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Ardagh Group S.A. (NYSE:ARD)
Q1 2020 Earnings Call
Apr 23, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello and welcome to the Ardagh First Quarter 2020 Results Call. [Operator Instructions]

I will now hand over to Paul Coulson, Chairman and CEO. Please begin your meeting.

Paul Coulson -- Chairman and Chief Executive Officer

Welcome, everyone, to Ardagh's first quarter 2020 earnings call which follows the publication earlier today of our results for the quarter. With me today on the call are David Matthews, our CFO; Shaun Murphy, our COO; and John Sheehan. our Corporate Development and Investor Relations Director.

Our remarks will include certain forward-looking statements. These reflect circumstances at the time they 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 our SEC filings and news releases. Our quarterly earnings release, financial report and related materials can be found on our website at ardaghgroup.com.

Information regarding the use of non-GAAP financial measures may also be found in the Notes section of the release, which also includes a reconciliation to the most comparable GAAP measures of adjusted EBITDA and adjusted earnings per share. And details of our statutory forward-looking statements disclaimer can be found in our SEC filings.

And before I move today to discuss our results, I would like to acknowledge the extraordinary environment that we've all experienced over the last two months. COVID-19 and measures implemented to prevent its spread has meant great loss, hardship and uncertainty to many people in our communities, and we gratefully acknowledge the healthcare and emergency services who have acted so selflessly in this unprecedented public health crisis, and we thank our public representatives and administrators who have responded swiftly to mitigate the challenges that it posed to individuals, communities and businesses.

For all of us, it has meant significant change in how we go about our personal and working lives. And I would like to take this opportunity to commend the outstanding contributions made by our 16,000 employees in Ardagh across Europe, North America and Brazil in the past two months. Their dedication and commitment, supported by our suppliers, has enabled us to operate all of our 56 production facilities, thereby ensuring a continued supply of food and beverage to the markets we serve. And I know that our collective efforts are greatly appreciated by our customers, and we thank Ardagh's customers for their continuing support to us.

So while there are encouraging signs that infections from COVID-19 have peaked in many countries, its effect will continue to be felt deeply personally and economically for many months forward, and perhaps for years to come. Lockdowns remain in place across all our markets with uncertainty regarding the pace and manner of their withdrawal impacting all our daily lives. We remain committed to supporting all our employees through this period, and we are confident that together we can emerge stronger.

Now, to you, our investors, we are very pleased that you can join us today, and we greatly appreciate your continued interest in and support for Ardagh, including in the two recent bond financings which we undertook earlier this month.

So, if I could now turn to our results for Q1, and in doing so, I will focus on constant currency performance. Our first quarter results were slightly ahead of guidance. There was no material impact in the period from COVID-19 and related measures. All our facilities continued to operate throughout the quarter, and we successfully managed any supply chain constraints that arose toward the end of that period.

Revenues for the quarter of $1.62 billion were in line with the same period last year, with modest volume mix growth offset by the pass-through of lower input costs. Adjusted EBITDA of $273 million was slightly ahead of both the prior year and our guidance for the quarter, which was $270 million. Adjusting for the favorable prior-year impact of a pension credit in Metal Beverage Europe, adjusted EBITDA increased by 6% compared with the same period in 2019. This growth was driven by strong advances in Metal Beverage Americas and in Glass Packaging Europe.

The Group's liquidity position remains strong, with cash of $960 million and total liquidity as of March 31 last of $1.1 billion. And our early April bond issuance increased total liquidity to $1.5 billion, including $1.35 billion of cash.

And if we look at the first quarter by segment. In Metal Beverage Packaging, this accounted for over half of our Group revenues in the quarter. Total units shipped in the quarter increased by 1% compared with the same period last year, with growth achieved in the Americas and with stable volumes in Europe.

Metal Beverage Packaging Americas revenue for the quarter increased by 1% to $444 million as growth in shipments of 3% and contractual price increases were largely offset by the pass-through of lower input costs. Volume growth was 7% in North America, including specialty can growth of over 20% in the quarter. We continued to evolve our business mix favorably during the quarter, and our investments meant that we've bought virtually no cans from outside in this period. Strength in North America was partly offset by lower shipments in Brazil where the market contracted sharply toward the end of the quarter.

Adjusted EBITDA increased by 20% to $61 million compared with the same period last year as a result of volume growth, positive mix, contracted price increases and a strong operating performance.

In Metal Beverage Europe, first quarter revenue of $385 million increased by 1% over the same period last year. Units shipped were in line with the prior year when shipment growth of 8% was favorably impacted by the then scheduled Brexit date of March 31, 2019. Adjusted EBITDA of $54 million for the quarter was 4% ahead of the same period in 2019, when account is taken of a $15 million pension credit in 2019.

If I could turn to Glass Packaging. In Europe, first quarter revenue of $384 million was in line with the same period last year, with higher prices offsetting a 2% reduction in volume through [Phonetic] mix. Volume/mix softened toward the end of the quarter in beer, spirits and non-alcoholic beverages, partly offset by strength in the food end markets. The strong operational performance and disciplined commercial focus on cost recovery contributed to adjusted EBITDA growth of 7% to $89 million compared with the same period last year.

Glass Packaging North America delivered a broadly stable outturn in the quarter. Revenue of $409 million was 2% lower than the same period last year, reflecting a volume/mix reduction of 2%. Adjusted EBITDA of $69 million was 3% lower than the first quarter of 2019. The decline year-on-year volumes continued to moderate in the quarter. Glass Packaging North America's business mix, including its position as the leading supplier to the food market, positions it well to manage in the more uncertain economic environment.

In late February, the US Department of Commerce preliminarily assessed countervailing duties at a rate of 23% upwards on Chinese glass imports, recognizing that these goods had historically been unfairly subsidized. These duties have been implemented since early March, and furthermore, anti-dumping duties will be separately assessed this month and finalized later in the year.

Turning to sustainability. Despite the events of recent months, our drive to increase our environmental and social sustainability outcomes continues unabated. We expect sustainability to be an even more important societal concern in consequence of rather than despite the current health crisis. And as we've set out in our sustainability report, Ardagh has led the use of recycled glass in our European business, reaching up to 90% usage in some furnaces. We continue to work with FEVE, the European Glass Federation, to increase this rate to 90% by 2030. We are therefore delighted that in a unique collaboration by over 20 glass packaging manufacturers in Europe, Ardagh was selected in February to build a new design hybrid furnace at one of our production facilities in Germany.

This hybrid furnace aims to dramatically reduce the carbon footprint of glass production by inverting the fuel mix to make it more predominantly renewable-electricity-using rather than using gas as currently. Progressive decarbonization of the glassmaking process, allied to the current high rate of recycling will further strengthen our sustainability credentials. We look very forward to taking this industrywide project forward and to working with others in the industry to advance glass packaging sustainability.

So if I could turn to COVID-19. I'd like to outline how we've responded to-date across our businesses. We commenced our preparations for COVID-19 in late January and formally established a task force to coordinate our efforts Groupwide in early February. Our primary focus has been on ensuring the health and well-being of our people at all times. The measures introduced to date include enhanced hygiene procedures in all locations, increased investment in personal protective equipment and adapting work practices and routines to ensure social distancing. We've also promoted working from home wherever possible. Our response continues to evolve in line with best practice which we benchmark continually and in accordance with the recommendations from national health authorities and the World Health Organization.

Operationally, all our production facilities, which form a core part of the food and beverage supply chain, continued to operate throughout the quarter. Remote working by our non-plant based employees ensured minimal disruption and delay to other critical processes. Bottlenecks were evident at times and parts of our supply chain such as freight and logistics, but as a testament to the commitment of all our employees that working with our suppliers, these were satisfactorily managed through during the period.

In terms of demand for our products, the introduction of locktowns occurred in the second half of March and had no material impact on our first quarter results. It remains too early to project the impact of COVID-19, given the lack of clarity on the timing of the relaxation of restrictions and how it will affect the macroeconomic environment in terms of GDP and employment. However, we can share some perspectives with you.

Firstly, we estimate that 80% of our products are ultimately sold in the off-premise or off-trade channel, with the balance sold on premise in cafes, bars, restaurants and hotels. And we are seeing brand owners partly redirecting production to off-premise channels during this period of lockdown, for example, moving product from draft to package beer. We anticipate some shift to more high volume and lower price point brands and away from niche offerings given the ease of delivery to the customer through all stages of the production, distribution and merchandising supply chain. Within our two businesses, we expect metal packaging to see more resilient demand given its higher off-premise weighting and the attractive mix of end use categories we serve in all markets, notably in North America.

Allied to the generally tight market conditions in beverage can markets in recent years, we expect macroeconomic softness to be offset in North America and mitigated in Europe. However, rising unemployment and lower state income support in conjunction with premises closures has and will continue to sharply impact near-term demand in Brazil. In Glass Packaging, we see a headwind from its greater presence in the on-premise market, principally in Europe as well as in end markets such as export and travel retail. This will be partly offset by our leading food sector presence, which represents about a quarter of our total Glass Packaging revenues and some 15% of total Group revenues. In both Europe and North America, we've seen strong demand for food packaging in recent weeks.

So, in summary, on the demand side what we currently see is a stable market in Europe for metal beverage packaging, with limited impact to date on demand; strong demand for metal beverage packaging in North America; a recent and significant reduction in demand for metal beverage packaging in Brazil; a noticeable softening in demand for our Glass Europe business, principally related to the on-trade market; and resilient markets in general for our Glass business in North America, with limited impact to date as a result of the reduction in on-trade. And we remain operationally capable in each of our locations, and where required, have and will continue to respond quickly to temporary changes in demand to reduce capacity.

Turning to our investment plans. We continue to see attractive investment opportunities, and we are proceeding with our $250 million 2020 business growth investment program across our businesses. Lockdowns and travel restrictions may potentially result in some delays in mobilizing labor and equipment in 2020, but our desire remains to proceed with these attractive projects which are supported by customer contracts and our deleveraging in their own right.

In terms of capital structure and liquidity, in tandem with our operational response to COVID-19, we have significantly increased our liquidity in recent weeks. Following our bond offerings earlier this month, we now have total liquidity of $1.5 billion, of which approximately $1.35 billion is in cash. We've always used leverage prudently as a means of enhancing returns, and in parallel, have been careful to protect the interests of all stakeholders. We will retain higher than normal levels of liquidity and cash for as long as the current environment persists. And it's important to note that our next bond maturity is in late 2022 and that we have no maintenance covenants under any of our bonds.

So, to conclude on these remarks, our first quarter performance was strong, reflecting our business mix and the outstanding dedication of our people. The macroeconomic outlook remains unclear in terms of the extent and duration of the impact of COVID-19, making it too early to provide meaningful financial guidance. Our previous full year 2020 guidance is therefore withdrawn. However, we serve beverage and food end markets in Europe and the Americas, and we expect our substrate mix and diversified end use categories to mitigate the macroeconomic effect on our business. We have a proven operating model, $1.5 billion in liquidity and we will manage our capacity and cost base to respond to market conditions and hope to emerge well placed for a normalization in our markets.

So, having made these opening remarks, we will be delighted to take any questions that you may have. Thank you.

Questions and Answers:

Operator

[Operator Instructions] The first question comes from the line of Tyler Lexington [Phonetic] from JPMorgan. Please go ahead.

Tyler Langton -- JPMorgan -- Analyst

Hey, good morning. Meaning well.

Paul Coulson -- Chairman and Chief Executive Officer

Hi Tyler.

Tyler Langton -- JPMorgan -- Analyst

Paul, I was just wondering, could you just -- I know you kind of commented about sort of the trends that you're seeing across the products and regions. Was that reflective of sort of Q1 or -- for those regions, can you talk a little bit about the trends that maybe you're seeing in the first three weeks of April as well?

Paul Coulson -- Chairman and Chief Executive Officer

Well, my remarks, Tyler, were on what we're seeing on demand that I've just gone through relate to since the start of the new quarter, so since the start of April. That's what we're seeing -- toward the end of March, that's what we're seeing going. So looking forward, we had anticipated obviously some of these changes, and they played out pretty much as we expected in March as we look on what's going on in the business in April so far. So I think if you take them as reflective of how we see things currently and what we're seeing going on in the markets now rather than what actually went on in Q1.

Tyler Langton -- JPMorgan -- Analyst

Okay, that's helpful. And I just -- on Brazil, I think you said you saw a pretty meaningful drop. I don't know if you somehow -- could you give some rough sense of how much that drop was and are there any thoughts of sort of coming back some production if that's needed?

Paul Coulson -- Chairman and Chief Executive Officer

Well, we don't break out Brazil from our Americas segment. But I think what we've done is, there has been some downtime. There are some holiday extensions in some of our plants, with some of our customers have also done the same thing. So that will help moderate inventories. It's a quiet period there at the moment anyway and we'll have to see how it plays out. But we will clearly not build inventories. We'll adjust our operating capacity as we go forward.

Tyler Langton -- JPMorgan -- Analyst

Okay. That's helpful. And then just final question sort of on raw materials on, I guess, maybe probably more on the Glass side. But are you seeing any easing in freight costs or making use of natural gas on the Glass side? Anything there?

Paul Coulson -- Chairman and Chief Executive Officer

David, you might like to comment on that.

David Matthews -- Group Chief Financial Officer and Director

Yeah. I think on the gas side, we are starting to see softening prices. But this is a pass-through, so we're not going to be making gains from this as we move forward. The freight market is currently relatively stable. Whether or not rates will soften as we look forward with lower economic activity, that's debatable at this point in time.

Tyler Langton -- JPMorgan -- Analyst

Okay. Perfect. Thanks so much.

Paul Coulson -- Chairman and Chief Executive Officer

Thanks, Tyler.

Operator

The next question comes from the line of Mike Leithead from Barclays. Please go ahead.

Michael Leithead -- Barclays -- Analyst

Thanks. Good morning, guys.

Paul Coulson -- Chairman and Chief Executive Officer

Good morning.

Michael Leithead -- Barclays -- Analyst

I guess, first, can you talk a little bit about the dynamics in the North American Glass Packaging business. It sounded like maybe the supply demand imbalance from the past 12 to 18 months is getting a little bit less bad before the pandemic. So can you just kind of talk about the evolution you're seeing in demand there?

Paul Coulson -- Chairman and Chief Executive Officer

Yeah, I think your comment is very fair. And we're seeing good demand in Glass in North America. We've seen some weakness in beer, but we've been switching production to food where there is very strong demand for food products, which we're seeing both in Europe and in our glass business in Europe and in our glass business in North America. So yeah, I think the tightening of balance or the repositioning of balance, and certainly we're comfortable with the capacity we have nowadays. And that has continued into this during the COVID-19 period.

Michael Leithead -- Barclays -- Analyst

Got it. That's helpful. And then if you look at your European businesses versus your North American businesses, both glass and metal, are you seeing any meaningful customer behavior differences? I mean, obviously there are some differences in terms of timing of social distancing and your offering mix. But just in terms of customer behavior, are there any fundamental differences you're seeing between the regions?

Paul Coulson -- Chairman and Chief Executive Officer

Well, I mean, the markets are different because I think the -- in both our US businesses, demand is stronger. The demand in Metal Beverage in Europe remains stable, but there is very strong demand in metal beverage in North America, as I said. In Glass in Europe, Glass in Europe was the business, of our businesses, that we expected to be most impacted because it has more of an exposure to the on-trade on the on-premise trade, hotels, cafes, bars, restaurants. So we expected and anticipated that that business would be weaker. So really I think our customers' behavior is more reflective of the markets that they're serving or that we start through them rather than any particularly different behavior in Europe versus the US.

Michael Leithead -- Barclays -- Analyst

Got it. Thank you.

Operator

The next question comes from the line of Kyle White from Deutsche Bank. Please go ahead.

Kyle White -- Deutsche Bank -- Analyst

Hey, good morning. Thanks for taking my question. Paul, I believe in the prepared remarks, you said you're still planning to move forward with the $250 million in growth investments. Are you able to provide any more of an update on what these projects are and kind of where you're making capacity expansions?

Paul Coulson -- Chairman and Chief Executive Officer

Well, a lot of the focus is on metal beverage in the United States, and there is some in Glass in Europe. But they are also throughout our business. But the main preponderance is in metal beverage in the US. And as I've said on earlier calls, our increases in capacity and capability are on the back of long-term customer contracts in the US and they do not involve any greenfield plants. There are expansions of capacity taking place at existing locations.

Kyle White -- Deutsche Bank -- Analyst

Got it. And then, given that you're likely oversold in the US and with the strong demand that we're seeing in beverage cans there, there's been a couple of other producers talking about shipping cans into Mexico. And I understand you don't have Mexico exposure. And I know, usually the economics of sending cans long distance doesn't make sense. But just given the unique situation we're in, is there any consideration to kind of moving cans from Brazil into the US? Or is that just not make sense at all from the economics?

Paul Coulson -- Chairman and Chief Executive Officer

No, that's something that we will consider. And we do move cans across jurisdictions from time to time to meet demand. I mean, that's one of the advantages of being a worldwide player. If there are opportunities and it's economic and we have space within our capacity, we will do so.

Kyle White -- Deutsche Bank -- Analyst

Thanks. I'll turn it over. Good luck in year.

Paul Coulson -- Chairman and Chief Executive Officer

Thank you.

Operator

The next question comes from the line of Travis Edwards from Goldman Sachs. Please go ahead.

Travis Edwards -- Goldman Sachs -- Analyst

Hey, good morning. Thanks for the time. I've got one question on fundamentals and one on the balance sheet. With Just first on the North American Glass side. In the past, you've spoken of the need for maybe some industry capacity to come offline. Just wondering if, as we think about the pandemic, potentially some slowdown on the particular glass categories, do you think industry capacity coming offline is accelerated? Do you think that needs to exist? How you think about the evolution of maybe the supply side of Northern Glass?

Paul Coulson -- Chairman and Chief Executive Officer

Well, as I said earlier, I think it has improved. We think there is probably further capacity to come out from some of our competitors. We're certainly not going to take any more out. We're happy that we've right-sized our production capacity to our markets, and that has continued to be the case during the COVID-19 period. So I think there is still a need for adjust. We're making a lot of progress within that business in North America. There is still a lot of changes to come.

Obviously, the tariffs and the further tariffs that will now be imposed very soon. Additional tariffs will have helped greatly, and we've seen -- within the wine business, for example, we've certainly seen improvement resulting from that. We've got a lot of work to do to make the operations -- and this applies to the whole industry in North America relative to Europe to make it more efficient and to make improvements there. So it's work in progress, but it has improved certainly.

Travis Edwards -- Goldman Sachs -- Analyst

Got it. I appreciate that. And then on the balance sheet, just as you think about the next 12, 18 months, is there any scenario of pandemic conditions are extended where potentially your RP -- your structured payment capacity is reduced to the point that you have to toggle the interest on your holdco notes?

Paul Coulson -- Chairman and Chief Executive Officer

No.

Travis Edwards -- Goldman Sachs -- Analyst

And then if you could share maybe your latest [Indecipherable]

Paul Coulson -- Chairman and Chief Executive Officer

Our latest RP is just of the order of $600 million, and we certainly are not -- we are not planning on picking those Toggle Notes, absolutely not. I mean, you will see that we've set the dividend at a level which makes sure we actually service those bonds. Obviously, the market shares and their pro rata share of that dividend as well.

Travis Edwards -- Goldman Sachs -- Analyst

Sure. Got it. Appreciate the time. Stay safe. Thanks.

Paul Coulson -- Chairman and Chief Executive Officer

Thank you.

Operator

The next question comes from the line of Mark Wilde from Bank of Montreal. Please go ahead.

Mark Wilde -- Bank of Montreal -- Analyst

Thanks. Good morning, Paul.

Paul Coulson -- Chairman and Chief Executive Officer

Good morning, Mark. How are you?

Mark Wilde -- Bank of Montreal -- Analyst

Good. Paul, I wonder if you can just put a little more color around changes that you're starting to see as a result of this whole kind of trade case on US Glass -- around US Glass.

Paul Coulson -- Chairman and Chief Executive Officer

Well, I mean, the changes have been evolving -- have been taking place over the last number of months, Mark, and clearly, we believe that the tariffs are having an effect and making it very difficult for imports from China to be sustainable going forward. We've seen a -- there was a short-term spike in Chinese imports where there was some advanced purchasing by importers of Chinese bottles ahead of -- distributors principally ahead of the tariffs being imposed.

But now that the tariffs are being imposed, we are seeing increased demand from, as I said, wine and food customers as well in respect of supply from us because the tariffs will have made it uneconomic to supply at subsidized rates from China. So it's a gradual process, and we're seeing real change in the market.

Mark Wilde -- Bank of Montreal -- Analyst

Okay. And I guess we do get a lot of imports from Mexico as well. So have you-and Mexico has clearly slowed. Are you expecting any changes in terms of just Mexican glass coming into the US market?

Paul Coulson -- Chairman and Chief Executive Officer

No noticeable changes in recent trends there. I mean, you're right. There are imports that come in from there. And obviously, there's quite a lot of filled product that comes in from Mexico, filled beer bottles as well. But no big changes there, Mark. I mean, there is obviously a lot of beer to fill in Mexico itself. So it hasn't been changing.

Mark Wilde -- Bank of Montreal -- Analyst

Okay. And in your glass business in the US, about how much of that would be food versus the other major categories for you?

Paul Coulson -- Chairman and Chief Executive Officer

John, would you like to give a breakdown of that?

John Sheehan -- Director of Investor Relations

Yeah, sure, Mark. We've a big food business. It's the leader there. And it will be around about a quarter of our business in both Europe, actually, and in North America. So it's fairly similar and it's ahead of plan in both regions.

Mark Wilde -- Bank of Montreal -- Analyst

Okay. All right. I guess that's it from me. I'll turn it over.

Paul Coulson -- Chairman and Chief Executive Officer

Thank you, Mark.

Operator

The next question comes from the line of George [Phonetic] Spitz from Bank of America. Please go ahead.

Roger Spitz -- Bank of America -- Analyst

Thanks. That's Roger. You mentioned you still intend to do $250 million growth capex. Maybe you said this, but are you also still going to keep going with the $350 million of sort of base capex? Or would you dial that down a little bit?

Paul Coulson -- Chairman and Chief Executive Officer

We plan to go ahead with it. I mean, we can dial some of it back as we see the year evolve. I don't think we'll dial it back materially. But if we needed to, we would. But again, there is also a lead time in these things as well. And it may turn out to be lower, but we haven't made a decision to cut it yet. But what we have done is, we've taken steps where we could adjust if we need to.

Roger Spitz -- Bank of America -- Analyst

Got it. And if I heard this correctly, North American metal volumes, did you say they were up 7%? And if so, could you remind me what drove that? Perhaps you said it during one of the Q&A, but I just missed it you did.

Paul Coulson -- Chairman and Chief Executive Officer

I'm sorry, I lost you there in the last part -- you mentioned the 7%. And what was the second part of that?

Roger Spitz -- Bank of America -- Analyst

What drove that? And if you already answered that, I must have missed it. I'm sorry I can relisten.

Paul Coulson -- Chairman and Chief Executive Officer

Well, market conditions are very strong in that market. And we've also repositioned the business. We've diversified it since 2016. It's a much broader base business. When we took it over, there was a very big customer concentration of three main customers, and that's been changed completely. And we've been working with customers, some of the seltzer guys, people like that where we have very strong demand growth. And so that's what's driven that. But it's a much broader base business than it was when we took it over in 2016.

And obviously, there has been very strong growth within -- leaving aside the current demand for people being locked up at home, etc., leave aside that to one side. Obviously, the fundamentals have been very good in recent times of demand within the US beverage can market, and you're seeing a lot of new products coming in and that sort of thing. You're seeing an evolution of different products and, as I say, a broadening of our business, which we're very happy with.

Roger Spitz -- Bank of America -- Analyst

Got it. And one last one is, can you comment on Bev Can Europe, what you're seeing across different countries and markets? Any granularity you can provide there, please?

Paul Coulson -- Chairman and Chief Executive Officer

Well, I think as I said earlier, it's stable as it is now. We'll have to see what happens in some of the southern countries like Spain and Italy later in the year when they emerge from lockdown, etc. That's a bit of an unknown, whether there will be some reductions there. There may well be reductions in demand there if there are some on-trade can business in those countries in the southern part. So I think that's probably one thing to look out for. Otherwise, so far, we are seeing it relatively stable.

Roger Spitz -- Bank of America -- Analyst

Thank you very much.

Operator

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

Arun Viswanathan -- RBC -- Analyst

Great. Thanks. Good morning. I guess I just wanted to ask a couple of questions about your customers. Have you seen any changes in their production? I'm just thinking about are they opting for fewer changeovers when you look at your beverage can business or your Glass business? Is that going on yet?

Paul Coulson -- Chairman and Chief Executive Officer

Shaun, any comment on that?

Shaun Murphy -- Chief Operating Officer and Director

We're seeing in a very limited way some reduction in terms of the number of different SKUs that our customers are using, but they're not very substantial. We're seeing some shift in the US market kind of related to your point around a shift toward some higher or lower value products. So some own label products in Europe within supermarkets. It's that kind of shift.

I don't think we have any more than that insight in terms of the production within our clients, in terms of the customers, but in terms of the nature of what they're seeking to sell, there is that movement toward maybe slightly a lower number of category and toward the value end, particularly in the US and some parts of Europe, Southern Europe in particular.

Arun Viswanathan -- RBC -- Analyst

Okay. That's helpful. And I guess I'm asking this question mainly to try and understand some of the longer-term dynamics here. So when you think beyond kind of the next quarter or two, what are your expectations for the sustainability of some of the increased volume growth? Do you think there is an opportunity for a little bit better than previous structural growth going forward because of changes in consumer habits? Would you expect a little bit more safety stock? I would imagine that would be the case in North America. But maybe we can just get your thoughts on that as it relates to Europe and Latin America and some other regions as well. Thanks.

Paul Coulson -- Chairman and Chief Executive Officer

I don't think we've seen any change in our -- we haven't changed our expectations. So I think clearly like everyone else in the world, our expectations are much more uncertain than they were two months ago. But I don't think that even post recovery -- and nobody knows how long the recovery is going to be, nobody knows how quickly things will return to normal, if they do return to normal, what will future behavior be, etc., etc., very hard to judge.

But absent the uncertainty that's created, we haven't made any change in our expectations of growth or whether there would be increased demand or not. Frankly, I'd say, like the rest of the world, we'd be happy for demand to go back to where it was eventually, but if there's more growth on that, well, it's certainly not something we're baking in at this stage.

Arun Viswanathan -- RBC -- Analyst

Great. Thanks. And just one last one if I can, just on similar area, but maybe more on sustainability, given that you're both in glass and metal packaging. Have you seen any shift, whether it's temporary or longer-term, on preferences among your customer base for different substrates? Do you think that some of the switch into beverage cans could slow and revert back to plastic? Or any comments on those kinds of dynamics?

Paul Coulson -- Chairman and Chief Executive Officer

We haven't seen anything like that at all. And maybe the world has been a bit more focused away from the plastics issue than -- the health issue has been the predominant issue. But we haven't certainly seen any trends like that at all. And I don't anticipate that being the case. I think the demand for our two strata, beverage cans and glass, remain strong post all this because it's sustainable and people are focused on that. And people are not going to forget about climate change and things like that when this is all over, when the health crisis is all over.

Arun Viswanathan -- RBC -- Analyst

Okay. Thanks.

Paul Coulson -- Chairman and Chief Executive Officer

Thank you.

Operator

The next question comes from the line of Brian Lalli from Barclays. Please go ahead.

Brian Lalli -- Barclays -- Analyst

Hey guys, good morning. How are you?

Paul Coulson -- Chairman and Chief Executive Officer

Good morning.

Brian Lalli -- Barclays -- Analyst

Just real couple of quick ones from me. Maybe just on the cash flow side, it looks like the working capital move is a bit bigger this quarter. It appears from looking at the balance sheet that most of this was actually in accounts payable. I guess I'd just be curious kind of the movements there and maybe how you see that progressing through the rest of the year. I appreciate there's a lot of uncertainty, but just kind of how we're supposed to think about that.

And then the second piece of that one would just be -- there is this $54 million of transaction related start-up and other exceptional costs paid. It seems to be up a decent amount year-over-year. Just anything notable in those items? And then I'll have one follow-up. Thanks so much.

Paul Coulson -- Chairman and Chief Executive Officer

Okay. David?

David Matthews -- Group Chief Financial Officer and Director

Yeah. Only cash flow in the first quarter. What we're seeing in the first quarter of 2020 is a normal seasonal working capital outflow, which is very much in line with our budget. 2019 was unusually low in terms of working capital outflow due to the impact of Brexit where there was a March 31 deadline. And there was an unusually moderated opening balance sheet on January 1, '19, which meant that a lower level of working capital came out of the business during the early part of '19. So '19 is naturally low. '20 is really what one should expect and let's say was in line with our budget.

In terms of exceptional costs that you rightly pointed out, $54 million is related to the Trivium transaction. I think with the exception of any sort of refinancing that we may consider later in the year, we don't expect to see any material exceptional cash costs as we move through the year. In terms of the overall shape of working capital for the year, the seasonal outflows in the first quarter, we expect that to come back in as the year progresses, and we expect a broadly flat position across the year.

Brian Lalli -- Barclays -- Analyst

Okay. Got it. That's helpful. And then my follow-up, maybe, Dave for you and also for Paul. But at some point things start to feel better. Obviously, you've got a pretty significant cash balance right now. What's the right way to think about uses of that cash? And I guess I ask that question and frame it up a little bit in the context of your previous comments where you want to be kind of -- are operating company below the [Indecipherable] level to be in kind of the low 4 times leverage range? Would you think about using that cash to delever, maybe looking at those 2022 notes? Maybe just some thoughts. Again, I know that may feel like a ways away now. But cash balance is large. We want to know kind of how you're thinking about or if there is brighter days ahead. Thanks so much.

Paul Coulson -- Chairman and Chief Executive Officer

Well, first of all, Brian, I think we will retain cash on the balance sheet until we're through this uncertain and difficult period, right, for the markets generally. That's the first thing, and we will be very cautious about that. I think then probably as we come through that, we can probably look at reducing for example the level strong under our ABL facility. Clearly, then, as we move into next year and hopefully into calmer and brighter waters, we would expect to use our excess cash.

Probably one possible use is reduction of debt. As you say, our next callable one or our most proximate bond is due -- matures in September '22. That's a secured bond. We watch the markets the whole time, and we'll see if it makes sense to go into the market and do things, we will do so. But there is -- we haven't made any decisions as to what we would do with cash balances next year. The one thing we have decided is that we will keep cash on our balance sheet until we're well through this problem -- these issues. And we wanted to make sure that we were absolutely rock solid in terms of liquidity, and I'm very comfortable that we've achieved that.

Brian Lalli -- Barclays -- Analyst

Understood. Thanks, Paul.

Paul Coulson -- Chairman and Chief Executive Officer

Thank you.

Operator

[Operator Instructions]. 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.

Paul Coulson -- Chairman and Chief Executive Officer

Good morning.

Gabe Hajde -- Wells Fargo Securities -- Analyst

Glad to hear everyone is doing well. Thanks for taking the questions. First one, I appreciate Europe is a little bit more of a regional market on the beverage can side. I am curious if, I guess, volume doesn't materialize maybe the way some folks had anticipated, if there is potential for an overhang in the next year, maybe with respect to pricing or competitive dynamics? Any thoughts there, Paul?

Paul Coulson -- Chairman and Chief Executive Officer

I think we're comfortable where that market is at the moment. I mean, clearly, things can change, and we'll react accordingly. But it very much depends when economies emerge, how they emerge, how demand goes. It's very, very difficult to forecast. And you know, you have also got sustainability issues as well where stuff is undoubtedly -- this increased demand for the beverage can products. So really it's too difficult to forecast what happens there. Clearly, if there is some weakness, we will seek new markets. We will seek to use our capacity in a profitable way.

Gabe Hajde -- Wells Fargo Securities -- Analyst

Got it. Thank you. And then I guess I appreciate that there is the natural operating leverage on the demand side. But you made a few comments about some of your customers trying to streamline things and maybe less changeovers that would imply some productivity but yet maybe moving to more standard size cans. Is there a way for you quantify or help us maybe think about productivity or negative mix effects as I guess consumers change their consumption habits?

Paul Coulson -- Chairman and Chief Executive Officer

Shaun, any thoughts on that?

Shaun Murphy -- Chief Operating Officer and Director

Well, apart from the comment I made earlier, I'm not sure. And also, more generally it's quite difficult to, as Paul was saying, to discern any particular trends and changes at this point, given we are so -- it seems like we are in this a long time, but actually it's only a matter of a few weeks as we know. So I think a bit early for us to give you any insights on that, I think, unfortunately.

Gabe Hajde -- Wells Fargo Securities -- Analyst

Okay. And then two quick ones. I saw the dividend. I think it went from $0.14 to $0.15. I don't know if that was expected to be I guess the new go forward rate? And then the other couple of guidance items. It look like cash interest came in a little bit higher. I didn't know if there was a redemption premium or anything in there that you guys incurred? And I think you guys were targeting around $260 million of cash interest. Has that changed?

Paul Coulson -- Chairman and Chief Executive Officer

I think I will ask David to answer the second one. On the dividend, yeah, you can take it, that's the go forward rate, the $0.15. That's our planned go forward rate.

David Matthews -- Group Chief Financial Officer and Director

Yeah. On the cash interest point, we expect the cash interest for the year to go up slightly, probably from $260 million to around $280 million as a result of the additional cash we are now holding on the balance sheet. In the first quarter, the cash outflow was around $80 million, very similar level to last year. That's due to timing. And that $80 million will drop as we move through the quarters. So ultimately we'll get to $280 million for the year.

Gabe Hajde -- Wells Fargo Securities -- Analyst

Great. Thank you. Good luck, gentlemen.

Paul Coulson -- Chairman and Chief Executive Officer

Thank you.

Operator

The next question comes from the line of Mark Wilde from Bank of Montreal. Please go ahead.

Mark Wilde -- Bank of Montreal -- Analyst

Yeah. Just a couple of follow-ons. Paul, I'm just curious about what you're seeing in terms of can volumes over in Europe. In the last couple days, there has been some commentary suggesting some recent softening in Italy, some of the regional markets in Europe. Have you seen that?

Paul Coulson -- Chairman and Chief Executive Officer

Not yet. But we anticipate that it could happen, Mark.

Mark Wilde -- Bank of Montreal -- Analyst

That's OK.

Paul Coulson -- Chairman and Chief Executive Officer

What I was referring to earlier, it depends particularly in some of these southern countries, how they emerge from the lockdowns, etc.

Mark Wilde -- Bank of Montreal -- Analyst

Okay. And then just a couple of other ones on glass. You talked about sustainability. But we have got all this turmoil in terms of the recycling systems in North America and Europe. And I wonder what the impact of that is. It sounds like in some places in the US, they are not even collecting glass for recycling anymore.

Paul Coulson -- Chairman and Chief Executive Officer

Well, I mean, I don't have to tell you, Mark, that recycling levels in US Glass are far too low. They are very low. But perhaps now is not the time for those improvements to be gotten. I think you are right. There is probably less attention being paid in North America to recycled glass at the moment. But look, when this is all over, I think that some of our bigger customers in the US are very focused on sustainability. And one very large one in particular is very focused on improving the recycling rates in the US. And we're certainly very supportive of that, obviously, and we're working with customers to try and improve it. It's a fraction of what it is in Europe, as you know.

Mark Wilde -- Bank of Montreal -- Analyst

Yeah. The one other question I had on glass is, if we look at Europe over the last 20 years, there has been a lot of consolidation in the sector. You have been a big player in it. Do you think the turmoil at the moment leads to more shakeout or consolidation in the European glass business?

Paul Coulson -- Chairman and Chief Executive Officer

I don't think so. I think the operators there are -- I don't think that map has changed as such. I mean, clearly, there could be consolidation. We haven't done anything there for a long time now ourselves. But I don't think that -- I think by and large, the producers in Europe are, more than by and large, are strong and are well-capitalized and are performing well. And I certainly don't see any shakeout or accelerated shakeout of consolidation of European Glass as a result of what's going on in present. I'm not aware of anything like that.

Mark Wilde -- Bank of Montreal -- Analyst

Okay. Fair enough. I will turn it over. Good luck for the rest of the year.

Paul Coulson -- Chairman and Chief Executive Officer

Thank you, Mark.

Operator

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

Brian Maguire -- Goldman Sachs -- Analyst

Hey, guys. Hope you are all well.

Paul Coulson -- Chairman and Chief Executive Officer

Hi Brian.

Brian Maguire -- Goldman Sachs -- Analyst

A couple of questions at the end here. I think you said that for the total Company, across all the regions in substrate, it's about 80% at-home consumption, 20% on-premise. I just wondered if you could break it down a little bit more granularly by substrate and by region. I'm guessing cans are maybe a little bit more at-home and US in general is more at-home. But if there is a way to put some numbers around that, I would appreciate it.

Paul Coulson -- Chairman and Chief Executive Officer

Yeah. Well, not precise numbers, Brian, but I mean, directionally you are right. The cans are obviously more for the home market than the on-trade, both in the US and in Europe. And in glass, there is much more on-trade for our glass business in Europe than there is in the US. The US is much more off-trade than its counterpart in Europe. So I don't know whether that answers your question, but directionally that's it. So therefore that's why you are seeing probably stronger demand in both those businesses in the US because of the increased demand for off-trade, OK?

Brian Maguire -- Goldman Sachs -- Analyst

Okay. And then on Americas metal packaging. Are you still expecting to be sold out this year in the US? Obviously not in Brazil but in the US, still expecting to be sold out this year? And does the shift toward maybe more standard cans or fewer SKUs actually give you a little bit more capacity this year to maybe even exceed some of the initial volume targets?

Paul Coulson -- Chairman and Chief Executive Officer

We expect to be completely sold out. There is very strong demand in the US, and we expect to be completely sold out. Whether our mix change, I doubt it. Shaun, whether there will be any impact for us of a material nature?

Shaun Murphy -- Chief Operating Officer and Director

I don't think we are expecting to. I mean, the question, that goes back to what you referred to earlier about potentially some increase in supply relying upon some of our other regions to supply. But that's not going to be that material.

Brian Maguire -- Goldman Sachs -- Analyst

And last one for me, just back to Europe. We have been hearing some comments that some breweries over there are moving their volume from kegs into glass to try and adjust to the shift from on-premise to at-home. I just wondered if you are seeing that as well? Some your customers may be ordering a little bit more glass and maybe packaging is sort of a net beneficiary from these trends as really there is not much packaging in kegs, obviously. So do you think that could soften some of the negative impacts from reduced on-premise consumption there?

Paul Coulson -- Chairman and Chief Executive Officer

We're not aware of that going on. But it means it could be masked by the reductions in demand for the on-trade. So you mightn't necessarily be aware of it coming through as a specific change. I mean, it's a logical thing for them to do because clearly they got to move from draft at the moment. But it's probably netting off, it's probably mitigating some of the effects of reduced demand for glass, particularly in beer in the on-trade and the on-sector.

Brian Maguire -- Goldman Sachs -- Analyst

Yeah. Okay. I appreciate it. Good luck in the quarter, guys.

Paul Coulson -- Chairman and Chief Executive Officer

Thank you, Brian.

Operator

There are currently no further questions registered. I'll hand the conference back to you, speakers.

Paul Coulson -- Chairman and Chief Executive Officer

Good. Well, thank you very much, everyone, for your time today. And we hope that you all stay safe and well, and we look forward to talking to you when we present our Q2 numbers. Thank you, all, for your help and support.

Operator

[Operator Closing Remarks]

Duration: 55 minutes

Call participants:

Paul Coulson -- Chairman and Chief Executive Officer

David Matthews -- Group Chief Financial Officer and Director

John Sheehan -- Director of Investor Relations

Shaun Murphy -- Chief Operating Officer and Director

Tyler Langton -- JPMorgan -- Analyst

Michael Leithead -- Barclays -- Analyst

Kyle White -- Deutsche Bank -- Analyst

Travis Edwards -- Goldman Sachs -- Analyst

Mark Wilde -- Bank of Montreal -- Analyst

Roger Spitz -- Bank of America -- Analyst

Arun Viswanathan -- RBC -- Analyst

Brian Lalli -- Barclays -- Analyst

Gabe Hajde -- Wells Fargo Securities -- Analyst

Brian Maguire -- Goldman Sachs -- Analyst

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