2023-10-26 17:46:08 ET
Ardagh Group S.A. (ARD)
Q3 2023 Earnings Conference Call
October 26, 2023, 11:00 AM ET
Company Participants
Paul Coulson - Chairman
John Sheehan - Chief Financial Officer
Conference Call Participants
Richard Phelan - Deutsche Bank
Mark Watts - Citi
Sam McGovern - UBS
Ed Brucker - Barclays
Roger Smith - Bank of America
Karl Griffith - Napier Park
Sandy Burns - Stifel
Emmanuel Owusu - Bank of America
Presentation
Operator
Welcome to the Ardagh Group S.A. Third Quarter 2023 Results Conference Call. Today’s conference is being recorded.
At this time, I’d like to turn the conference over to Mr. Paul Coulson, Chairman of Ardagh Group. Please go ahead, sir.
Paul Coulson
Welcome, everybody. And thank you for joining us for our third quarter bondholder call. This call follows the release of our results for the quarter earlier today and I’m joined on this call by John Sheehan, our CFO.
As usual, our remarks during this call will include certain forward-looking statements. These statements reflect circumstances at the time they’re made and the company expressly disclaims any obligation to update or revise any forward-looking statements.
Actual results or outcomes may differ materially from those that may be expressed or implied due to a wide range of factors. Our third quarter bondholder report can be found on our website at ardaghgroup.com.
Earlier today, Ardagh Metal Packaging or AMP released its third quarter results. A replay of its earnings call can be accessed at ardaghmetalpackaging.com. And on this call today, we will not be providing any additional information regarding AMP.
If I move to review some Ardagh Group highlights for the third quarter, where we saw weaker than expected shipments across our Glass business and strong shipment growth in Metal Packaging.
Consolidated Group revenues of $2.5 billion increased by 4% of constant currency compared with the third quarter of 2022. Growth reflected higher shipments in Metal Packaging, led by the Americas and the pass-through of increased costs in Glass Packaging. This was partly offset by lower than expected shipments in Glass Packaging.
Group adjusted EBITDA declined by 1% of constant currency to $3.34 million for the quarter compared with the same period last year, with strong growth in Metal Packaging offset by decline in Glass Packaging.
If I review segmental performance with a focus on constant currency results and I’ll start by briefly recapping on AMP, revenue of $1.3 billion at AMP increased by 7% compared with the third quarter in 2022. Growth reflected higher beverage can shipments, partly offset by the pass-through of lower metal prices.
Third quarter global beverage can shipments increased by 8% compared with the same period last year, with growth of 18% in the Americas, more than offsetting a 2% reduction in Europe. Within the Americas, AMP grew shipments by 20% in North America, while Brazil showed a return to high single-digit growth despite continuing macroeconomic challenges. AMP’s third quarter adjusted EBITDA of $171 million, grew 20%, principally reflecting increased shipments and better pass-through of energy costs in Europe.
AMP has initiated consultations regarding the future of its White House, Ohio plant, with the aim to improve its network efficiency and reduce fixed costs. Our previously set out rationalization of our remaining steel can lines in Germany is on track to complete around year end, and this demonstrates our focus on optimizing capacity utilization following the completion of our growth investment program.
Cash generation at AMP was very strong in the quarter and in the year-to-date, with significant funds released from working capital. Together with EBITDA growth, this resulted in a reduction in net leverage of 0.5 turn in the quarter. Adjusted EBITDA of $610 million is now projected for full year 2023.
If I could turn to Glass Packaging, where we and the industry faced a very challenging environment during the third quarter. Our Global Packaging -- Glass Packaging revenue of $1.2 billion for the quarter was virtually unchanged compared with the same quarter last year, as the pass-through of increased input costs was offset by significantly lower than expected shipments.
Total glass shipments weakened over the course of the quarter and finished 18% below comparable prior year levels. And as we noted in our July earnings call, and as reported by glass industry peers over the past week, it is clear that there has been significant and prolonged restocking activity across most of our markets and this has been in excess of any change in end consumption patterns.
Our response to this sharply changed environment, which we believe to be temporary, has been to lower our production by approximately 20% in Q3 and with additional actions planned for the fourth quarter.
Total Glass Packaging adjusted EBITDA for the quarter declined by 16% to $163 million compared with the same period last year. Lower earnings were due to the impact of lower shipments, combined with production curtailments, which adversely impacted third quarter profitability by over $70 million versus our previous expectations.
If we look individually at our two Glass Packaging segments and if I could start with Europe and Africa, revenue of $784 million in the quarter was 9% of the same period last year, as the recovery of increased input costs through higher prices more than offset the impact of significantly lower shipments. Glass shipments in the Europe and Africa segment were 20% lower in the third quarter compared with the same period last year and were well below our expectations.
As we reported on each of our earnings calls this year, glass shipments in Europe were exceptionally strong towards the end of 2022. Full year 2022 shipments increased by 6%, significantly outperforming the market.
We, at the time and since then, have attributed an element of this strength to a pre-buy activity, as volumes were pulled forward from the first half of 2023 and we expected it to unwind through lower shipments in the first quarter and to be complete by the end of Q2 2023.
However, as we noted in our call in July, second quarter shipment trends remained lower than expected, with a similar rate of decline versus 2022 that we’d seen in the first quarter. This, we believe, was principally due to destocking by a number of large customers who had built higher than normal levels of inventory during the pandemic and in 2022, and this was amidst a well-reported supply chain bottleneck in glass.
Our leading presence in the beer market and in Germany was also a contributory factor to this weakness. We believe that the third quarter 20% decline in shipments in the Europe and Africa segment during the quarter reflects a more prolonged destocking by our customers in Europe and latterly in Africa and this was exacerbated by weaker demand faced by our customers.
Customers responded to weaker than expected trading in the latter part of Q3 and to a more uncertain economic environment by significantly lowering their previous glass requirement forecasts.
We believe that this decline in shipments is temporary for several reasons. Firstly, declines have far outstripped reductions in consumption over the course of the quarter and year-to-date, compared to the same period last year. Nor have we seen any notable movement between substrates, a trend between cans and glass, for example, a trend which we would be uniquely well-placed to observe early.
In our Africa business, Glass Packaging business, we saw a reduction in demand midway through the third quarter as customers moved to reduce inventories, which had been boosted by the importation of expensive glass from various regional markets.
The softer macroeconomic backdrop impacted demand, but we also saw some gains by non-returnable Glass Packaging in the lower priced end of the on-trade market. We expect this empty and filled glass inventory to be worked down over the next two quarters and we expect to see recovery in demand as we move through 2024. We are also seeing an improvement in the outlook in Africa as two of our major customers bed down their recent merger.
In response to weaker demand environment, we adjusted our production during the third quarter in both Europe and Africa. Furnace rebuild schedules were flexed and selective capacity idled, with the result that third quarter adjusted EBITDA in the segment was $133 million, a 6% reduction compared to the same period last year. This outturn was after the impact of approximately $60 million in the quarter from lower than anticipated shipments and resulting production curtailment costs in the quarter.
We do not believe that the fundamental markets -- market fundamentals for Glass Packaging in Europe have changed. To put it in context, over the past 15 years, including during the global financial crisis, our European shipments at their lowest in that 15-year period have been 10% higher than we currently project for 2023.
2023 has, we believe, seen a one-time destocking post-pandemic and post-easing in the supply chain pressures of recent years. We expect normalized customer demand to drive a recovery in shipments during 2024 as inflationary pressures on consumer’s ease and as our customer’s push volume, as they have been pushing volume instead of price. They’ve been pushing price over the last couple of years.
This will be aided by the expected pass-through of lower energy prices in Glass Packaging, thereby making us more competitive in our glass markets. Longer term, we expect European Glass Packaging demand to continue to grow by a low single-digit percentage annually with mid-single-digit growth in Africa. This is unchanged and based on our continuous dialogue with our customers.
With a view to serving this long-term demand with sustainable, well-invested capacity, we will soon commence production at our NextGen Hybrid Furnace at our Obernkirchen, Germany plant. This will be the first of its kind in scale, capable of lowering CO2 emissions by up to 60% and transforming the glass production process over time. In December, we will bring the third furnace online at our Nigel Johannesburg facility to serve the medium-term growth needs of the South African market.
Following completion of these investments, we plan no further growth capital expenditure, focusing instead on leveraging the significant investment of recent years to drive earnings growth and cash generation.
So if I now turn to glass in North America, revenue for the third quarter was $408 million, a reduction of 13% compared to the same period last year. And as in Europe and Africa, this was driven by a 14% reduction in shipments, partially offset by price improvements.
Glass shipments continue to be challenged by the previously outlined disruption to a major beer brand in the U.S., to which we are the major supplier. The impact on consumption of this brand, as widely reported in retail data, has to-date shown little change since the controversy first arose earlier this year.
In response, we accelerated the closure of two facilities during the third quarter and have been engaged in transferring remaining volumes to other parts of our network. Though this involves disruption and temporarily increased cost.
Outside of the mass beer category, demand also remains subdued during the quarter, with continued destocking evident in the food, wine, and spirits categories. This necessitates an ongoing production curtailment across parts of our U.S. network, leading to fixed costs under recovery during the quarter.
Third quarter adjusted EBITDA of $30 million was $23 lower than the same period last year, was impacted by over $10 million due to shipment weaknesses and resulting production curtailments. We believe that destocking initiatives by our customers are more advanced in the U.S. market than in Europe or Africa and we continue to assess opportunities to optimize our furnace network with the view to right-sizing to meet demand.
While nice -- while not evident in the reported outturn in view of the circumstances prevailing in 2023, we have made good improvements in pricing during 2023, as well as early-stage progress in improving our operating performance. There is a lot remaining to be done to deliver consistently improved profitability and greater resilience from the business.
If I turn to our liquidity and our cash structure, consolidated group cash and available liquidity was $1.3 billion at the end of September 2023, including $0.5 billion in cash. Cash and available liquidity at the ARGID Restricted Group was $800 million.
Net leverage at ARGID Restricted Group was 6.1 times LTM adjusted EBITDA at September 2023, compared to 6.2 times at December 2022. This represents an increase of 0.2 of a turn in the quarter. LTM adjusted EBITDA at the ARGID Restricted Group was $973 million at September 2023, compared to $893 million at December 2022.
So to wrap up these remarks, as we look to the full year of 2023 and beyond, the market backdrop remains uncertain, and our assumption is that customer demand will remain weak through the fourth quarter of 2023, especially when measured against an exceptionally strong finish for us in 2022. We will manage for this environment and set ourselves up for the new year.
Given projected lower shipments for Q4 and lower production, which we impact will -- which we estimate will impact the Q4 EBITDA by approximately $80 million after other cost reductions, we now project full year 2023 adjusted EBITDA for the ARGID Restricted Group of approximately $900 million. Such an outturn would leave our glass EBITDA in 2023 flat compared to the outcome in 2022.
Net leverage at the ARGID Restricted Group is now projected to end 2023 in the mid-6 times range before deleveraging in 2024. In 2024, we expect to return to more level -- more normal levels of shipments as customer demand recovers following completion of destocking and as customers seek to grow volumes. Moderating levels of inflation will also be positive for both consumer behavior and for our glass input costs.
As a result of such reduced input costs in 2024, we will be well-placed to regain share in all our glass markets, especially in food and wine. Our customer volume implications are trending positively for 2024.
Resumed demand growth, as well as significantly lower and less costly curtailment activity than in 2023, as well as the benefits of ongoing cost efficiencies, should drive a solid recovery in earnings in 2024.
So having made these opening remarks, we will now be very pleased to take any questions that you may have. Thank you.
Question-and-Answer Session
Operator
[Operator Instructions] And our first question is going to come from Richard Phelan from Deutsche Bank. Please go ahead, sir.
Richard Phelan
Yes. I was hoping you could clarify the projections guidance that you gave for both the glass and metal 2023, but I guess just in context of the acquisition. I think you had previously been looking for $850 million for glass.
Paul Coulson
Yeah. That’s -- it is now $700 million, which is because of the impact, as I mentioned, [Technical Difficulty] projections impact in Q4, which would leave it flat with last year.
John Sheehan
Yeah. If you compare, Richard, the prior year was $690 million and then you have the dividend on top.
Richard Phelan
Right. So the $689 million I saw. Okay. So $700 million for glass and then what did you say for metal?
Paul Coulson
The metal is updated today, so that was a separate call, but the update there was $610 million for the year.
Richard Phelan
And does the underperformance on the glass side, does that change your view in terms of CapEx for the Group? How does that plan out for the balance of 2023 and for 2024 and obviously focus on glass?
Paul Coulson
We have taken the knife out big time to CapEx for the remainder of the year in both businesses and it’s only on a needs-must basis now. There’s no development stuff going on at all.
John Sheehan
We’ll complete, Richard, as you said, the two significant projects. One is the NextGen Hybrid Furnace. That’s warming up at the moment in Germany and will go into production shortly. And then the third furnace in Johannesburg. So those projects will start come online again before the end of the year, but that’s the only development projects we’ve had in the pipeline and they’re just nearing completion. So the CapEx that we outlined previously between development and maintenance was in the range of about $530 million or so in 2023. That should fall away markedly next year.
Richard Phelan
Okay. And last question, like, the 20% decline in Europe’s shipments in glass and 14% decline in U.S. shipments in glass, something similar is anticipated in Q4 before a recovery to sort of this normal low single-digit volume growth expectations next year. Is that fair takeaway?
Paul Coulson
That’s correct. Yeah. And as I said, the indications with customers are that that is the case. In Europe, we had a lot of destocking. We had some very big volume calls with three of our major customers accounted for 40% of the shortfall in demand for this year relative to our expectations.
And in some cases, you had very big volume declines by major customers, which were exacerbated by the fact that they had stocked up both in filled and unfilled capacity -- glass capacity, both bottles and filled bottles at the end of 2022 when glass was short.
And of course, the weaker demand has slowed down that destocking process, which we would have expected to have ended by Q2. It is now going to go through the end of this year. I think you’re seeing that reported as well. But we expect a recovery there. And also we have major reductions in our input costs as our energy costs fall way down at the turn of the year.
John Sheehan
Richard, recall we had a strong Q4 last year. So, our planning assumption would be that that decline in Europe year-on-year in Q4 will be a bit higher and we would adjust our capacity appropriately.
Richard Phelan
Understood.
John Sheehan
So we are taking the appropriately.
Paul Coulson
Yeah.
Richard Phelan
Okay. Great. Thank you.
John Sheehan
Thank you.
Operator
[Operator Instructions] Our next caller is going to be Alex Simon from Techuz Capital [ph]. Please go ahead.
Unidentified Analyst
Hi. Thanks for taking my question. We’d like to come back on the CapEx side, because you guided full year 2023 CapEx near $550 million and looking at the figures, I see more than $750 million. So, could you please give us some guidance knowing that there’s been some reduction already at the AMP level? Thank you.
Paul Coulson
We haven’t seen it in 2024. But the maintenance element of that spend in the current year was about $330 million, $340 million, and then between various projects, there was the best part of $200 million of growth and we would be looking for that growth to very sharply fall away next year. And then with the benefit of the investments we made this year and over the past several years to reduce our maintenance CapEx as well. So, we’ll update in February. But a very meaningful reduction based on the condition of our assets are very good and the development. There’s nothing additional planned there.
Unidentified Analyst
Okay. Thank you for the call. So, how much should we plan for 2023 full year in terms of total CapEx?
Paul Coulson
That’s about between the two, it’s probably about $540 million range between growth and maintenance…
Unidentified Analyst
All right.
Paul Coulson
…combine.
Operator
And I have no further questions in the queue at this time.
Paul Coulson
Okay.
Operator
And I apologize. We do have a few more coming in. Do you want to go ahead and take them?
Paul Coulson
Yes, please.
Operator
Okay. And so, I have Richard Phelan again.
Richard Phelan
Hi. I just thought I’d ask some more questions as I was surprised no one else was asking. In light of upcoming maturities in 2026, maybe if you could shed any light on companies’ plans to address those. Obviously, they’re not urgent. But is it via capital markets? Would you consider accelerating the sale of Trivium? Would you reduce your stake in AMP from 75% to lower? Would you consider selling preferreds? All of the above.
Paul Coulson
All of the above are possibilities, Richard. And I think in the new year, we will turn our minds to how we’re going to deal with these issues. I mean, obviously, capital markets are, actually, bond markets are tricky at the moment and cost of finance has risen dramatically. So, we will look at various things. We have various levers and we will look at all of them.
Richard Phelan
Great. Thank you.
Operator
And our next question is going to come from Mark Watts with Citi.
Mark Watts
Hi there. I just had a quick question on U.K. production. So, you guys have obviously the facility ramp up, how the progress is going there and will you be adding capacity across any region near-term?
Paul Coulson
No. We refer to ramping up capacity. NextGen Hybrid Furnace, which it can save CO2 emissions by 60%, maybe even more. And it’s the biggest of its kind and scale that will be in operation. That’s in Germany.
And then the second one was a third furnace in our Nigel plant just outside Johannesburg and that’s to satisfy, we mentioned that there’s been traditionally over the past few years, imports into that market.
So, there’s an unmet need and there’s also a mid-single-digit expected. Those imports are extremely expensive to get into that market. So we have two furnace facility there and we added the second furnace shortly after the acquisition and the third furnace will come on stream before the end of the year.
So there’s nothing specific in the U.K. We’ve always been committed to balancing our capacity and when we’ve seen this softness in the quarter, we’ve acted very, very promptly and that influences our spending plans as well on any future CapEx.
Mark Watts
Got you. And in America, you said obviously destocking is more advanced. Do you mind just elaborating on that? We also heard from peers around the import markets potentially being a bit closed and helping that region. Is that a trend that you’re seeing also across glass and metal, maybe more so glass?
Paul Coulson
I don’t think there’s been any real dramatic change. There’s a certain level of imports into that market. But in general, customers like a shorter supply chain than importing from too great a distance. So our focus is -- it’s had -- it’s been a challenging market for us. But what we’ve envisaged, we had the Bud Light disruption earlier this year. We moved swiftly to pull forward two facility closures. And as we said, we continue to work on a plan to right-size our capacity, which in all likelihood means some further reduction in capacity over the next few years.
Mark Watts
Got you. And the final question I just had was on price pass-through. I think previous calls you mentioned maybe some of the bigger drinks companies maybe pushing back on price and you were doing the same. How are negotiations there? Is most of the pass-through has that taken full effect or what do you see into year-end?
Paul Coulson
No. Our pass-throughs are fine. I mean, I did mention, our pass-throughs are working fine. I did mention that in the last couple of years, the consumer brand companies have been pushing price ahead of volume, and that came, I think, it’s over now. They’re not going to push that and they recognize that.
You may have seen that in recent days with some commentary from some of them. And they will now be working to restore volumes as inflation moderates and their cost, their input costs come down and our cost of supplying glass then comes down. So I think you will see promotion of volume over price. That was the point I was making and that’s what we’re hearing from our customer base.
For the bigger customers in Europe and really for all customers in the U.S., there are very specific pass-throughs, particularly in relation to energy. In some cases, they will have complete control over that in terms of the way they want to buy it or not buy it, and in all other cases, it’s done hand-in-hand in agreement with them on a very structured basis. So recovery there has been good.
Mark Watts
Okay. And so the pass-through, I am sorry, the promotion activity you said so far for 4Q has been better than Q3, because I know on the previous metals call just earlier, they said that maybe that was maybe a little bit slower than expected. So glass side, has there been any mark, the difference between October and what you saw in Q3?
Paul Coulson
No.
John Sheehan
I don’t think so.
Paul Coulson
No. I don’t think so. I think I -- are you talking about promotional activities or what?
Mark Watts
Yeah. Exactly. Promotional activity.
Paul Coulson
This is something we’ll see next year. I don’t think we’re seeing it yet. I think that what they’re saying is a number of them, both privately and some of them publicly in recent times, that they recognize that, well, they don’t have the need, given the moderation inflation to push price and they push price a long way and probably as far as the consumer will bear. And I think you’re going to see now that they’ve, obviously, some of our bigger customers have lost substantial volumes and you’ll start seeing them push to reclaim volumes.
Mark Watts
Got it. And so the only final question I had, if I could, was just on your, the kind of the changes announced in terms of you potentially moving to a different kind of post within the company. Do you mind just elaborating on what the near-term plan is there?
Paul Coulson
Yeah. Well, it’s exactly as our announcement last month was, that Hermanus Troskie will take over in mid-November as Chairman from me. And I will remain a Non-Executive Director, heavily involved in some of the strategic decisions and in refinancing and things like that. And I will remain on the Board and remain the controlling shareholder of the Group. It’s exactly as that announcement is. There’s no change in that position. Hermanus takes over mid-November.
Mark Watts
Thanks very much.
Paul Coulson
Thank you.
Operator
And our next question is going to come from Sam McGovern from UBS.
Sam McGovern
Hey, guys. Good morning. Just with regard to the destocking, do you have any sense in terms of where inventory levels are currently for customers? Are we getting to a point now where we’re below normal and are they just waiting for the energy prices to be lower in terms of the pass-throughs next year to be able to restock? And what does that mean in terms of demand for 2024 as they rebuild inventory?
Paul Coulson
I think we’re coming towards the end of it. It’s very hard to know. It’s very hard to get visibility on inventory levels, both filled and unfilled in terms of glass. But I think we’re looking to see that there will be a resumption of demand next year and I think some of the factors you mentioned there regarding what pricing will look like next year.
And also, I think, you’ll find also that a number of them are focused on cash conservation and optimization of cash positions ahead of their year ends, where they have a December year end. So there’s a whole mix of factors playing into our belief that demand will resume and that’s what they’re telling us, that they’ve worked their way through this stuff.
I mean, what you had with some of our bigger customers, particularly on the liquor side, last year at the end of 2022, they were very annoyed with us that we couldn’t give them bigger allocations for 2023 than what we were able to give them. And they bought glass inventory from outside the normal channels from Middle East and places like that, and even some from China, which was pretty expensive for them. But they had it there.
And then when their demand fell and there’s been big falls, as you know, Scotch whisky industry probably has seen the data that, it’s been somewhere between 20% to 25% depending on which stuff you look at and which type of whisky you look at, and that has been exacerbated by this excess inventory of unfilled stuff that they ramped up at the end of 2022 to deal with what they expected to be much higher demand in 2023. So that has slowed down the inventory being washed out and the destocking process.
But I think we think we’re coming to the end of it, and there’s a number of other factors, as I said earlier during the call, lower inflation, more promotional activity, more focus on volume, et cetera, because some of those big companies have lost big volumes this year. So I think that’s where we’re at.
But I mean, we -- it’s very difficult to get total visibility from -- in any objective sense, on what the true levels of inventory are. Although we’re certainly hearing from the customer base that it’s working its way through.
Sam McGovern
Great. Thank you. That’s helpful. And then just as a follow-up, obviously you guys have matched capacity to demand. How are your competitors reacting and how are some of your competitors who are higher up handling this current situation?
Paul Coulson
Well, I think, you’ve seen some of them report already. I mean, hey, they’ve moved now. I think we’re seeing curtailment across the Board from everybody. We moved quite early because we saw this happening quite sharply.
I think and certain, it’s dependent on what market you were operating in and also different people were at different stages of their hedging in relation to energy and energy’s been all over the place since the start of the war, at the start of last year.
So different people are in different sites. We have a big reduction in our energy costs starting in January. Some people were left in an open position on energy. They probably benefited very much during the year from that.
So it pretty much depends and but we are seeing across the piece now people closing capacity, because for all the reasons we gave, there’s clearly some weaker consumer demand, although not as weak as the volume of clients we’ve seen in our supply base.
So you have the combinations of destocking, you have the combinations of people wanting to minimize their inventory coming to your end, and as I say, weaker consumer demand. So we think that will turn.
John Sheehan
Our sense is that Northern Europe has probably impacted earlier and that’s our business is predominantly there. But it’s becoming more widespread now. So I think Northern Europe, we took action very promptly through the third quarter and with the plan to do that on lot.
Sam McGovern
Okay. Great. Thank you so much. I will pass the line.
Paul Coulson
Thank you.
Operator
Our next question comes from Ed Brucker from Barclays. Please go ahead.
Ed Brucker
Hey. Thanks for taking the question. My first one is just on, well, I guess, it sounds like volumes are going to improve in 2024, off of a low base, but good to see they should improve. But how does -- on the other side, how does pricing look and do you expect kind of the weakness that we’ve seen in 20...
Paul Coulson
Which are -- obviously, which are quite high indeed. So I think we’re in a good position vis-à-vis our input costs and our competitive position, which was in certain markets this year was a challenge for us this year and so I don’t believe that price will play out in the way you suggest.
I think for us, it’s making sure that we have the right production capacity next year and we get rid of expensive short-term curtailments, because where you have to curtail quickly, you’ve got lines down and you don’t take out all the costs of those lines.
You still have some energy, still have people there on the lines. So being able to reduce where to get our capacity in line with what we think the demand is for next year, that will make us much more cost effective. And as I say, with input costs down and with less inflation being passed on to the consumer by our -- the end consumer by our customers, I think, we should be okay on that.
John Sheehan
Yeah. Look, Ed, some of the main lines. It depends on what’s in the basket of costs. But energy prices will certainly move meaningfully in the right direction in 2024. Soda ash prices, they’ve been softer over the last while. Color’s been up. Labor’s up. But we’ll see where we get to at the end of the year, but I would agree that we’ve done a headwind there and we’re disciplined on passing it on both ways, way up and way down. Don’t see that as a drag.
Ed Brucker
Got it. Got it. And then on the guide, from July when we heard from you last to now, I guess what has changed there from kind of going from the $850 to now $700? Was it just that you kind of expected destocking to be over?
Paul Coulson
Yeah. I mean, I think we were -- it’s the weakness in demand. And of course, that’s -- this is a volume business. So if you’re hit with unexpected. I mean, our customers were indicating to us at midyear when we talked to you last that, they had expectations of a good summer and basically summer was a disaster for a lot of people. I mean, I think one of our, the CEO, one of our big customers described it as brutal.
You had -- they suffered particularly in beer from a very bad weather pattern all summer and certainly in Europe. And so suddenly you had -- it became clear that volumes were not going to be as our customers had thought they would be.
And that had -- the reduced demand then had the effect of slowing down the destocking process, here we’ve had a customer, for instance, who might have been 25% down with his own customers. He was actually 28% down with us because of the lag effect on the destocking. So you’ve got all that happening.
And then when you find that your volumes are going to be down like that, you’ve got to take short-term curtailment activities which are expensive in their nature. I mean, taking down lines is much more expensive than taking down a furnace.
If you take down a whole furnace or if you’re able to plan forward where you have a rebuild coming and you decide not to rebuild it, et cetera, that takes out much more cost out of your system. And clearly if you get a sudden fall like we had, we haven’t seen this before. As we said earlier, I mean, it’s unprecedented in terms of even in bad financial times for us to see something like this happen in the European market and others of our peers have commented the same.
So when this happened, we had to move quickly and that has a short-term cost which will not be repeated next year. So that’s the reason for its combination of velocity, but yeah, on the volume and the curtailment costs that you have.
John Sheehan
So we estimated about a $70 million impact versus our expectations in the third quarter. Bear in mind that about 60% of our costs are fixed in the short-term. And then we reduced our production by the order of 20%. We’ll do more than that in the fourth quarter. But it’s not going to cost us meaningfully more, we have smaller cost levers that we’ll be pulling.
And then as Paul said, when we take out, some furnaces, we can then delay rebuilding and that in turn feeds into reduced CapEx. So then when we get into next year, idle lines to anything like the same extent and that become much less of a drag. But the change since July is really lower production to a certain extent, lower sales and then just relatively fixed costs. But it’s the right thing to do from an inventory management, capacity management perspective.
Ed Brucker
Got it. And just my last one, in my opinion, probably, further off, but just want to get your thoughts on, the GLP-1 narrative and weight loss drugs and how it could potentially affect your business over time?
Paul Coulson
We haven’t seen any impact to that at all and that’s not something that’s coming out in conversations with customers.
Ed Brucker
Got it. Thank you.
Paul Coulson
Thank you.
Operator
Our next question is going to come from Peter Delina [ph] from BNP Paribas. Please go ahead.
Unidentified Analyst
Yes. Hi there. My first question is regard to the cash flows at Ardagh Glass. It appears that the outflows and working capital year-to-date are about $300 million. Should we be expecting any sort of reversal of that in Q4?
Paul Coulson
Yeah. We should. I think our view and we previously would have seen about [Technical Difficulty] outflow. I think it would be over $100 million now. But it’s a significant improvement from where the year-to-date and that reflects the actions we take will facilitate a reduction in inventory from where it was at the end of September. So, yeah...
Unidentified Analyst
I am sorry. You cut out a little bit there. So, sorry, so, if you could please repeat that. So, you said you’d be working down some inventory in Q4, but maybe if there’s an amount that you expect to see in a reversal?
Paul Coulson
Yeah. We previously indicated we’ve got a $50 million use. I think it’ll be something in the $100 maybe a little bit more of a use. But we will see from where, particularly say inventory at the end of the year was, we’ll see a meaningful inflow coming in between in the fourth quarter as a result of the curtailment that we’re taking.
Unidentified Analyst
Okay. Thank you for that.
Paul Coulson
Okay.
Unidentified Analyst
Yeah. And then my next, sorry, and then my next question is regards to -- is another question regards to the maturities. The previous caller mentioned the 26 maturities, but there’s $700 million due in 18 months. So, my question is to you or would you consider an early refinancing of the pref at AMPEV [ph]? And then my second question is, are there any covenants on the 2027 facility at Ardagh Glass?
Paul Coulson
Sorry. We’ll turn our minds. We are thinking about obviously the 2025 maturity that you referenced. No real comment on anything. I answered previously there were a whole lot of levers that we could deal with in terms of maturities and refinancing. Clearly, refinancing of the pref at AMPEV is a possibility. It’s one of those possibilities. I’m not giving saying that it’s necessarily under consideration at all.
Unidentified Analyst
Okay. And…
Paul Coulson
Yeah.
Unidentified Analyst
Next question.
Paul Coulson
Covenants? What do you mean by that?
Unidentified Analyst
There’s the ABL at Ardagh Glass and I was curious if there’s any covenants that would prohibit borrowing on that?
Paul Coulson
No.
Unidentified Analyst
Okay. Thank you for the color.
Paul Coulson
Thank you.
Operator
And our next question comes from Roger Smith from Bank of America. Please go ahead.
Roger Smith
Thanks very much and good afternoon. If you don’t mind, just because a lot of cutouts, if I can just rehearse the 2023 guidance and maybe correct me where I’m wrong in using some of the, what you said, prior quarter. So EBITDA of $700 million, $2.04 of AMP dividends. I heard total CapEx, including maintenance and growth of $504, 5-4-0, $540 million. Working capital outflow of $100 million for the full year. And then last quarter you gave a number of other items like cash interest of $300 million, lease prepayments of $80 million. I don’t know how this changes. Cash taxes of $45 million and then glass restructuring of $40 million and then there’s probably some other stuff. But does that all sound right?
Paul Coulson
Yeah. No major change. No major change there, Roger. You’d have a bad time. Tax probably comes down a little bit, $30 million maybe, maybe a little bit more, but that’s down a bit. Interest, yeah, that’s no real change there. CapEx is the same, $540 million, that includes about $200 million of non-recurring and look, we’d be looking to trim the maintenance elements as well as we look into the new year. But there is about $200 million between the development projects that we laid out. And then working capital, yeah, we’ve covered. Leases, yeah, there’s no real change there. Restructuring, so you kind of have it there.
Roger Smith
Got it. And just to be clear, under all those things, so there are other stuff I think was talked about before that related to FX, DFC [ph], other. Do you have an overall cash burned number that you’re thinking about for the full year for just glass?
That’s probably not going to change much between now and the end of the year. FX is hard to put a number on. It just depends on where the currency moves right at the period end. But no, we will be able to be using cash, a reasonable amount of cash in the current year. But that’s looking at a depressed EBITDA figure and an elevated CapEx figure and a temporary elevated working capital figure. So as you look into next year, we obviously we’re only going into a budgeting process. But you’d be looking for a decent recovery in EBITDA, a sharp falloff in CapEx, both CapEx being as close to zero as possible, maintenance CapEx being reduced as well and lower restructuring charges and working capital, we still will have some bills this year at over $100 million. But we’ll be looking to reverse, a good portion of that when we get into the new year.
Roger Smith
Great. Thank you very much.
Paul Coulson
Thank you.
John Sheehan
Thank you.
Operator
And our next question comes from Karl Griffith from Napier Park. Please go ahead. And Karl Griffith, please go ahead.
Paul Coulson
Hello?
Karl Griffith
Hi. Can you hear me? Can you hear me?
Paul Coulson
Yeah. Sure. Yeah.
Karl Griffith
Thanks. A couple of questions I have. I guess the first one is on the impact on North American volumes in glass. Could you guys kind of quantify the impact from, I guess, Bud Light, because this is going to be recurring for the next couple of years as well, right? I’m guessing it’s sales that aren’t coming back.
Paul Coulson
Well, I think, it’s -- it was obviously highly material, but we have close capacity to allow for that now. So I don’t think it’s going to be something that’s going to be impacting in 2024 onwards, no.
Karl Griffith
Okay. No. I’m just trying to think through it. So obviously volumes will be here over the next couple of quarters. We’ve always talked about lapping comps, but you’re just saying the cost is being taken out. So the impact will be low.
Paul Coulson
But we’ve taken out plants which deal with that.
Karl Griffith
Right. Okay. Sure. And then just on the quarterly figures you were given for the kind of impact of the curtailments of production. So earlier on, on the Metal call, I think I had a figure of $70 million, is that correct, 7-0 or $60 million. And then for the call today, what was the number you guys were saying the impact was for glass?
Paul Coulson
Yeah. We said that in the third quarter number for EBITDA the Group came to $70 million below our expectations and that was effectively...
Karl Griffith
Okay.
Paul Coulson
No. That’s the glass business. And the elements to that were, one, lower sales volumes, two, lower production that we initiated in response to controller inventories, and then net of other cost saving offset that we did. So $70 million in the AGP, the glass business. And we’re taking further in the fourth quarter. And again, net of other savings we can achieve, that’s about another $80 million. So basically $150 in the second half. That’s what gets you from your $1,050 to $900 ballpark.
Karl Griffith
Yeah.
Paul Coulson
Which is…
Karl Griffith
Okay.
Paul Coulson
…flattish.
Karl Griffith
Okay. No problem. And then just, I guess, if you could just talk on the outlook you see for the Alphaben [ph] business. It feels like there’s been a pretty material slowdown there. And just like why end markets or geographies are driving that because it felt like the consult business has grown. I’m pretty honest.
Paul Coulson
I think the remarks I made earlier, I don’t know whether you heard them or not, were that, there has been a drop. The outlook has improved of growth there. I think we’re quite happy as to where we are in Africa and the merger of two of our big customers there, two of our biggest customers there has now been embedded down, et cetera. So and I think you’ll have seen remarks on Africa from some of those customers.
Karl Griffith
Sure. Thanks. 2025 maturity, you previously communicated us that it would primarily be via internal funds. Partly RCF, partly free cash flow. So is that still the plan or do you -- would you like to look at markets to defy the $700 million?
John Sheehan
Look, I think, we keep an open mind in terms of capital and different options. So, it’s -- we have a bit of runway still on that. So it’s something we continue to evaluate. Look, we’re very conscious of it, but we haven’t made any determination at this point.
Paul Coulson
That is -- it’s 5% [Technical Difficulty] the most expensive that we have. So the step up would be less again.
Karl Griffith
Understood. The second one was, I really wanted to understand your drop through into EBITDA on the curtailment actions that you’ve taken in your European operations. I mean, kind of when I compare it with something like your listed peers who reported a couple of weeks ago. I mean, why is that drop through into EBITDA significantly higher versus what I’ve seen in those two players?
Paul Coulson
I think the extent of what we’ve done, I would imagine is that, it’s probably higher and we probably did it, we don’t know, but I’d say, we did it, I don’t know, but I stated in earlier quarter than rather that, we said we’ve reduced production in the quarter by around 20%. That’s not a run rate exiting the quarter. That’s the output for the quarter versus the output the previous year. So I think that’s a factor and that obviously extend in the quarter, because as I said, we take some foreign [Technical Difficulty] additional cash flow benefits that, in some cases we won’t rebuild.
John Sheehan
I think it’s also a factor of the customer base, the customer profile we have. I mentioned earlier on the call that 40% of the shortfall in Europe in volumes is attributable to three large customers of ours. So and some of our peers would not have, as I’ve reported that you mentioned, do not have the same exposure to large customers, to those large customers. So and there are also some destocking aspects which are bigger and slower with some of those customers as well. And also different people are at different stages in their edging in relation to energy.
Karl Griffith
Understood. That’s…
Paul Coulson
And our cost is not materialized yet. Okay.
Karl Griffith
Understood. Yeah. And the last one was talking about the CapEx guidance for next year. You’re talking about a significant reduction and then even going below the maintenance level for this year. I mean, is the North American restructuring on the back foot as of now, because I was expecting some bit of spending on that as well going into next year. And if at all it is on the back foot, then how does that place you where you would eventually, I mean, initially you planned for to be in a place being like 2026, the level of leverage that you were targeting for 2026. I mean, how does that plan kind of look as of now? Is there anything that you can comment on that?
Paul Coulson
Yeah. The North American market is related to the beer controversy. It caused a lot of distractions for us here and we just want to see where the market settles and we’re having various other conversations ongoing. And so before committing to specific investments there, we want to have some clarity around some of those items and then look at different financing options for specific investment there.
Karl Griffith
Understood. Thank you.
John Sheehan
Yeah. Thanks.
Paul Coulson
Thanks.
Operator
And our next caller is Sandy Burns from Stifel. Please go ahead.
Sandy Burns
Hi. Hello, everyone, and thanks for taking my question. Maybe like to follow up on your answer to the last question about the U.S. plant monetization, it seems like you came in and out a little bit. So maybe bottomline, is that -- are those discussions with customers going to restart next year about modernizing the U.S. plants or just given the macro environment, is that kind of on hold for the foreseeable future?
Paul Coulson
Those discussions are ongoing as we speak.
Sandy Burns
Okay. And then in terms of, it sounds like you’re taking very significant downtime in 4Q. Is the expectation that will help fully balance out your inventories relative to demand or may we still see some downtime in the seasonally slow first quarter?
Paul Coulson
I think it’s intended to balance it out [Technical Difficulty] on the tighter side of inventory balances at the end of the year.
Sandy Burns
Okay. And last one for me, I think you touched upon this a little bit earlier. Just energy hedges away from the contracts. Where do you stand as we go into the winter in 2024?
John Sheehan
Yeah. Look, our policy is to be very large by the end of the year. So we’ve been acting in respect to our own in accordance with that. And yeah, look, energy should see a meaningful reduction next year, given a lot of what we’re using this year was procured last year. So we don’t put a specific number on it, but it will be a meaningful reduction and that will enhance the case for glass. We said soda actually has come down a little bit as well. We see where that trend by the time we’re in these discussions.
And then, you have inflation, but I think it is moderating in other areas, coal has been pretty expensive, very expensive until recently and labor obviously is a bit inflation there. So it’s something that, but I think the overall basket with energy is trending in the right direction, much less of a headwind than it was before.
Sandy Burns
Right. And it sounds like you’re pretty well hedged going into it.
John Sheehan
Yeah. We do it.
Sandy Burns
Great. All right. Great. Good luck.
Paul Coulson
Thank you.
Operator
Our next question is going to come from Chris Tober [ph] from Schroders. Please go ahead.
Unidentified Analyst
Gentlemen, thanks for taking all the questions. My first question, Paul, is just a clarification on your new role. Should we expect you to continue to participate in these calls or are you going to fall away from that?
Paul Coulson
No. My successor will be participating in the calls. I will not be, Chris.
Unidentified Analyst
Okay. Just a bit of a tricky time for that transition to happen. I know people take a lot of confidence in the color that you give.
Paul Coulson
I will also be participating in them.
Unidentified Analyst
Okay. Just something to think about. And then on the CapEx for 2024, could it be as low as $300?
Paul Coulson
We’ll give an insight into that in February, Chris. We’re going through a budgeting process. But the bar on CapEx, safe to say, is being raised, just we spent a lot of money on CapEx and everything’s in good shape. I mentioned the two new furnaces coming up and productivity gains that we’ve had in our network. So we’ll update in February, but it’s getting later, folks. We aim to get it lower yet. It’s very difficult to get CapEx approved.
Unidentified Analyst
Okay. All right. That’s helpful. And then the next question was just thinking about the bridge for 2024. We have $70 million in sort of shutdown costs and energy costs and things. Do you think it’s a possibility that 2024 could reach what we’re thinking about for 2023, the $850 million or
are we still sort of permanently below the $850 million?
Paul Coulson
We’re still in the budgeting process, Chris, and obviously, whilst we expect a significant recovery in demand and volumes, how far that goes is not yet final, customer -- this conversation is ongoing with customers as part of our normal year-end budget planning process. So hard to say, hard to give an answer to that. Certainly, there will be growth over -- material growth over what we have this year.
Unidentified Analyst
Understood. And then my final question is just financial policy, understanding, obviously, it looks like AMPEV is exiting their period of high CapEx, so free cash flow would be better. What does leverage have to be down to before we can raise the dividend and support glass here?
Paul Coulson
I think it’s a matter for the AMP Board. But the dividend is a meaningful contribution and I think it’s valued by all shareholders, including the Group. So I think near-term growth into the dividend, obviously, the yield is pretty high at the moment. But you’re right, it’s coming to the end of its CapEx program. That’s pretty much done. It’s about filling out that CapEx and then making various moves. There’s one in Germany that was alluded to, which happens at the end of the year to tighten capacity there and the networking Group efficiency and then the announcement about the consultation as well in relation to potential initiatives in Ohio.
Unidentified Analyst
Okay. Thank you…
Paul Coulson
In our planning.
Unidentified Analyst
… for taking all the question.
Paul Coulson
We factor in the $200 million in our planning.
Unidentified Analyst
Okay. Thank you.
Operator
And our next question is going to come from Emmanuel Owusu from Bank of America. Please go ahead, sir. Emmanuel, are you there? You maybe have your mute function key on?
Emmanuel Owusu
Yeah. I was actually on mute. My question has actually been answered a couple of times. It’s on the 2025 bond refi? Thank you.
Paul Coulson
Thank you. Okay. Well, thank you, ladies and gentlemen, for joining us today. And we look forward to talking to you again in the new year. Thank you very much.
Operator
And this concludes today’s call. Thank you for your participation. You may now disconnect.
For further details see:
Ardagh Group S.A. (ARD) Q3 2023 Earnings Call Transcript