ARDAGH METAL PACKAGING S.A.
Fitch Ratings has revised
Fitch has also affirmed the senior unsecured instrument rating at 'BB-'/'RR4'.
The Outlook revision reflects our expectations for EBITDA gross leverage being within its rating sensitivity in 2024 and an improvement in net leverage metrics on better cash generation. We also believe that cash proceeds from the sale of the glass business will support deleveraging capacity.
CANPACK is expected to deliver weak free cash flow generation (FCF) through the rating horizon, but this is largely due to capex, which is mostly uncommitted and can be postponed or cut if needed. This cash flow allocation follows management's strategy to prioritise internal growth and deleveraging over excessive shareholder distributions.
Key Rating Drivers
Limited Gross Debt Deleveraging: EBITDA gross leverage was 4.9x in 2022, lower by 0.3pp than expected last year. Fitch expects steady deleveraging with gross leverage within its sensitivity of 4.5x in 2024 (4.7x in 2023 and 4.4x in 2024). We expect stronger net deleveraging from 4.3x in 2022 to 3.6x in 2023 (3.2x in 2024) arising from improved profitability generation, working capital inflow (in 2023) and disposals delivering a stronger cash balance.
Our rating case factors in modest debt repayment supported by the company's deleveraging commitment towards 2.5x (company's defined net leverage) without compromising growth opportunities.
Margins Slightly Improved: Fitch forecasts CANPACK's EBITDA margin to improve to 11.4% by 2025 compared with 10.4% achieved in 2022. The company renegotiated better terms for its metal-related input costs and has increased metal sourcing from its European suppliers to be less reliant on sourcing from
FCF Trajectory and Cash Deployment: Expansionary capex and working-capital consumption have been a function of the company's high growth strategy and kept FCF largely negative in the past few years. We forecast a positive FCF margin of 3.2% in 2023 benefiting from significant working capital inflow due to better inventory management.
Despite improved profitability generation we expect FCF to be negative in 2024-2025 due to marginal working capital impact but continuing high capex (although not as high as seen from 2020-2022). However much of the capex remains uncommitted (specifically in 2025-2026) and this, together with flexibility in dividend payments, provides a cash buffer if needed.
Polish Glass Facility Divestment: We view the announced divestment of the Polish glass business as neutral for the rating given its limited contribution to EBITDA, although the proceeds support deleveraging capacity. The glass business is more energy and capex intensive compared to the metal can business and it has never been the core packaging substrate for CANPACK. However, the company will continue with its glass business in
Expansion Strategy: CANPACK's growth has been almost exclusively through new greenfield investments, having developed operations in 16 countries over the last 18 years. The strategy is to grow with existing customers, mainly beverage producers, and with a large share of volumes for new facilities being pre-contracted. This has led to lower execution risk for new plant construction and projects being implemented within set timeframes, typically around 18 months from the start to project completion. The company has recently completed its expansionary capex in
Rating Perimeter: Our rating case for CANPACK includes the operations and financial results of
Consolidated Approach: The management provides audited combined accounts for the CANPACK group (a consolidated approach including both
Derivation Summary
CANPACK has strong market positions, ranking third in
CANPACK is larger than
CANPACK's EBITDA and FCF margin volatility is typically higher than those of other packaging companies due to CANPACK's strong investment growth phase and exposure to a volatile aluminum price with a less effective price pass- through mechanism. While lacking the scale of its larger peers
CANPACK 's gross leverage profile is similar to that of higher rated peer
Key Assumptions
Revenue growth of around 0.8% in 2023, 1.9% in 2024, 2.6% in 2025 due to added capacity and shipments of cans to
An EBITDA margin of about 11.3%-11.4% in 2023-2025.
Start-up costs for the US plants and grants received are excluded from EBITDA but included in funds from operations (FFO).
Significant positive net working capital (NWC) in 2023 on an optimised inventory and a lower aluminium price.
Cash adjusted by 2% of sales to reflect seasonal NWC swings.
Capex of 9% of revenue in 2023, 6.8% in 2024, 7.5% in 2025 in line with management guidance.
Dividends of
Repayment of the outstanding amount of asset-based revolving facilities (ABL) in 2024.
Partial refinancing and partial redemption of the
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An EBITDA margin above 14%.
An EBITDA gross leverage below 4.0x on a sustained basis.
A FCF margin above 1% on a sustained basis.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Delays to, and cost-overruns of, investments leading to weaker operating performance and EBITDA margins below 10% on a sustained basis.
A FCF margin failing to turn positive on a sustained basis.
EBITDA gross leverage above 4.5x on a sustained basis.
A change to the corporate or capital structure, indicating the ineffective consolidation scope of CANPACK and CANPACK US operations.
Liquidity and Debt Structure
Satisfactory Liquidity: CANPACK had readily available cash of around
Manageable Refinancing Risk: CANPACK's debt is composed of
Issuer Profile
CANPACK is a global manufacturer of aluminium cans, glass containers and metal closures for the beverage industry and of steel cans for the food and chemical industries. Serving customers more than 100 countries globally, it is the fourth-largest supplier of beverage cans in the world and ranks number three in
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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