd call a major sort of channel fill or pre-stock or anything like that okay um going back to contracts and i have like i said a couple questions about this but we've we've lived through a couple of these shocks and i'm going all the way back to 2014 when it was first aluminum premium when none of us knew how aluminum actually moved around um and then it was energy it was freight in 2018 and so you guys have done a really good job of these different iterations of putting in new openers more frequent and or capturing more of the cost structure and pastor mechanisms can you give us kind of an update of of where we are in terms of how broad those are they differ by region i know europe is a little bit different but again the russia ukraine incident as you pointed out that gave you an opportunity to say what you know we need to to have protections in place yes i think it's exactly right to say that over time the industry has gone much better at passing through uh these big commodity movements so i mean you can even go back to 2008 when the industry was still taking some risk on lme you know which didn't end well for people so yeah premium now is is almost entirely passed through and and increasingly fully hedged um uh the energy you know increasingly hedged but also in some cases passed through in in europe freight in europe in north america brazil pretty much fully passed through um so and then in europe we actually do some hedging around that which was a one-off benefit we mentioned in q1 um so i think you're right the the resilience of the model to these shocks is much higher we also have diversified supply chains much more qualified many more sources of metal you know diversified around coatings so no question looking at amp today versus 10 years ago So the model is much more resilient to these kind of shocks. Okay. All right. You guys spend more time in Europe, I think, more than you do maybe the U.S. So just I'm curious the sentiment over there. It feels like, and again, this is anecdotal, but folks have gotten a little bit used to having conflict sort of in the backyard, if you will. um anything on travel season for 2026 that you're hearing customers talk about maybe you know two trips in europe uh proper versus maybe doing something you know outside of europe um just the resilience of the consumer anything like that that you can offer up yeah i mean it's a little bit anecdotal at the moment but i think that there is a sense that there might be more european travel and not out of europe travel and even home country travel so you know the middle east was quite a travel destination a lot of people would go to dubai and places like that and then if you're trying to get to the far east now the the air travel is much harder more expensive and so sort of cheap far east holidays are also significantly impacted so so anecdotally i've heard people saying that there's some significant uplifts in domestic tourism impacts which could be positive you know, for a domestic industry like Cairns, just to have more people holidaying in the region. So I think the European consumer is under pressure, there's no question about it. I mean, this has been repeated shocks, the energy price, the region is more vulnerable to energy shocks, we don't have the sort of energy resources that the US has, quite reliant on gas, and obviously that getting under pressure again, though, again, much more resilient it was in 2022 so the european union taking a lot of action um and the consumer definitely more a little bit more vulnerable to cost of living issues i think than than over here generalizing across many markets obviously um so i think you do have some some dynamics there which are a bit less positive but on the other hand from a can point of view you just have this very significant under penetration of cans relative to the us apart from the uk everywhere the country is is significantly underpenetrated you have a lot of glass still in the system which is obviously suffering some big cost headwinds and now with the energy situation unfortunately for them again uh facing some more cost head winds you do have more anti-plastic sentiment more sustainability initiatives where cam's recycling credentials are very important so i think there's a lot of positives for europe for the can industry and that's why you see the growth rates we've been getting that's where you seethe investments going in and i think if you listen to the peers you know we're all commenting very favorably on the sort of time scales we think this can go for which is you know long-term growth yep um i actually i mean i've been getting questions about that in terms of um kind of the the overall positivity towards european growth um and if it can kind of be in that call it three to five percent window um you must be looking cheating and looking at my notes here um front running questions but i did want to ask i mean we used to get really good data from the BCME. I'm old enough and follow the industry long enough to remember that data. I actually have a copy of the report where we got substrate mix by country. If you would, when you study the countries, you know, you guys are bigger, a little bit more prominent in Germany, UK that you participate in, can you talk about the major categories, maybe, I don't know, five, 10 year increments or something like that, or some benchmark that we we could look at relative to the U.S. in terms of can penetration, maybe sticking with carbonated soft drink and beer. In the U S I think the latest data that we published showed, at least for off premise consumption, close to 80% penetration for cans on beer. Big number. Where you're at and to your point, I mean, I think there's a little bit of a natural throttle in there in terms it takes capital from your customers and filling capacity and stuff like that. yeah i won't have the exact data but what you can say is that the uk looks a bit like the us so again a big off-trade penetration altogether and a very big penetration in cans in the off trade so single-use glass down to relatively small percentages and no no returnable glass to speak of and and actually therefore the uk a lot of the penetration gains are also occurring in more on the soft drink side with the resistance to single-use plastic so you see that starting to to pick up and get closer towards where the US is now trending but then you go outside the UK every other country in Europe is well below those sorts of numbers and you know in Germany you still have significant two-way glass which you know that'll some of that'll stay for sustainability reasons but a lot will leave the market with the efficiency of the can and the retailers wanting to promote you know multi-pack cans to drive traffic so wherever you look soft drinks or beer you find significantly lower levels of penetration compared to uk us and that's why you see this growth trajectory and germany is the lowest because of the deposit legislation that was put in place in 2003 that was very unfavorable to the can there's just been this long trajectory back to get to more normal per capita consumption of cans and we still see double digit growth rates for cans in soft drinks in particular in germany you know every quarter and we are still getting actually now metal packaging europe data but with a big lag for competition reasons and it is showing again you know this three to five is is very solid if not you know the lower end of it sometimes in terms of can growth so every quarter we get the mark the data for our markets every quarter we outgrow plastic we outgrowth glass so So that's a consistent trend for two, three years now. Got it. I guess what's preventing, is there a route to faster adoption? And again, is it just customer sort of stage gating their investment? How should we think about that? I think it's lots of factors. And that's why once it goes in, it's also hard to reverse because you've got everything from our customers thinking about their marketing campaigns, their promotions, their shelf space. planning that they take to the retailer that innovation pipeline I heard from a customer last week that whereas they used to launch in single-use glass first to get that premium halo over the innovation can could come later now they launch them together you know straight into can as well so these are quite structural factors within our customers then you've got the retailers the shelf-sets the the way they're thinking about it and then you get consumer habits and obviously you've also got filling capacity you know how many can lines have they got relative to glass filling or or plastic filling so all of it's quite a big structural element and as you move that forward into you know basically more cans you also start taking out some of those the capacity was there for the other substrates so yeah I think you know and then especially once you get to that point where the consumer is really saying this is where we're at I mean these are consumer goods companies they need to be where the customer is at and if consumers more at cans then that's what they'll respond to which was a debate for the us this year you know everyone's like lme's high premiums high some of which is hedged at the moment but but you've also got to deal with where the consumer is and if the consumer's wanting the substrate then you have to to some degree match that um one last one on europe sort of sustainability regulation or regulatory impulses um how does that affect the various substrates from your vantage point i mean it's a disadvantage to can um i think it's a lot of times weight based which probably is not negative for glass unless it's returnable and so there's a hole yes i mean i think they're moving much more to real recycling yeah and real recycling is hugely in our favor because there are things that are recyclable and then there are things that they're recycled and cans are recycled and so that is where they're going which is true environmental performance depends on it actually getting recycled and actually coming back into the productive life of cans or other products and so that's massively in our favor if you look at recycled content targets and recycling rate targets that's obviously hugely in in can's favor and there are refillable targets so that could hold some of the glass situation more than you'd have expected but they've been calmed down a bit they started at some very high numbers they've they've come down um and yeah some of the weight based stuff is actually going away which you know it's still like there is some legacy in in some of epr legislation but largely now they're going much more to these real recycling environmental performances and then we're increasingly going to product carbon footprint i mean that's where our customers are taking us which is okay what is again the true product carbon footprint which is something we're all working on in terms of standards and which with with the developments that are going on in the whole aluminum supply chain, again, I think will be very favorable to the can. So sustainability is definitely a part of why the can is growing in the mix. And the US is just waiting for Europe to get the map put together and then they'll just replicate it? Yeah, the US, yeah, is sort of traveling in a different direction. What's interesting is global customers operating in Europe and also often signed up to science-based targets, equally putting pressure on us for measurement and reporting on these areas so it's not just a European customer phenomenon it is global customers as well switching gears North America for our doll specifically this year you called it I was being a transition here you weren't bashful about it you're owning it for a variety of reasons can you just remind us specifically kind of what's embedded in that yeah yeah so I think post covered we wrote as an industry quite a long set of long set contracts that all came and so 25 26 and so there were there a big set of resets that occurred between 24 and 26 and the last part of that we we lost some volumes that were mostly about footprint situations either customers closing filling locations and rationalizing or competitors having built plants that were then in more favorable locations or in one case we didn't build a plant that would have been in a more favorable location and therefore it went back to a previous supply location so mostly footprint perhaps a little bit of competitive activity some people wanting the sort of growth rates that we had in the previous few years so that means our volumes in north america this year will be softer than the market um which drags our overall global volume performance um and what we see next year is we as part of those resets are actually picking up some locations and so next year we expect to grow roughly at or maybe even above above market so so we called it this transition year for that reason that we're a bit softer this year and we expect to be a bit stronger next year and yeah that's the the guts of it point of clarification A little bit stronger next year, like better than the market because we've got visibility into some of these wins that transpired? Yeah, exactly. And I know you're going to get frustrated with me. If I were to put a number somewhere around that billion unit range, is that directionally? It's probably a little on the high side. A little onthe high side? Okay. But I mean, it's a meaningful level of volume. Okay. South America, it's always been a little less linear down there in terms of growth rate, even whether it's annual or quarter to quarter. I don't know if every single one of my numbers down here are right, but for the past six quarters, down 15, up 4, plus 12, minus, a lot of volatility, you get the point. What's driving some of that? And I appreciate, typically, whenever we talk about the market down there, we say, hey, listen, roughly directionally 80-20 in terms of beer versus other drink categories. And you've got a big beer customer down there that has some self-made assets and they tend to move around their purchases. So just help us understand if there's anything else beyond that, that we should be aware of? Yeah. I mean, I think it's 80 plus percent beer, right? The market. So in cans. So I think, it definitely feels like it's got more volatile post-COVID. And I think i think you can start with the consumer i think they were much less protected during covert so i think there's much more volatility in consumer spending and behaviors um depending on the state of the brazilian economy the elections the strength of the us dollar and the inflation that's coming through so i do think that that element of volatility is definitely there then i think if we look at our customer base that also has i think become more volatile you now have more players competing harder in the off trade ambev obviously has come much more strongly into the off trade in the last five years building their own as you say building their in manufacturing and that means everybody quarter to quarter is promoting harder at times or taking their foot off the gas and maybe going for a little bit margin so you do see strong effects based on customer mix and you see it in our peers that depending on which customer is really pushing that quarter suddenly you can get a big uplift and equally then when they stop pushing the next quarter you get a bigger reduction and that i think i think you had some of that pre-covered but i think we definitely have more of it now um which overall is driving you know volumes and growth for the can um but it does mean we're i agree much more up and down than we used to be so you sort of have to ride it out i think have to look through it for the year um not worry too much about month to month and quarter to quarter okay um there's a column a new entrant but but someone who had not been down there um who's currently adding some capacity um does that inform your view at all in terms of how you deploy capital at least down in brazil and i appreciate you know kind of two plants down there and um yeah and we deployed quite a lot of capital down there um you know in the in the 22 23 time frame so we still have spare capacity in there so we no need at the minute to adding add any more capital i mean that was a very specific situation obviously with a customer building a new brewery and you know making a choice about who supplied it so i think that was um perfectly normal you know market activity if you like um and you know we expect over the stretch for brazil to be a growth market where everybody will get their share make their investments and and get good returns um i think november 25 we nerded out a little bit and we're checking out a slide deck that you gave us some regional um category breakdowns and it's quite a bit different for you all i would say uh in terms of your your regions and again we kind of talked about brazil but in the in the us um alcohol a pretty low exposure for you all um intentional or not is that a market where you see opportunity um or is it just a function of maybe legacy relationships and and similar question for europe um you know kind of your footprint and where you See opportunities yeah there's clearly a legacy so we in the divestment we got rexam's u.s business and rex and there's much more soft drinks focus than ball um and obviously you have mcc in the market and you had rmmc in the markets so you had you had players in the beer space that meant some of those volumes weren't available to the industry anyway but but yeah we we inherited rexman's business which was as i say much more soft drinks focused and then we aggressively diversified that with new customers new categories but but again principally in the soft drink space though obviously we did a big play into hard seltzers and cocktails and we still have you know a good portion of the business sitting in alcohol but not in mass beer so and that portfolio has turned out to be a very advantageous portfolio the last five years because if you look at a lot of the growth in cans it was sitting in those categories and particularly in the customers that we'd targeted and formed good relationships with so we saw a lot innovation coming into cans coming into those players and those categories that we were they were we were in and we're still seeing that so even though we have some losses this year we can see very healthy growth in specialty cans in in some of those innovative and high growth companies and attractive categories so so yeah it was somewhat intentional somewhat legacy um but definitely played out well for the business and then europe was ball europe and ball was more beer focused and so you have a sort of 50 50 split there of uh beer and soft drinks um which again played out very nicely for us in the over time nicely diversified but in the last two years beer clearly under more pressure so then you do see that last year and this year that the beer category is is suffering cans are still growing but relative to other categories less um and you know we're comfortable with that though i think that we'll we'll continue to diversify our customer base we've got good regional breweries as well as the big the big brewers and um you know they're going to sort themselves out though pricing got a bit high i think postcovid they'll they'll address that they'll innovate so with no particular concern to that position but equally you know we're very happy to grow in the soft drinks categories as well thank you um now to the the aluminum question a couple aspects to it i'll try to put some numbers on things and i'm sure i'll get it wrong but we're kind of using average 2024 as a baseline just because it's it's a decent reference point. And if the standard 12-ounce can costs some number, and aluminum is, call it 50% of that roughly, our math says it used to be about six cents. And now if we mark to market today, which to your point, customers are hedged, they kind of layer things in on a three-year rolling basis, it would, but mark to mark, it Would be another six cents on the cost of a can. Again, it's elevated. Our metals and mining analysts spent a lot of time across the hallway today saying that there's potential aluminum shortages, which suggests prices stay higher for longer. But long-winded way to say, and we're starting to see it in some of the Nielsen data, at least domestically, where, you know, we saw the growth in the first part of the year, and it's slowed kind of to flattish as we sit right now. More on the go, which probably shouldn't be a surprise. You fill up $100, you don't have to go in for smokes and cokes so um my point is i think investors have a little bit of ptsd from q4 2022 as you look at your customers as you think about kind of the consumer affordability all of these aspects and i'll call it inventory modulation um you feel like you're better prepared this time around to kind of peek around the corner maybe it's a loaded question but just no i think i mean i do think q4 22 is a very different story just because you know coming off the covid wave there was a lot more hope and expectation in in forecasts right okay and um so i think i think we're much more balanced capacity wise balance in terms of expectations than q422 i mean i i did say at the beginning of this year that that we have to be cautious in the face of that sort of headwind but what's been interesting i think is again customer dialogue that says look this is no longer just a cost issue you know it's not just our your costs have gone up so i immediately switched into another substrate there is now a significant amount of consumer and retailer demand around the camp that they can't just ignore and they're saying this to us you know it's us promoting it that you know the consumer has shifted and isn't asking for single-use plastic for example and is looking more to the can and has got used to the fact that most innovation and new products are coming in cans and that that carries some halo with it so i think yes you know i think there is some significant inflation in the can but i don't think it's as simple as saying okay so then we just automatically switch out and i do think also all our customers took some very healthy amounts of of price you know in north america in the last three years um and so they have some room possibly to to play and to to play with the mix and not just immediately overreact so yeah i'm hopeful that i think if i look at the data i mean beers what's really struggling right so energy csd actually pretty healthy growth rates and energy on some tough comps you know and some new products that are hitting national distribution levels now and so will inevitably you know slow down a little bit compared to last year so i wasn't too concerned when i looked at that data that looked like for the categories we're in there's still some pretty healthy levels of growth okay maybe i'll give you the opportunity um for the whether it's second quarter i mean a full year guide 650 to 675 um anything that you'd like to get out there for us um numbers wise typically don't yeah close to q2 but yeah nothing i mean i think that you know what we saw at q1 looks looks about right you know from what we're what we've seen in terms of the way our business is playing out and the markets are playing out so i think europe europe volumes uh are very healthy we had a very strong q125 so our q1 in europe was a little weak this year we also had a slow ramp of some new of some contracts that were coming on so Q2 looks much more normal for our European expectations which is where we signaled it and the North American volumes still look softer than the market which we expected but the mix is good so you know we're feeling good about the US business operational performance very strong both sides of the Atlantic and yeah Brazil definitely a bit weaker than Q1 but still within the rounds of expectation relative to the market and again nothing to worry about on the operational side so i think you know from an amp point of view 26 is is going well it looks like it's going well for the industry when we look at some of the peer commentary that's come out recently and i think again the sector is very resilient in the face of of its environment at the moment uh two things you brought up can size i call it shrinkflation um i think one of the prior companies called it pac-mac action pac makes architecture price mix architecture. Can sizes, are you limited at all? Have you been making investments on the back end to have a little more flexibility, whether it's, you know, I think squat cans are something that's a little bit popular right now, hit that 100 calorie price, or whether price point or 100 calorie consumption point? No, actually, one thing I think we've done really well in the North American network the last few years is make it highly flexible so we're very resilient to different demand patterns in the season or in the inventory build and we also have particularly strong sleek capacity because we obviously built it for the seltzer boom but it's now playing out across a whole series of categories so that's been very good for us as a business and yet multiple sizes of sleek are absolutely fine as you say as people managing portion control um that that's a good trend for us um and and we're well placed for it so and we have one or two more investments that we'll make in the north american network i think just to again increase that flexibility give us all options between 12 ounce standard and specialty and we've seen that this year that we've been able to flip you know capacity into the specialty space you know to make sure we cover that side and then you mentioned a competitor um had some constructive commentary i'll call it i think some investors reached out to us and said you know their numbers look a little overstated or or um you know bigger than they should be but just um does anything again knowing what you know from from being a competitor is that sort of playing out as you expected um from a competitive standpoint i think broadly yes i mean we we signaled that we lost some growth in q1 from the metal shortages so probably that ended up elsewhere in the market i mean i wouldn't say it's a huge effect but but we're pretty sure that some of that was picked up by the competition so that could be a could be effective uh but i i think it looked you know off a smaller base you know with some of the contract resets it didn't didn't look completely out of line to me the redundancies that you talked about building in for uh metal sourcing and and things like that i know it's tough to tell we've got it changes by the hour it seems like um but aluminum availability expectations for disruptions um again yeah no concerns actually um obviously customers have been asking but actually you know the middle east isn't a huge factor in that in the in the setup for getting you know the ingots that come into our business and the coils sorry into our supply chain and the coils that we get so right now we're not seeing any concerns for 26 supply now that the never you know the situation in the US with the the fire and the fires and in the domestic mill are resolved and now that those two new mills are coming up you know situation looks pretty good is it incongruent to think because i think cans can be up to let's say 99 recycled content you still might need a little magnesium in there or something like that but um that maybe this is a bigger impetus to to drive recycling and you know so that would right you'd hope so i think u.s is below 60. well below 60 you're below 50. i mean it's a shocking number for a developed economy to waste that much of of a valuable resource to be honest um and very weird you know in terms of attitudes towards it but anyway i shouldn't criticize um so yeah look you'd hope you should you'd really hope so because it's a complete waste and um obviously massively important to you know national security as well not to be wasting dynamo materials like that right so um these two mills will put a lot of pressure into that system whether they can really influence the politics behind it at a state level to get the material back i don't i don'T know i'm a little cautious to to pronounce because it's proved very difficult but um yeah i'd really hope so i think actually um an article hit a couple days ago that said that there was an investigation or maybe there's going to be some pressure on exporting uh recycled from the u.s yeah uvcs yeah i'm not sure you're doing a of that you're bringing in a lot and that may get shut down because you know there are markets out there saying why are we sending that to the us sure so i think that's a challenge you know and um yeah look it's a huge potential because you could transform the aluminium supply chain in the us perfect i think uh with that we're out of time Thank you very much, Ali. Always a pleasure. Yep. Finish this up for the day.