Ardagh Metal Packaging S.A. (NYSE:AMBP) Q2 2022 Earnings Conference Call July 28, 2022 9:00 AM ET
Company Participants
David Bourne – Chief Financial Officer
Oliver Graham – Chief Executive Officer
Conference Call Participants
Kyle White – Deutsche Bank
George Staphos – Bank of America
Mark Wilde – Bank of Montreal
Arun Viswanathan – RBC Capital Markets
Angel Castillo – Morgan Stanley
Jay Mayers – Goldman Sachs
Ed Brucker – Barclays
Michael Wolfe – Credit Suisse
Operator
Welcome to the Ardagh Metal Packaging S.A. Second Quarter 2022 Update Call. Today’s conference is being recorded.
At this time, I’d like to turn the conference over to Mr. Oliver Graham, CEO of Ardagh Metal Packaging. Please go ahead.
Oliver Graham
Thank you, Anna. Welcome, everybody, and thank you for joining today for Ardagh Metal Packaging second quarter 2022 earnings call, which follows the earlier publication of AMP’s earning release for the second quarter. We have also added an earnings presentation onto our investor website for your reference. I’m joined today by David Bourne, AMP’s Chief Financial Officer; and by Stephen Lyons, AMP’s Investor Relations Officer. Before moving to your questions, I’ll first provide some introductory remarks around AMP’s performance and outlook.
Remarks today will include certain forward-looking statements. These reflect circumstances at the time they are 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 AMP’s most recently filed Form 20-F with the SEC and any other public filings. AMP’s earnings release and related materials for the second quarter can be found on AMP’s website at ardaghmetalpackaging.com. Information regarding the use of non-IFRS financial measures may also be found in the Notes section of the earnings release, which also includes a reconciliation to the most comparable IFRS measures of adjusted EBITDA, adjusted operating cash flow and adjusted free cash flow. Details of AMP’s forward-looking statements disclaimer can be found in AMP’s earnings release.
If I turn to some opening remarks. For the second quarter of 2022, we are pleased to have delivered a result in line with our guidance despite currency headwinds and unprecedented inflationary and supply chain pressures. Global demand remains robust. And while the near-term macroeconomic outlook is more challenging and less predictable, the beverage can industry has historically proven resilient through economic cycles. We remain confident in the long-term secular growth of the beverage can, from which we’re well placed to capitalize. That growth continues to be underpinned by category growth and expansion with 75% of beverage innovation in North America weighted towards the beverage can; the cans’ pack-mix advantages in terms of efficiency, quality and branding potential; and strong backing by favorable sustainability characteristics and associated regulatory drivers.
Our expansion plans are customer-led, but the plans do have flexibility as we have recently demonstrated with our announced rephasing to adjust to changes in demand patterns and are assessed based on strict returns criteria. Our capacity is highly contracted and underpinned by volume clauses. We remain focused on the factors within our control, including phasing of investments, taking action to address our energy requirements, recovering exceptional inflationary costs, ramping up our growth investments and progressing our sustainability agenda. We recently published our first green bond allocation report, highlighting our sustainability achievements and the numerous eligible green projects advanced as part of our sustainability strategy.
We acknowledge concerns over gas availability in Europe, but our operations are spread across the continent, and we have not experienced any operational disruption. The sector has historically been favored as an essential industry by governments, most recently during COVID. And as a reminder, we’d also like to highlight that we have no operations in either Ukraine or Russia nor do we source any supplies directly from the region. The global supply of can sheet has also been in focus, and conditions remain tight. But we are well supplied over the medium term as we have benefited from our actions in recent years to diversify our mostly local supplier base. In this regard, we also welcome the recent can sheet capacity announcements in North America, which will help protect the domestic supply-demand balance. We have also elected to prudently carry higher levels of inventory in the current environment.
Turning to AMP’s second quarter results. We recorded revenue of $1.3 billion, which represented growth of 38% on a constant currency basis, predominantly reflecting the pass-through of increased input costs. Adjusted EBITDA of $181 million was 10% higher than the prior year on a constant currency basis. This reflects favorable volume mix effects, which includes an impact from the group’s growth investment program and recovery of input cost inflation, partly offset by increased operating costs.
Total beverage can shipments in the quarter were 8% higher than the prior year. Growth was driven by our new investments across our global footprint, including from the ramp-up of our more recently installed capacity in North America and Europe and improved momentum in Brazil. Specialty cans represented 48% of shipments in the quarter, up from 46% in the prior year. Our specialty mix was higher still at 62% in the second quarter, inclusive of 50-centiliter cans in Europe, which some of our competitors include in their definition of specialty cans.
Looking at AMP’s results by segment and at constant exchange rates. Revenue in the Americas increased 46% to $770 million, mainly due to the pass-through of higher input costs. Shipments were 11% higher than the second quarter of 2021 with increases in both markets driven by growth investments and improved momentum in Brazil. In North America, shipments grew by mid-single-digit percentage for the quarter. Growth was spread across a broad mix of categories, including energy and fitness drinks, spirits-based drinks, ready-to-drink coffees and CSDs. New capacity additions continue to support category growth and the substitution of expensive imports which continued to reduce.
The growth outlook in North America remains robust, albeit recent weeks have seen some softer demand than anticipated at the beginning of the year. This is partly due to the significant price increases consumers are facing at retail and partly a result of the well-documented declines in the hard seltzer category. While the category overall remains very significant, 10% share of beer, third largest category over the July 4 weekend in beer, we have purposely added increased swing flexibility to our network to respond to variations in category demand. And we will now also phase in some of our planned capacity more slowly.
In Brazil, second quarter shipments grew by a strong double-digit percentage, significantly outperforming the market, which returned to very modest growth, an encouraging turnaround due to increased consumer mobility and spending as social restrictions eased. Our outperformance reflected strong execution and customer mix effects and as our customers seek to diversify their supply through us.
Good volume growth in both North America and Brazil drove the second quarter adjusted EBITDA advance in the Americas of 36% to $120 million. Growth reflected higher volumes and strong recovery of input cost inflation, partly offset by increased operating costs. Looking forward, we expect further improvement in shipment growth in the Americas as contracted new capacity additions continue their ramp-up in North America and market growth continues to normalize in Brazil, especially an unrestricted Q4 summer period, which also includes, for the first time, a World Cup.
In Europe, second quarter revenue increased by 28% to $533 million compared with the same period in 2021. Shipments for the quarter grew by 5% on the prior year, supported by a recently installed new capacity in the U.K. and Germany. Across the categories, energy drinks and soft drinks grew well, while softer alcoholic beverage demand, particularly in the U.K., reflected increased on-trade activity. In addition, we have seen some transitory weakness in the export market for filled drinks from Europe as a result of the elevated cost of ocean freight. Inflationary pressures remained strong, and second quarter adjusted EBITDA in Europe fell by 20% to $61 million as input cost headwinds were not fully offset by higher volumes.
We have now covered our outstanding 2022 energy requirements for Europe prior to the recent spike of costs in June and July, and we are well progressed on building out our hedging requirement on a rolling basis for 2023. We continue to actively pursue cost recovery initiatives with our customers, and in some cases, are working to a more permanent and separate pass-through arrangement for energy costs going forward. We are not changing our prior assumption of full year 2022 net impact from European energy cost inflation of $25 million. Looking to the remainder of 2022 in Europe, the continued ramp-up of recently installed capacity in Germany and the U.K. will contribute to shipment growth.
Turning to AMP’s growth initiatives. During the second quarter, AMP made additional growth investments of $192 million, supporting the pickup in shipments during the quarter and anticipated growth in the future. Our project teams continued to perform an exceptional job despite the inflationary and supply chain challenges to deliver our investments largely to budget and with minimal delays.
To recap on some of the larger-growth investment projects, all of which are backed by multiyear customer agreements. In North America, the second of our 2 high-speed lines in Winston Salem, North Carolina started production during the quarter following the commencement of the first line earlier this year. In Huron, Ohio, can production recently commenced with additional capacity to be added later in the year. As a reminder, we acquired the Huron brownfield site in late 2020 and commenced ends production in late 2021. In Europe, new capacity in the U.K. and Germany continues to ramp up, as does the new line in Jacarei in Brazil that was added at the end of last year.
We also provided an important update to our investment plans, alongside our financing and capital allocation update at the start of June that set out our new shareholder returns policy. In that update, we detailed how our cash outlay for growth investments in 2022 has been lowered by approximately $300 million and includes a rephasing of certain projects. However, our overall planned footprint remains unchanged for the medium term, and the timing of its build will be driven by demand. AMP is well placed to capitalize on the long-term secular growth drivers supporting the beverage can through our global scale, long-standing customer relationships and our strategic relevance to key customers.
Moving now to our financial position. During the quarter, we raised $600 million of senior secured green notes and ended the quarter with strong liquidity of $761 million, of which $436 million was held in cash and $325 million by way of an undrawn ABL facility. We have announced our intention to upsize this facility to approximately $400 million. We further supplemented our liquidity with the issuance of EUR250 million in July of perpetual redeemable nonconvertible preference shares. Our funding needs are fully covered into next year.
Net leverage ended the quarter at 4.5x LTM adjusted EBITDA, and pro forma for the issuance of the preference shares was 4.1x. As a reminder, currency effects are broadly neutral from a leverage perspective given the currency mix of our debt. The majority of our debt has also been issued on fixed rate terms, and we have no bonds maturing before 2027.
Adjusted EBITDA minus maintenance capital expenditure was $152 million for the quarter or 84% of adjusted EBITDA, which illustrates the strong underlying cash generation of the business. We declared and paid our second quarter dividend of $0.10 in June and also launched our buyback program, for which we have authorization to repurchase up to $200 million of ordinary shares through to the end of 2023. Given the proximity to quarter end, there was only a minor impact in quarter 2 with $3 million of stock repurchased. But repurchase have since continued. And as of yesterday’s close, our total repurchases are approaching $15 million of stock.
We believe that AMP’s approach to shareholder returns represents an attractive investment proposition through: firstly, an attractive, recurring $0.10 quarterly ordinary dividend, currently representing a dividend yield of over 6%; secondly, share buybacks to effectively return capital to shareholders, amplified in scale by the fact that Ardagh Group does not intend to participate; and thirdly, growth investments to support global demand with attractive payback terms backed by customers.
Before moving to take your questions, I’d like to recap on AMP’s performance and key messages. Today, AMP reported second quarter EBITDA that was in line with our guidance despite challenging conditions. While the near-term demand outlook has some uncertainty, global demand remains robust, and beverage can industry performance has historically proven resilient through economic cycles. Secular long-term growth trends supporting the beverage can remain intact, and AMP is very well placed to capitalize on these.
There are some specific areas of demand weakness, in particular, in hard seltzers in North America, around which we will continue to adjust our capacity ramp-up as required to match demand. We are taking action to reduce near-term energy risk while remaining focused on improving cost recovery and pass-through mechanisms in Europe.
Our current view of the market leads us to project global shipment growth for 2022 of high single-digit percentage. Full year 2022 adjusted EBITDA is projected to be of the order of $710 million, assuming a euro-U.S. dollar parity exchange rate to year-end. This compares with the prior year reported adjusted EBITDA of $662 million or $629 million on a constant currency basis. As a proxy, every $0.01 movement in the euro-dollar rate represents circa $2 million on an annual basis. Our estimate compares with our previous full year 2020 guidance of $750 million. Of the $40 million reduction, approximately $20 million is attributable to currency impacts, and the balance reflects lower volume assumptions.
In terms of guidance for the third quarter, adjusted EBITDA is anticipated to be in the order of $175 million, which compares with prior year adjusted EBITDA of $176 million or $167 million on a constant currency basis.
Having made these opening remarks, we will now proceed to take any questions that you may have.
Question-and-Answer Session
Operator
[Operator Instructions] And we’ll take our first question from Kyle White with Deutsche Bank.
Kyle White
I just wanted to focus on the revised growth outlook now pointing to high single-digit volume growth versus the mid- to high teens initially coming into the year. Can you just walk us through some of the details of why that lowered outlook versus the initial one? How much is related to maybe a slower first half in Brazil? How much is related to underlying consumer demand of hard seltzer? Or however you would characterize that would be helpful.
Oliver Graham
Sure, Kyle. So I think if we take it region by region, obviously, we’re still projecting significant growth in all 3 regions. But the change in the guidance links to a number of specific factors. So in North America, obviously, it’s the well-documented decline in hard seltzers in the last quarter, which we’re, therefore, taking a more cautious approach through to the end of the year. And that’s obviously aligned with the 2 major customers in the category, 1 of which announced recently. There is some volume weakness in North America due to lower promotional activity in the core categories, so slightly higher price points as customers passed through significant input cost inflation. So those are the 2 factors really that led us to more caution in North America.
In Europe, we talked about a couple of factors. The on-trade hubs reopened more quickly than anticipated this year. And so there’s been a shift to kegs, in particular, and some one-way glass by our customers. And then we’re also seeing the export volumes that we talked about down because of the ocean freight issues. So the exports of beer and sparkling waters into North America have declined. And then we also see our customers now increasingly facing their own supply chain issues in terms of raw material inputs, logistics. And so they’re also struggling sometimes to get their product out of the door and into retail. So there’s certainly some operational disruption in Europe as opposed to any market weakness. We still see good market growth in a number of categories.
And then Brazil, actually, we’re looking at a very strong growth through to the end of the year. We anticipate a good Q4 on the back, as I said, of the football World Cup. We see Carnival, hopefully, will be fully open this year. And hopefully, we have better weather as well. And so I think our customers, and we’re the same, are anticipating a strong Q4 in Brazil. So it’s pretty much Europe and North America where we’re being more cautious on the outlook.
Kyle White
Got it. That’s very helpful. And then on the rephasing of some of the capital projects, can you just talk about that? What exactly is being rephased or delayed? Any thoughts about potentially canceling the projects or maybe canceling additional line that you’re opining on initially?
Oliver Graham
Yes. So we’re not canceling any projects. Our footprint plans remain intact, but we’re certainly going to be very careful and disciplined about bringing up capacity in line with demand. We signaled that the debt raise that we were pushing out BGI by, on average, a quarter or 2, and that took $300 million out of this year and more out of next year and some out of next year. What we’re looking at now very carefully is the timing of the greenfields, how much we bring up, what lines we’re bringing up, in what sequence and what timing. And we don’t have exact dates on that now because I think we want to make sure we’re absolutely clear on the growth and the support that we’re going to get because we’ll be very focused on the overall utilization of our network. And we won’t ramp up lines until we need them.
Operator
We’ll now take our next question from George Staphos with Bank of America.
George Staphos
I was hoping you could perhaps give a bit more granularity on the 5 or so things that you mentioned in answering Kyle’s question in terms of how they contributed to the call down more specifically. Or should we just take whatever it would be, kind of the, call it, 7% to 10% sequential drop or not – or drop from where you were to where you are now at high single digits and sort of apply it evenly to each of those, the North American decline in hard seltzer or the promotional activity? And then I have a couple of follow-ons.
Oliver Graham
Okay. Yes, George. No, I think we can give you a bit more around that. So sort of broadly with 60-40 percentages across North America and Europe in terms of the change. And the majority of the North America is around the seltzer market, where we’d anticipated growth this year. And obviously, we haven’t got growth this year. There is some, as I said, around the increased pricing at retail. But as I say, the majority of that is the seltzer side. And then on the European side, I mean, you’ve broadly got a 50-50 split around this exports and other supply chain issues and the more rapid opening of the on-trade, particularly in the U.K. So I think that’s broadly how those split out.
George Staphos
Okay. I appreciate that. And then I didn’t detect anything in what you’re saying as a change in your view of the secular growth of the beverage can. Yet, on the other hand, if we’re all charged here in terms of trying to be respectfully skeptical, you’ve called out — and you’re not alone here, so we’re not picking on Ardagh, you mentioned promotional activity. For a couple of years, the industry did need promotional activity to sell more cans than it could produce. You are being a bit more, as you said, careful about how you bring on capacity, rightly so, to make sure that you fully utilize it. But if the secular outlook hasn’t changed, why would your long-term capital plans change? And so just trying to parse or get at what maybe you’re seeing on the customer side that may be giving you a bit more uncertainty. Or maybe I’m overthinking and overlooking into the details there. So any thoughts on that would be helpful.
Oliver Graham
No. Sure. Look, I think that the can has always had significant promotional activity, as you know, and particularly in North America. So I think what we’re seeing at the moment on that side is just a very unprecedented, in the last 30, 40 years, level of inflation, which is leading to price rises that we’ve not seen. So I’d expect that to normalize. Obviously, there’s been more positive economic sentiment in the last few days with what the Fed has been doing. So I’d expect that to normalize and you to see our customers to return to their normal promotional patterns, which will be very accretive for the beverage can.
And one of the very encouraging data points in all the market data at the moment is the growth in share in beverage cans in the soft drinks category in North America through this whole period, which, I think, shows that it’s winning in the pack mix particularly versus plastic. And that is the thing that’s really shifted the long-term growth outlook for the can almost globally by removing the drag that used to be in North America. And we definitely anticipate that to continue with the sustainability tailwinds, regulators, challenges for our customers to get hold of recycled PET and the permanent nature of the beverage can. So I think that fundamental sustainability story is fully intact and is what has reversed particularly the North America situation.
The rest of the world, as you know, George, has always grown and always grown very healthily. And that’s, again, about the pack-mix advantages of the can, the efficiency of the can through the whole supply chain, the way it works for the quality of the drink, the branding. And that’s why we see so much innovation going into the cans. So all the things we laid out when we came to market, the category growth in beer in Brazil, the growth of Germany, all those things we believe are completely intact. But it’s certainly true that the last 12 months with the inflation, the supply chain challenges and some weakness in hard seltzers has been a more difficult environment than we anticipated.
But as I say, I think we take the position of the rest of the industry that the secular growth drivers that really came to play in the last few years are still fully intact.
George Staphos
Ollie, we appreciate that. And actually, I mean, from our data, we’d agree with your comment on share, not just in CSD from what we’ve seen of cans versus other materials. But we’ll see how that plays out. Two last ones, I’ll turn it over. One, can you talk about how the surcharge efforts went for you? What were the learnings? What can you continue, again, to the extent that you can comment on a live mic conference call? And then any thoughts on the California legislation SB 54, the positives or negatives as you see them for the industry and for Canada, in particular?
Oliver Graham
Thanks, George. Yes. So look, I think, as you say, I can’t say too much on a live mic call about the customer contracts. But I think we’ve got very positive engagement with customers around the energy surcharge. I think that they fully recognize that this is an unprecedented situation for which the whole supply chain has to come together. I think they are, and you can see that in all their results announcements, they are successfully achieving price rises at retail. And that makes it obviously fair that they’re — we’re not holding the costs that are part of the supply chain.
So I think there’s been a very constructive set of conversations. I think that some go quicker than others, just the nature of the organization, smaller customers versus bigger. So we will see an accelerated recovery in our numbers towards the second half of the year. And then we are, as I said in the prepared remarks, exploring specific mechanisms to deal with the complete dislocation of the energy category in Europe, which has never been seen before, and the fact that, in our view, needs special treatment relative to normal inflationary pass-through mechanisms. So again, I think we’re having a very constructive set of customer conversations with our customers about that because they also are suffering this, and they fully understand what’s going on.
Sorry, George, I think in — yes, California. Yes, clearly positive. I think there’s been rumors for a number of years that pretty dramatic legislation could come on single-use plastic in California. Definitely part of the underpinning for why we want to be in the Southwest and why we will be in the Southwest. So yes, we remain very positive about that.
Operator
We’ll take our next question from Mark Wilde with Bank of Montreal.
Mark Wilde
Ollie, just curious if you’re seeing any shifts in consumer behavior in any of your regions just in reaction to higher inflation and a slower economic climate. I’m thinking like in Brazil, are you seeing kind of a toggle back to maybe returnable glass bottles, things like that?
Oliver Graham
Yes. I think that was definitely a factor in Brazil in the last 12 months. So I think that there’s much less protection on the consumer through COVID, much lower savings rates. So when the real devalued and the economic conditions became more difficult and when LME increased significantly, which is priced there in dollars, the can did become less competitive for a short period of time in the pack mix. And I think that did have an impact, and you did see a return to renewable 2-way glass temporarily as our customers took some margin there. And that did impact the can. But I think that what you’ve seen in the last few months is the stabilization of those trends. I think April, the market actually grew, though May and June were still a bit weak but not as weak as Q1 or Q4. And I think that’s, again, because the economy is stabilizing and LME is falling and the real has strengthened somewhat, though, obviously, recently, the dollar is strengthening again. So that will continue to be a slight headwind. And then I think we did have a set of market factors that we talked about, Carnival, poor weather, that also played in, as in the Carnival being cancelled.
I think Brazil is the only region where we can identify an economic issue in our numbers, unless you think, and this has been cited, that one of the reasons for hard seltzer weakness is the price gap to premium light beer, which I think is cited at around 7%. And that does seem plausible to me that there’s some trading down on price. But otherwise, I think North America, obviously, consumer savings rates have been high. European, the same. And our only issue, I think, is to look carefully into the winter in Europe, in particular, with the energy inflation and just keep a weather eye on whether the consumer spending is impacting us. But what we do know and what our customers have reinforced to us is that the last thing to get cut back is the grocery shop. And it will be the holiday, which currently people are not canceling because we’re in that post-COVID period, but it will be the holiday, the day out, the restaurant, the discretionary spending, and it won’t be the at-home consumption that gets cut when times get tight.
Mark Wilde
Yes. Okay, that’s helpful. I was very glad to see the kind of pullback and the market-based approach to kind of how and when you add capacity. I just wonder, is it too early to talk about adjusting some of those medium-term financial targets that you laid out around the SPAC?
Oliver Graham
I mean, I think we already signaled at the time of the debt raise that there’s delay to those targets. And I think we have to recognize that if we push out some of the business growth investment, you’re inevitably pushing out the timing of the achievement of those targets. But we still remain very confident in the overall business plan and the goals we set. I just think that with what’s happened in the last 12 months, which has been a pretty extraordinary and unanticipated set of events, we have to be realistic about the timing over which they can be achieved. So we haven’t — obviously, we’ll go into our business planning cycle in the autumn and have a better view of that timing and what we’re looking at for ’23 and ’24. So we won’t give any specific guidance in this quarter. But clearly, there are some delays to that.
As I say, we remain very confident in the overall trends for the category and for the product. And therefore, we remain absolutely committed to the business plan that we laid out. It’s simply a question of timing and phasing.
Mark Wilde
Yes. Okay. Last one for me. Any sense on the recovery of that $25 million of energy headwind in 2023?
Oliver Graham
Yes. We expect a material step-up in profitability for Europe in 2023 off the back of, as I say, extremely constructive set of conversations with customers around the input cost inflation where I think it’s fully understood that it can’t be held in the supply chain like this and needs to go through to the consumer. So yes, I think we’d be anticipating recovery and not exact numbers yet. We’ll go through the process again in the autumn once we’ve finalized all these conversations, but we expect material increases in the profitability of our European business in 2023.
Mark Wilde
Okay, sounds good. I’ll turn it over.
Operator
We’ll take our next question from Arun Viswanathan with RBC Capital Markets.
Arun Viswanathan
Great. So I just wanted to, I guess, first off, go back to the growth question. So obviously, there — I guess, what you’re kind of indicating is there is a little bit of elasticity relative to the beverage can. And is that what you’re observing, I guess, in certain categories as it relates to hard seltzers and potentially the Brazil customer and so on? So maybe you can just kind of give us your thoughts on that. And then also similarly, you cited high energy costs and high retail costs, inflation for the customer or for the consumer. So is it really kind of – do you expect demand to kind of accelerate if inflation moderates? Or how should we think about that dynamic?
Oliver Graham
Sure. Yes. No, I mean, look, I think every consumer category has a degree of elasticity. And if you push the consumer to a certain point, they will inevitably buy a bit less. And I think the scale of inflation that’s going through at the moment is having an impact. But as I said to George’s question, I mean, the beverage can has always been a heavily promoted product. And that’s because it’s a super-efficient way to package beverage. So our customers and their customers can make good margins promoting beverage cans. So we’ll always see a high percentage of promotional activity. And what’s going on at the moment is that our customers are raising and the retailers are raising average retail price with fewer promotions. And so more is being bought off the shelf.
So I think we shouldn’t be surprised. And in fact, the unusual period was really the back end of last year when there was significant price rises going through in North America and volumes continued to grow; that’s quite unusual. So I think, therefore, you’re right to say that the reverse does apply, which is as the inflation comes off, which are much more, hopefully, in North America than Europe, you would expect to see back to full-scale promotional activity. And therefore, you expect to see a growth in beverage cans, which would then be additive to the growth that we’re seeing because of sustainability, because of innovation. So yes, we’d be very hopeful around that trend.
Arun Viswanathan
Okay. And then you have weathered quite a bit of FX and energy, inflation. You noted that your energy outlook is similar as it was in the past. But maybe you can just kind of give us your thoughts on kind of the longer-term targets that you laid out either at the time of the SPAC or more recently. How does some of your comments around kind of making sure that the growth is there before you add lines kind of relate to that? So are there any capital projects that you’re pausing on that would change your kind of ‘24, ‘25 EBITDA build-out? Or how should we think about that?
Oliver Graham
Yes. So as I said at the — we said at the debt raise, we are — we did already rephase some of our business growth investment by, I think we said, an average of a quarter or 2 at the time. So that remains true. And then as I mentioned earlier, we’ll be keeping a close eye on the greenfield investments, which are obviously our biggest investments. And we’ll be making sure we phase those both in terms of the amount of capacity we bring out, how many lines and the timing of that capacity appropriately with demand. So that will affect some of the capital that was in the original plan but also some of the — what we call the second generation. It’s mostly focused on that second-generation capital that we’ve also discussed with you.
So yes, as I said earlier, there’s definitely some impact to timings of the EBITDA ramp. We won’t be giving any specifics on that today. We’ll be going through our business planning cycle through the autumn, but there will be some impact on timing. As I say, we remain very committed to the overall goal.
Arun Viswanathan
And then, I just – I wanted to ask just one quick question on Brazil. So you noted well above market growth. Do you think that market now has kind of resumed its recovery or – and passed its headwinds that you experienced the last couple of quarters? Or are there some that are still lingering? How would you kind of characterize the Brazilian market at this point?
Oliver Graham
Yes. Thanks. We’re hopeful that it will grow from here out. I mean, sometime in Q3, we think it will get into a consistent growth pattern. And Q4, we expect to be strong. By then, obviously, we’ll be lapping some weaker comps as well. You could say there’s some economic uncertainty into ’23. But again, we remain very confident in the fundamentals of that market because they’re driven by the long-term economics of the switch from on-trade to off-trade, which you can see in markets all over the world as they develop.
So yes, we’re very comfortable overall for the market. And we think that Q3 through Q2 of next year should be good levels of growth. And we also are very confident in our own growth at this point.
Operator
We’ll now take our next question from Angel Castillo with Morgan Stanley.
Angel Castillo
Just wanted to touch base on inventories. So you’ve talked in the past about hard seltzer end market. I think there’s a very clear inventory issue there. But just wondering, across the other categories, is there anywhere else do you think that there may have been some inventory build maybe because of the supply chain concerns or maybe customers might have stocked up a little bit more than normal and just – yes, just what you’re seeing across all the categories in that respect?
Oliver Graham
Yes. I’ll kick off, and I’ll pass it to David. So I think that we did see some inventory build. We deliberately have some inventory build in our system because of supply chain concerns, particularly on metal. So we had some deliberate prudence in the quarter to make sure we covered that. And then particularly in Europe, we’re also working on and working with customers to get appropriate inventory positions in case of any disruption, particularly in the German market. But that’s the high-level picture. I’ll pass it to David for more of the detail.
David Bourne
Thanks, Ollie. So yes, I think working capital has 2 factors. As you get elevated input costs, even if your days inventory outstanding and so forth stays the same, then you get a dollar build in the working capital balance. But as Ollie says, we very deliberately took the opportunity we had in quarter 2 to push up our inventory levels a little bit really as a contingency against potential future supply chain disruption, which could come from a number of sources that are fairly obvious from what’s out there in the market. And also, we are actively diversifying our supplier mix on aluminum to make it a more global mix, yes. And this is a good opportunity to protect while we’re in that transition process.
Angel Castillo
And have you seen your customers do something similar outside of hard seltzers?
Oliver Graham
Not that I’m aware, to be honest. But again, I think we are looking into the European situation. And we have a team obviously on contingency planning for the situations that may emerge in the autumn. And part of that will be and already is dialogue with customers about what inventory positions they want to hold on our side and their side.
Angel Castillo
Got it. That’s helpful. And then I wanted to just clarify on the high single-digit growth for the year. I think you talked about where the sources of maybe some of the incremental weakness came from. But as we think about those regions, how do you characterize the growth in each region in terms of the makeup of that high single digit?
Oliver Graham
Sure. Yes. So I think the factors I mentioned are the main factors going through to the end of the year. So we see Europe in the mid-single-digit. We see Americas low to mid-teens, and that’s split between America lower and Brazil higher. So that’s pretty much how we see the full year.
Operator
We’ll now take our next question from Jay Mayers with Goldman Sachs.
Jay Mayers
Wanted to follow up on the kind of guidance you just gave, thinking about Americas shipment volumes. Can you help us think about how much of the volume growth for the rest of the year in North America is going to come from outright kind of consumer-driven demand versus replacing some of the imports that you’ve talked about?
Oliver Graham
Yes. I mean, I think hard to put very definitive numbers on it. But you’ve got a few points, I think, of growth that have come out of imports this year. That has been a significant reduction from the $14 billion, but there are still imports coming into North America. And so it’s not that they all go away. And then I think the other few points of growth are sitting in the actual consumer demand. And you can see some of that in the published data.
Jay Mayers
Got it. And then just kind of – can you help us think about your ability to actually offset the imports? So you have some kind of competitors who have a large number of the imports coming into North America. Are those kind of contracted volume agreements? Or are those kind of more spot market-type contracts that you can go in and offset with either lower-priced cans or kind of a better contract for those customers?
Oliver Graham
Most of those, I think, were contractual situations if they were being brought in by our competitors is my understanding. So I think it’s not that they then suddenly appear in the market. I think there were some spot situations where customers obviously got quite desperate at points over the last few years. And so those opportunities are available to us. But I believe a significant number were contracted.
Jay Mayers
That’s helpful. And then just a final one for me. On Brazil, I wonder – we’ve spent a lot of time talking about the kind of demand situation, but had a competitor announce a new capacity addition there this week. Can you just talk about a little bit how the supply situation is shaping up there and kind of how you feel about the kind of supply outlook versus what you’re seeing on the demand front?
Oliver Graham
Yes. I mean, look, there’s clearly some short-term weakness, and you can see that in the data. But our customers, and we share their view, are very confident about the future of cans in Brazil. And the long-term guidance we gave, the 6% to 10% growth when we came to market, we’d stand that. So we think this is a short-term blip. And I think that it’s not surprising that our competitors are being asked by our customers and other customers to plan projects and bring additional capacity to that market. We see ourselves being short canned through the back half of this year. And it doesn’t take much, and we’ve seen it many times in Brazil, it doesn’t take much for it to turn. And when it turns, it turns very fast, and the growth is very strong.
So yes, I wasn’t surprised to see an announcement of additional capacity in Brazil. I think the market is one of the strongest for beverage cans in the world.
Operator
[Operator Instructions] We’ll now take our next question from Ed Brucker with Barclays.
Ed Brucker
My first one, I wanted to get the ultimate reason for doing the share buybacks versus paying the larger dividend that you had telegraphed before. Was that uncertainty of free cash flow or earnings going forward? Or was it more of a cautious outlook on the beverage can market?
Oliver Graham
No. I think we were being very responsive to our shareholders. I think that there are a number of ways we could support them, and this is one of the ways that we have feedback around. And I think we ended with a very good mix of the dividend, the share buyback and then the growth investment program. So we certainly haven’t lost confidence in our program. I talked about the fact that the timing, obviously, isn’t exactly what we’d originally planned. But we haven’t lost any confidence in it. But I think that — we had a lot of feedback. We spent a lot of time listening to our shareholders. So we took that advice seriously.
Ed Brucker
Got it. And my next question, if there is some pullback of the business growth investments or I guess the timing is pushed back, what would you do with the cash that you’ve built up to spend on that and then expected free cash flow that you get over the next couple of years? Would you look to reduce debt, maybe do higher dividends or buybacks?
Oliver Graham
Yes. I think we haven’t worked all that through. We’ve set some leverage targets that we’re comfortable with, the 3.7 to 4x forward EBITDA. That’s where we expect to be. Obviously, we have got a dividend policy. We can adjust that over time. So I think we haven’t fixed on any of that. But we’d obviously think through all the different options and be very cognizant of what worked for all the shareholder base.
Operator
Our next question will come from Michael Wolfe with Credit Suisse.
Michael Wolfe
Maybe just 2 follow-ups on Europe. I guess, first of all, just on aluminum sourcing, how is that looking at the moment? Are you sort of diversifying away from perhaps Russian suppliers? Appreciate some of the European suppliers are perhaps less upward integrated as well. So perhaps there’s not that many avenues for procurement, maybe a few in the Middle East. But just curious to sort of hear your thoughts around aluminum procurement, particularly in Europe.
Oliver Graham
Sure. Yes, we have no Russian supply. So no disruption from our perspective or for our main suppliers. We have diversified somewhat. We have a very local supply base, which is an advantage, I think. But we have diversified somewhat to address the growth. And there are investments coming or needed in that market on the can sheet side. So we’re making sure we’re covered with an appropriate mix of local and import, but none of it is Russian-based. And we’ve worked very hard, particularly on the end supply chain, to make ourselves secure. And that’s partly why you see some of the inventory build that you see in our numbers. So right now, we’re feeling very good actually about our aluminum supply chain and the security of our position.
Michael Wolfe
A lot of that inventory is actually just in the form of sheets at the moment.
Oliver Graham
Correct.
Michael Wolfe
Okay. And then maybe just understanding a little bit of the downside scenario with regard to sort of some of the ongoing gas challenges in Europe. Appreciate you have, was it, 4 facilities or so in Germany. I guess how are we to think about some of your production footprint? If there is a scenario perhaps where there is some gas rationing, how flexible is your production there with regard to maybe increasing capacity in some of the other facilities? I guess any kind of – appreciate it’s a complex question, and it’s sort of an ongoing challenge. But maybe for us to just better understand what you would do and kind of the levers you would pull and if you can quantify anything at all around that, that’s helpful.
Oliver Graham
Sure. So as I said, we’ve got a team working on contingency planning around the situation. There are a number of levers. We are confident, just to make sure this prefaces the comment, that we would be treated as essential just as we were through COVID and that we’d be well positioned in terms of prioritization. We are doing a lot of work on that as well in terms of industry associations and our own personal contacts. So we’re confident that it won’t — it should not come to this. But if it did, I think we have one of the most flexible networks of any can maker in Europe in terms of the breadth of our network and the different sizes we have on different lines around Continental Europe. And we do already ship significant volumes of cans around that network. So to the extent the capacity is available, we’re well placed to adjust.
Usually, at the end of the year, we do have a few line stops typically of a seasonal business. So again, we could take some of those out earlier and plan for those. And then we have some inventory positions that we’re addressing in terms of both raw materials and customer inventories where — and we will be talking to our customers again about whether they want to build additional inventory to take account of this situation. They, of course, also have their own contingency planning teams in place.
So it’s a range of things. It’s not totally straightforward. And if it came to really a full-scale shutdown and we were not prioritized, it would not be possible to completely replace it all. But I think we’ve got as good a position as anyone in terms of the flexibility of our network and the options we have.
Michael Wolfe
And how much of your European volume is German?
Oliver Graham
25%, I’d want to say. Yes. Yes. So something like maybe 20%, 25%. Because again, some of our German plants serve other markets, legacy reasons. You’ll remember the German deposit scheme came in, the German market actually went to 0. So some of those facilities do serve customers in other regions.
Michael Wolfe
So the – right. So the volumes produced in Germany, I should say. So that’s more than the…
Oliver Graham
Yes. You’re in that 20%. Yes, 20%. We’ve actually got an ends facility there as well as a can plant.
Operator
[Operator Instructions] We’ll now take a follow-up from Mark Wilde with Bank of Montreal.
Mark Wilde
And Ollie, just a very simple one. Any prospects of us getting kind of North American industry data back? I mean, at a time when the market has been pretty volatile, the elimination of this CMI quarterly data seems like a real disservice to your shareholder base.
Oliver Graham
Yes. I would say that we weren’t responsible for it, but I hear what you’re saying. And yes, there is ongoing conversation about doing that. So I think it is a possibility, yes.
Mark Wilde
All right. Well, I think many of us would welcome it.
Oliver Graham
No. I understand. I fully understand.
Operator
And it appears there are no further telephone questions. I’d like to turn the conference back over to our presenters for any additional or closing remarks.
Oliver Graham
So thank you very much, everybody, for joining the call. I think we were pleased to be able to present a strong quarter in very difficult circumstances, given the foreign exchange, the inflation and some of the demand weakness that we saw in certain categories. We’re looking forward to good growth for the rest of the year and into ‘23, a material growth in both earnings and volumes into 2023. And we look forward to talking to you at the next quarter. Thank you.
Operator
And once again, that does conclude today’s conference, and we thank you all for your participation. You may now disconnect.
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