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Ardagh Group S.A.  (NYSE:ARD)
Q1 2019 Earnings Call
April 26, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello, and welcome to the Ardagh First Quarter 2019 Results Call. Throughout the call, all participants will be in a listen-only mode and afterwards, there will be a question-and-answer session. Please note this call is being recorded.

Today, I'm pleased to present Paul Coulson. Please begin your meeting.

Paul Coulson -- Chairman and Chief Executive Officer

Welcome everyone to our first quarter 2019 earnings call, which follows the publication earlier today of our results for the quarter. With me today here in Chicago are David Matthews and John Sheehan.

And as is customary, our remarks will include certain forward-looking statements. These reflect certain -- 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 the company's SEC filings and news releases.

Today's earnings release as well as our financial report and 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 includes a reconciliation to the most comparable GAAP measures of adjusted EBITDA and adjusted earnings per share. Full details of our statutory forward-looking statements disclaimer can be found in the company's filings with the SEC.

So if I turn to the first quarter performance, we've made a good start to 2019 with first quarter growth in volumes, constant currency reserves, earnings and cash generation. The backdrop remains very positive for the metal and glass packaging products which we manufacture. And our customers -- engagement with our customers is rising strongly in response to clear changes in consumer preferences.

Our group revenues of $2.2 billion for the quarter increased by 4% at constant exchange rates and were unchanged at actual exchange rates as volume and mix growth of 2% and the pass-through of higher selling prices was offset by currency translation effects of over $80 million. Each of our four business divisions recorded constant currency growth in revenue for the quarter.

This positive volume mixed performance principally reflected growth in our metal packaging Americas and Europe divisions, notably in beverage cans and as well as in glass packaging in Europe, which again saw healthy demand across most end markets. Glass Packaging North America, volume mix declined their modestly in the first quarter, in line with what we expected. And our profit improvement plan for Glass North America remains on track.

First quarter adjusted EBITDA for the group increased by 4% to $363 million, compared to the same period last year and after a currency headwind of $14 million. Constant currency adjusted EBITDA increased by 9%, reflecting a slightly stronger than expected performance, lower pension costs and the required adoption of IFRS 16.

Adjusted EPS for the quarter was $0.35 per share, a 6% on the $0.33 earned in the same period last year. Cash generation improved in the quarter compared to the same period last year with an increase of approximately $30 million in free cash flow. This reflected a reduction of approximately $60 million in the seasonal first quarter working capital outflow, partly offset by an increase in capital expenditure related to our ongoing program of short payback projects. Capital expenditure guidance for the year remains unchanged at approximately $590 million, which includes $90 million of short payback projects.

Looking at the segments. In Metal Packaging Europe, our revenues increased by 5% at constant exchange rates to $873 million in the quarter, volume mix growth of 5% was led by beverage cans, which were up high single digits with food and specialty cans modestly ahead of a strong prior year comparable.

Adjusted EBITDA growth of 5% to $141million for the quarter reflected the strong volume growth mix performance. IFRS effects on lower pension costs also played a part. This was partly offset by adverse currency translation effects and some under recovery of inflationary input costs. Metal packaging demand in Europe remains healthy and our scale and continued investment in our asset base positions us well to support our customers growth.

In Metal Packaging Americas, revenue grew by 2% to $539 million, principally reflecting the pass through of higher input costs, as well as stable volume mix in the quarter. Volumes increased in our beverage can businesses in North America and Brazil by approximately 4%, partly offset as we had expected by lower food can volumes. Adjusted EBITDA of $66 million increased by 5% compared with the same period last year.

Demand for beverage cans continues to grow strongly in the Americas and this has been complemented by our commercial initiatives since the 2016 acquisition. These initiatives that are being designed to achieve appropriate value for our products and to improve the effectiveness of the established pass through mechanisms -- cost pass through mechanisms in North America.

In North America, we continue to enhance our capacity to serve this strong demand. This is being done through targeted investments, including up speeding, line conversions and other projects at our existing facilities. And similarly, we are investing in both our Brazilian can and ends plants to ensure that we can serve customer growth objectives in the coming years.

In food and specialty cans, our well invested asset base predominantly focused on the modestly growing two-piece food can market underpins our positive view of prospects for the medium to long term.

Turning to glass packaging, in Glass Europe demand remained strong during the quarter, volume mix growth was 1%. Growth was achieved across most end markets. Constant currency revenue increased by 6% to $392 million reflecting higher volumes, positive mix and the pass through of increased costs.

Adjusted EBITDA for the quarter of $85 million increased by 13% at constant exchange rates compared with the same period in 2018. European Glass packaging market remains attractive as the substrates ability to deliver premiumization and differentiation in a sustainable format is very well appreciated by our customers.

In Glass North America, we had revenue increases of 1% to $416 million and a 1% reduction in volume mix which was more than offset by the pass through of increased input costs. The reduction in volumes moderated during the quarter as expected and adjusted EBITDA inclusive of the effects of IFRS 16 was in line with the same period last year. During the quarter, our cost improvement initiatives and targeted investments to enhance our business continued as planned. The previously announced closure of our Lincoln, Illinois facility took place earlier this month and this completes our footprint adjustments.

So, looking forward to the rest of the year, we have made a positive start to 2019 and our full year expectations for the year are unchanged with -- that is to say, at least $1.5 billion in adjusted EBITDA, adjusted free cash flow of approximately $450 million before spending on short paybacks projects and adjusted earnings per share in the range of $1.60 to $1.75.

So having made these opening remarks, we will now be very pleased to take any questions which you may have.

Questions and Answers:

Operator

Thank you. (Operator Instructions) The first question comes from the line of Scott Gessner from Barclays. Please go ahead

John Dunigan -- Barclays -- Analyst

Good morning, Paul. This is actually John Dunigan on for Scott. How are you doing?

Paul Coulson -- Chairman and Chief Executive Officer

Great doing, John. Good morning to you.

John Dunigan -- Barclays -- Analyst

I first wanted to talk about the beverage can volumes. The volumes in the Americas were positive and you previously mentioned that you were completely sold out in the US, but had some opportunities to increase capacity, like you said, from up speeding. So could you give us a breakdown of the volume mix between the US and Brazilian Bev Can businesses? And then, how should we think of the year-over-year volume mix cadence throughout the rest of the year, just within that that segment?

Paul Coulson -- Chairman and Chief Executive Officer

Yeah. In Brazil, our volumes grew within that by -- it's around 5%. In North America it was just over 4%. We have delivered -- we have seen consistently strong growth over the past 18 months in both regions. So we have been investing, we take a positive view of the markets. We are largely nonalcoholic exposure in North America and currently this sector has been performing well. So it's a combination of some conversions, some up speeding and we still will be buying in some cans in the current year, probably a year ago we would expect it not too, but the markets demand has been very strong. So that will be an element of that for the next few quarters. I think Brazil will be expanding in both our ends and can facilities, probably adding -- of the order of maybe 15% or so to our capacity in Brazil to those kind of investments to serve, very positive demand trends.

John Dunigan -- Barclays -- Analyst

Okay. Thank you for that. And then, just staying in North America. Did Ardagh experienced any weather disruption during the quarter, polar vortex, flooding?

Paul Coulson -- Chairman and Chief Executive Officer

No, no.

John Dunigan -- Barclays -- Analyst

And then, I'll just ask one more on the Metal Packaging Europe, will it be a bit weaker than we expected when excluding the pension credit? I know you received it -- a credit in 4Q, wasn't expecting another one this quarter. Is that something that we would expect going forward? And then maybe you can give a little bit more detail on the segment this quarter and how it kind of panned out your expectation?

Paul Coulson -- Chairman and Chief Executive Officer

Just only the pension, what we've been doing over the last few years is looking to de-risk our liability on the balance sheet and also reduce cost. So we've been over the last three or four having small benefits coming through as we sort of switch from DB to DC (ph) schemes globally. That continued into the first quarter of this year and we've ended up with a credit, a little bit more than it was expected. But we expect to continue to address the risk and the costs as we move forward into future years.

And so that's really is on the pension side. In terms of the underlying performance of the business and the slight headwinds. Yes, we've experienced some headwinds in terms of passing through some costs in terms of labor and coachings and lack of natural things, thus slightly held back results in this quarter, but we expect some of those pressures to moderate as we move through the rest of 2019.

John Dunigan -- Barclays -- Analyst

Okay. I appreciate it. I'll turn it over. Thanks.

Operator

The next question comes from the line of Debbie Jones from Deutsche Bank. Please go ahead.

Paul Coulson -- Chairman and Chief Executive Officer

Hello. Hello.

Debbie Jones -- Deutsche Bank -- Analyst

Hi. Can you hear me?

Paul Coulson -- Chairman and Chief Executive Officer

I can hear you now, Debbie.

Debbie Jones -- Deutsche Bank -- Analyst

Okay, great. Thank you. Sorry about that. My first question...

Paul Coulson -- Chairman and Chief Executive Officer

That's all right.

Debbie Jones -- Deutsche Bank -- Analyst

Thank you. My first question is on North America Glass. You said you're pretty much done with the footprint optimization. I want to know how should we think about this business going forward in terms of capital allocation, you're managing this for growth or secular declines?

Paul Coulson -- Chairman and Chief Executive Officer

I think, Debbie. Yeah. I think we're looking at an improvement this year, overall for the year, year-on-year over last year. We have completed our footprint rationalization with the number of other things that we're doing at the moment. We just concluded in a satisfactory manner our union negotiations for the next two (ph) years. For example, we have a number of other things that we're working on, a lot of work is going on in the background just apart from plant rationalization, getting the business more freight logical, et cetera, improving the freight costs, et cetera. All these type of initiatives, as we see it, we think, as I say, there'll be an improvement this year or year-on-year and we would look forward to future improvements in the coming years.

Capital allocation, CapEx there, would be pretty much as before. We will invest in some automation, particular inspection equipment, et cetera, that's an important area. As you probably know, the industry as a whole in North America tends to be less well invested than the industry in Europe. So as we move our way through improving our plants you will see investment there and hopefully improvements in the profitability.

Debbie Jones -- Deutsche Bank -- Analyst

Okay. Thanks. That's helpful. And then I wanted to go back to the overall volume growth in metal beverage and get your thoughts on just -- with three or four months into the year we've been talking about sustainability for some time now. How much of that kind of effort do you think is driving growth, in both, in the US and Europe if you could just kind of contrast the two? And then just kind of give us your sense about other things that maybe sustainable more in terms of -- kind of keeping growth moving forward that are helping drive the beverage cans?

Paul Coulson -- Chairman and Chief Executive Officer

Well, I think it's very hard obviously to separate out what the effect of -- what's driving stronger demand. There's no doubt given the conversations and the discussions we have with our customers that the sustainability argument and debate is having an impact, a very positive impact on the business. And as we look forward, for example, you see new products being launched in cans which might not have been launched in cans a couple of years ago. I think probably in Europe, you probably see stronger -- the debate being a bit stronger, started a bit earlier, but it's not absent in North America by any means. There is no doubt that this whole sustainability thing is having -- is having a very positive impact and we are fortunate as a group that we're involved in two fully recyclable products, glass and metal.

Your question on the -- what we're seeing on sustainability going forward in terms of positive impacts for the can business. I think we'll be pretty bullish on that, we're seeing -- there's a lot of -- a lot more active discussions and trialing going on with customers. So this is an area which is certainly very positive for us. And, obviously, you combine that with what's going on particularly in Europe where you've got the premiumization of the beer brands and the big brewers are all pushing on this and different products. And a lot of that's being done through glass, through the medium of glass. So, again, you're seeing a combination of sustainability issues and premiumization issues on the brands which is having a positive impact for us.

Debbie Jones -- Deutsche Bank -- Analyst

Okay. Thank you. That's helpful. I'll turn it over.

Operator

Thank you. The next question comes from the line of Tyler Langton from JP Morgan. Please go ahead.

Tyler Langton -- JP Morgan -- Analyst

Yeah. Good morning. Thanks for taking my question. Just with glass lines in North America. I know Paul, you mentioned volume mix was down 1% in Q1. Can you just talk a little bit about, I guess, what you're seeing in the beer market, mega beer versus some of the other end markets? And then just sort of thoughts for volumes for the market or for yourself for the year?

Paul Coulson -- Chairman and Chief Executive Officer

Yeah. Tyler, in the first quarter the beer market did remain weak, it was down -- the mega bear market was down probably around mid single digits, that sort of level. But the areas that we've been increasingly pivoting to, such as food, such as wine, such as spirit, they were all significantly better than that. Tyler, they were in positive territory. So just to remind you, over the past year we've taken out about 10% of our capacity in Glass North America and a significantly greater percentage of our beer capacity. So that validates those moves. The 1% overall decline was -- it's clearly trending in the right direction.

Tyler Langton -- JP Morgan -- Analyst

Oaky. Thanks. That's helpful. And then just the US beverage cans. I know you've kind of talked about potential for better pricing and I think that was kind of more -- the benefit would more be in 2020 for you just given your contracts. I just want to make sure if that was still the case and just sort of any color sort of on expectations that you might have at this point?

Paul Coulson -- Chairman and Chief Executive Officer

Yeah. The expectations are positive which is based on negotiations that have taken place and others that are ongoing. And you're right, the impact for us is next year.

Tyler Langton -- JP Morgan -- Analyst

All right. Perfect. Thank you so much.

Paul Coulson -- Chairman and Chief Executive Officer

Thank you.

Operator

The next question comes from the line of Roger Spitz from Bank of America Merrill Lynch. Please go ahead.

Roger Spitz -- Bank of America Merrill Lynch -- Analyst

Thank you, and good afternoon. What was the off balance sheet receivable securitizations as of March 2019 please?

Paul Coulson -- Chairman and Chief Executive Officer

Roger, it is a similar level to the year end, around $500 million.

Roger Spitz -- Bank of America Merrill Lynch -- Analyst

Thank you. The IFRS 16 accounting change, should we take the $23 million benefit in Q1 and say that that's sort of the run rate for the full year or $92 million for the full year?

John Sheehan -- Chief Financial Officer

Yeah. We've guided in our (inaudible) to $70 million to $80 million. So I think taking the upper end of that range around $80 million is probably a fair place to be at this point in time.

Roger Spitz -- Bank of America Merrill Lynch -- Analyst

Great. And one thing about the Q2 EBITDA. Do you expect the same kind of improvement in each segment that we saw from Q1 to Q2 '18. Or there are some noticeable differences to consider for Q1 '19 to Q2 '19?

Paul Coulson -- Chairman and Chief Executive Officer

Well, I think what we're seeing in Q1 will hopefully continue into Q2. But I think it's clearly a little early to call that at this point in time.

Roger Spitz -- Bank of America Merrill Lynch -- Analyst

Lastly, what percent of your cans are you buying for resale in North America if I understood that correctly? And is that essentially no profit or negative profit or is that a profitable thing to do?

Paul Coulson -- Chairman and Chief Executive Officer

It's not the most profitable thing we do, Roger. But it's a relatively small amount of our total capacity. If it's -- that will disappear next year. Some of it's a legacy to the way the business was split up in the US when the acquisition was done from ball in 2016. It's a legacy of that really, that's the effect of it. And in -- as our new contracts come into play next year with some of the bigger customers, that goes away. It's not something that we want to -- we want to do, right? It's not part of our game plan.

Roger Spitz -- Bank of America Merrill Lynch -- Analyst

Thank you very much.

Operator

The next question comes from the line of Karl Blunden from Goldman Sachs. Please go ahead.

Karl Blunden -- Goldman Sachs -- Analyst

Thanks for taking the questions. On the Bev Can side we're seeing some benefits from mix, we're seeing some benefits from volume. Is there any color you can provide on when those two elements combined with pretty limited supply additions should result in some price improvements in both of your regions?

Paul Coulson -- Chairman and Chief Executive Officer

Well. I think, Karl, as I said earlier, I think we're seeing -- our expectations for price improvement and value that we're getting for our product are positive and good and we're seeing the impact of the factors you talk about already. So we are seeing good improvements in pricing, et cetera. Both in North America and in Europe we're seeing improvements there too. Both markets in bev cans in all three territories where we involve the US, Brazil and Europe markets are strong. Europe lags a little bit behind because there was some new capacity put in, but the market is essentially growing or nearly grown into that new capacity anyway. And I think you'll see -- we're starting to see things get tighter.

The whole sustainability issue, impact on demand, et cetera, et cetera. And we also had some -- there was some price competition in the year after the Ball divestment when we obviously became a very significant player in Europe, but that's now moderating as we move to repricing contracts, we're seeing stronger pricing. So, I think across all our three territories in bev cans the impact of the factors you talk about on sustainability and things like that are having a beneficial impact on pricing.

Karl Blunden -- Goldman Sachs -- Analyst

That's helpful. Thanks. Then just a quick check on M&A. In the past you've been open to M&A. I want to get a sense for where you stand on that given industry conditions today? And then, on the flipside of that are there any non core assets that you could look to use to accelerate your deleveraging?

Paul Coulson -- Chairman and Chief Executive Officer

Well, I mean, on M&A we always have an open mind on this. Our main focus is on deleveraging, rather than on acquiring new businesses. To be honest, there hasn't been anything else there that would -- we wouldn't wanted to buy, but obviously we review things all the time and time-to-time. Non core assets, yeah, I mean, there's -- we look at time-to-time to see whether there's something we might divest up to accelerate deleveraging, but nothing really -- nothing really there at the moment and certainly nothing that we would need to bring to the market's attention.

Karl Blunden -- Goldman Sachs -- Analyst

Okay, great. Thanks a lot.

Operator

The next question comes from the line of Anojja Shah from BMO Capital Markets. Please go ahead.

Anojja Shah -- BMO Capital Markets -- Analyst

Hi, good morning. I just wanted to discuss any measures that you could take to improve liquidity in the stock. I know you talked about addressing the HoldCo, Opco structure. Maybe just an update on that or any kind of timeline?

Paul Coulson -- Chairman and Chief Executive Officer

Yeah. Well, I think first of all we certainly have no intention of placing any stock at the levels where it is at the moment, right? That's not something we have in mind at all. We've said in the past that when we come to deal with the HoldCo at that stage we will seek to address increasing the free float, but I don't see that happening in the immediate future. I think, I said on the last call. I think that's something for next year and perhaps the back end of next year. So there is nothing immediate out there in terms of increasing the free float.

Anojja Shah -- BMO Capital Markets -- Analyst

Okay. Thank you. And then just coming back to strength that we're seeing in North America. Any plans for expanding your footprint in North America given that conditions are so tight across the industry?

Paul Coulson -- Chairman and Chief Executive Officer

In bev cans?

Anojja Shah -- BMO Capital Markets -- Analyst

Yes.

Paul Coulson -- Chairman and Chief Executive Officer

Yeah. No, as we -- as I said in my opening remarks, we've been -- it's bolting on to existing facilities and things like that, conversion of lines, up speeding, increasing capacity in our existing facilities. No, we've no plans to build any new facilities.

Anojja Shah -- BMO Capital Markets -- Analyst

Okay. Thank you very much.

Operator

The next question comes from the line of Brian Maguire from Goldman Sachs. Please go ahead.

Connor Robbins -- Goldman Sachs -- Analyst

Hi. Good morning, guys. This is actually Connor Robbins today in for Brian. I just wanted to come back to the metal packaging side of things. I mean, if you're looking at the beverage can volume growth globally, I think you guys sit around 6 %, which seems pretty solid. But if I'm looking at metal packaging segment and the organic contribution there, I think especially in the Metal Packing America, there was only maybe $1 million or so to the EBITDA. And I was wonder if you could help me reconcile those two things and maybe if there is some other offsets, maybe food cans were a bit weak or anything like that?

Paul Coulson -- Chairman and Chief Executive Officer

Yeah. And Connor, in terms of the -- we had good volume growth in beverage cans in North America. We did -- on the food can side we showed a facility, a small facility in Q4 last year in the West Coast that was dealing with the seafood market, so it was away from our main business in that market. So that was a partial offset, I don't see that (inaudible) we've been passing on increased costs as well, that just has a mathematical deleterious effect on margins, that was the principle thing.

Connor Robbins -- Goldman Sachs -- Analyst

Okay. So I guess it looks netted from an underlying fundamental perspective with the industry nothing else has really changed or deteriorated there (inaudible).

Paul Coulson -- Chairman and Chief Executive Officer

Yeah. The food side last year, from memory, it was up -- I think in the quarter it was up about 20 %, so there's very strong comp as well that we are looking out there.

Connor Robbins -- Goldman Sachs -- Analyst

Okay. Got it. That's very helpful. And then just turning to your guidance, you obviously reiterated guidance above the first quarter earnings and it came in a little above with that pension contribution. And so just looking out to the rest of the years, there may be something that might reverse later in terms of the pension credits, maybe something comes back or is there some sort of offset that you're seeing or really just mostly in line with your prior expectations?

John Sheehan -- Chief Financial Officer

The guidance -- we reconfirm guidance for the whole year.

Paul Coulson -- Chairman and Chief Executive Officer

And hopefully no reversal on the pension.

Connor Robbins -- Goldman Sachs -- Analyst

All right. Thanks. I'll turn it over.

Operator

The next question comes from the line of Anthony Pettinari from Citi. Please go ahead.

Randy Sloan -- Citi -- Analyst

Good morning. This is actually Randy Sloan sitting in for Anthony. Can you give us an update on the special CapEx projects that you guys began last year. How far are you through that process and anything in that process that has been different than expectations?

John Sheehan -- Chief Financial Officer

Well, that process is continuing. We spent around $60 million last year, we expect to spend about $90 million this year. And in the first quarter we've spent about $30 million. And these are a number of relatively small projects spread across the group and they're very much on track to deliver hopefully sort of two to three year payback as we get to the end of the program. So very much in line with what we're hoping.

Randy Sloan -- Citi -- Analyst

Okay. That's helpful. Thank you. Moving to Brazilian bev cans. I think when you first acquired that business it was roughly $60 million in EBITDA and you had stated after the end plant was completed that you could put $100 million. Where do you think we are currently and where could that go. I think you said in the prepared remarks, you're increasing capacity 10% to 15%? Thank you.

Paul Coulson -- Chairman and Chief Executive Officer

Yeah. I think -- look, it's it's performing in line, Brazil is performing in line and probably better than our expectations. So we don't break that out any further than the segment information we give. But you're quite right, we're very pleased with the performance of the operation in Brazil.

Randy Sloan -- Citi -- Analyst

Okay. That's helpful. I'll turn it over. Thank you.

Operator

The next question comes from the line of Gabe Hajde from Wells Fargo Securities. Please go ahead.

Gabe Hajde -- Wells Fargo Securities -- Analyst

Good morning, gentlemen. Congratulations on a solid start to the year. I had a question about North American Glass. I was just curious if you had a sense for whether or not you might be picking up a little bit of share in any particular end market or if this is a function of just winning with customers that are winning in the market?

Paul Coulson -- Chairman and Chief Executive Officer

There's a bit of swings and roundabouts on this one. I don't think there's anything -- any significant change in market share. I mean, they -- the market itself is overall is weaker than what we have in Europe, right? So it's very different, but -- no, I don't think there's any significant change in market shares.

Gabe Hajde -- Wells Fargo Securities -- Analyst

Okay. And then. I appreciate, it's still early, the expectation had been coming into the year. The European Food Pack might be a little bit better given the dismal '18. Any early read into field conditions or crop conditions or anything like that in either Europe or North America that you can comment on?

Paul Coulson -- Chairman and Chief Executive Officer

Well, I think at the moment, it's a little bit early to call, but we're expecting our numbers (inaudible). We'll see how the year develops.

Gabe Hajde -- Wells Fargo Securities -- Analyst

Thank you.

Operator

The next question comes from the line of Arun Viswanathan from RBC Capital Markets. Please go ahead.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Yes. Thanks for taking my question. Just real quickly, was the 6% volume growth that you saw in global bev can, was that above your expectations? And if so, what do you think led to that? Thanks.

Paul Coulson -- Chairman and Chief Executive Officer

I think, it probably was a little bit -- a little bit better. It was strong in Europe where it was around 8% and the mix was -- volume mix total there was closer to 10%, In Europe we'd see -- the full year is likely to be probably something in the 3% to 4% range. Very healthy market. So maybe slightly, but the fundamentals of all the markets are good and we're taking very positive view of each of them going forward.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Just on that note, then I guess how do you feel about capacity. I know the question was asked on North America, but what about Europe. Is there any need to expand your footprint there? And if so, would that be in -- where will that be? Thanks.

Paul Coulson -- Chairman and Chief Executive Officer

We've no plans to do that. We have a very big footprint in Europe as you probably know.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Yep.

Operator

Can we move on to the next question?

Paul Coulson -- Chairman and Chief Executive Officer

Yep. Please do.

Operator

Thank you. (Operator Instructions)The next question comes from the line of Brian Malley (ph) from Barclays. Please go ahead.

Brian Malley -- Barclays -- Analyst

Hey, guys. How are you.

Paul Coulson -- Chairman and Chief Executive Officer

Good morning.

Brian Malley -- Barclays -- Analyst

Good morning. Just quick. Paul, most of my questions have been asked. Following up on Roger's question earlier, the $70 million to $80 million impact of IFRS on historical figures. If it's possible could you confirm what the right apples to apples 2Q '18 figure is just versus the $390 million to $400 million guide just so we are thinking about it correctly year-over-year.

John Sheehan -- Chief Financial Officer

Well, the reported Q2 for '18, I think it was $392 million, but there is going to be a currency headwind year-on-year. So if you recap that, that goes down to about $377 million. And I think we're guiding Q2 '19 $390 million to $400 million. So there will be an IFRS 16 benefit in Q2 in '19 by around $20 million, which looks similar sort of level that we saw in Q1.

Brian Malley -- Barclays -- Analyst

Understood. Yeah, I guess what I was saying is, are we supposed to assume kind of that $392 million would have been higher with this lease adjustment. Is that correct?

John Sheehan -- Chief Financial Officer

Well, the answer is, yes, but really then we've got FX going in the opposite direction of about (inaudible). So that will broadly net out the IFRS 16 and the FX headwind we will be experiencing.

Brian Malley -- Barclays -- Analyst

Yeah. Okay. I just wanted to make sure I was thinking about that correctly. And then, I guess, just the follow to that. In terms of the balance sheet, obviously, this accounting change moves your ratios up. Am I correct in thinking that, this would also just impact a way that you are tested against those ratios when you think about restricted payments to the HoldCo at the point that you looked with ARD Fin and ARD Sec. I think it's governed by like a three -- excuse me, five is a quarter times test. This change does impact that and does flow through that. Correct?

Paul Coulson -- Chairman and Chief Executive Officer

No, I mean -- No.I think, Brian, first of all, it's broadly leverage neutral, the IFRS thing. So I don't think it impacts at all. I mean what you're seeing on leverage is, obviously, in the first quarter you've higher levels of debt because we'll built up the working capital and things like that. That's always part of our business. And the IFRS thing have no impact whatsoever on our peak capacity, which is $650 million at the moment.

We have no -- that has no impact on it, it doesn't change anything in terms of how we deal with the HoldCo or what we can distribute up or anything like that. No impact whatsoever.

Brian Malley -- Barclays -- Analyst

Understood. I would just -- there is a ratio element though to, what would be on limited restricted payments ,correct?

Paul Coulson -- Chairman and Chief Executive Officer

Yeah. There are covenants in our bonds here, you're right. The five in a quarter, it's not normal, but that is it -- but that's -- then we have our restricted payments basket on top of that, as well as that.

Brian Malley -- Barclays -- Analyst

Understand.

Paul Coulson -- Chairman and Chief Executive Officer

So, my point is that, this IFRS thing has not changed anything in that context.

Brian Malley -- Barclays -- Analyst

Understood. And then my last one. Just quickly and maybe stating the obvious, but I guess as you look at your balance sheet there are obviously some higher coupon notes that are callable. I guess what's the sort of thought process on capital market activity for the balance of this year? When would you think about starting to do that, if you wouldn't mind commenting? And that's all for me. Thanks.

Paul Coulson -- Chairman and Chief Executive Officer

Yeah. Well, I mean, obviously, the markets are very strong and our bonds trade very well. We've nothing in mind at the moment. No plans at the moment, we haven't formulated any thoughts on that yet aside from watching what our very strong market is. Okay.

Brian Malley -- Barclays -- Analyst

That's great. Thank you so much.

Paul Coulson -- Chairman and Chief Executive Officer

Thanks, Brian.

Operator

The next question comes from the line of Nathan Schubert from JP Morgan. Please go ahead.

Nathan Schubert -- JP Morgan -- Analyst

Hey, guys. Thanks for taking the question. I'll just kind of follow up on what Brian just ask. Is there a reason to prolong a refinancing just given how strong markets are and accessible. Capital markets are in the current environment, I mean, is it worth -- what's sort of the rubric there in terms of potentially risk missing an opportunity to do a refinancing?

Paul Coulson -- Chairman and Chief Executive Officer

Well, not everything is callable in our balance sheet and some of this callable is quite expensive to call. So there's a loads of factors that one looks at. And, yeah, I mean, clearly, when you've got a strong market, there's always a risk that you miss that market, but there are other calculations that come into play, besides taking advantage of a very strong market. And we don't have any immediate financing needs at the moment, obviously. And so, as I answered the previous question, there's not nothing in plan at the moment.

Nathan Schubert -- JP Morgan -- Analyst

Okay. And just to clarify. So I think it was the analyst from BMO that asked about the refi earlier. And your response -- in your response you stated that refinancing was likely now at back end of 2020. Was that correct?.

Paul Coulson -- Chairman and Chief Executive Officer

Yeah. It's more likely. I think in the previous calls we had indicated that it has been pushed back by the underperformance that have taken place, particularly last year in Glass North America. So, yeah, I mean, it's certainly not something that we'll be looking at in the context of this year.

Nathan Schubert -- JP Morgan -- Analyst

Okay. Because I think on your 3Q call, you had mentioned front end of 2020. So what kind of change between...

Paul Coulson -- Chairman and Chief Executive Officer

Well, I don't want to be tied down to this. I mean, it's certainly not going to be a '19 event. Okay. That's not in plan. And what we do in '20? We'll have to wait and see how things -- how trading of the company evolves, how the trading of the markets evolve et cetera, et cetera. And it's really too far away in our minds to give any specific guidance or be tied down on that.

Nathan Schubert -- JP Morgan -- Analyst

All right. Thank you very much. I appreciate it.

Paul Coulson -- Chairman and Chief Executive Officer

Thank you.

Operator

As there are no further questions, I'll return turn the conference back to you.

Paul Coulson -- Chairman and Chief Executive Officer

Good. Well, thank you very much everyone for joining us today. And we look forward to talking to you with our Q2 results. Thank you very much indeed.

Operator

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

Duration: 39 minutes

Call participants:

Paul Coulson -- Chairman and Chief Executive Officer

John Dunigan -- Barclays -- Analyst

Debbie Jones -- Deutsche Bank -- Analyst

Tyler Langton -- JP Morgan -- Analyst

Roger Spitz -- Bank of America Merrill Lynch -- Analyst

John Sheehan -- Chief Financial Officer

Karl Blunden -- Goldman Sachs -- Analyst

Anojja Shah -- BMO Capital Markets -- Analyst

Connor Robbins -- Goldman Sachs -- Analyst

Randy Sloan -- Citi -- Analyst

Gabe Hajde -- Wells Fargo Securities -- Analyst

Arun Viswanathan -- RBC Capital Markets -- Analyst

Brian Malley -- Barclays -- Analyst

Nathan Schubert -- JP Morgan -- Analyst

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