Canada markets open in 1 hour 44 minutes

Edited Transcript of ARD.N earnings conference call or presentation 20-Feb-20 3:00pm GMT

Q4 2019 Ardagh Group SA Earnings Call

LUXEMBOURG Mar 4, 2020 (Thomson StreetEvents) -- Edited Transcript of Ardagh Group SA earnings conference call or presentation Thursday, February 20, 2020 at 3:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* 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

================================================================================

Conference Call Participants

================================================================================

* Arthur Z De Almeida

Goldman Sachs Group Inc., Research Division - Research Analyst

* Deborah Anne Jones

Deutsche Bank AG, Research Division - Director

* Gabrial Shane Hajde

Wells Fargo Securities, LLC, Research Division - Associate Analyst

* Mark William Wilde

BMO Capital Markets Equity Research - Senior Analyst

* Michael James Leithead

Barclays Bank PLC, Research Division - Research Analyst

* 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

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Hello, everyone, and welcome to the Ardagh Fourth Quarter and Full Year 2019 Results. (Operator Instructions) Please note that the call is being recorded.

I will now hand the call over to Paul Coulson, Chairman and CEO. Please begin.

--------------------------------------------------------------------------------

Paul R. Coulson, Ardagh Group S.A. - Executive Chairman & CEO [2]

--------------------------------------------------------------------------------

Well, good morning, and good afternoon, everyone, and welcome to our fourth quarter earnings call, which follows the publication earlier today of our results for the quarter and the full year. With me, as usual, are David Matthews, our CFO; Shaun Murphy, our COO; and John Sheehan, our Corporate Development and Investor Relations Director.

Our remarks will include certain forward-looking statements. These 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, including those set forth in our SEC filings and news releases.

Our earnings release for the quarter as well as our financial report-related materials can be found at ardaghgroup.com. Information regarding the use of non-GAAP financial measures may also be found in the Notes section of the release, which also includes a reconciliation to the most comparable GAAP measures of adjusted EBITDA and adjusted earnings per share. Full details of the company's statutory forward-looking statements disclaimer can be found in our SEC filings.

As you're aware, the divestment of our Food & Specialty business was completed on the 31st of October, and following which Ardagh holds a 42% stake in the Trivium Packaging joint venture. Our comments today will, however, focus on our continuing operations comprising Metal Beverage and Glass Packaging. And Trivium Packaging will report its 2019 results on the 5th of March next [month].

So turning to the overall results. For the fourth quarter, the results were in line with our expectations, with revenue growth of 1% at constant currency to $1.6 billion. Adjusted EBITDA of $267 million increased by 6%, again at constant currency.

For the full year, adjusted EBITDA of $1.173 billion was in the upper end of our guided range, with adjusted earnings per share of $1.82, which was slightly ahead of our guidance.

And if we look at the segmental performance in the quarter and in the year, and again I'm focusing here on constant currency movements, the Metal Beverage business, which now represents over half of our annual revenues and where we have leading market positions in Europe and in the Americas, total units shipped in the quarter increased by 4% in the quarter and 5% for the year.

Metal Beverage America demand remains strong across the region during the quarter as it did for the full year. Fourth quarter revenue increased by 6% to $457 million, with units shipped increasing by 9%, partly offset by the pass-through of lower input costs. Adjusted EBITDA of $66 million was 4% lower than the same period last year, mainly reflecting the particularly strong comparable quarter last year. But over the past 2 years, fourth quarter adjusted EBITDA has grown by a compound rate of 15%. Full year adjusted EBITDA increased by 9% to $250 million, with good gains in both the U.S. and in Brazil.

We're very pleased with the continued strong development of Metal Beverage in the Americas since we acquired the business in 2016. Units shipped in 2019 increased by 7%, with growth in specialty cans of 17%. And this is an area where we're well represented.

And as we look to 2020 and over the medium term, the outlook remains very positive in the Americas. Industry volumes in North America grew by 3.5% in 2019, and the greater sustainability awareness has contributed to new product introductions being increasingly skewed to beverage cans. The Brazilian market grew by double digits in 2019, and structural shifts further underpin consumer-driven demand growth over the medium term.

In addition to these industry-wide factors, we at Ardagh have significantly diversified our own customer base in recent years. And notably, this has been the case in North America, and we have been growing our presence in faster-growing segments of the market, including hard seltzers, energy drinks and sparkling waters. And the focus that we have on portfolio optimization with an emphasis on value over volume has delivered tangible benefits since 2016. And in parallel with this, we've made investments in support of our customers' growth, including our new ends facility in Manaus in Brazil and the addition of specialty capacity in North America.

Despite all these investments, we have at times been stretched to meet customer demand and our available for -- capacity for 2020 is fully sold. And as we look forward, we see opportunities to invest further in both North America and Brazil in support of customer growth, and the market conditions and the evolution support this also. I'll return to this topic later in my remarks.

Moving to Metal Beverage Europe, where revenue of $341 million reflected a reduction of 1% in units shipped in the quarter compared to the same period last year. Marginally lower shipments reflected a strong comparable in 2018 as well as a disciplined commercial focus, which led us to reduce volume with certain customers in the latter part of the year. Full year units shipped in Europe increased by 2% compared with the same period in 2018.

Market fundamentals remain attractive, but temporary cost under recovery from some legacy contracts resulted in a reduction in adjusted EBITDA in the quarter. We do, however, expect to cycle through these headwinds by the middle of this year.

European beverage can demand remains healthy, underpinned by ever-increasing sustainability awareness, and our capacity for 2020 is fully sold. Our geographic exposure, our 40% specialty mix and a well-invested cost-efficient asset base provide confidence in our outlook for the area. But we will remain focused on achieving appropriate value for our products.

If I turn to glass. Glass in Europe delivered another excellent performance, with good progress in adjusted EBITDA and margins of over 25%. Revenue increased by 6% to $395 million compared to same period last year, principally due to positive pricing and the pass-through of increased input costs. Volume/mix was flat in the quarter. Full year revenue increased by 5% to $1.6 billion compared with 2018.

Adjusted EBITDA of $99 million in Glass Europe increased by 21% compared with the same period in 2018, and EBITDA for the full year grew by 15% to $391 million. Market conditions remain attractive in Glass Europe, with growing sustainability awareness and an appreciation by consumers of the infinite recyclability of glass packaging and by the brand owners of the potential of glass to drive growth through premiumization and innovation.

Glass Packaging in North America performed well in the fourth quarter, benefiting from the wide-ranging actions we initiated in 2017 in response to challenging market conditions. Revenue of $388 million was marginally lower than the same period last year as the 2% decline in volume and mix was offset by the pass-through of input -- of increased costs. Full year revenue fell by 1% to $1.7 billion compared with last year.

Adjusted EBITDA increased by 18% to $58 million compared with the same quarter last year. Growth was driven by cost efficiencies, including from past footprint adjustments, the disciplined pass-through of input costs and positive IFRS 16 effects. Full year EBITDA increased by 9% to $279 million. We're pleased to have stabilized profitability for -- in 2019, with some growth achieved in the second half.

The multiple initiatives that our team in North America has undertaken in the last 2 years in rightsizing our footprint, rebalancing our business mix, investing in quick-return projects and continuously benchmarking and optimizing our cost base have significantly improved the position of the business and its ability to navigate current markets. But there's much more to be done. We see scope for improvement in the coming years and we'll invest in pursuit of further efficiencies and enhancing our capabilities.

As we outlined last quarter, alongside these initiatives, as a member of the American Glass Coalition, we filed antidumping and countervailing duty petitions in 2019 against unfairly traded Chinese glass container imports. We filed this at the International Trade Commission and at the Department of Commerce in Washington.

We welcome the ITC's unanimous preliminary finding last November of a reasonable indication of material injury to domestic producers from such imports and we look forward to the Department of Commerce's assessment of duties, which is due shortly. Such duties, once imposed, would be in addition to tariffs which were introduced in 2018 by the U.S. government on Chinese imports and will remain in force subject -- and these new tariffs will remain in force subject to final approval for an initial 5-year period.

While the glass market in North America remains oversupplied, our footprint adjustments and other actions, coupled with the establishment of a level playing field, lead us to see a positive future for glass packaging in North America. We are committed to the successful long-term development of this business, with Europe providing the template for a well-invested and efficient industry, supplying high-quality sustainable packaging to a diversified customer base.

Turning then to sustainability, which has been a very hot topic in the last year, and we've seen a greater focus on this whole area. And Ardagh, as a producer of infinitely recyclable metal and glass packaging, is set to benefit from this trend. It is also an area in which we have invested significant resources over many years as we view economic sustainability and environmental sustainability as interdependent. And this has informed our initiatives to achieve industry-leading cullet usage in Europe, including direct investments in cullet collection and treatment -- cullet treatment joint ventures as well as continuous programs to down-gauge and lightweight our products.

We recently published our 2019 Sustainability Report updating on progress made towards our 2025 targets. We've also appointed a senior executive as Chief Sustainability Officer and have recently established a Board Sustainability Committee to oversee this important area. And our progress continues to be recognized by external accreditations, most recently with our climate change rating from the Carbon Disclosure Project.

And sustainability-driven shifts in substrate are here to stay as permanent materials, metal and glass packaging are well positioned to win from this stronger medium-term demand outlook. And we're totally focused on seizing the opportunity this presents by providing existing and new customers with sustainable solutions as they respond to changing consumer preferences.

If I turn now to Business Growth Investments. The favorable current and projected demand backdrop for our products has created a range of investment opportunities right across the group, all of which leverage our existing scale and market presence to generate attractive returns on investment. In an environment when low or even negative interest rates have significantly elevated the valuation multiples of acquisition targets, the pursuit of our organic growth opportunities represents a compelling shareholder value proposition. These investments are also deleveraging.

We, therefore, plan to invest approximately $250 million on Business Growth Investments in 2020. This investment will occur principally in our Metal Beverage businesses and in Glass Europe. We will prioritize growth investments in existing production facilities. And these investments have materially lower implementation times and start-up risks, thereby resulting in enhanced returns. The investments in new capacity will also be supported by customer contracts.

The Business Growth Investments will be additional to and separate from annual maintenance CapEx expenditure across our business, which is approximately $350 million in 2020. The Business Growth Investments will be funded from cash flow.

If I turn then to our capital structure. We have also -- we have during last year materially enhanced our capital structure. We delevered to 4.5x pro forma adjusted EBITDA, reflecting strong cash generation and the divestment of the Food & Specialty Packaging to the Trivium joint venture. And in parallel, we continue to invest in our business, with $500 million of capital investment in our continuing businesses during 2019.

Annualized cash interest costs were reduced by $180 million during the year to a pro forma $260 million as a result of debt repayment and the August refinancing of our 2024 senior notes. These actions also had the effect of extending our average debt maturity to almost 6 years. Also, we refinanced the debt of our holding company in 2019, with maturities extended to mid-2027 and the interest rate reduced from approximately 7.2% to less than 5.8%.

And having delevered to 4.5x EBITDA at the end of '19, we intend to maintain leverage in a range of 4 to 4.5x adjusted EBITDA. And we believe this range to be appropriate given the inherent stability of our business underpinned by its scale, with annualized revenues of almost $7 billion and adjusted EBITDA of some $1.2 billion, and with a geographic focus in Europe and in North America and a smaller one in Brazil.

Secondly, we supply a diversified blue chip customer base in the stable beverage and food end markets, with 3/4 of our revenue under multiyear contracts.

And thirdly, our prudent capital structure, where average debt maturities, I mentioned earlier, are almost 6 years and where some 90% of our debt is at fixed rates. Current interest cover is approaching 5x. And in addition, we retained significant secured debt capacity and an attractive covenant structure. So for all these reasons, we think the range of 4 to 4.5 for leverage -- adjusted EBITDA for leverage is appropriate.

So in summary, performance for '19 has seen significant operational and financial progress, and we look to the future with confidence. And whilst we are mindful of macroeconomic risks, we are targeting further progress in 2020 and expect the following: Adjusted EBITDA of approximately $1.2 billion. This compares with the 2019 pro forma EBITDA of $1.173 billion, which at current exchange rates of around $1.8 to the euro versus $1.12 in 2019, this equates to $1.15 billion.

Business Growth Investments are expected to only contribute modestly to EBITDA in 2020. We expect free cash flow in 2020 before these Business Growth Investments of $375 million to $400 million. And we expect maintenance capital expenditure in the year of $350 million.

Adjusted EPS is expected to be in the range of $1.48 to $1.64 per share. This excludes the contribution from Trivium Packaging, which will be equity accounted and from which no cash contribution is expected in the initial years. We expect first quarter 2020 adjusted EBITDA to be approximately $270 million.

So having made these opening remarks, we'll be delighted to take any questions which you may have.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) First question is from the line of Anthony Pettinari from Citi.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

This is actually Randy Toth sitting in for Anthony. You completed the $150 million in special payback projects at the end of 2019, which were originally expected to boost EBITDA by $40 million or so on a continuing operations standpoint. With the EBITDA guidance implying an uplift of about $25 million year-over-year, is it possible to say how much of that is from these projects versus organic growth?

--------------------------------------------------------------------------------

John Sheehan, Ardagh Group S.A. - Group IR Director [3]

--------------------------------------------------------------------------------

Well, I think we saw some of those -- the investments spread over a 2-year period. We would have seen a very small amount coming through in 2018, but then they did contribute usefully in -- over the course of 2019. So the incremental contribution in the current year is probably of the order of about maybe $15 million or so as we get into '20 over 2019.

But one other point that we mentioned, the $1,173 million to be approximate $1,200 million, if you adjust that for currency, instead of being a $20-odd million amount, it's more like $50 million plus.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Okay. Yes, that makes sense. And then I think on those projects, there was something like a 3-year payback period. I'm just wondering if -- of the $250 million of project you announced, what kind of returns you're expecting there? What kind of payback?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Well, I think we said that they're deleveraging, which, by definition, would mean they're less than the 4-, 4.5-year payback.

--------------------------------------------------------------------------------

Randy Devin Toth, Citigroup Inc, Research Division - Associate [6]

--------------------------------------------------------------------------------

Okay. That's helpful. I think in your prepared remarks, you mentioned the specialty can mix is around 40% of your portfolio right now. Is that expected to increase after these projects announced today are completed?

--------------------------------------------------------------------------------

Paul R. Coulson, Ardagh Group S.A. - Executive Chairman & CEO [7]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

John Sheehan, Ardagh Group S.A. - Group IR Director [8]

--------------------------------------------------------------------------------

It will, yes. The mix overall last year was about, yes, 40% higher in Brazil and just a shade under 40% in the other markets. But it's predominantly in that area.

--------------------------------------------------------------------------------

Operator [9]

--------------------------------------------------------------------------------

Next question is from Roger Spitz from Bank of America.

--------------------------------------------------------------------------------

Roger Neil Spitz, BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst [10]

--------------------------------------------------------------------------------

First, what was the outstanding amount on your off-balance sheet securitization at December 31?

--------------------------------------------------------------------------------

Paul R. Coulson, Ardagh Group S.A. - Executive Chairman & CEO [11]

--------------------------------------------------------------------------------

$470 million.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

And your assumptions for the $375 million to $400 million free cash flow, you gave the $350 million as the CapEx -- base Capex. What do you have for cash interest, taxes, working capital and any other items to make up the $375 million to $400 million?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Let me just walk you through that, Roger. Let me start with around $1,200 million EBITDA. Capex -- maintenance Capex, $350 million. Interest, around $260 million. Tax, $80 million. We've got the repayments on the leases that are now on the balance sheet of around $80 million. And we expect a bit of investment in working capital to support the growth projects of sort of around $40 million. So if you add that -- all of that, that should come to a number in the $375 million to $400 million range, and that's clearly before the Business Growth Investments spend.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Got it. And in terms of the Business Growth Investments, would we likely see 2021 to be on the same order of magnitude of $250 million? Or will that start to ramp down?

--------------------------------------------------------------------------------

Paul R. Coulson, Ardagh Group S.A. - Executive Chairman & CEO [15]

--------------------------------------------------------------------------------

We haven't made any decisions on that yet. It depends on market conditions and demand conditions. I think if they continue -- the growth in demand continues as we see it now, particularly in our bev can business area, I think it's likely that there will be further investment. But the quantum of that would be -- we couldn't yet say. But I mean, it's attractive for us because I mentioned the paybacks on it. And obviously, we're in business to support our customers. So it very much depends on demand trends. But as trends are today and the demand is very strong in the bev can area, then, yes, I think it's likely you'll see some investment -- further investment.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

And lastly, can you give a sense of probably how much of this investment will grow both your global Beverage Can capacity and your Glass Europe capacity, say, on a percentage basis?

--------------------------------------------------------------------------------

Paul R. Coulson, Ardagh Group S.A. - Executive Chairman & CEO [17]

--------------------------------------------------------------------------------

Well, I think most -- the bulk of the investment will occur in Metal Beverage, both in -- principally in the Americas, in the U.S. and in Brazil and some in European glass.

--------------------------------------------------------------------------------

Operator [18]

--------------------------------------------------------------------------------

Next question is from Travis Edwards from Goldman Sachs.

--------------------------------------------------------------------------------

Travis Edwards, Goldman Sachs Group Inc., Research Division - Research Analyst [19]

--------------------------------------------------------------------------------

I just wanted to ask a quick question on capital allocation. I was wondering if you had any updated thoughts or commentary on how you're thinking about your dividend policy as far as upstreaming, maybe taking out a dividend for shareholders and potentially just stripping away some of those holdco notes?

--------------------------------------------------------------------------------

Paul R. Coulson, Ardagh Group S.A. - Executive Chairman & CEO [20]

--------------------------------------------------------------------------------

I think at the moment, Travis, we are continuing with our dividend, which is pretty much in line with what we've done in previous quarters. And I think this will be a year of investment. We haven't made any decision yet in relation to whether there will be a further dividend for shareholders or not. I think it's too early in the year to come to any such conclusion. I mean, obviously, we have the capacity to pay out dividends and reduce our holdco debt as we go forward, and I think that's something we will eventually do.

--------------------------------------------------------------------------------

Travis Edwards, Goldman Sachs Group Inc., Research Division - Research Analyst [21]

--------------------------------------------------------------------------------

Got it. And then do you mind just refreshing us on that RP capacity that you have at the opco?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

The RP capacity at the moment is $580 million.

--------------------------------------------------------------------------------

Operator [23]

--------------------------------------------------------------------------------

Next question is from Debbie Jones from Deutsche Bank.

--------------------------------------------------------------------------------

Deborah Anne Jones, Deutsche Bank AG, Research Division - Director [24]

--------------------------------------------------------------------------------

I wanted to ask one more question about the North America investments. Do you think that what you're putting in right now will allow you to grow in line with the market in 2021 if it continues to grow around this rate? And if not, are you prepared to add incremental capacity if it does and kind of like on a smaller scale, whether it be like line additions and things like that?

--------------------------------------------------------------------------------

Paul R. Coulson, Ardagh Group S.A. - Executive Chairman & CEO [25]

--------------------------------------------------------------------------------

Well, Debbie, our approach to this has been to look at our investment and increases in capacity in our existing plants rather than build greenfield plants. Returns are better. It's easier to execute these projects. And that's where our focus lies at the moment. And that's in additional lines, speed up, et cetera, et cetera.

Yes, of course, as I said in an earlier answer, we will look at further investment if that's appropriate and the returns are there and it's backed up by customer contracts. I think at the moment, we don't have any plans to build greenfield operations. So it -- whether or not we get outpaced by the market in terms of percentage share, I'm not sure that's the [case]. The main consideration for us is to be disciplined in our approach to pricing and returns and, obviously, to be disciplined in terms of the returns we make on these capital investments.

--------------------------------------------------------------------------------

Deborah Anne Jones, Deutsche Bank AG, Research Division - Director [26]

--------------------------------------------------------------------------------

Okay. Fair point. If I could just move to Brazil. You did sound pretty optimistic about the growth there as well. So I'm curious how you manage that going forward just given that there's a lot of emphasis right now on North America and European glass. It's a good problem to have, but I'd like to get your thoughts on that as well.

--------------------------------------------------------------------------------

Paul R. Coulson, Ardagh Group S.A. - Executive Chairman & CEO [27]

--------------------------------------------------------------------------------

I'm sorry. The last bit, Debbie, I didn't quite catch the last bit of your question.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

I just mentioned that it was a good problem to have in terms of -- right now, it seems the focus being North America and Europe for the investment, but you also sounded pretty confident or pretty optimistic about the growth down in Brazil as well. So I just wanted to get your thoughts on how you manage that given a lot of the capital is going into the other regions.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes. Well, I think the situation in Brazil is that there are structural changes in the marketplace down there with people moving from one type of packaging to another. You've seen movement from glass to cans there. In Brazil, we're not in glass down there. But -- so that has led to increased demand and other factors as well down there.

And we're lucky in that the 3 plants we have in Manaus, in Jacareí and Alagoinhas -- the 2 can plants in Alagoinhas and Jacareí and then the ends plant in Manaus, we're lucky that we can significantly increase capacity within those existing factories without having to build any new facility. So it's much easier for us to increase capacity. And also, the returns on adding additional lines are more attractive than building greenfields or having to build new plants and much less risky. So we've also got a very strong team down there right across the [piece]. And we have very modern assets, and we're certainly prepared to invest to expand them. So I think for us, it's a good situation in Brazil.

--------------------------------------------------------------------------------

Operator [30]

--------------------------------------------------------------------------------

Next question is from Michael Leithead from Barclays.

--------------------------------------------------------------------------------

Michael James Leithead, Barclays Bank PLC, Research Division - Research Analyst [31]

--------------------------------------------------------------------------------

I guess first question, if I look at the metal can businesses, it looks like in the fourth quarter, organic revenue was up, but EBITDA was down. So can you kind of just parse through some of the cost headwinds that you guys had in this quarter?

--------------------------------------------------------------------------------

John Sheehan, Ardagh Group S.A. - Group IR Director [32]

--------------------------------------------------------------------------------

Yes. I think there was 2 things in Europe for the past several quarters we alluded to. There was a number of contracts that came up for renewal when new capacity was coming into the market, and not long after we entered the beverage can business back around in 2017. So it might include some cost headwinds there. And then as those fully recover, we would expect to be fully cycled through that by the middle of this current year.

In the Americas, the business has performed very strongly. We've seen good volume. We've been stretched, as we mentioned, to meet demand in both North America and in Brazil. So there's been some increased costs there. But as we said in the remarks, the growth, when we look on a 2-year basis, the compound rate of growth in fourth quarter EBITDA in our American beverage business is about 15%. So that's purely temporary. And both businesses grew quite strongly on a full year basis, revenue, volume and EBITDA.

--------------------------------------------------------------------------------

Michael James Leithead, Barclays Bank PLC, Research Division - Research Analyst [33]

--------------------------------------------------------------------------------

Got it. That's helpful. And then I think you made in your prepared remarks a commentary about you're fully sold out for 2020. So what does that look like then in terms of volume growth year-over-year versus '19 and also in terms of EBITDA growth for the metal can business?

--------------------------------------------------------------------------------

John Sheehan, Ardagh Group S.A. - Group IR Director [34]

--------------------------------------------------------------------------------

I think in Europe, the market has traditionally been a low single-digit 2% to 3% growth, could be a little bit better than that. We did mention that with the discipline in the fourth quarter, that there was some business that we didn't take. So that was a little softer. So that's kind of in the low single-digit range.

And then in North America and Brazil, we've been flat out struggling at times to meet demand. So we have these investments going in, but they will take a little bit of time. So they will limit the -- their effect in the current period will be limited in terms of volume. We've also, as we said, diversified our concentration of our business. So it's not purely around volume there, particularly in North America. It's more so the value and mix.

--------------------------------------------------------------------------------

Michael James Leithead, Barclays Bank PLC, Research Division - Research Analyst [35]

--------------------------------------------------------------------------------

Got it. And if I could just squeeze one more in. If we look at the North American glass market, obviously, it's been a bit of an evolution in terms of volume numbers for the past year or so, but you guys still seem to be doing well on the cost front and keeping EBITDA in line. So can you maybe just talk a little bit about what your expectations are just for the broader North American glass market as we enter 2020 and how you guys are thinking about it from an Ardagh perspective?

--------------------------------------------------------------------------------

Paul R. Coulson, Ardagh Group S.A. - Executive Chairman & CEO [36]

--------------------------------------------------------------------------------

Well, I think there's still -- as I said earlier, Michael, there's still excess capacity in the market. I think the tariffs -- the coming -- the existing tariffs and the coming tariffs from the actions we took will strengthen demand or, at the very least, stem the falls in demand. And I think if -- we've rightsized our -- we believe our portfolio is now rightsized to the business we have, and our focus will be on improving the profitability of the business through an improvement in operating performance. So as we see it, as I said earlier, I mean, I don't think -- I think it's going to take time for it to start growing again. But we are quite optimistic that we have the levers to do that.

--------------------------------------------------------------------------------

Operator [37]

--------------------------------------------------------------------------------

Next question is from Ryan Maguire (sic) [Brian Maguire] from Goldman Sachs.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

This is actually Arthur on for Brian. And in a past conference in December last year, you mentioned you were looking to alter your contract structure, particularly in European glass. I was hoping you could give us some more color on what percentage of the overall revenues in that segment would be changed based on those contracts and when you think that time line is going to take place.

--------------------------------------------------------------------------------

John Sheehan, Ardagh Group S.A. - Group IR Director [39]

--------------------------------------------------------------------------------

I think what we've alluded to is not so much European glass. If you look forward there, this year and over many years, it's been extremely positive. We've talked more so about some of the indexation and clauses like that in North America on the metal side and some aspects of the glass side, where we've been working on that for the past couple of years. So that's progressing, but you can only do it at a pace at which contracts will give you. So -- but it's really about getting the pass-through -- the cost pass-through is more aligned rather than just a straight and improved PPI to -- whether it's the labor component or upgrade components or a chemicals component, we've made good headway on that. But those references in the past weren't specifically to European glass.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

I wasn't referring to the pricing. Maybe I misunderstood then. But I was under the impression that it had to do more so with volumes, specifically with customers having to actually purchase the capacity that they are making or obligated to cover. Or was my understanding of that incorrect?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Well, I mean, it's -- I wouldn't make a huge issue of it. I mean it's an area that we -- that, Arthur, that we have been working on to make sure where you've got full capacity -- utilization of your capacity and in some cases excess demand in Europe for glass, you want to make sure that the customers that you allocate capacity to actually take that capacity. I think that may have been the reference. And obviously, we're working very closely with our customers to ensure that we fully use our capacity each year and that we don't have unused capacity or unsold capacity in markets which are very tight. So I think it's more that kind of commercial focus rather than perhaps some contractual change. But I think that's more the general commercial focus than anything else.

--------------------------------------------------------------------------------

Operator [42]

--------------------------------------------------------------------------------

Next question is from Gabe Hajde from Wells Fargo Securities.

--------------------------------------------------------------------------------

Gabrial Shane Hajde, Wells Fargo Securities, LLC, Research Division - Associate Analyst [43]

--------------------------------------------------------------------------------

Can you hear me?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes, sure.

--------------------------------------------------------------------------------

Gabrial Shane Hajde, Wells Fargo Securities, LLC, Research Division - Associate Analyst [45]

--------------------------------------------------------------------------------

Curious if you had, or I'm sure you do, have visibility into European beverage contracts kind of cycling through what seems to be a little bit of under-recovered inflation here, how much of that business has turned kind of since it was acquired in 2016? And are you at a point where now you've kind of cycled through all those and are on terms that you like?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

I think we -- Gabe, we -- at the time of the takeover in '16, clearly, there was a fair amount of shifting around with volumes or new entrants and new capacity over the last few years, those in Europe, and the market has had to grow into that capacity. And at the time we took it over, we had to defend some volumes, and some of those contracts are now starting to run off. And as we said earlier, we'll probably cycle through most of those headwinds by the middle of this year, and we're very focused now on getting properly paid for our products. And as John said earlier, we have walked away from business in the last quarter of last year because we weren't happy that it provided us with the appropriate returns for our product. So we will adopt a very disciplined approach to it.

I think, clearly, the demand-supply situation in North America and Brazil is tighter than it is in Europe, but it is tightening in Europe as well as we see increased demand for beverage can products in Europe. And I think, as has been referenced by others, we may well -- we probably will see some migration of seltzer volume into Europe as well, which will provide growth opportunities as we go forward.

--------------------------------------------------------------------------------

Gabrial Shane Hajde, Wells Fargo Securities, LLC, Research Division - Associate Analyst [47]

--------------------------------------------------------------------------------

Okay. And I think that the question has been asked a couple of different angles, and I'll try one more time. Is there something different that you're doing within kind of the 4 walls of the beverage can business? I mean my understanding is that you get much past 3 lines within a facility and things get a little complex to manage sometimes. And so I guess, if growth persists, call it, in this 3% to 5% range in the markets in which you participate, is there a point in time, I'm sure there is, that you're going to have to put new brick-and-mortar in the ground? Or can you continue to add here in the next 2 years if, again, growth is sustained in that range?

--------------------------------------------------------------------------------

Paul R. Coulson, Ardagh Group S.A. - Executive Chairman & CEO [48]

--------------------------------------------------------------------------------

I wouldn't -- yes, there may be, but we certainly don't see it happening in the immediate future for us because we have opportunities to invest in our existing plants. I can't comment for others. It's a function of what space you have in your buildings and the configuration of the plants. But we feel quite strongly that we should take these opportunities for investment first before we look at any greenfield investments. They're much less risky. You have trained personnel on-site already who can mentor new staff. And the execution risks are far lower. So we're comfortable. As I said earlier, we will be disciplined in our approach to this whole area. But I don't know what's going to happen 2 years out. I mean that's something we'll have to look at so we see what the evolution of the market is. But I don't think we want to get out ahead of our skis here.

--------------------------------------------------------------------------------

Gabrial Shane Hajde, Wells Fargo Securities, LLC, Research Division - Associate Analyst [49]

--------------------------------------------------------------------------------

Understood. And one, just maybe try to put a finer point. You made the comment about being fully sold out in North America. Are you -- can you comment if you're, in fact, tolling cans at all in the market or you're just running full out?

--------------------------------------------------------------------------------

John Sheehan, Ardagh Group S.A. - Group IR Director [50]

--------------------------------------------------------------------------------

Yes. It was a modest demand over each of the last couple of years, but we don't envisage any of that in the current year, in 2020.

--------------------------------------------------------------------------------

Operator [51]

--------------------------------------------------------------------------------

Next question is from Mark Wilde from Bank of Montreal.

--------------------------------------------------------------------------------

Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [52]

--------------------------------------------------------------------------------

I wondered if we could get a little more granularity on where the $250 million is going in terms of kind of particular projects and how much capacity this will add.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

No. I think, Mark, we're comfortable with the amount of granularity we've given already. And I don't think that -- I think we've given you guidance as to where it will be. But as to specific plants, specific lines, specific customers, no, I think we'll pass on that.

--------------------------------------------------------------------------------

Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [54]

--------------------------------------------------------------------------------

Okay. Is it possible also to get a sense of whether there's any benefit in 2020 from some of these contracts that were redone in North America in the beverage can business?

--------------------------------------------------------------------------------

Paul R. Coulson, Ardagh Group S.A. - Executive Chairman & CEO [55]

--------------------------------------------------------------------------------

Yes. Clearly, there is.

--------------------------------------------------------------------------------

Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [56]

--------------------------------------------------------------------------------

And is it possible to get any kind of order of magnitude on that for how much it'll benefit Ardagh?

--------------------------------------------------------------------------------

Paul R. Coulson, Ardagh Group S.A. - Executive Chairman & CEO [57]

--------------------------------------------------------------------------------

No. I think -- I mean, the big contracts have been renegotiated for in the market. We reduced our exposure to some of the bigger customers in the U.S. since 2016. Our business mix has changed. We're much less dependent on the bigger customers than we were when we bought the business in 2016. And this has been a focus to improve pricing and improve margins, and I think it's reflected in the results.

--------------------------------------------------------------------------------

Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [58]

--------------------------------------------------------------------------------

Okay. And then any thoughts, Paul, on potential actions to improve liquidity in the stock over time?

--------------------------------------------------------------------------------

Paul R. Coulson, Ardagh Group S.A. - Executive Chairman & CEO [59]

--------------------------------------------------------------------------------

At the current levels, no, in terms of increasing the free float. I think our -- we refi-ed our holdco debt in a way that -- put it out to 2027. I mean, clearly, in the future, we can still place stock and reduce bad debt or -- but I wouldn't be of a mind to do that at the current stock levels, share prices, given our view of the businesses we're in and the prospects for those businesses going forward.

--------------------------------------------------------------------------------

Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [60]

--------------------------------------------------------------------------------

Okay. And then the last one from me, just kind of a very industry-specific one. We talk a lot about the sustainability of glass. But at least in North America, just it seems like less and less glass is actually being collected by kind of recyclers or municipalities, so that in reality the amount of the glass that's actually being recycled is probably going down. Any thoughts on that?

--------------------------------------------------------------------------------

Paul R. Coulson, Ardagh Group S.A. - Executive Chairman & CEO [61]

--------------------------------------------------------------------------------

Yes. I mean, clearly, recycling rates in glass in North America, Mark, I think is somewhere around 30% compared to much, much higher levels than that in Europe. So they are very low. And one of the main drivers is that too much glass -- far too much glass in the U.S. goes straight to landfill, and there isn't segregation. One issue there.

The second issue you have is some of the quality of supply and the quality of the cullet is not as good as we find in Europe and the cost of it as well. We're working with various people on various initiatives and with customers who are very focused on this area. Some of the bigger beer customers, for example, in the U.S. are very focused on trying to improve these recycling levels. But it's not something you can flash a wand and get an instant result on, this is something that some structural changes are going to have to take place here. But it is very strange as a European to see so much glass go straight to landfill. A landfill, of course, is much cheaper in the U.S. than in Europe.

--------------------------------------------------------------------------------

Operator [62]

--------------------------------------------------------------------------------

And that was our final question for today, so I'll hand the call back to Paul Coulson for any closing comments. Please go ahead.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Good. Well, thank you, everyone, for joining us on the call today. We look forward to talking to you again in April with our Q1 results. Okay. Thank you very much.

--------------------------------------------------------------------------------

Operator [64]

--------------------------------------------------------------------------------

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