Operator:

Thank you for standing by. My name is Jay and I will be your conference operator today. At this time, I would like to welcome everyone to the Amcor Third Quarter 2024 Results Call. [Operator Instructions] I would now like to turn the conference over to Tracey Whitehead, Head of Investor Relations. You may begin.

Peter Konieczny:

Thank you, Tracey and thank you to all who have joined us for today’s call. Prior to discussing our third quarter performance, I want to spend a few moments recognizing my predecessor, Ron Delia, and his many accomplishments at Amcor. In the last few years alone, Ron led us through the transformational acquisition and integration of Bemis, the largest acquisition in the company’s history, successfully and safely guided the business through a pandemic and made the difficult and correct decision to divest our business in Russia. And most recently, Ron directed our teams in navigating that particularly challenging economic period. I now will speak for the Board, our global management team and our employees around the world and thanking Ron for his leadership, guidance and dedication during his 18 years with Amcor and 9 years as CEO. I’ve worked closely with Ron, our board and the other members of our executive team over many years to help shape and execute our strategy, and I am honored to take the leadership reigns in an interim capacity at this time. Today, Amcor is the established industry leader in our key markets and geographies, has world class talent and clearly differentiated commercial innovation capabilities, all providing us with multiple opportunities to capture high value growth. Importantly, the business is also well positioned to continue benefiting from the proactive steps taken by our leaders across the company to align the cost base with recent challenging market conditions. The results of those decisive actions were again evident in our third quarter financial performance as we showed strong earnings leverage across the business. Third quarter year-over-year volume performance also improved on a sequential basis, and we expect this trend to continue driving stronger earnings growth as we close fiscal year ‘24. My role right now is to ensure we stay focused and on track and that we capitalize on the strong position we are in to maintain momentum and further accelerate earnings growth. It is a team effort and will drive success. And I am surrounded and supported by credible leaders and talented team players throughout our organization. As seen on Slide 3, my near-term priorities are simple. First, ensure Amcor continues to provide a safe and healthy work environment for our global workforce. Second, stay close to our key stakeholders, including our employees and customers and finish our 2024 fiscal year strongly. After an improved third quarter performance, we are well positioned to do so and we’ve raised our full year guidance today. Third, build on the momentum we have worked hard to deliver across the business and as we work through our planning cycle for fiscal ‘25 set clear priorities to ensure our momentum continues. And fourth, provide stability for the business and keep our teams focused on delivering for all our stakeholders by reinforcing that. Our strategy has not changed, our agenda has not changed, and our priorities have not changed. Moving to Amcor’s Q3 performance, starting with safety on Slide 4. Our commitment to health and safety of our teams remains our number one priority, and we continue to focus on providing a safe and healthy work environment. 72% of our sites have been injury-free for the past 12 months or longer, and we experienced a 19% reduction in injuries compared to the first 9 months of fiscal ‘23. Safety is deeply embedded in Amcor’s culture and is a critical cornerstone of our success. Turning to our key messages for today on Slide 5. First, outperformance in the underlying business resulted in adjusted earnings per share for the third quarter that exceeded the expectations we set out in February. Our Flexibles and Rigid Packaging segment each delivered adjusted EBIT growth, leading to Amcor returning to year-over-year earnings growth a quarter sooner than we anticipated. Improved working capital performance through the year also resulted in a year-to-date increase in adjusted free cash flow. Second, as I mentioned earlier, our third quarter volume trajectory improved significantly on a sequential basis as destocking abated across most end markets, and we experienced higher customer demand in several of our businesses. While this is clearly an encouraging and positive trend, our teams remain highly focused on continuing to control costs and this helped us deliver a third consecutive quarter of improved earnings leverage and a return to earnings growth. Third, our March quarter financial performance and expected further momentum in our fourth quarter gives us the confidence to increase our full year adjusted EPS guidance range to $0.685 to $0.71 per share and reaffirm our guidance for adjusted free cash flow between $850 million and $950 million for the fiscal year. We believe we have turned the corner after a challenging calendar 2023, and we expect our sequential volume and earnings growth trajectories will continue to improve, which is supported by the demand trends experienced across the business in the first weeks of April. Finally, we remain confident in our capital allocation framework and strategy for long-term growth. We believe the strength of our market positions, our opportunities for investment and our execution capabilities, along with our commitment to a compelling and growing dividend, make a convincing investment case for Amcor. Moving to Slide 6 for a summary of our financial results. The first 9 months of fiscal ‘24 continued to reflect significant benefits from our proactive cost actions. Three consecutive quarters of strong operating leverage helped offset the unfavorable impact of 7% lower sales – lower year-to-date sales, leading to a decline in adjusted EBIT of 3%. We believe we’ve reached an inflection point in the trajectory of earnings and volumes with our Q3 results, and we are pleased with our financial results in the March quarter. Better-than-anticipated demand trends and continued strong cost performance resulted in EBIT and earnings per share ahead of our expectations entering the quarter. The underlying business saw a return to profit growth in the third quarter with adjusted EBIT of 3% compared with last year. Volume trends improved as the broad-based destocking experienced in the December quarter abated and customer demand strengthened. Our teams also continue to focus on cost reduction and productivity initiatives and delivered another quarter of outstanding results with approximately $130 million in total cost savings, including approximately $15 million of benefit from structural cost initiatives. These benefits, combined with improving volume trends, resulted in another quarter of improved earnings leverage. Interest and tax expects were modestly higher than the prior year, in line with our expectations and adjusted earnings per share of $0.178, grew by 1%. Q3 net sales were down 6% on a comparable constant currency basis, which primarily reflects overall volumes 4% lower than the prior year. This is predominantly related to expected ongoing weakness, including further destocking in healthcare categories and in the North American beverage business, which collectively represent approximately 3% of Amcor’s total sales. Across the remaining 70% of our business, overall net volumes were relatively flat with last year, a significant improvement compared with the December quarter and the business delivered volume growth across several categories and geographies. Outside of healthcare, we believe destocking is now largely behind us. Price mix for Q3 had an unfavorable impact on sales of approximately 3%, which is a result of greater volume declines in high-margin healthcare categories, which we anticipated and called out last quarter. We continue to return significant cash to shareholders through a compelling and growing dividend and share repurchases, which totaled approximately $570 million through the first 9 months of the year. I’ll turn it over to Michael now to provide some further color on the financials and our outlook.

Peter Konieczny:

Thank you, Michael. In closing, on Slide 11, our Q3 financial results guidance for the balance of the fiscal year and our expectation that we will continue to build earnings momentum in fiscal ‘25 will highlight that Amcor is a very well-positioned business. Amcor’s industry leadership across the globe is well established. Our differentiated innovation capabilities are assisting the world’s best known brands and smaller companies in achieving their objectives to protect, preserve and promote their products while enabling them to meet the sustainability commitments they have made to the stakeholders. And Amcor’s talented employees around the world are capitalizing on growth opportunities in priority categories, emerging markets and through sustainable offerings while also continuing to closely focus on cost controls. We’re confident we will continue to see positive momentum given the actions we have taken and continue to take across our operations to invest in growth, reduce cost and improve productivity. As I mentioned at the beginning of the call, my role right now is to ensure we stay focused and on track and that we capitalize on the strong position we are in to maintain momentum and further accelerate earnings growth. The continued safety of our goal will always be at the top of Amcor’s agenda. But a very close second for me right now is to keep our teams focused on delivering for all our stakeholders by reinforcing that our strategy, our agenda and our priorities have not changed. Our Q3 volume trajectory and financial performance underscores our confidence in stronger earnings growth momentum as the challenges we faced in calendar ‘23 are put further behind us. We have raised our full year EPS guidance, and we anticipate delivering mid-single-digit earnings growth in Q4. Our performance in the first few weeks of April supports this expectation. And our commitments to our longer-term growth and value creation strategy gives us line of sight to a return to growth in line with our shareholder value creation model. Operator, we’re now ready to turn the line over to questions.

Ghansham Panjabi:

Hi, guys. How are you? I guess first off, it just sounds like volume surprised you to the upside during your third quarter. Do you think that’s just a function of 2Q coming in lower than forecast just given aggressive year-end inventory destocking by your customers? What do you think this is more of a sustainable improvement that you’re going to build upon as you look out to your fiscal year ‘25? Thanks.

Operator:

Your next question comes from the line of Daniel Kang of CLSA. Your line is open.

Peter Konieczny:

Let me help you with healthcare a bit. So the main driver of the healthcare performance really has been the destocking and the destocking sort of abating from Q2 to Q3. I would say, overall, the demand situation has not really changed much in healthcare. So you would see overall healthcare is marginally better between the second and the third quarter. We do expect further improvement in healthcare though because the destocking will further sort of reduce in the fourth quarter. As a matter of fact, when we guide to low single-digit volume decline in the fourth quarter, we would believe that most of that is driven by healthcare – all of that is driven by healthcare. And we don’t really know exactly when the destocking will come to an end. It will certainly sort of stretch into the fourth quarter. Maybe we’ll see a bit of an – we see a bit of an impact also in the first quarter of fiscal ‘25. But that would be as far as I would go with everything that I know at this point in time. Maybe one more thing that I would want to add to is that, again, we’re talking about low single digits decline in volumes in the fourth quarter. But with a further improving trajectory, we’re expecting to exit the fourth quarter flat on volumes.

Adam Samuelson:

Yes. Thank you. Good afternoon, everyone. I was hoping to maybe talk a little bit about the operating leverage in the business or lack thereof on the deleverage side just given the profit performance, especially in Flexibles relative to the volume and mix declines you still saw in the period. And hoping to maybe just aggregate a little bit the amount of fixed cost reductions actually realized in the period versus the variable cost kind of efficiencies and productivity gains in the quarter and how kind of durable you think those variable costs and productivity improvements proved to be if volumes start to normalize or how much cost would have to leak into the system to serve incremental volumes from here?

Peter Konieczny:

And I would add that we’re particularly pleased with the work that’s been done in the Rigid segment here because we acknowledged that the business returned active profit growth in the third quarter on the back of a pretty soft environment still. So that speaks to a good leverage in that business.

John Purtell:

Good afternoon, Peter and Michael. I’ll just ask my one. The sequential volume pickup in Flexibles, just from the commentary and the release, so that appeared to mainly come from emerging markets rather than developed markets. So was there much sequential volume improvement in North America and Europe, for example?

Operator:

Your next question comes from the line of Richard Johnson of Jefferies. Your line is open.

Peter Konieczny:

Yes, Richard, thanks for the question. I mean there is we’re in a particular situation right now with the business. We’ve had a couple of tough quarters behind us with volume weakness. And we’ve worked really hard to position the business as well as possible to take advantage of the volumes improving again. And we believe that’s exactly the situation we’re in right now. So we said in discussing – after discussing the second quarter, we said we feel like the second quarter for the business was below point. And particularly now as we’re having the third quarter an hour back, I think we can confirm that. That’s where we stand. And we believe that we will see a better volume performance in Q4. So that’s the starting point. In that environment, we felt we want to get, first of all, back to the earnings capacity of the businesses that we have without asking strategic questions about the businesses. And we believe, particularly to Rigid Plastics, you’re right. I’ve been around in Amcor a bit, Rigid Plastics, I’ve not managed myself. But when we look at Rigid Plastics, we think it’s a good business strategically. And I’ll give you a couple of views here from my side. First of all, it’s a scale business. It’s business for Amcor. There’s no question about it. And secondly, when you look at the portfolio of the business, it’s actually a number of different businesses under one roof. We – often, we focus very strong in discussing North American beverage, but it’s more than that. We have a specialty containers business. So where we started to diversify, we have a Latin American business and we have a closures business with our [indiscernible] business. So it’s a portfolio of businesses. We have really good industry positions. And across Rigids where we participate, we like the customer relationships that we have with good solid customer relationships. And on top of that, also in the overall context of plastic, we have a strong sustainability profile, particularly in that business, which is really important. And finally, I’ll come back to what I said at the beginning. We’ve done a lot of strengthening in the business and the restructuring, for example, with the footprint optimization that we’ve gone through when we’ve generated a leverage that has enabled us to return the business back to profit growth. So I think where we stand right now is we want to see the volumes come back and then we want to see what the business can deliver. There’s no question that we want the business to deliver more and that’s where I would leave it for now. By the way, I think – I don’t know if you said it’s the Rigid Plastics business or the Rigid Packaging business. Actually, we call the Rigid Packaging business, and it’s just a little clarification. Thank you.

James Wilson:

Hey, guys. Good morning. Would you be able to just talk us through the net interest guidance that you guys have put out, particularly what’s driving the lower net interest given that leverage looks unchanged in your guidance? I understand that you’ve had some working capital improvements, but are there anything else that’s driving that?

Operator:

Your next question comes from the line of George Staphos of Bank of America. Your line is open.

Peter Konieczny:

Sure. So in Flexibles, again, a pretty significant improvement in volumes between Q2 and Q3. I did make a comment earlier in terms of the two main drivers here

Brook Campbell:

Yes. Good evening. Thanks for taking my question. Just with respect to trajectory in the business, this financial year has been better than expected. In the third quarter, you saw some EPS good versus back in Feb, the expectation was for the third quarter to be down a bit at EPS. And despite this, you have kept your fourth quarter EPS growth at mid-single digits, which is unchanged. So, my question really is, why wouldn’t the better performance for the first three quarters continue into the fourth quarter? Any reasons what’s holding you back from upgrading that fourth quarter expectation would be great? Thanks.

Operator:

Your next question comes from the line of Keith Chau of MST. Your line is open.

Peter Konieczny:

Yes. It’s also a great question and obviously falls into our sustainability strategy. Look, I will start out by saying that we are very supportive of regulatory and legislative developments that sort of drive the whole industry to this circular economy for plastic. And as such, the PPWR is actually welcomed from – by Amcor and from Amcor because I think we are making – we are creating an environment that allows us and the whole industry to make more progress into that direction. Again, everybody has a role to play. We are sitting in the value chain at pretty much the start. Our job is to come up with structures for plastic packaging that are recycle-ready that can be recycled. And I said a little earlier that we are making really good progress in hitting our targets by the end of 2025. So, when customers want to have these structures, we are ready to provide them to the extent we are not doing that already today, right. So, these – many of these cycle ready structures are commercial. And by creating a regulatory environment, everybody gets level set. And we can work with certainty in certain directions in order to support the business and help the very efficient and high-performance packaging substrate, find its place also in the context of sustainability. I mean there is a place for plastic here. And we got to remind ourselves why we have so much plastic packaging. It’s because it’s a very efficient and high-performing substrate. The challenge is end of life. The circular economy addresses that and regulation that gets us into that direction is welcomed.

Cameron McDonald:

Good morning. Question for Michael, if I can, just going back to the interest rate guidance. Can you remind us of what your hedging profile actually looks like? There was – obviously, last year, you had some significant interest rate exposure. And my understanding is that, that was mainly due to hedging and the exposure to floating rates. So, as interest rate expectations have been rather volatile in the last month or so, how do we think about your hedging profile in that and the exposure to that changing interest rate environment into FY ‘25, please?

Operator:

Your next question comes from the line of Anthony Longo of JPMorgan. Your line is open.

Peter Konieczny:

Look, I will start and then maybe Michael wants to build on it. The way that we look at this is the destocking that we are seeing currently is really a correction of the industry of holding too much inventory after a pretty volatile environment, which was driven by partly supply chain shocks that we have seen in the industry sort of de-risking and protecting their top line by building inventory and then there are other reasons. But anyway, what we are seeing right now is that the industry is normalizing across the categories. We see healthcare a little bit delayed because that’s a very conservative industry, and they probably built more because of the dynamics over the last couple of years. And now they have – they are starting to be confident, again, in the environment so that they can also reduce their inventory levels again to a normal level. Now, the new normal is probably different from what it was before holding cost of inventories because of interest rates drive that down further. The industry is looking at new efficiency levels in terms of running inventories, and that’s what we are going through right now. Going forward, we will see changes in inventory, but those will be tactical or they will go along with the seasonality of the business. So, I would not think about it as there was a trend to restocking. The industry is coming down to a new normal and everything that we see from there is going to be tactical or following the seasonality of the different businesses. So, that’s how I think about it. And therefore, once we have this extraordinary impact behind us, and we will see with our category and customer exposure and then also – hopefully going forward, also a renewed and stronger consumer interest and demand, we will see top line growth.

Operator:

Thank you. Your last question comes from the line of Andrew Scott of Morgan Stanley. Your line is open.

Michael Casamento:

Look, Andrew, the main items in the quarter are really around the restructuring program, which we have had in there for the last 12 months or so. That program is pretty much two-thirds of the way through. We have now started to see the benefits come through from that program. You might remember, we committed to invest around $170 million in cash. We have spent on that program to-date about $110 million. So, we have still got $50 million to $60 million to go. But we are starting to see the benefits come through from that, so we are pretty pleased about the progress. And really by the end of the calendar year, we would expect to be most of the way through that program. So, that’s the way we see it from there. And as I said, we are pleased that we are now getting the benefits of $15 million in the quarter came through and we will expect to build on that in quarter four and then into ‘25. So, pretty pleased with where the program is at and it’s on track.

Peter Konieczny:

Yes. Thank you, operator. Look, thank you everybody for the interest in the company. The only thing that I want to say here before we close the call is we are pretty pleased with the way how the Q3 turned out for us. I hope we were able to demonstrate that we – this was based on a broad-based volume improvement that we have seen in the business, combined with really some good cost performance in the third quarter. That also has impacted our margin performance. And more importantly, we believe that we have some underlying momentum here in order to – that will carry into Q4. So, we are very pleased with the situation we are in. We are going to take advantage of the momentum. And with that, we are going to close the call, and we are going to talk to each other again at the end of the fiscal year. Thank you very much.

Operator:

Good afternoon. My name is Christa and I'll be your conference operator today. At this time, I would like to welcome everyone to the Amcor's First Half and Second Quarter 2024 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the conference over to Tracey Whitehead, Head of Investor Relations. Tracey, you may begin your conference.

Ron Delia:

Thanks Tracey and thanks everyone for joining Michael and myself today to discuss Amcor's second quarter and first half results for fiscal 2024. We'll begin with some prepared remarks before opening for Q&A. As seen on Slide 3, our focus on safety remains unwavering, and our significant commitment to providing a safe and healthy work environment continues to be rewarded. 70% of our sites have been injury-free for the past 12 months or longer, and we've experienced a 17% reduction in injuries when compared to the first half of fiscal 2023. Safety is deeply embedded in Amcor's culture and is the number one priority for our global teams. Turning to our key messages on Slide 4. First, our reported earnings per share for the second quarter and first half were modestly better than the expectations we set out in October and improved working capital performance helped drive a year-over-year increase of more than $100 million in adjusted free cash flow. Second, our financial performance through the half was supported by strong and proactive, focus on controlling costs. This helped us offset second quarter volumes that were a couple of percentage points lower than we anticipated. Our teams around the world continue to respond doing an excellent job proactively taking further cost actions. Third, our first half financial performance puts us on track to deliver against our full year guidance, which we are again reaffirming today. Relative to the first half, we believe Q2 was the low point for earnings growth and we continue to expect the trajectory of adjusted EPS growth to improve through the second half of fiscal 2024, including delivering mid-single-digit adjusted earnings growth in the fourth quarter. Our confidence is supported by our improved earnings leverage as well as a number of known factors we'll cover in more detail later that will benefit earnings through the second half of the fiscal year. Additionally, our volume trajectory has improved generally through January and this underpins our confidence that Q2 marked the low point for volumes. Finally, we remain confident in our long-term growth and value creation strategy and in our ability to deliver a combination of strong earnings growth and a compelling and growing dividend. The strength of our market positions, execution capabilities, and consistent capital allocation framework collectively continue to make a compelling investment case for Amcor. Moving to Slide 5 for a summary of our financial results. Organic sales on a comparable constant currency basis were down 8% for the half and 10% for the quarter. Price/mix benefits were around 1% for the first half and flat in the second quarter, reflecting moderating inflation, which resulted in reduced pricing actions by our teams. Volumes were down 9% for the first half and down 10% for the December quarter. Second quarter volumes were modestly lower than our October expectations, with the main difference being an acceleration of destocking, especially in the month of December. First half and December quarter adjusted EBIT was $709 million and $352 million, respectively, modestly above our expectations. On a comparable constant currency basis, declines of approximately 6% in both periods reflect lower volumes, partly offset by benefits related to decisive and proactive cost actions taken across our businesses in response to evolving market dynamics. In total, our actions reduced costs by more than $200 million in the first half compared to last year, with a reduction of more than $130 million achieved in the second quarter. Adjusted EPS was $0.313 and $0.157 per share respectively, also modestly above our earlier expectations. For both periods, this would count 10% on a comparable basis, reflecting lower adjusted EBIT and the unfavorable impact of higher interest costs. Working capital improvement remains a focus and helped drive free cash flow for the first half, well ahead of the same period last year and in line with our expectations. And we returned approximately $390 million of cash to shareholders in the first half through a combination of share repurchases and a growing dividend, which has increased to $0.125 per share. I'll turn it over now to Michael to provide some further color on the financials and our outlook.

Ron Delia:

Thanks Michael. Prior to opening the call to questions, I want to provide additional insights into our outlook for the balance of the year as well as a reminder of the key components comprising our longer-term model for driving shareholder value. Looking first at the balance of fiscal 2024. As I referenced earlier and as highlighted on Slide 10, there are a number of key factors already known to us that give us confidence our earnings trajectory will improve through the second half of the fiscal year. First, the earnings headwind related to the sale of our business in Russia is now fully behind us, eliminating an unfavorable comparative that impacted reported earnings throughout calendar 2023. Second, while second half interest expense is expected to be higher than last year, the magnitude of the headwind from the rapid rate increases over the past 18 months begins to abate as we move through the balance of the year. Third, we have benefits from structural cost savings of $35 million in the second half with an additional $15 million to benefit fiscal 2025. These savings are primarily related to plant closures as we optimize our global footprint. And fourth, earnings leverage has improved due to our commitment to take proactive actions to align our cost structure with evolving market dynamics. This includes eliminating shifts to take out labor reducing over time, driving procurement, and maintaining tight control of discretionary spend. In total, over the last 12 months, we reduced headcount by more than 2,000 full-time employees or approximately 5% of our workforce with more than 1,000 of these reductions taken out in the first half of fiscal 2024. From an earnings perspective, operating costs were lower by more than $200 million in the first half of fiscal 2024 compared with the prior period and more than $100 million of this cost reduction was delivered in the second quarter, which is almost double the approximately $70 million delivered in the first quarter. The result has been and will continue to be improved earnings leverage, which we've achieved this financial year-to-date despite significantly lower volumes. As Michael mentioned, we are off to a better start in January and are confident Q2 marks the low point for earnings growth and volume declines and with our overall trajectory expected to improve as we move to the balance of the year. To sum up, we're confident the positive earnings impact from multiple known factors will drive improved momentum in the second half of fiscal 2024, including delivering mid-single-digit earnings growth in our fiscal fourth quarter. Importantly, we're not assuming an improving consumer demand environment and we'll continue to be proactive in taking actions to ensure our cost base and pricing strategies reflect market conditions. Moving to Slide 11. As we look beyond the second half of this fiscal year, these known factors will serve as important building blocks supporting a return to delivering against our shareholder value creation model, through a combination of strong earnings growth and a compelling and growing dividend, currently yielding 5%. The starting point in creating value will always be growing the business and over the last 10 years, we've averaged 8% growth in adjusted earnings per share. As you can see on this slide, we have multiple drivers of margin accretive growth, each with significant opportunity over the longer term. We will also continue to enhance our ability to grow in these areas through stepping up CapEx over a multiyear period and executing on strategic M&A. As volumes normalize and improve, these generally faster growing and higher value growth areas will represent a larger proportion of sales becoming increasingly stronger contributors to earnings. And when we return to a more normalized volume growth environment, this combination of improved mix and the proactive steps we've taken to optimize our cost base, positions Amcor well to again deliver strong earnings growth in line with our long track record. To close on Slide 12, we're executing well to deliver against the earnings and cash flow expectations we set coming into fiscal 2024. Our teams are being proactive as market dynamics evolve and focusing on the controllables to take additional cost out where appropriate. We have line of sight to mid-single-digit earnings growth in Q4 and our commitment to our longer-term growth and value creation strategy positions us well to deliver on our shareholder value creation model when the volume environment normalizes. Operator, with those opening remarks, we're now ready to turn the line over to questions.

Ghansham Panjabi:

Hey guy, good day. I guess, first off on the volume declines across the portfolio, which looks like it's about six quarters of negative year-over-year volumes at this point. Obviously, you're not the only ones, but there's been quite a bit of chatter on your customer set all the way down to retailers about increased promotional spending. Just curious as to whether you're starting to see direct science of that at the point? And if so, which categories, food, beverage, consumer staples, et cetera?

Ghansham Panjabi:

Okay, terrific. And just for my follow-up on that, on the healthcare destocking, is that just a function of having been destocked? Are you seeing it now versus a little bit later than the other categories? Or is there something unique to the time line associated with the healthcare destocking?

Operator:

Your next question comes from the line of Anthony Longo from JPMorgan. Please go ahead.

Michael Casamento:

Yes sure. I'll take that one, Anthony. So, look, on the cost out, there's two things that we're really doing here. So, -- the first is in response to the soften underlying volume demand. So, on that front, we've clearly taken proactive and aggressive approaches to the cost flexing and really focusing down on productivity gains and discretionary spend. So, for the first half, we took out more than $200 million in cost in relation to that and it accelerated through the half. In the first quarter, it was about $70 million in the second quarter, kind of $130 million. And we're achieving that by taking out really flexing the cost base in relation to the volume and demand environment. So, we're able to take out entire shifts. We're able to take out labor, reduce over time. We're driving the procurement benefits, particularly in this low demand environment and really tightening up on the discretionary spend. So, that will continue as we continue to flex through the volumes. But obviously, as volumes improve, some of that cost -- and it's difficult to say, but some of that cost will go back in as we build the shift patterns up. But we wouldn't expect that to be linear. I think you'll see us have better leverage there as we work through the second half because of the way we've learned to operate with some of that lower cost and improve the efficiencies there. So, that's really on the operating cost side. And then secondly, we are taking cost out structurally. So, in parallel, we're advancing the structural cost reduction initiatives that we've talked about on the back of the divested Russia earnings. That's mainly plant closures and it's around up to 10 across the globe and in both segments. To-date, we've announced seven closures and two restructures. And recently, actually, two to three of those plants have closed. So, we did start to see a little bit of benefit from that program as we exited the first half. But we're right on track to deliver the $35 million benefit in the second half from that program and then a further $15 million in FY 2025. So, really, that's the approach we've taken to the cost-out agenda and part of it is structural and part of it's ongoing.

Operator:

Your next question comes from the line of George Staphos from Bank of America. please go ahead.

Michael Casamento:

Look, it's difficult to say, as I just mentioned, -- what I can tell you is that things like procurement, there will be permanent savings. The operating cost out that we've taken out of the fixed base will be permanent. And the structural program is obviously permanent cost savings that come out of the business. On the flexing of the cost base, again, it's really dependent on the volume. We think we're much more efficient today. We've been able to proactively act to take labor out of the business overall versus prior year. We've taken nearly 2,000 heads out of the business and about 1,000 since June. So, in total, that's about 5% of the works. As the volumes come back online, as I mentioned, we will have to increase some of that, but it's not going to be linear. And we will manage that really tightly and we feel we've got good leverage out of that today, and we are more efficient. And so you'll see us continue to get leverage as we move forward in that. And really, that's going to contribute to the long-term margin benefits that we've typically gained of 20 to 30 basis points a year in our business. So, you should see that continue to contribute to that on the longer term.

Ron Delia:

Yes. Look, it's a couple of things. Firstly, on volumes, we're not anticipating any rebound in the consumer or any big improvements in the market. But we do expect that destocking will abate as we work our way through the half. I mean, certainly, a portion of the destocking that we saw in December was certainly year end optimization, that's not going to repeat, right? We do believe we're going to see continued destocking in healthcare and North American beverage. But for the other categories, we're starting to see some evidence that the destocking is abating. So, that's one thing. January also was much better. So, we had much better January relative to the first half from a volume perspective. And so we feel like -- we feel pretty confident in underwriting the growth -- the volume assumptions for the rest of the year. And then in terms of the profit, as Michael alluded to, we're going to continue to -- we've got a number of known benefits, which I rattled through in the opening remarks, but it starts with better operating leverage because we've gotten a lot of costs out of the business and as volumes come back, we're not going to add that cost back one for one, plus the buildup and the momentum on the structural cost side, which, again, will build through the second half with the benefits from plant closures and the like. So, several things that give us confidence in the improving trajectory of earnings through the second half, but none of them have to do with the real dramatic improvement at the consumer level.

Sam Seow:

Morning guys. Thanks for taking the question. But you talked about some of your volumes coming in modestly below expectations and just thinking about your balance sheet, I'm not saying it's going to happen, but just trying to get a feel of what kind of fourth quarter volumes lead you outside of your range at the full year, assuming all other things equal?

Sam Seow:

Yes. Can you hear me?

Sam Seow:

Yes. Just try to get a feel of what kind of fourth quarter volumes there would leave you outside in your range at the full year, assuming all other things equal.

Sam Seow:

No, no, the 3 times leverage?

Sam Seow:

Okay. Thanks for that. And I guess just following on -- I mean, looking forward, generally, you have lower cash flow in the first half due to seasonality. I think if you do finish at that 3 turns like your guidance, would you expect to be outside of your range again in first half 2025? Is that the new norm now going forward?

Operator:

Your next question comes from the line of Adam Samuelson from Goldman Sachs. Please go ahead.

Ron Delia:

Hey Adam.

Ron Delia:

Well, yes, it's a good question. And you're right, the market is challenged. And so if we think about meat across the Flexibles businesses, it's been a mixed story. We've had meat declining in North America through the half. There's soft market, there's destocking in the meat space as well. But we've seen that stabilize more recently. So, that would be one of those categories where we're not calling an end to the destocking cycle, but we certainly see signs that it's stabilizing a bit. Similarly, in Europe, we've seen a bit of a stabilization in meat volumes in the last couple of months. And in Latin America, we started to see some growth as well. So, I think meat is, as a general category globally, meat is one that feels like is coming out the other end of the packaging cycle, at least for us or at least there's some green shoots that give us some reasons for optimism would be the first point. Certainly, as we exited January as well, that would be the case. The second part of your question is a bigger picture question, and I think it's going to be a little bit longer dated, which is around our aspirations to win share in this space. You're aware that we made an equipment -- a purchase of a machinery company less than 12 months ago, which should be a part of that total system solution that we're going to market with. And we're optimistic that we've got the right consumables, the right film structures and the right technical service staff to support the equipment offering. And we think over time, that's going to be a combination and we'll take share not just in North America but around the world. There's not any evidence I can point to yet of that, Adam, because the near-term dynamics are well and truly overcompensating for any modest share pickup that we might be enjoying.

Ron Delia:

Yes. Look, Michael can talk about maybe the accounting that you referenced. But from just a business perspective, first thing I would say is we've been in Argentina for the mid-90s, over 30 years. It's a business that's about 2% of sales and about 2% of EBIT. And we have five plants there actually across the two segments as you alluded to. And having been there for 30-odd years, we've been there through multiple economic cycles and crises, I guess. And the business is relatively local. And we have maintained total control over the business. So, it's still a business that's functioning more or less normally. But in terms of how we manage it, we continue to drive localization. It's essentially a local business. Already, there's no exports, but to the extent there's anything imported by way of raw materials, we're continuing to drive more localization of the key inputs. Most importantly, probably, we continue to price ahead of inflation. It's always been a hallmark of that business in that country and continues to be. And then we continue to focus on cost because our expectations are that demand will continue to slow as consumers adjust to the new macroeconomic realities in that country. So, that's a little bit about the business and how we manage it. Michael, do you want to talk a bit about the accounting that Adam--

Operator:

Your next question comes from the line of Richard Johnson from Jefferies. Please go ahead.

Ron Delia:

Well, yes, listen, Richard, you don't remember seeing volume declines at that level because you haven't seen them at that level. I mean it's just the reality of it. It's a business that's -- it's been a good business for a long period of time. It suffered really from a volume perspective, from the same drivers as the rest of the company, right, so -- although with higher impacts. So, we've had market impacts that we would say, attributed to a high single-digit decline in volumes. That's inclusive of consumer demand down kind of low to mid-single-digits in some segments that are important to us, maybe down some more, some customers lagging the market. And that all wraps up to kind of a high single-digit impact on volumes for both North American beverage at large and hot fill, specifically that we would attribute to market impacts. Then the bigger impact actually for us in the quarter was the destocking. And the destocking is really being driven by a couple of things here, which are working in opposite directions. First is that traditionally, in this business, you'd have some inventory prebuild in what is our fiscal second and fiscal third quarters in advance of the high season, the beverage season in North America. There's historically a bit of inventory buildup, that's not happening this year. So, there's no prebuild this year. And at the same time, we have some customers and big customers with very, very aggressive inventory reduction targets. So, rather than building, we're reducing. And there was a significant acceleration in that activity to reduce inventories in the month of December, which ultimately led to a high single-digit impact on North American beverage at large, but a high teens impact in hot fill. And while we saw some modest improvement in January, we do believe that we're going to continue to see a destocking impact in the third quarter. So, that's really what's going on there. That's unprecedented. We still believe in the business. The business is well-positioned in terms of its market stature. It operates in a in a reasonably well-structured market. It has world-leading technology. Its footprint is reasonably optimized. We are taking a couple of small lands out as part of the restructuring program, but it's reasonably well optimized. It needs to just weather the storm. And that's on the beverage side. And then let's not forget that outside of beverage, we have a reasonably sized specialty container business which looks and feels almost like a Flexibles business because of its end market exposure and that business has room to grow. And Latin America also is -- continues to be a very good business, including in the first half and in the second quarter, where we saw volume growth new business wins in Latin America, too. So, it's a portfolio of businesses. At its core, it's a beverage business in North America that gets a lot of attention to shouldn't forget about the other parts as well.

Brook Campbell:

Yes, good evening. Thanks for taking my question. Can you just confirm what the level of volume growth or decline was in January? And then as a follow-up to that, is there not a risk here that you sort of extrapolate January volumes for the rest of the quarter when perhaps there was a benefit in Jan because Costco has effectively delayed orders in December and push it into January. Therefore, January might not be a good indicator for the rest of the quarter? That's the question. Thanks.

Operator:

Your next question comes from the line of Jakob Cakarnis from Jarden Australia. Please go ahead.

Ron Delia:

Yes, it's relative to the performance in the whole first half and in the second quarter and in December. So, when we -- we're talking about improvements in January in most parts of the business, where that's relative to the first half. That's the first part. I think the other thing to keep in mind is as we work our way through the balance of the fiscal year, a couple of things will also underpin those growth assumptions that we've outlined. One is that we do expect outside of healthcare and North American beverage, we do expect the year-end destocking that we saw in December to not repeat. And some continued abatement or continued destocking runoff or reduction in much of the rest of the business. That's the first thing. And the second thing is, particularly as we get to the fourth quarter, the prior period comp gets a little bit easier. Our volume challenges really started in a of last fiscal year. And so as we get to Q4 this year, we've got the benefit of a comparative period, which wasn't so strong.

Michael Casamento:

Yes, sure. So, we -- you saw that we brought our guidance just slightly down from kind of a range of $320 million to $340 million down to kind of $315 million to $330 million. That's really all on the back of the forward curves and the interest rate hike would appear been reached its peak now, and potentially, you might see one rate reduction late in our fiscal year. But really, that's the slight improvement is really on the back of that forward curve. And after tax, it's a pretty minimal impact on the full year guidance.

Cameron McDonald:

Hey good morning guys. Question for Mike, just in terms of -- well, the tax rate and then the capital structure. So, the tax rate sitting sort of around sort of under 19%. And where -- what jurisdictions are you getting a tax benefit from given the corporate tax rate in most of your jurisdictions is in excess of certainly of that number, but in excess of sort of $20 million?

Ron Delia:

And the differences in deductibility of different expenses by jurisdiction, right, which then, obviously, you have to factor in, in addition to the headline tax rates in those jurisdictions.

Ron Delia:

Well, listen, we've bought back -- remember, it's buybacks and MA is the way we think about the discretionary cash flow for the business. And we bought back over the last. We will have bought back over three fiscal years and acquired to the tune of about $1.2 billion. So, we will have done over $1 billion in buybacks, and we will have invested somewhere close to $200 million in investments and acquisitions. So, that's essentially three years of discretionary cash that's been invested in the business. It's a little bit lumpy. It's not exactly even over the three-year period, but that's been what we've done. I think from a leverage range perspective, more often than not, we're going to be between 2.5 and 3 times. Obviously, we're comfortable being above that, particularly when there's good reasons for it as there is at the moment. And we'll be continuing to evaluate capital management or buyback opportunities in conjunction with M&A opportunities on a go-forward basis, and that includes now.

Michael Roxland:

Thank you, Ron, Michael, Tracy for taking my questions. Actually, just one question because a lot of material already was covered here. Quickly on just protein packaging, Ron. I know it was discussed earlier in response to a question, I think you discussed it, I think, last quarter. Can you just describe whether there are any nuances in your business, maybe around equipment, for instance, that would make you unable to compete with some of it with a large player in the industry or some of the -- some of your larger peers? I know are you intentionally participating in different parts of the market to avoid going head on with some of the larger players. And just lastly, where do you think this -- where would you like this business to be on a revenue basis, let's say, in five years or 10 years?

Operator:

Your next question comes from the line of John Purtell from Macquarie. Please go ahead.

Michael Casamento:

Look, overall, John, I guess we actually held our guidance. So, -- and you're right, we've guided to volumes mid-single-digit down in Q3 and EPS down mid-single-digit. And in Q4, we're expecting trajectory to improve through the half on the volumes, volumes down low single-digit. And just on the back of some of the things that Ron touched on earlier and also the earnings trajectory of our business Q4 is our biggest quarter, that's why we're expecting mid-single-digit EPS growth in Q4. So, really not a lot of change. I guess what we have seen is that the volume trajectory is perhaps a little softer than we previously anticipated. And that was really on the back of that destocking, particularly in healthcare and North America beverage, where we're expecting that to continue through Q3 and perhaps into Q4. We are offsetting that with continued cost out and we have confidence in the underlying performance of the business with the structural initiatives that we've put in place and touch on already getting $35 million in the second half, the ongoing cost agenda and discretionary spend management. So, not a lot of change really to our guidance overall. I think we -- perhaps we did a little better in H1. But generally speaking we're holding the range and we feel pretty good about the drivers behind the $0.67 to $0.71 range.

Ron Delia:

Yes. Look, I mean, the best proxy is probably the scanner data that we look at, and I'm sure you look at it as well. I mean, we still see a generally consumer environment. And -- that's true across the staples that we're supplying packaging for. You still see in the US general scan data, which, obviously, there's a lot of nuance that you need to unpack. But generally speaking, kind of low single-digit declines in the calendar fourth quarter that's just passed, Europe may be modestly better overall, but at a sub level, you still see lots of softness and lots of modest declines. You see some evidence of down-trading in some parts of the business. You see on the margin, maybe some modest shift, and I wouldn't make too much into this, but you see some modest shifts in some categories like pet food and maybe even in coffee where you might see different formats doing better. We certainly see it -- we believe we see it in the beverage business. In the case of carbonated soft drinks, where we know that the value pack has historically been the can, if you're going to buy 12 or 24 cans or units of a soft drink, you're likely to buy it in a can and that has continued. So, I think generally, John, the consumer environment is pretty soft. There are some reasons for potential optimism if the brand owners toggle the dial a little bit between price recovery and maximizing volume, but we are absolutely not baking that into our assumptions on volumes going forward. But that will take as nice to have if it happens.

Daniel Kang:

Morning everyone. So, you spoke about protein turning a corner in January. Can you just elaborate on how you're seeing stock levels and the potential for an end in destocking in other product categories?

Operator:

Your next question comes from the line of Keith Chau from MST Marquee. Please go ahead.

Ron Delia:

Yes. Look, it's part art and part science. So, firstly, there's a lot of discussions with customers and remember in some parts of the business where even co-located with customers. So, there's a high degree of customer intimacy across the business. And the starting point is the discussions and the joint planning dialogue that we have with our customers around the world. So, that's arguably the most important input. But then we also try to triangulate with data. And what do we look at? We look at things like in categories where there is scanner data, which is not the case across our portfolio, certainly not in healthcare. But in food and home and personal care and places where there's good retail scanner data, we take a close look at that. We also look at the scanner results for individual customers, individual companies and try to determine if there's any difference between the overall market performance and the performance of our specific customers. And then we look at our volumes and try to triangulate between those three data points to see what's the difference. Is there -- if there's sell-through or not and whether or not we're seeing an inventory drawdown or buildup. So, it's like it's an approximation, but it's a reasonably informed approximation, both with input from the customer directly as well as data and quantitative inputs.

Ron Delia:

Yes. Look, we're talking about it relative to the first half. So, it's a little bit of both. But generally speaking, we're talking about the comparison to the first half. And so we're not talking about -- we had some parts of the business that grew, but we're not talking about general growth across the board. What we're talking about is a general improvement relative to the first half and certainly the second quarter.

Ron Delia:

Thanks operator and thanks everyone for joining the call today. We're, as you can hopefully pick up, pretty optimistic about our second half. We believe that the second quarter was the low point for us in terms of volumes and earnings growth and the business will build momentum from here. So, thank you for your interest in Amcor and we'll speak to you next quarter.

Operator:

Hello. And welcome to the Amcor First Quarter 2024 Results Conference. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator instructions] I’ll now turn the conference over to Tracey Whitehead, Head of Investor Relations. Please go ahead.

Ron Delia:

Thanks, Tracey, and thanks everyone for joining Michael and myself today to discuss Amcor’s first quarter results for fiscal 2024. We'll begin with some prepared remarks before opening for Q&A. As seen on slide 3, Amcor continues to be an industry leader in safety with a recordable case frequency rate that has trended significantly downwards over many years. In our first quarter, 65% of our sites around the world were injury-free for the past 12 months, with more than 30% injury-free for three years or more. Safety is deeply embedded in Amcor’s culture, and providing a safe and healthy working environment is the number one focus for our global teams. Turning to our key messages on slide 4, first, we delivered a first quarter result in line with our expectations despite a challenging demand environment characterized by continued weak consumer demand and ongoing customer destocking. Against this backdrop, our teams executed well and remained focused on managing the areas under their immediate control. Second, the first quarter performance puts us on track to deliver against our full-year guidance, which we are reaffirming today. Our expectations for phasing through the two halves of the fiscal year have not changed, and we continue to expect adjusted EPS for the second half of fiscal ‘24 to grow by mid-single digits over last year on a comparable constant currency basis. As a reminder, there are several reasons why we expect a stronger second half, including continued benefits and increased earnings leverage from ongoing price and cost actions, additional benefits from structural cost initiatives building through the year, a reduction in interest expense headwinds, and favorable comparisons to the prior year's volume performance. Our third key message is we're making significant strides in our sustainability efforts within our own operations and in the design of our products. Our commitment to sustainability and the creation of a circular economy for packaging represents one of our most promising avenues for growth as we enable our customers to meet consumer demand for more responsible packaging. And fourth, we remain confident in our long-term growth and value creation strategy. The strength of our market positions and underlying business, our proven execution capabilities, and our consistent capital allocation framework collectively make a compelling case for investment in Amcor. Moving to slide five for a summary of our financial results. September quarter financial performance was in line with our expectations as we continued to take proactive cost and price actions to align the business with market dynamics, including ongoing inflation and continued weak and volatile volumes. Sales were 6% lower than last year on a comparable constant currency basis, which reflects price mixed benefits of approximately 2% offset by an 8% decline in volumes, which was within the range we anticipated for the first half of fiscal ‘24. As expected, volume weakness persisted and was broad-based through the September quarter due to a combination of lower consumer demand and continued customer inventory destocking. Fiscal first quarter adjusted EBIT of $358 million was 5% lower than last year on a comparable constant currency basis. Benefits from ongoing cost actions and price and mix benefits were more than offset by the weaker volumes. And our teams drove working capital improvements which resulted in free cash flow being well ahead of the same period last year. We expect to deliver strong cash returns to shareholders this fiscal year with returns of approximately $200 million in the first quarter, up more than 10% over last year through a combination of share repurchases and a growing dividend, which the board increased to $0.125 per share. I'll turn it over now to Michael to provide some further color on the financials and our outlook.

Ron Delia:

Thanks, Michael. Before we open the call to questions, I want to provide a few words on the building blocks that inform how we think about growth over the longer term and then finish with a brief preview of our 2023 sustainability report, which will be released in the coming days. Looking at slide 11, we have multiple drivers that have enabled us to deliver solid and sustainable earnings growth over the longer term, including opportunities in priority categories, emerging markets, and through innovation. These have not changed and collectively give us confidence in our ability to deliver future growth in line with our historic trend rates. Turning to slide 12 and some highlights from our forthcoming sustainability report, which covers the significant strides we've made in product development and operational sustainability. Sustainability provides meaningful opportunities to differentiate and drive growth and value. This is particularly important in today's landscape as consumers focus on the critical need for more sustainable, high-performance packaging solutions, and as customers increasingly look to work closely with responsible, sustainability-focused partners. Starting with our own operations, since launching Amcor’s EnviroAction program 15 years ago, we've diligently worked towards reducing our greenhouse gas emission intensity and have achieved a cumulative reduction of more than 40% against our 2006 baseline. Along the way, we've also increased our ambition and committed to net zero emissions by 2050 in line with the science-based targets initiatives. In fiscal 2023, we delivered an annual reduction in absolute emissions of 10% through a range of measures, including an increasing focus on the use of renewable electricity. In addition to carbon-related objectives, we maintain robust targets for reducing water and waste. 100% of our sites have a water management plan in place, and 143 of our sites have achieved zero waste to disposal certification, which is an increase of around 20% in the last 12 months. Transitioning to slide 13, we also continue to make significant progress in supporting the development of circular systems and what we believe are the three requirements for responsible packaging. Package design, waste management infrastructure, and consumer participation. Amcor’s industry-leading innovation capabilities position us well to develop the more sustainable and high-performing packaging consumers are looking for, and we believe this is one of our greatest opportunities for growth and differentiation. Today, almost all of our rigid packaging and specialty carton portfolios are fully recyclable. Looking at our flexibles portfolio, 61% fiscal 2023 sales were recyclable ready, according to the Ellen MacArthur Foundation definition, meaning these solutions are designed to be recycled using current technologies where infrastructure is available. Additionally, another 28% of sales had recyclable-ready alternatives available, providing a meaningful growth opportunity when our customers are ready to transition more of their portfolios to sustainable solutions. In total, 89% of our flexible packaging portfolio is designed to be recycled or has a recycle-ready alternative, a six percentage point increase over fiscal 2022. Our use of recycled content also continues to grow, increasing by 29% over fiscal ‘22, reflecting our commitment to work closely with customers to reduce the use of virgin materials. Over the past four years, we've more than tripled our use of recycled material, and we're confident we'll achieve 30% recycled content across our portfolio by 2030. We also continue to leverage our position as an industry leader and trusted resource to help our customers navigate their sustainability journeys. As an example, in fiscal ‘23, we hosted several Amcor webinars which were attended by hundreds of customers and covered topics such as the use of recycled content in food contact and healthcare packaging and the impact of evolving regional regulations on packaging options. Through these efforts, we're reinforcing our value proposition and helping customers accelerate conversion of their packaging portfolios to comply with emerging regulations and to meet their own sustainability goals. We take pride in the strides we've made across all aspects of our sustainability journey. We eagerly anticipate the opportunities ahead, which will continue to differentiate Amcor and also advance our growth objectives, all while contributing to the creation of a circular economy for the packaging industry. In summary on slide 14, fiscal ‘24 has started in line with our expectations. We have reaffirmed our earnings and cash flow guidance today as we continue to have confidence and visibility to solid earnings growth in the second half. We're making good progress on our sustainability agenda, and we remain focused on our strategy to deliver long-term growth and value creation. Operator, we are now ready to open the call for questions.

Ghansham Panjabi:

Thanks, operator. Good day, everybody. Ron, could you give us a bit of a sense as to what your base case is for volumes for fiscal year ‘24? And I'm just trying to get a sense as to the sequencing beyond the first quarter, which was down 8%. Would it be sort of 4Q before you hit that inflection point on a year-over-year basis?

Ghansham Panjabi:

Okay, thanks for that, Ron. And I'm just trying to understand the divergence also between volumes which are quite a bit lower against improved price mix as you've established over the last couple of quarters and sustainability of that dynamic. And typically during periods of weaker volumes, there tends to be some sort of a trade-down and you actually are showcasing the opposite. So more color on that, please.

Operator:

Your next question comes from the line of Daniel Kang with CLSA.

Ron Delia:

Yes, look, I think we're using the term destocking. I think what we're seeing is more broadly is just inventory reductions. Destocking might imply that inventories started at a higher level. And I think that's certainly true in some categories that were subject to more of the supply chain constraints and raw material shortages over the last 12 to 18 months. There certainly were some inventory accumulations, but I think we've got a few different dynamics that are driving the inventory reduction trend. The first is for those categories that started at a high level, obviously they're working down the excess at a time when consumer demand has softened. And also carrying cost of inventory is now much higher than it's been in a long period of time. So I think that we're seeing a number of companies including Amcor try to drive inventories down to lower levels than they've been in quite some time. I know that we are certainly on that path. So I don't expect that trend to be beyond to be passed us in the second quarter, particularly as we're heading towards a yearend and cash flow at yearend becomes an important metric that companies are driving towards. So we would expect that the destocking will abate in the second half but not in the second quarter.

Ron Delia:

Yes, look, we're really excited about some of those platform products that you mentioned, AmLite, which is a recyclable ready retortable structure, AmFiber, which is a paper based solution, AmSky, which eliminates PVC and PVDC from blister packaging. We think that we've got some really special products there with a really compelling value proposition for customers that are trying to drive their own sustainability agenda. It is early days. Several of those products though are generating real sales. So AmPrima which is also a recyclable-ready alternative, AmSky, AmFiber, they're all each generating sales in the tens of millions of dollars, low tens of millions of dollars, but real meaningful sales. AmSky, it's early days and it's primarily oriented to the pharma industry, so the qualification period is a bit longer. But we are in active trials with a whole range of customers on that one as well. So we continue to be really excited about those platforms that you've asked about.

Adam Samuelson:

Yes, thank you. Good afternoon. I was hoping maybe first talk about just the performance in the quarter from the difference between volume and comparable constant currency operating profit growth and this very little volume you leverage in the period and to contrast the fiscal ‘23 experience, maybe just Ron still more color kind of how are you able to now that gap and volumes on down, mid to high single digits, kind of keeping the profit declines that narrow.

Operator:

Your next question comes from the line of George Staphos with Bank of America.

Ron Delia:

George, for you, it's two.

Ron Delia:

Look, it's anecdotal at best, George. I mean, there's, I think a general recognition across the customer base that the price lever has been pulled really hard. And you see that from the results of a range of consumer companies that price has been a real driver of revenue growth more so than volumes. And maybe that, maybe those two variables can be brought back into better balance over time. And you do hear anecdotally, more customers talking about reprioritizing volume or balancing their mix a little bit more towards volume. We need to see it, and we haven't seen it yet. And so we're not setting the business up on the expectation that happens. In fact, our second half earnings uplift that we're expecting is not at all levered to an improved demand environment and is not at all predicated or dependent on consumers taking more active approach to promos.

Ron Delia:

Okay. Look, I think it's the early innings of our journey on protein, in particular our journey as a full service solutions provider in meat and protein packaging, which includes the ability to offer. equipment now as a result of the acquisition that we made earlier this year in Moda. It's early innings. I think that we are picking up some modest pieces of business along the way, but I would also point out that meat sales have been weak. We're in a down part, a down cycle, or a trough, let's say, a low point of the cycle in beef in particular. And so meat sales have actually been weak across the company in the first quarter. It's a long game, and we're in the early innings. And so I would say that we're really confident in the value proposition that we have and that we're building. We think we've got some really special films, and we think we've got a really special comprehensive offering that includes now equipment and service. But it's very, very new, very recent. The Moda acquisition is only a few months old.

Sam Seow:

Good morning, good evening, all. Thanks for taking my question. Just a simple one on the balance sheet. Just wondering if we guide, get back second half volume stabilization. Would that result in net debt outside your range or would there be enough in the seasonality and the unwinding of working capital to bring that debt irrespective of [inaudible] continued to decline?

Sam Seow:

Got it. And just maybe a follow-up. You talked at length about your volume expectations of the year. Maybe thoughts on pricing kind of expires through given end mark weakness and ongoing destocking.

Operator:

Your next question comes from the line of Mike Roxland with Truist Securities.

Ron Delia:

Yes, it's a great question. I think the short answer is we're going to be well set up when volumes come back and I think we're going to get even stronger earnings leverage as volumes return. We're taking really two sets of actions on the cost side. So the first, the $70 million that I referred to earlier that you just referenced is really ongoing productivity oriented benefits where we're taking shifts out, reducing headcount, driving procurement, optimizing the overhead and SG&A part of the business, kind of steady state but aggressive belt tightening, I would say. That's one form of cost reduction and I don't think a lot of that, some of it will come back obviously as volumes come back you need to add. You might need to add shifts. But we will be in a much better position from a leverage perspective as volumes return. So that's on that side. The second stream of cost takeout relates to more structural initiatives, which are more of the restructuring type, which are plant closures and more permanent and more deep cutting overhead reductions. We really haven't seen the benefits yet from those initiatives. Those will start to build in the second half, as Michael referred to earlier. We expect to get about $35 million of benefits from more structural initiatives in the second half. And those also will be long lasting and sustainable, because we're going to be taking out several plants in the network that we can compensate for with the remaining footprint. And in many cases, when we close a facility, we relocate the productive assets into another facility, and we don't really take capacity out necessarily. So I think we're going to be well positioned when and if volumes return.

Richard Johnson:

Thanks very much. Ron, can I just return to the subject of price, and in particular, the US protein market? I mean, I'm interested in the comments you make, and I'm just trying to reconcile that with what others in the market are saying, and they're referring to significant overcapacity in that market, which makes sense given how weak the end market is, which is leading to acute price pressure because of that unused capacity. Just be interested to get your thoughts on that.

Richard Johnson:

And then as you sort of spread that through the US around the different categories, I mean, can I extrapolate from your comments around how that you think positive price makes trend, that's really across all the categories or are there any areas where price is starting to give back price, which inevitably you would expect given how far price has gone at some point that will normalize, correct?

Operator:

Your next question comes from the line of Cameron McDonald with E&P.

Ron Delia:

Yes, look, it's a good question because it's really a segue into why we're confident that we're going to get back to kind of high single digit growth rates going forward. And we just believe in the conviction of our formula that served us well over many years and that is that volumes in a normal environment will grow sort of low single digits. We will get leverage in terms of higher rates of profit growth than that because the mix will improve over time and as we generate more productivity in our operations. So low single digit volume growth will translate into higher rates of profit growth. And then the business generates a substantial amount of cash and really excess cash, excess to the needs of the business from a CapEx perspective and to fund the dividend. And with that extra cash, our first priority will be to do acquisitions as we've done over a long period of time and short of acquisition opportunities will buy back shares. And so you go from low single digit volume growth to something higher than that mid-single digit type profit growth organically and then the cash flow and balance sheet optionality to generate further EPS growth through either acquisitions or share repurchases. So that's the formula. That's the formula that's delivered the 8% over almost a decade. And that's the formula that we'll expect to deliver the same types of earnings growth rates going forward.

Ron Delia:

Well, look, we have been big beneficiaries and we've driven a lot of consolidation over the years. I think what's important is industry structure and industry dynamics at a segment level. The fact is that there are a lot of players that are very small in the industry. So when we think about our M&A agenda, it's largely going to be bolt-on. We've been quite active even in the last 12, 15 months or so. We've done four small deals and you can continue to see, you can expect to continue to see us do that. Look, a lot of the value that comes out of those deals is cost synergies. I think that's where most of the value is going to come from in this, particularly in this type of environment and we're going to be active participants in the M&A space.

Nathan Reilly:

Thanks, Ron. Just a follow-up in terms of free cash allocation point. Can you talk about where deleveraging sits in the context of the allocation of excess free cash flows?

Operator:

The next question from the line of John Purtell with Macquarie.

Ron Delia:

Yes, I do, John. I think firstly I would just yes, I just want to reinforce that we have seen no impact whatsoever on demand in our segments from reduced consumption resulting from these drugs so the first point I want to make is that we've seen no impact as of yet. I think in terms of trying to estimate the future impact, I think there's some things that we, there's plenty of things we don't know and there's some things that we do know based on history. I think what we don't know is the rate of adoption of these drugs. We don't know what the impact on total consumption will be. We don't know what will happen when people go off the drugs in large numbers so there's a number of unknowns that I think totally time will tell. What we do know is the food and beverage industry over many, many years over decades has been fantastic at innovating to address consumer needs as they change and evolve over time. Think about the evolution towards lower fat, low sugar, less salt, organic. The food and beverage industry has navigated those trends really successfully through innovation and through adapting product portfolios to suit whatever consumers are prioritizing at that point in time. So we know that that's been the history and that's been the track record and I expect that would be the same going forward. And the other thing that we know is to the extent there's reduction in portion sizes or serving sizes, it tends to and has historically been very good for packaging intensity. And units of packaging have tended to go up as portions have gone down and as serving sizes have been reduced. So I think it's early days, as you said. I would lean more on the things that we know to have been true historically and probably put more emphasis or more weight on those factors than the things that we don't know at this stage.

Michael Casamento :

Yes, sure, John. I can take that one. Look, the Russia-Ukraine costs are really the, that's the cost of the restructuring. So we've moved into the program and Ron touched on the program earlier, the structural program where we've committed to spend about $170 million in cash from the Russia proceeds across some plant closures, so there'll be 7 to 10 plant closures, some SG&A rightsizing. And we've, so they are the restructuring costs there and they're going to continue through the year. You'll see those continue on. It's, and obviously from that restructuring, we're going to generate the $50 million in EBIT benefits, $35 million of which will come in H2 and then a further $15 million into FY25. So you should expect to see a continuation of some cost in that line. In relation to Argentina there was, Argentina is a hyperinflation economy and we have to account for Argentina certain ways and really that's just, there was a devaluation in August and that's the devaluation impact on the monetary assets, which was higher than it was in the prior year. But again that seems to have eased at the moment, but we'll see where that goes as we work through the year.

Brook Campbell:

Good afternoon, thanks for taking my question. Ron, just earlier on, you mentioned about the destocking in healthcare segments likely to continue in the second half. Correct me if I'm wrong, I think you mentioned that. Just what, can you provide some color there on why you think that's going to play out and why you might have more visibility on destocking in that part of the market versus other categories that you serve? Thanks.

Brook Campbell:

Okay, thanks. And just one quick follow-up on slide 13. You may just talk to some progress you're making on designing the packaging to be recycled and great progress there over the years. But in flexible packaging, there's still 11% of the portfolio that isn't designed to be recycled and there's no trials underway at the moment by the looks of that graph. So can you just talk to that part of the portfolio? What's the plan? And do you have a commitment still to have it 100% of that portfolio designed to be recycled by 2025? Thanks.

Operator:

Your next question comes from the line of George Staphos with Bank of America.

Michael Casamento :

Yes, so I can take the second point there, George. Yes, you heard that correctly. I mean Q2, Q1 and Q2 typically are pretty similar. If you look over the history of Amcor, they're pretty similar. We're not expecting anything to be different in this dynamic. I mean, Q2 is going to be broadly in line with Q1, perhaps marginally less. But H1, as per our expectations that we've outlined, so no change there whatsoever.

Ron Delia:

Okay, thanks again to everyone who's joined the call today. Thank you for your questions, and thanks for your interest in Amcor. And, operator, with that, we'll close the call.

Operator:

Ladies and gentlemen, thanks for standing by, and welcome to the Amcor Full Year 2023 Results Call. I would now like to turn the call over to Tracey Whitehead, Head of Investor Relations. Please go ahead.

Ron Delia:

Thanks Tracey, and thanks everyone for joining Michael and myself today to discuss Amcor’s fiscal 2023 and June quarter results. We’ll begin with some prepared remarks starting as we always do with safety on slide 3. Safety is our most important value at Amcor and throughout fiscal 2023, we again made strong progress on our journey for continuous safety improvement across the Company. 69% of our sites remained injury-free for at least 12 months, and we reduced injuries globally by 31%. While we’re pleased with these results, ultimately, it’s not just the number of injuries we’re focused on, but also the severity of the injuries that do occur. Tragically, in June, a contractor’s employee lost his life at our Pondicherry site in India after falling from a roof. We immediately conducted a detailed investigation and we’re deploying the learnings across all Amcor sites with the goal of eliminating the risk of similar accidents in the future. We’re relentlessly focused on safety globally, and this tragic incident is a stark reminder of the importance of those efforts. Moving to our key messages on slide 4. First, Amcor delivered solid operating performance for the 2023 fiscal year. Adjusted EBIT was up 1% and we returned $1.2 billion to shareholders through share repurchases and our industry-leading dividend. Across the organization, our teams demonstrated agility by taking action to navigate highly challenging and volatile market dynamics characterized by ongoing inflation, softening consumer demand and customer destocking, particularly in the second half of the fiscal year. Our ability to modestly grow adjusted EBIT under these circumstances was the result of proactive and decisive actions to effectively manage the areas under our control, which is our second key message. Our teams did an excellent job prioritizing pricing to recover increases in raw materials and general inflation. And as we entered the 2023 calendar year, we stepped up the intensity of our cost reduction efforts to drive productivity benefits. Additionally, we invested in structural initiatives including strategic plant closures that will deliver meaningful cost savings in fiscal ‘24 and ‘25. Third, as a result of these comprehensive actions, Amcor’s well positioned to return to solid mid-single-digit earnings growth in the second half of fiscal ‘24, which also leaves us well-placed to grow at our long-term trend of high-single-digit rates thereafter. While we expect current market conditions to persist over the near-term for the entire industry, we’ll continue to recover inflation and are confident the benefits from our cost reduction and productivity initiatives will have a sustainable positive impact on earnings leverage. Additionally, we’ll be cycling weaker volume comparatives in the second half, and the headwinds we’ve faced from the sale of our Russian plants and significantly higher interest expense are largely limited to the first half of fiscal ‘24. All these known benefits are largely within our control and underpin our expectation of a return to solid earnings growth in the second half without having to rely on a significant change in the demand environment. And finally, as we and the entire CPG industry continue to navigate a dynamic operating environment, Amcor remains laser-focused on executing against our long-term growth and value-creation strategy. We’re well positioned as a recognized industry leader and we continue to pursue opportunities to invest in our strong underlying business, particularly through innovation and sustainability initiatives in faster growing higher value markets. We’re also actively pursuing value-creating M&A such as a deal announced last week to acquire Phoenix flexible packaging in the high growth Indian market, and we’re committed to returning cash to shareholders through a compelling and growing dividend and share repurchases. Moving to slide 5 for a summary of our financial results. Fiscal ‘23 and June quarter financial performance was well within our May guidance range as proactive cost and price actions helped counter ongoing inflation and increasingly soft and more volatile volumes as we progress through the year. Reported net sales for the year were up 1%, which includes an unfavorable currency impact of 3% and approximately $775 million of pricing to recover higher raw material costs. Organic sales were flat on a comparable constant currency basis as volumes were 3% lower, offsetting a price/mix benefit of around 3%. Full year adjusted EBIT of $1.6 billion was up 1% on a comparable constant currency basis, benefiting from strong operating leverage in the first half of the year and accelerated cost actions in the second half. Adjusted EPS of $0.733 per share was down 2% on a comparable constant currency basis. For the June quarter, sales were down 5%, positive price and mix of approximately 2% included recovery of $100 million of general inflation and volumes were at the lower end of our expected range, down 7%. Last quarter, we referenced accelerated demand weakness in March and April, and this persisted broadly through the June quarter due to a combination of lower consumer demand and continued customer destocking, including in priority categories, which also impacted mix compared with last year. While earnings were in line with our guidance, the June quarter is historically Amcor’s strongest of the year, making it more difficult to flex costs. As a result, weaker volumes had a more pronounced impact on earnings and adjusted EBIT of $436 million was 7% lower than the prior year on a comparable basis. We continued to execute well on our capital allocation priorities, returning approximately $1.2 billion of cash to shareholders during the year through a combination of dividends, which the Board increased to $0.49 per share, and the repurchase of approximately 41 million shares or 3% of shares outstanding for a total cost of $431 million. Since 2020, we’ve repurchased approximately 11% of our outstanding shares, and our industry-leading dividend currently yields around 5%. Our overall financial profile also remains robust with return on average funds employed at 15.4%. Slide 6 highlights the proactive actions we continue to take to manage the areas under our control. We’ve been successful in pricing for inflation throughout the year, passing through a total of $1.1 billion to compensate for higher raw materials and general inflation, including labor, energy, and freight. We also delivered more than $200 million in annual cost savings through productivity initiatives, including a reduction of more than 1,200 full-time employees. And we’re investing in structural initiatives that will deliver approximately $35 million in savings, primarily in the second half of fiscal ‘24 with an incremental $15 million benefit in fiscal ‘25. And importantly, we expect the benefits from these fiscal ‘23 cost actions and structural initiatives to have an ongoing favorable impact on earnings leverage. I’ll turn it over now to Michael to cover more of the financials.

Ron Delia:

Thanks, Michael. Turning to our long-term commentary. Slide 12 highlights our strategic areas for investment where we see faster growing higher value opportunities to drive sustainable growth. On prior calls, we’ve covered opportunities in healthcare and in M&A. And today I’ll take a few minutes to talk about protein and the opportunities we see to deliver strong growth in the high-value protein category. Moving to slide 13, the protein category for Amcor includes packaging solutions for processed and fresh beef, pork, poultry, and seafood. And we like this category because it’s a large addressable market, which historically has grown globally at attractive rates, driven mainly by an increasing percentage of the world’s population able to afford to add protein to their diet. We also like the fact that there are many ways to differentiate and add value for customers, since protein packaging requires specialized, more sophisticated and increasingly more sustainable solutions to preserve and protect these premium products. Amcor’s unique product offerings have enabled us to successfully grow our participation in the meat category over several years. Annual revenue from the sale of processed and fresh meat packaging now exceeds $1 billion. While inflationary impacts are currently creating challenging market conditions, looking forward, there are several reasons we believe Amcor can drive growth at a mid-single-digit CAGR over the medium term with margins accretive to our overall average. First, Amcor is well-positioned with a comprehensive product portfolio for processed and fresh meat applications, underpinning our development of better products, our strong capabilities, and significant investments in innovation, sustainability, and technical service. These are critical in an industry that relies on durable, high barrier solutions to preserve shelf life while providing convenience for the consumer in environmentally friendly formats. Second, we have a strong presence in North America, but our global scale and reach enables us to leverage our R&D network and installed capacity to transfer technical and process knowledge across regions as we actively pursue global growth opportunities. And third, there’s a unique go-to-market model in some parts of the world where equipment purchases drive the subsequent sales of packaging films and technical services. Our recent acquisition of Moda positions us well because we’re now able to provide a wholly-owned turnkey equipment solution aligned with this model, where efficiency and the ability to automate are some of the highest priorities for customers. With the recent investments to enhance our offering and go-to-market strategy, we’re well-positioned to grow in this high-value market, and we’re excited with the many opportunities to firmly establish Amcor as a preferred provider of fresh and processed meat packaging solutions globally. I just want to spend a minute on sustainability on slide 14. We continue to make excellent progress supporting the development of circular systems through the three pillars of our responsible packaging strategy, package design, waste management infrastructure and consumer participation. And we’ve made significant advancements on the innovation and design front by developing more sustainable packaging solutions and increasing our use of recycled materials. We’ll provide a more detailed update in our sustainability report, which is expected to be published in October. And we’ve continued to collaborate with other industry leaders in various ways across the value chain to help support the development of the infrastructure required for a circular economy. For example, in May, Amcor, Delterra, P&G and Mars formed a strategic partnership to help reduce plastic waste in the Global South by providing access to waste management and recycling systems and by enhancing consumer education. We’re also partnering with Licella and Mondelēz to help promote a circular economy by bringing on stream one of Australia’s first chemical recycling facilities. This is an exciting development in a market where Amcor’s portfolio of recycle-ready flexible packaging solutions is already well above 90% and will provide local access to food-grade recycled material. So closing on slide 15, our teams are doing a good job navigating challenging industry dynamics by continuing to recover inflation and proactively taking actions to align costs with market conditions. We’re confident in our long-term growth strategy. We have good visibility to factors well within our control that will see us returning to earnings growth aligned with our historic performance and our shareholder value creation model. And operator, with those opening comments, we’re now ready to open the line for questions.

Ghansham Panjabi:

Hey guys. Good day. You mentioned that volumes for the first half of fiscal year ‘24 will be down mid- to high- single digits on a year-over-year basis. I think Michael mentioned that. But what are you assuming at this point for fiscal year ‘24 in context of the 3% decline that you reported in fiscal year ‘23?

Ghansham Panjabi:

Got it. That’s helpful. And then in terms of the destocking, maybe you can just give us some insight as to the micro nuances between the major regions you have exposure to. And the categories that first started to see destocking, are you starting to see any sort of green shoots, if you will?

Operator:

Our next question comes from the line of George Staphos from Bank of America. Please go ahead.

Michael Casamento:

Yes, sure. Look, I think overall, interest rates have continued to rise from this time last year, all through the year. So, we will be lapping higher rates as we exit. Using Q4 as a proxy is not the best quarter to use as a property for interest because that’s our highest cash flow quarter, obviously. So, our interest expense is lower in that quarter, typically in comparison to the rest of the quarters as the cash flow comes through. So, that’s really what we see. We are lapping some higher interest just by the way the rates increased as the year progressed. And there may be one or two further rate increases that we’ve factored into the range. So that’s where we get to that $320 million to $340 range.

Ron Delia:

Yes. Look, George, I think that we still believe the portfolio is really defensive and the categories are, for the most part, consumer staples. Now there are subsegments within segments where things might be a little bit more discretionary because of the premium attached to things like single-serve coffee systems or some of the premium pet food. But overall, across the portfolio, we still believe these categories are defensive. They’ve proven that out over a number of economic cycles. But I think that we’ve got a dislocation here that we haven’t seen in 40 years around inflation. And we convince ourselves of the defensiveness of the portfolio at large by looking at the scanner data, and it’s very broad-based, the weakness, in particular in Europe and in North America in the food business, where you see mid-single-digit declines. And I think generally speaking, others who’ve reported publicly have experienced the same sort of volume effects that we have. So I think, yes, we do aspire to play at the high end of the market, and many of our products are at the premium end. But generally, we’re in stable segments that will grow consistently through economic cycles.

Brook Campbell:

Just one on the buyback. Obviously, there’s $70 million left on the existing program. But what’s the thinking about potentially a new program at some point through FY24? Is that the priority once you get through the $70 million, or are you leaving some cash flow there for M&A, or is the priority to sort of pay down some debt and reduce that leverage ratio? Thanks.

Brook Campbell:

And just a question on espresso. Your customer there seems pretty keen to move product into, I guess, fiber compostable pods. Could you just confirm if you have the capability and products to perhaps offer that format as well, given, I guess, you’ve got already a lot of capital put into those plants that are co-located, I believe. And if that’s the way that that customer goes, can you sort of participate and offer a different format? Thanks.

Operator:

Our next question comes from the line of Cameron McDonald from E&P. Please go ahead.

Ron Delia:

Yes. Look, thanks for the question. It’s a different story in North America from Europe. So, the private label in general has picked up a few percentage points of share broadly across the European market. It’s been -- it’s just slightly now ahead of where the share for private label was in 2019. In North America, we’re not -- we’re still not quite back to the share that private label had in 2019 at large. And ultimately, as products or as sales migrate to private label from branded or vice versa, we’re pretty well exposed. And so, we’ve got a reasonably broad participation in the store brand side of the business, such that those share shifts are not really going to have a material impact on our volumes. And the packaging is essentially the same. That’s part of the private label formula. And so from a margin profile perspective or differentiation perspective, we’re sort of indifferent.

Ron Delia:

Yes. We have a pretty extensive platform that we call AmFiber, which is fiber-based packaging for a range of product categories, we see the opportunity, particularly in the confectionery space to move from plastic-based products to fiber-based products, culinary, some formats like spices and food additives. So, our work on the fiber side is pretty extensive. There’s a little less activity in the beverage space, to be quite honest. But generally speaking, AmFiber is a big platform for us, and we’re optimistic about the growth outlook.

Adam Samuelson:

Yes. Thank you. Good evening, everyone. I guess, the first question is I think about the quarter and then moving into ‘24. I just wanted to ask a question on mix. And I look at it in the Flexibles segment, mix is still a 2% positive contributor in the quarter, less than it had been earlier in the year, but still positive year-on-year, although I look at kind of some of the parts of Flexibles that I’ve historically thought had contributed to that mix in terms of healthcare and protein and pad and premium coffee. And those all were down kind of consistent with the overall segment volumetrically. So, just help us maybe dissect kind of what’s happening in mix and kind of where you see that trending through fiscal ‘24?

Adam Samuelson:

Okay. That’s really helpful. And if I could just ask a follow-up on your -- kind of the move or just the focus on proteins and the investments in equipment. I mean you’ve got some pretty large incumbents when you think about that market, especially on the fresh meat side with equipment. I mean, what do you think the business needs to scale and grow more significantly there where you’ve got -- you do have a competitor who has a pretty significant incumbent market position?

Operator:

Our next question comes from the line of Sam Seow from Citibank.

Ron Delia:

Yes. We’re not banking on a much improved demand picture. We think it’s more prudent for us to set the business up to assume that volumes are going to be challenged through the year. So for the first half of the year, we’re expecting volumes to continue to be down mid single digits, mid to high single digits. Second half of the year, we would expect volumes to be flat to maybe up low single digits. And we believe that’s possible without much of an improvement in the underlying demand profile because we are pretty confident that we’ll be through the other end of the destocking cycle by the time we get to calendar year 2024. So yes, there’s no expectation of a dramatic improvement in the overall demand environment that’s baked into our guidance.

Ron Delia:

Look, we would expect the volume trajectory to be roughly comparable. Now Rigid has got another strong -- another seasonally strong quarter to get through. And we’re not expecting the business to be all the way back from a demand perspective in the fiscal first quarter. In fact, we expect continued softness and continued destocking in the North American beverage business in particular. But generally speaking, if we take a 12-month view, our expectation is that the volume trajectory would be similar across the two segments. And look, as you pointed out, this is the swing factor in our guidance range. So, to the extent that the volume picture improves, that would be a driver of us getting to the higher end of our range or beyond. We’re just not setting the business up to expect that. We’re taking the cost actions that you’d expect us to take, and we’re going to be really prudent before we anticipate demand coming back.

Daniel Kang:

First one, maybe to Mike. Just in regards to your FY24 guidance. Can you talk us through your assumptions and maybe expectations on price/mix and any input cost tailwinds?

Operator:

Our next question comes from Richard Johnson from Jefferies. Please go ahead.

Ron Delia:

Yes. Look, it’s maybe not as pervasive as it might seem from some of the public comments. But to the extent that SKUs can get rationalized, it’s generally a good thing for us. There’s two things going on. There is a bit of SKU rationalization. The other thing that’s happening is the continued evolution towards more sustainable formats and more sustainable SKUs. And I think SKUs have proliferated across all the categories that we service. You think about the variety of the store shelves certainly here in the U.S., it’s really been explosive growth over a long period of time and the number of SKUs that are available. So, anything that simplifies the business and takes out unnecessary or non-value-adding complexity is generally a good thing. And then at the same time, helping that process along by introducing more sustainable formats is also advantageous to us, too. So I think we’re in lockstep with the customers that you probably have in mind, and on that journey or both of those journeys at the same time.

Ron Delia:

Yes. Look, it’s a good question. It feels more like the underperformance in the DMs relative to the EMs is the thing that’s not easy to understand. I mean we saw volume declines in Europe and North America, kind of high single digits in the fourth quarter, again, entirely consistent with what others have reported and the scanner data, et cetera. But the EM business has held up, but we had volumes in Asia, in the emerging part of Asia, basically flat in the quarter. Latin America was down mid-single digits. So both of those regions had better volume performance than the two big developed markets. Look, I don’t know. I think we have a pretty compelling value proposition in emerging markets generally as an innovation leader and a sustainability leader. And then our participation in our customer mix generally looks like the market. So, if I take a business like China, we actually have more of our sales to local customers than to multinationals. And basically, that reflects the market shares of those respective customer groups. So, I think we’re well balanced for the differential growth rates that you’re referring to.

John Purtell:

I just had a couple of questions. Just first one for Michael, just in terms of interest expense. What percentage is fixed and floating now? And are you looking to fix more to essentially kind of lock in your interest expense?

John Purtell:

See that is pretty stable.

John Purtell:

And just a second question, Ron, on acquisitions. Are you seeing more opportunities now that fit your criteria? And obviously, valuations are generally coming down. And will you sort of naturally play at the smaller to medium end? Obviously, we saw Constantia recently sold to private equity.

Operator:

Our next question comes from the line of Nathan Reilly from UBS. Please go ahead.

Ron Delia:

Yes. Look, we’re getting after it pretty good would be the first thing I would say. So we’re going after it reasonably hard. You have to remember also that the business has been optimized through the last several years, I mean, through the Bemis integration, we took a number of plants out of the network. A couple of years before that, we took a few out of the rigids network as well. So the business is reasonably well optimized. But that being said, there’s more opportunity. And we’ve announced 3.5 plant closures already. There’ll be more. The common with demand remains depressed, then there is the opportunity to do a little bit more, although I would also point out that the ultimate path to value creation for the Company is to grow, and we want to make sure that we’ve got the productive assets available when demand normalizes. We don’t see any of the demand challenges that we’re experiencing right at the moment, we don’t see a secular. We believe this is a cycle, and we believe it’s an inflation induced cycle and that volumes will return. And I mean, certainly, the destocking impact will abate. But we do preserve the flexibility here if we need to go after it harder on the cost side, we certainly will do that.

Ron Delia:

Yes. Well, as far as the trend, I think we are starting to see inflation moderate. I’m not sure that we’re seeing prices fall anywhere, but we’re seeing the rate of increase certainly decline across most of the cost buckets. I’d say labor is still -- increase in kind of mid-single digits. We still have higher energy costs than we had a couple of years ago. Freight might be one area where we’ve seen some declines off of the peaks. So, it’s still a real fact of life, number 1. Number 2, I think we have been successful in pricing to recover. We remain kind of fully recovered, if you will. Last year, the general inflation running through the business was over $300 million, and we offset that with price. We’ll expect to continue to do that as we go into fiscal ‘24. We also reset prices with new contracts. And as you expect that probably two-thirds of the business is contracted, maybe three quarters of the business is contracted. The average duration is 2 to 3 years, maybe 4 years. So every year, you’re turning over a portion of the revenue base and having an opportunity to reset pricing to reflect the current dynamics in the current inflation conditions. So, it remains a fact of life. But I certainly feel like we’re coming out the other end of the inflationary cycle.

James Wilson:

I was just wondering if you could give us maybe a little bit more color firstly on how your inventory and working capital management is progressing heading into ‘24.

James Wilson:

And guys, just in terms of how much of that is sort of baked into your free cash flow guidance for next year, am I right in seeing that as sort of a buffer on the downside, or is that potentially already baked into what you’ve come out with today as guidance?

Operator:

Our next question comes from the line of Scott Ryall from Rimor. Please go ahead.

Ron Delia:

Yes. Look, I don’t know that it’s changed much. I mean I think customers understand that there’s more value to be ascribed to a product that’s got a better sustainability profile. And I think consumers understand that as well. It’s another element of functionality that is now expected in consumer products. And that is the environmental profile is at least neutral, if not positive, overall. And there’s value associated with that. And so, most of these products do have a premium. There’s also the scale curve that we need to work through. We’re introducing new products and like any new product with less volume and less scale benefits typically tends to start out at a higher price point. It will evolve over time. But I think as brand owners look to meet their own commitments and you take the full range of different costs, including regulatory costs into consideration, the more sustainable products offer higher value and therefore, they tend to carry a bit higher price, particularly at the outset.

Ron Delia:

Yes. Look, there’s a lot there, and it’s a pretty exciting project. So I’m glad you asked. I mean, the investment we’ve made, firstly, I would just make sure it’s clear, it’s a modest investment, several million dollars that’s in the single digits of millions of dollars. We’re co-investing with Mondelēz and we’re investing in Licella as the technology provider for this particular plant that’s going to be built in the western suburbs of Melbourne and Altona. We’re pretty excited because it will bring recycled content -- chemically recycled material to the Australian market with local production, which is great because the collection of soft plastics as they’re referred to in Australia through the REDcycle program needs an outlet. This plant will be a perfect outlet for the recycled plastics that are collected. And then the brand owners in Australia are differentiating and are really advocates for more sustainable packaging, including packaging made with recycled content. So, there’s a captive supply of the primary input, which is waste plastic. And there’s a captive market, which is the brand owner and the Australian consumer looking for more sustainable packaging. So, we’re really excited about this. In terms of stage gates, look, it’s a pretty extensive build, as you’d imagine. It’s -- the site has been selected. If there’s a chance, the plant could be operational by the end of calendar ‘24, but it’s really an 18- to 24-month project.

George Staphos:

Ron, I was asking earlier, just are you seeing any signs from your customers at all as they’re trying to find ways to stimulate growth? Maybe they’re considering more promotional activity at the request of their customers that they’re now coming back to their packaging suppliers and looking for your and other companies’ support perhaps with givebacks cost reductions, productivity, what’s happening there, if anything, on that front? Thanks. And good luck in the quarter.

Operator:

I would now like to turn the call over to Ron Delia for closing remarks. Please go ahead.

Operator:

Ladies and gentlemen, this does conclude our [Technical Difficulty] today’s call. Please disconnect.

Operator:

Good afternoon. My name is Christie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Amcor Third Quarter 2023 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator instructions] Thank you. I would now like to turn the call over to our host, Ms. Tracey Whitehead, Head of Investor Relations. You may begin your conference.

Ron Delia:

Thanks, Tracey, and thanks, everyone, for joining, Michael and myself today to discuss Amcor's March quarter and year-to-date results for fiscal 2023. We'll begin with some prepared remarks, starting as we always do with safety on Slide 3. Safety is our most important value at Amcor, which means our commitment to keeping our coworkers safe is unwavering. We're highly proactive in our approach to continuous safety improvement and our results continue to be rewarded. On a fiscal year-to-date basis, we reduced injuries globally by 23% compared to last fiscal year and 64% of our global sites have been injury-free for 12 months or more. While these are excellent industry-leading results and a reflection of our commitment to mitigating risk and protecting our people, the journey towards zero injuries continues. Turning to our key messages on Slide 4. First, Amcor's portfolio is well positioned and is primarily exposed to consumer staples and health care end markets. We have leadership tons in several strong underlying businesses, a compelling customer value proposition and differentiated execution capabilities, all of which contributed to solid financial performance for the first nine months of fiscal 2023. That said, we're not completely immune to broader market challenges, and we were cautious heading into the third quarter. Market dynamics led to increased volume softness and volatility throughout the quarter, particularly in the month of March, and our updated outlook assumes this continues through the balance of the fiscal 2023 year. Against this backdrop, our teams remain laser-focused on supporting decisive price and cost actions. The recovery of higher input costs remains a top priority, and we're also taking a range of actions to flex and reduce operating costs while advancing structural cost reductions. These actions give us confidence that earnings growth will build as we progress through fiscal '24. Importantly, we remain focused on executing against our strategy for long-term growth and value creation. We have a strong, well-positioned business, and while we navigate short-term challenges, we'll continue to reinvest for organic growth, pursue M&A opportunities and/or repurchase shares and pay a compelling and growing dividend. Moving to Slide 5 for a summary of our financial results. Reported net sales for the first nine months were up 4%, which includes an unfavorable currency impact of 4% and approximately $750 million of price increases related to higher raw material costs. Organic sales were up 2% on a comparable constant currency basis and volumes were 2% lower. For the March quarter, sales were up 1% on a comparable constant currency basis, with volumes down approximately 3.5%. In both periods, price/mix benefits of around 4% included recovery of general inflation, which has totaled approximately $240 million on a year-to-date basis and approached $100 million for the quarter. Year-to-date adjusted EBIT of $1.2 billion and EPS of $0.541 per share were both up 4% on a comparable constant currency basis, benefiting from strong operating leverage in the first half of the year. In the March quarter, adjusted EBIT of $382 million was down 2.5% on a comparable basis versus the prior year. A modest decline as proactive cost actions helped offset significant headwinds related to a challenging operating environment. We continue to execute well on our capital allocation priorities, returning approximately $745 million of cash to shareholders during the first nine months through a combination of dividends and share repurchases. We ramped up our share repurchases during the third quarter, and year-to-date, we've bought back 18 million shares for a total cost of $200 million and our overall financial profile remains robust with return on average funds employed above 16%. Now turning to Slide 6. I want to provide a bit more color on what we've seen through the third quarter, and more importantly, the decisive actions we're taking and will continue to take. Three primary factors influenced our performance in both the Flexibles and Rigid Packaging segments in the quarter. First, the general market remains soft and more volatile, leading to lower volumes from a combination of weaker consumer demand and further destocking. Last quarter, we highlighted that demand would be a critical driver of our financial performance, and we expected Q3 and Q4 volumes could be in the range of plus or minus low single digits. In January and February, volumes were tracking at the lower end of those expectations down between 1% and 2%, then weakened through the month of March to be down on 7%. Volatility in customer order patterns also increased throughout the quarter, most notably in our Rigid Packaging North American beverage business. Our teams are adept at flexing the cost base to match anticipated demand although more volatility in orders is compromises the ability to pull the appropriate cost levers quickly enough in response, leading to operating inefficiencies. Second, mix trends were unfavorable across much of the business. Destocking continued in higher-value premium coffee and protein categories. And although health care continued to contribute solid growth, it was at a slower rate as we begin to lap a very strong prior year. Our North American beverage business also experienced unfavorable product and customer mix. And third, cost inflation is ongoing as we expected. While the rate may be moderating in some areas, inflation remains elevated in most of our markets. So these impacts are not entirely new, and we saw the need for caution at the back end of last quarter and have been out in front, proactively managing the controllables and taking decisive pricing cost actions, which continued in Q3. First, we've successfully driven more than $1 billion of price on a year-to-date basis to compensate for higher raw materials and general inflation, and we'll continue to take further actions where inflation persists. Second, we continue to actively flex and reduce operating costs. We've reduced our global headcount by more than 1,000 positions, lower discretionary spending, increased the number of full or partial plant shutdown days and extracted more procurement benefits. Year-to-date, these efforts have lowered costs by approximately $140 million. We expect to drive additional cost savings of approximately $50 million to $60 million across the business in Q4, including a further reduction of approximately 200 positions. And third, as we've previously announced, we're also pursuing a range of structural cost savings initiatives. And to date, we've announced three plant closures and one partial closure, and we could add more depending on how the demand environment evolves. We expect to deliver at least $50 million in cost savings from these structural initiatives, which will begin to benefit earnings in fiscal '24, primarily in the second half. We expect current market conditions will persist in the near term, so we remain laser-focused on controlling what we can control and responding with actions. I'll now turn it over to Michael to cover more of the financials.

Ron Delia:

Okay. Thanks, Michael. While we navigate a challenging environment in the short term, we have a strong foundation, and we remain committed to our strategy of driving long-term growth and profitability. And that strategy consists of investments in both organic growth and strategic M&A. On previous calls, we've highlighted the importance of our priority categories, emerging markets, innovation and helping deliver organic growth and better mix over the longer term. And our financial results over the years have demonstrated the success of that focus. For the longer-term comments today, I want to highlight how M&A complements each of these areas and spend a little time outlining our approach to delivering additional growth through acquisitions. Turning to Slide 12. Disciplined M&A has been part of Amcor's playbook for a long time. Our history of successful deal execution and integration has helped us establish or build industry-leading positions, support earnings growth and drive consistent value creation. Our model starts with strategic fit. We look across a number of factors when prioritizing opportunities, including businesses where Amcor or the Target is a leadership position, where the target can complement our existing footprint or where we gain access to a new customer base or new technologies. Second, in terms of financial strategy, we have been and will continue to be highly disciplined. We target all deals to deliver a double-digit return on the cash investment and well above our cost of capital within three to five years. And third, our investment-grade balance sheet and strong annual cash flow provide ample capacity and access to financing to continue to pursue M&A or share repurchases in addition to investing in the base business and funding the dividend. And we've been quietly active on the acquisition front. Last week, we signed a deal to acquire Motor Systems, a New Zealand-based manufacturer of high-performance vacuum and packaging equipment for the fresh meat, poultry and dairy markets, with machines currently installed in a number of geographies, including North America. This is a small but important acquisition, which will complement Amcor's existing strength in film enabling us to offer a total system solution for automated protein packaging. Other recent deals over the past nine months include the acquisition of Shanghai-based medical packaging company, MDK in January, a deal that checks all the boxes to reinforce a priority category, expand an emerging market and broaden our product technology offering. And in August last year, we completed the acquisition of a state-of-the-art Flexibles packaging plant in the Czech Republic which increases our capacity to service strong growth in end markets, including pet care and coffee from a highly efficient, scalable production hub in a low-cost region. On the corporate venturing side, our team has done an excellent job identifying opportunities to help funds, support and learn from new external developments that have the potential to become smart, functional and sustainable packaging solutions in the future. M&A and corporate venturing are integral parts of our growth agenda and looking forward, we'll continue to be active, but also strategic and disciplined. Before we turn to questions, just a minute on sustainability on Slide 13. We continue to advance our sustainability agenda on a number of fronts, and our success in supporting customers transition their own portfolios to more sustainable solutions and reduce their carbon footprint has recently been acknowledged by several important industry third parties. Early in 2023, our innovation and sustainable product design leadership was highlighted by the World Packaging organization with Amcor's Am Prima and AM Sky recycle-ready product platforms named as winners in three categories. In February, the CDP or carbon disclosure project awarded Amcor and A- as part of its annual ratings. And this superior grade recognizes Amcor's ongoing sustainability commitment and achievements, including our pledge to achieve net zero emissions by 2050 and our new target to use 30% recycled material across Amcor by 2030. And also in February, Amcor's leadership in responsible packaging and overall commitment to ESG was recognized by MSCI with a AA rating, marking the fifth consecutive year that we received the ranking. In summary, on Slide 14, the market remains challenging, but we're well positioned and confident in our ability to manage through this short-term period while continuing to generate value for our customers and shareholders. Most importantly, we believe the actions we're taking now will result in earnings growth building as we progress through fiscal '24, and we remain focused on delivering against our strategies for long-term growth, including executing well on M&A, and expanding our leadership in sustainability. Operator, with those opening remarks concluded, we are ready to open the call to questions. Operator, we're ready to open the line for questions.

Ghansham Panjabi:

Ron, maybe you could just build up your comments and just touch on which specific categories do you expect incremental volume weakness in the June quarter? I think the March quarter was down 3%, you're getting towards down mid-single digits and then also expand a bit more on the dynamic order patterns that you're calling out from your customers?

Ghansham Panjabi:

And then on that, Ron, for my second question, just given the operating environment that your customers are facing with faced with at this point. Is that starting to impact their new product development cadence? And how does that compare to previous slowdowns, i.e., recessions in the past?

Operator:

Your next question comes from the line of Anthony Pettinari from Citi.

Michael Casamento:

Yes, it's Michael here. I can take that three for you. Thanks for the question. Yes, look, I mean, Q4, where we see raw materials right now, we've seen a relatively line environment in Q3. Q1, we saw raw materials come off in Q2, a more modest reduction. And then in Q2, Q3, relatively flat remembering that we have a broad base of raw materials we purchased angiographies across the globe. So as we look forward into Q4, relatively benign environment, we'd expect. So from a price/cost perspective, -- you've seen it actually come down as we progress through the year. So in Q4, it's going to be a very modest price increase or flat thereabouts. From an inflationary standpoint, we continue to see inflation in things like labor. I mean we've reset labor rates as of the 1st of January. So you've seen mid-single-digit increases there continue. Things like energy we continue to see increases and spikes in places like the West Coast of North America and Europe, still seeing significant increases in energy in that space. So, you saw us talk about the recovery of around $250 million in price year-to-date on general inflation and $750 million on raw materials. As we look forward into Q4, I think from a general inflation standpoint, we'd expect to see a similar number as we saw in Q3, which is around that $100 million mark.

Ron Delia:

Yes, sure. I mean, just to remind people the structural benefits program, we're investing around $170 million in cash to help offset the disposed Russia earnings. The expectation is that the benefits from that will be around 30% on the cash investment. We've already made some initial inroads into those projects. We closed three plants and a past closure as well. So we'd expect the benefits start to build on that through FY '24, albeit weighted to the second half of FY '24. And so we'd expect 2/3 or a little more of the benefit of that $50 million to come through in '24 and then the balance is '25. But we've made a good start on that, and you'll start to see those benefits build through the year in '24.

Keith Chau:

Just a couple of questions. First one is on destocking versus underlying weakness. Just wondering if you can give us a sense of that 10% decline in March in particular and then the mid-single-digit decline for the fourth quarter. Can you give us a sense of what you believe makes up those numbers, whether it is destocking or underlying demand weakness?

Keith Chau:

Okay. And then in terms of the timing of the destock, do you expect that completely finished by the end of 4Q? Is there any anything to suggest that your customers might destock for longer into FY '24?

Operator:

Your next question comes from the line of Daniel Kang with CLSA.

Ron Delia:

Yes. Well, Ron, I'll start the answer, and Michael can build on it. Look, the scope is global. And we've announced three plants that are going to come out of the system already and another half of the plan, a big department that we're going to reduce and it's a global program. Could it be more? It could be. We're going to wait and see how the demand environment evolves from here, but we're off to a good start and those plants will be coming to them over the next several quarters with the benefits flowing through the second half of -- well, building through fiscal '24, as Michael outlined already.

Ron Delia:

I think we see some good examples in the beverage business, in particular, in the hot fill space. Our hot-fill volumes were up about 1%, which is ahead of the market. And I think it's, I think, a testament to the different lightweighting products that we've been able to bring to the market. That's one. I think in health care is another one where our growth has been really strong, particularly in the pharmaceutical side of things over the last several quarters, probably going back into last year as well. So, those two come to mind is places where we're likely to have picked up a bit of share.

Adam Samuelson:

Yes. I guess the first question, Ron, you talked in the prepared remarks about earnings growth building through fiscal '24. And I know you're not giving earnings guidance at this point. But as you would sit here today and you would look at kind of where the exit rate is after the June quarter and some of the headwinds you still have from Russia in September and the December quarters. Would you expect to grow EBITDA and EPS in fiscal '24 or help us think about some of the key variables to actually growing in fiscal '24 as you look today?

Adam Samuelson:

Okay. That's helpful. And then as you think about some of the mix tailwinds that you've had in the business, I mean, we're still quite strong in the in the March quarter, specifically in Flexibles. How does mix kind of progress from here, especially raw material kind of constraints and supply chain, I think have magnified some of those or those are easing some of the comps get a little bit harder on the mix side? And how do we think about that being a contributor prospectively from the book of business that you have today?

Operator:

Your next question comes from the line of John Purtell from Macquarie.

Michael Casamento:

Yes. So John, I'll start there. And absolutely, we had price benefit in the period, which I touched on earlier. We recovered over $100 million in inflation during the period. I mean the mix -- what we have seen is some unfavorable mix around areas like the protein and premium coffee where we've seen some softness in demand, both from a consumer but also some destocking. So that's impacted mix negatively. On the offset to that, you still had in Q3, reasonable health care performance, albeit lapping a stronger comp. But some mix benefit coming through there. Pet food is another one in the in our focus categories where we've seen good growth there, which is driving mix. But as we look forward, I think that was really what we saw in the quarter, a bit of a tale of two stories. And then Ron touched on how we will think about things moving forward.

Ron Delia:

No. Look, that's flowing through already. That's the year-to-date cost savings that have come out of the business. If you think about the year, we've had pricing to compensate for inflation, and then we've taken cost out to compensate for volume and mix going the other way. And the business through nine months has grown its EBITDA by 4%, roughly $50 million in EBIT growth. And the building blocks are as I just outlined.

Richard Johnson:

Ron, I just wanted to ask you -- I'll go back to the subject of price. I mean if you look at the last five quarters, by far, the biggest contributor to operating profit growth, has been net price realization. I mean given the nature of the industry prices by definition, really cyclical. So, I was just wondering how we should think about price over the next few quarters, particularly in a very weak demand environment.

Richard Johnson:

That's helpful. And then you mentioned premium coffee a few times and certainly commentary from your customers would sort of echo what you're saying. But really, what I wanted to ask about is the market leader at that end of the coffee market seems pretty determined to put in place a more sustainable substrate for their pods. And there is a competitor out there with the product already. I just wanted to try and catch up with where you are with that -- in that regard.

Operator:

Your next question comes from the line of Kyle White with Deutsche Bank.

Ron Delia:

I think a couple of things, Kyle. One is we're still out there pricing for inflation. So it's still out there. It's real. Maybe the rates of increase have slowed, but prices or costs are well elevated well above where they were a year or two years ago for sure. So we're still out there recovering. There is a lag. There's always a lag. It's no different to any other cycle around pricing. And there's always a little bit of a time lag as we work through contracts and contracts mature, et cetera, we're resetting at higher prices, but we are recovering. I think as far as the residual impact or the impact on demand. There are some examples of shifts. So what we see in the beverage business, in particular, in North America is a shift more towards value packs. We see a lot of smaller containers that go into 12 packs or 24 packs. We see volumes in that side of the business growing much more rapidly than larger sizes. We see channel shifts as well. So, we see less sales going through the C-store channel. Gas station sales are way down compared to club stores, et cetera. So you do see some more of a shift -- you do see a bit more of a shift towards value by the consumer.

Michael Casamento:

As I said earlier, the raw material environment in Q3 was relatively benign after some drop in Q1 or modest drop in Q2. So in Q3, we still have a modest benefit in the P&L on the base cost lag. As we look forward into Q4, as I said earlier, that right now the environment looks relatively benign across what we see across the globe. So, I think the benefit in Q4, if anything, will just be a modest price, price cost lag benefit similar to Q3. So as you think about the full year, it's really just been overall, it would be a relatively modest benefit from the raw material price position. As we look into '24, it's too early to tell, we'll wait and see where it's going from here.

Jakob Cakarnis:

Just one for Michael. Just on the free cash flow outlook for fiscal '23. Please. Can you just talk through some of the expectations for fourth quarter inventory unwind maybe the go forward as you carry into fiscal '24 and what needs to happen, perhaps to get that unit balance equal out to get back to the free cash flow levels that we're used to with you guys, please?

Operator:

Your next question comes from the line of Brook Campbell-Crawford with Bar & Joy.

Ron Delia:

Yes. Look, Brook, we've done really great so far, and these are all very small deals. The Mota deal that we announced today is a small one. It's really one with an eye towards the long term. It's a small business with less than 30 people sales around 20 million. It's not a business that's going to materially change the EBIT trajectory of the business going forward. And similarly, MDK in China is a business that's around $50 million in sales. The plant in Eastern Europe is just that. It's a plant. It's very -- running at a very low utilization. And what we're going to do is fill it by moving business from Western Europe into the low-cost hub that we've acquired in Eastern Europe. So all of these are relatively small, they all help incrementally move the ball forward, but none of them are going to have a meaningful impact on FY '24 earnings, which is why I didn't call them out.

Ron Delia:

Well, I'm not going to comment on anybody else's performance. I can tell you, from our side, when we look at the market, we assess it through the lens of the scanner data at retail and what our customers are reporting. And we would say that certainly coming through this earnings season, that all stacks up with our performance is kind of like right on line with the average of what customers have reported and probably a little bit ahead of the retail scan data, which might suggest that some of the larger customers are taking some share.

Nathan Reilly:

Ron, just a question on general cost inflation recovery, insist on core has been very good at recovering general cost inflation with customer price action over the last year or so. But just given the volume situation you're facing in terms of those declines and customer destocking, I just imagine those conversations with customers on price recovery are getting a little harder. So can I just confirm a successful in fully recovering general cost inflation in the third quarter and what you've baked into the fourth quarter guidance?

Operator:

Your next question comes from the line of George Stahos with Bank of America.

Ron Delia:

I think the starting point is where is the consumer right now at this point in time. And I think there's always been really strong alignment between the package format and the channel and the usage occasion. And if we go back over a long period of time, the pet bottle generally, whether it's cold fill or hot fill, has been predominantly through the cold channel. It's been predominantly single-serve whether it's hot fill or cold fill, soft drinks or sports drinks and the can has tended to be the value pack. And whenever times are tougher for the consumer and when they're gravitating more towards value and buying things in units of 12 or 24, that tends to be through the warm distribution channel and tends to be through retail, big box retail, and conventional retail and not through the convenience channel where most of our products go through. So, I do think that -- I wouldn't call it a substrate shift as much as I would just say, it's a consumer thinking with their pocketbook at this point in time and buying things at the lower price point per unit.

Cameron McDonald:

Just wanted to go back to the comments you made about the scanning data. And I was wondering if you could put that in context given your history of volumes? And what do you think that -- where does that fit relative to how bad it could actually be during your recession? And then a separate question for me just around when we talk about seeing channel shifts and more value oriented, can you talk about what's happening perhaps in some of the confectionery market exposure that you've got as well close?

Operator:

There are no further questions at this time. I'd like to turn the call back over to Ron for closing remarks.

Operator:

This concludes today's Amcor Third Quarter 2023 Results Conference Call. You may now disconnect.

Operator:

Good day, everyone, and welcome to the Amcor Half Year 2023 Results. Today's call is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator instructions] In the interest of time, we would like to remind participants to limit your questions to one and rejoin the queue for any follow-ups. I would now like to turn the conference over to Tracey Whitehead, Head of Investor Relations. Please go ahead.

Ron Delia:

Thanks, Tracey. And thanks, everyone, for joining Michael and myself today to discuss Amcor's first half financial results for fiscal 2023. We'll begin with some prepared remarks before opening for Q&A. And I'll start with Slide 3, which covers our first and most important value, safety. Safety is deeply embedded in Amcor's culture, and our management teams understand our collective responsibility to provide a safe and healthy working environment. Our dedication to eliminating injuries in the workplace continues to result in industry-leading metrics. In our first half, we improved further and made great progress with a 24% reduction in the number of injuries globally compared to last year. And 65% of our global sites have been injury-free for the past 12 months, with more than 30% injury-free for three years or more. Safety and a culture of caring for our people will always be our highest priority. Turning to our key messages for today on Slide 4. First, the business delivered a strong first half and second quarter despite ongoing challenges in the macroeconomic environment. Our teams are doing an excellent job driving value for customers while managing the many aspects of the business under their control. We've increased our focus on flexing costs as demand evolved, and we're proactively taking actions to drive further efficiency and productivity improvements while recovering general inflation and passing through higher raw material costs. The outcome was strong operating leverage, with an 8% increase in both EBIT and adjusted EPS in the first half on a comparable constant currency basis. Second, although not entirely immune in a weakening demand environment, our business remains resilient. 95% of our portfolio is exposed to consumer staples and health care end markets, which combined with our broad geographic footprint, positions us well through economic cycles. Our volume performance through the first half demonstrates that resilience and compares favorably to the mid-single-digit or higher declines reported by others in our value chain. Third, a solid first half, strong execution and a resilient portfolio gives us the confidence to reaffirm our guidance ranges for fiscal '23. We're confident in the ability of our teams to continue focusing on the controllables. However, we're also mindful that through the second quarter, the demand environment softened and became increasingly volatile. We expect this will continue in the near term. And as we enter the second half of the fiscal year, we're more cautious in relation to the demand outlook, and we currently expect to be toward the lower end of our EPS guidance range. And our final and most important key message is that we remain focused on executing against our strategy for long-term growth. The business generates significant annual cash flow, which allows us to invest in organic growth opportunities, pursue acquisitions, pay an attractive and growing dividend and regularly repurchase shares. We're confident in the strength of our underlying business, execution capabilities and capital allocation framework, all of which support our compelling investment case. Moving to a few financial highlights on Slide 5. First half reported net sales were up 6%, which includes approximately $670 million of price increases related to higher raw material costs. Excluding this impact, organic sales were up 2% on a constant currency basis, and volumes were 1% lower. Both the Flexibles and Rigid segments did an excellent job driving price and mix benefits, including recovering around $160 million of general inflation. We're making good progress on our commercial and strategic agenda and with our priority segments continuing to deliver high single-digit organic growth and several of our emerging markets businesses also growing at high single-digit rates in line with long-term trends. Positive price/mix performance more than offset modestly lower overall volumes, which reflected generally softer and more volatile demand as well as customer destocking in parts of the business. Operating leverage was strong as we continue to increase our focus on costs, and the business delivered an 8% increase in both adjusted EBIT and EPS for the first half. Looking at our December quarter financial performance. Reported net sales growth was 4% and 1% on an organic basis. Adjusted EBIT and EPS each grew 7%. So another solid quarter highlighting the benefits of geographic diversification and exposure to more defensive end markets even as we experienced softer demand. Through the first half, Amcor returned approximately $400 million of cash to shareholders through a combination of dividends and share repurchases. And today, we've increased our planned repurchases for fiscal '23 by up to $100 million. Our overall financial profile remains robust with return on average funds employed at 17%. We're pleased with our first half and our December quarter financial performance, and I'll now turn it over to Michael to cover more of the specifics.

Ron Delia:

Thank you, Michael. And in previous quarters, we've highlighted multiple drivers of organic growth, which you see on Slide 10, and include priority segments, emerging markets and innovation. Before we open the line to questions, I want to just take a few minutes to talk about one of our most important priority segments, which is health care. An overview of our global health care packaging business is shown on Slide 11. With more than $1.8 billion in annual sales in fiscal '22, our portfolio covers both Flexible and Rigid Packaging formats and is evenly split between medical device and pharmaceutical packaging. This is a truly global business with global customers and globally recognized products and technology platforms and it's one where we have scale in every region, including in emerging markets. This is not an easy market to enter because health care packaging is also highly complex with many functional demands, quality standards and regulatory requirements. This complexity provides ample opportunities to differentiate and add value through our industry-leading product innovation, material science and global regulatory capabilities and makes health care a strong contributor to Amcor's growth profile from both a volume and mix standpoint. It also supports strong collaboration with customers, leading to a book of business that tends to be more consistent over the medium and longer term. Moving to Slide 12. Globally, health care packaging is a substantial market with significant headroom and growing at mid-single-digit rates over time, and we're investing to capture more of that growth. As an example, in the December quarter, we localized thermoforming production in Europe at our medical packaging site in Sligo, Ireland. This is an exciting project that leverage the experience and technical know-how of our sites in Minnesota and Puerto Rico. As a result, our European business and customer base will now benefit from local access to a broader range of specialized health care packaging solutions. In another organic growth example, we opened a world-class dedicated health care greenfield plant in Singapore at the end of calendar 2021, enhancing our ability to serve the rapidly growing Asian market. M&A also plays a role in supplementing organic growth in this segment. A few weeks ago, when we announced the acquisition of Shanghai-based MDK, a leading provider of medical device packaging in the China market, this is a great acquisition that enhances our leading position in the broader Asia Pacific medical packaging market by adding product capabilities and a complementary customer base. Drilling down a little more on sustainability and moving on to Slide 13. Across all substrates and end markets, the sustainability of packaging solutions continues to be a critical consideration for customers, consumers and regulators. Our collective objective is to create a truly circular economy for the packaging industry. And the solution is responsible packaging, including package design, infrastructure development and consumer participation. In terms of package design, Amcor is well positioned as a leader in the industry. Today, nearly 100% of our rigid packaging and specialty cartons products and more than 80% of our flexibles products are designed to be recycled or have a recycle-ready alternative. This matters because as deadlines to meet previously established goals rapidly approach, customers are increasingly adopting more sustainable solutions. As an example, this quarter, Mars adopted AmFiber performance paper for part of their confectionery range in the Australian market, and Ferrero Rocher launched an AmFiber pilot in the European market. These two companies joined Nestle, who initiated a global transition to paper-based packaging for one of their core brands in 2022 and are now adding a pilot for the KitKat brand. We've also seen important progress in the development of the infrastructure and technology required to produce recycled materials. While the use of food-grade recycled PET is growing rapidly, including in our rigid packaging business, the ability to produce recycled content for and from flexible packaging will be a critical ingredient to creating circularity. Significant strides are being made in advanced recycling technologies, which enable use of recycled content and flexible packaging applications where mechanically recycled material may present regulatory or technical challenges. To meet ongoing demand for more recycled material and to support infrastructure and technology development, Amcor continues to increase our long-term off-take commitments. In December, we announced a five-year extension of our partnership with ExxonMobil to purchase certified circular polyethylene, giving us line of sight to significant quantities of recycled material that can be used in health care and food-grade packaging applications. We also recently announced a partnership with Licella to further explore an investment in one of Australia's first advanced recycling facilities. These agreements provide another point of differentiation and value, which can be applied across all end markets for customers like Mondelez, who've incorporated 30% advanced recycled material into their packaging for the Cadbury Dairy Milk brand in the U.K. and Australia. These capabilities also position Amcor to meet the sustainability goals we share with our customers and to contribute to a truly circular economy for the packaging industry. Turning to Slide 14. The opportunities and investments I've outlined today in our health care business, our innovation across a range of substrates and our increasing access to advanced recycled materials are just a few examples of the initiatives we have underway, giving us confidence that we have built and continue to build a strong foundation for growth and value creation. We don't expect to be immune to macroeconomic challenges, but we believe we're well positioned with a resilient portfolio and multiple drivers of growth, including cost productivity. Additionally, our consistently strong cash flow provides the ability to reinvest in the business, to pursue acquisitions, repurchase shares and grow the dividend, all of which positions us well to generate strong and consistent value for shareholders over the long term. And finally, in summary, on Slide 15, we've delivered a strong first half in a macroeconomic environment that remains challenging. We're more cautious on the demand environment entering the second half, but our portfolio leaves us well positioned. And most importantly, we remain focused on executing against our strategies for long-term growth. Operator, with those opening remarks, we're now ready to open the call to questions.

Anthony Pettinari:

Ron, a lot of CPG companies and packagers have talked about a drop in December volumes, but kind of a meaningful improvement and maybe a strong start in January. Just wondering, have you seen this? Or did you see kind of December weakness continue into January? I'm just trying to square what sounds like maybe a weaker view on fiscal second half demand. And then maybe specifically, you talked about restocking and lower demand for Rigids. I'm just wondering where you think restocking stands now.

Anthony Pettinari:

Okay. That's very helpful. And then just in the release, I think you talked about maintaining the full year EPS and free cash flow guide. In your comments, you said you could be at the lower end. Without putting too fine a point on it, is there any reason not to sort of formally lower the guidance range? Or are there may be circumstances that could get you maybe to the higher end of the guide? Is it just completely dependent on volumes? Or is there any way that we should think about getting to maybe the higher end or the lower end of the guide?

Operator:

We'll take our next question from John Purtell with Macquarie Asset Management.

Michael Casamento:

Yes, John, I can help you with that one. So you're right. We -- the teams have done a good job on price and getting out there ahead of inflation and recovering that. And you saw in the -- we commented in the half, we've recovered about $160 million in cost inflation during the period. But we also had really good mix benefits, particularly from the strong health care performance, particularly in the half where we saw a double-digit growth, which is above average growth for that part of the business and a bit of rebound versus the prior year. So as we look forward into the second half, there will still be the price/mix benefit there. But inflation is still there. We've got to recover that. And on the health care side, you -- comparatively, you're not going to see the same level of growth and, therefore, the mix benefit. So although we're still expecting that, we would say that it will be lower than what we saw in the first half.

George Staphos:

My question on -- for the call is on cost saves. Ron, you talked about aggressive actions. I forget exactly how you phrased it. But two, to obviously offset some of the headwinds that you're seeing, can you talk a bit further about what those actions are? Can you size them either in relation to, I don't know, the volume weakness that you're seeing or the ability to offset the dilution from Russia? And how can cost saves build into both calendar '23 and fiscal '24 to offset that further dilution you'll have from Russia, at least in the first half of the upcoming new year?

Michael Casamento:

Sure. Thanks, Ryan. Yes, I mean just following on from that, so we announced today we're going to use part of the proceeds to help divest -- to help offset the divested earnings, and we announced today around $120 million of cash will be put to work in cost-saving initiatives, things like footprint and SG&A and the like, and that's in addition to $50 million cash that we allocated back in August as well. So in total, about $170 million of cash is going to be invested in cost-out initiatives over the next kind of 12 to 18 months. And we'd expect to get kind of a 30% return on that at full run rate. But if you think about the timing of that, those initiatives are only starting. We'll start to work on those this financial year. So, there is no impact factored into -- no upside factored into the guidance range in FY '23. But certainly, we're expecting benefits from this program in FY '24 and then into FY '25. And if you think about that, bear in mind, in H1 in FY '24, we will have a headwind. These programs will kick in but weighted more to the back end of the year. So on that $170 million investment, if you call a 30% return, it's roughly a $50 million potential impact to offset the Russia earnings. I would say that 2/3 of that we think we can achieve in FY '24. So over the course of FY '24, we feel that we can pretty much minimize any headwind from the Russia earnings in the first half of FY '23, and then you'll get the full run rate as we head into FY '25.

Larry Gandler:

I might as well just continue on that last comment. Can you just talk about some of the specifics about how to achieve that 30% return, $50 million savings from those Russia cost-saving actions? What are you guys doing there?

Larry Gandler:

Okay. That's pretty clear. And one other thing that caught my attention is you guys repurchased only $40 million of stock in the first half and then the target for $500 million now for the full year. So I'm just wondering, was there anything that kind of gave you some hesitancy in the first half? I'm interested if on the M&A pipeline, if you guys might have been looking at something that caused some hesitancy.

Operator:

We'll take our next question from Ghansham Panjabi with Baird.

Ron Delia:

Yes. Look, I don't think we know the answer to that is a short response to your question. The caution is based on the volatility that we've seen in demand patterns globally. Now if we look specifically in the second quarter, it's more segment-specific in North America and Europe. And then we had some geographies where things got even more volatile as we went through the quarter, in particular, Latin America, where we saw some destocking but also just, we think, some softer demand in light of the deteriorating macroeconomic environment in several countries down there. China would be another one where we saw demand soften considerably in the second quarter, really concurrent with COVID lockdowns. Now obviously, those are behind us, we'd expect the business to bounce back. But how strongly it bounces back is an open question. And look, as far as the drivers of volume in the quarter and even into January, how much is related to the consumer pushing back on prices that have been put through versus how much is destocking, it's just -- it's difficult to read. So generally speaking, there's been volatility across the business, and that adds up to a degree of caution on our part.

Michael Casamento:

Yes. Look, the interest rates where they are for us, the buyback still makes sense. It's EPS accretive. We have strong cash flows, and we regularly been doing buybacks, and we'll continue to do that where the interest rates are. It still makes sense from that perspective.

Daniel Kang:

Just interested on the impact of destocking, I know it's quite difficult to quantify. But can you estimate how much it contributed to the volume softness in both Flexibles and Rigids? Are you seeing any green shoots at this point in terms of the destocking cycle coming to an end? And just wondering what you're assuming in terms of destocking in your guidance.

Operator:

We'll take our next question from Adam Samuelson with Goldman Sachs.

Ron Delia:

Well, health care has been a good grower for us over many, many years. And it's grown -- both the medical packaging side and the pharmaceutical packaging side have grown kind of mid-single digits globally, obviously a bit higher in the emerging markets, and that's been consistent over a long period of time. I think we saw extraordinary growth in the first half coming off of actually quite a strong fiscal '22 as well. A few drivers there that we think have been fueling that growth. Obviously, our market position is quite strong, and the innovation that we've been bringing to the market is quite strong, and we're investing behind that as we've highlighted today. I think there's -- to be clear, there's been some pent-up demand because some of the supply chain constraints that we've talked about and others have talked about really hit the health care segments for us in a pretty acute way. Those are unwinding, and some of that pent-up demand is being satisfied. And I think it's also not a secret that on the pharmaceutical side, there's been a relatively big cold and flu season. So those are some of the things that really fuel double-digit growth globally across both the medical device and pharmaceutical segments for us in the first half, and we believe that the business will continue to grow at healthy rates but will revert more towards long-term trends that we've seen over a long period of time in the kind of mid-single-digit range, and that would apply going into FY '24 as well.

Ron Delia:

No. If anything, it's accelerating, particularly around the sustainability side, where many of the brand owners that we work closely with have the same commitments that we have and have made similar pledges around recyclability or recycled content. Those commitments are fast approaching and the dates are fast approaching. And if anything, we're seeing an acceleration in that dialogue, and we're seeing good take up. Some of the examples we cited today with our AmFiber performance paper platform, which is getting good take-up in the marketplace. We're seeing good early take-up of advanced recycled material and products that contained that off-take. And so look, I think at the moment, it's not slowed down at all. I think also brand owners are looking for ways to differentiate as they try to scratch out whatever growth they can.

Nathan Reilly:

Ron, would you mind just talking about how the latest round of general price increases have been received by customers just given that lower demand outlook, particularly with those December volumes takes to notable turn down? I'd imagine it's getting even harder to recover inflation on costs, but I also note your comment on managing manufacturing capacity. So just interested on any views on pricing.

Operator:

Our next question comes from Mike Roxland with Truist Securities.

Ron Delia:

Maybe I'll address the second question first, and then Michael can come back on the $120 million. Look, it's relatively recent that China has reopened and then we went into the Chinese New Year in January. But we do expect that business to bounce back. More importantly, the China business has done an outstanding job managing costs. So despite the volume declines that ran alongside the COVID lockdowns, the business grew earnings in the first half, which was just an outstanding outcome. It's been a business for us that has grown at least mid- to high single digits over many years. What's really important in China is to be very focused in our participation strategies. Health care is a place we want to participate, and we want to go deeper in China. And we're doing that both organically, and we're doing that through M&A., and the MDK acquisition that we announced last month is a good example of that. It's a small business, one plant outside of Shanghai, complements very well, another medical packaging plant that we have near Shanghai as well. It brings us some complementary products that we didn't have local production of in China, and it also expands our book of business with a new set of customers. So we're pretty excited about that, and we think that's all part of the long-term secular growth that we've experienced and will continue to experience in China. On the $120 million, do you want to comment on where we are at that?

Ron Delia:

Wherever we can find EBIT -- to offset the EBITDA we've sold is where we'll be looking.

Jakob Cakarnis:

Michael, just a question for you. I was just wondering if you could talk through some of the fixed variable cost structures across both of the divisions. And just noting you did talk about some plants downtime, which is a little bit higher than expected. Can you just talk about how that's flowed through to some of the cost benefits in the half whether that will occur into the second half of the year if the volume environment remains weak?

Operator:

We'll take our next question from Kyle White with Deutsche Bank.

Ron Delia:

Yes, it's a good question. We have seen some shifts in the consumer and some of that driven by actions that the brand owners have taken. In the beverage space, and if we just focus on North America, some of these points would hold in Latin America as well, but in the beverage space in North America, when the consumer is under pressure, they tend to revert to multipacks and smaller unit sizes, right? And so if they're going to buy a soft drink, they're likely to buy it in a pack of 12, where the unit price is lower than buying it through the convenience store in the cold chain. So we have seen some of that. That's probably contributed to the softness, particularly on the cold fill side. I think we've seen some other examples in other segments in Europe in the coffee segment. We've definitely seen soft volumes in the more premium end than the single-serve system sales, and we've seen higher sales in the segments that are multi-serve. So think about capsules in a system versus ground coffee or instant coffee. The instant coffee is what's being pushed at the moment. So we are seeing a little bit of that sort of behavior. It's maybe just a different degree of emphasis across their product mix as they help the consumer through a high inflationary environment.

Cameron McDonald:

Just a question for me. Just on coming at it a different way with regards to the outlook on the volumes and the demand environment. Can you sort of delve into what the order cycle actually looks like with the -- particularly the products around FMCG and the comments made by customers and how much visibility you've got on that order cycle? So obviously, your products get put into their production facility and then it sits on a shelf, and then they've got to sell it. So you get further visibility on what the customers are expecting. So have you got good visibility into the rest of the third quarter? Or can we see into the fourth quarter at this stage?

Operator:

We'll take our next question from Richard Johnson with Jefferies.

Ron Delia:

Yes. Look, it's a good question, Richard. We certainly believe the model is still appropriate. If you go back and look over a 10-year period post the Alcan acquisition, which is about 13 years ago now. The last 10 years, we've been well above from an intrinsic perspective, well above the 5% to the 10% to 15% sort of shareholder value creation model that we talk about. We still believe the business will generate low single-digit top line growth. It will convert that with operating leverage like we've seen in the first half. And then with the excess cash flows of the business, we're going to continue to acquire or buy back shares and continue to grow our dividends. So all up, we think the model still makes sense. It's held us in good stead, and we'll continue to do so going forward.

Michael Casamento:

So below the leverage we took a $215 million gain, obviously, on the sale transaction. And then there were some costs just in relation to transferring a business. Some of Ukraine costs still to just transfer equipment, et cetera, in that. As we look forward, you'll see the restructuring costs start to come through that will run through that line. But generally, the costs in relation to Russia are finished, yes.

Brook Campbell-Crawford:

Just on CapEx. It looks like a larger CapEx quarter. The December quarter, it looks like it's about $94 million. Can you just remind us, I guess, what the expectations are for the full year? I think at the last result, it was $550 million to $600 million of CapEx was the expectation. So just an update on that one would be great and any reasons for the lighter investment period in the December quarter?

Brook Campbell-Crawford:

And a follow-up, if I could, just around capital and the M&A strategy. Ron, if you wouldn't mind just reminding us of the M&A strategy as it is today? And has it changed at all over the last couple of years. I guess I asked just because more recent investments seem to be focused on sort of fiber paper-type smaller deals like pull back in the one in China. You seem to be becoming a bit more substrate-agnostic. But just an update really on your M&A strategy will be fantastic.

Operator:

We'll take our next question from [Ben Karidis] with NST.

Michael Casamento:

Look, I mean if you think about interest and tax, together this year from a full year guidance standpoint, we've called out. They're going to be a headwind of around 4%. And tax, we've called out, is going to be more in that 18% to 19% range. And that's really on the back of the mix of earnings and particularly where our interest expense is, which is in higher cost -- higher tax cost countries. But when you put that together with the interest increase, that's more than offset by the increase in interest, so for this year, 4%, we haven't called out any guidance for FY '24 at this stage. But obviously, in the first half, depending on where interest rates go, there could be some headwind, but we're yet to see where that ends up. So at this stage, I'll -- we'll come back to you on that one.

John Purtell:

Just a quick follow-up. Michael, just on the raw material side, you obviously saw a modest benefit there in the second quarter. I mean it looks like the raw mat indices have retraced a fair way. So the question is what have you baked into guidance because it looks like there should be a pretty material raw material benefit in that second half.

Operator:

Ladies and gentlemen, this concludes our question-and-answer session. I would now like to turn the call back over to Ron Delia for any closing remarks.

Operator:

And that concludes today's presentation. Thank you for your participation and you may now disconnect.

Operator:

Good evening. My name is Rob, and I will be our conference operator today. At this time, I would like to welcome everyone to the Amcor First Quarter 2023 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator instructions] Thank you. Tracey Whitehead, Head of Investor Relations. You may begin your conference.

Ron Delia:

Okay, thanks Tracy. Thanks everyone for joining Michael and myself today to discuss Amcor's first quarter financial results for fiscal 2023. We'll begin with some prepared remarks before opening for Q&A, and I'll start with Slide three, which covers our first and most important value, which is safety. The first quarter showed continued progress on our long term objective of eliminating injuries across our global operations. Our teams are doing a good job proactively identifying and addressing potential risks, and the results are evident with a further 31% reduction in the number of reported injuries globally compared to last year. This good work has also led to a solid increase in the number of our sites that have been injury-free for the past 12 months or more, which stood at 63% at the end of the quarter. Our top priority will always be the well-being of our 44,000 global employees and achieving our goal of zero injuries. Turning to our key messages for today on Slide four, first message to leave you with is the business has delivered another strong quarterly result highlighting the relative stability of our end markets, our relentless focus on recovering higher raw material costs and staying ahead of inflation, and our proactive approach to driving costs out of the business in a volatile and challenging operating environment. The result was another quarter of strong operating leverage with 10% growth and adjusted earnings per share on a comparable constant currency basis. Second, we're confident in our ability to sustain solid organic earnings growth from the underlying business in fiscal '23. We've reaffirmed our guidance ranges for comparable constant currency EPS growth and free cash flow while updating our reported EPS guidance to reflect further strengthening of the US dollar. We assume the macroeconomic environment will remain challenging, however, our continued focus on sustainability, innovation and higher growth, higher value add segments combined with our proactive approach to managing costs, supports our confidence in delivering against our expectations for the year. Third, our attention to sustainability is unwavering. We understand our role in supporting the circular economy and we continue to improve the sustainability profile of our products. And finally, we want to leave you with a good understanding of why we're confident that Amcor's strong resilient business will drive long-term shareholder value creation. Moving to some of the first quarter financial highlights on Slide five. We've had a strong start to the year. On a constant currency basis, net sales growth was 15%, which includes approximately $400 million of price increases related to higher raw material costs. Excluding this pass through impact, organic sales grew 3%, both the flexibles and rigid segments generated price mix benefits and have done an excellent job recovering general inflation of approximately $75 million as a result of non-material costs increasing at double digit rates. Overall volumes were marginally lower, reflecting somewhat softer and variable customer demand through the quarter. As I mentioned earlier, operating leverage was strong with solid top line growth and proactive delivery of cost efficiencies in both businesses, driving EBIT up 9% and adjusted earnings per share up 10%. We continue to expect to deliver strong cash returns to shareholders this fiscal year through approximately $400 million of share repurchases and a growing dividend, which increased to $0.1225 per share this quarter. And our financial profile remains strong with return on average funds employed at 16.5%. We're pleased with our first quarter financial performance and we'll now turn over to Michael to cover more of the specifics, including our fiscal '23 outlook. Michael?

Ron Delia:

Okay, thanks Michael. Before we open the call to questions, I'd like to cover some of the drivers that inform how we think about our growth over the longer term and are relevant for our fiscal 23 outlook as well. For several periods, we've highlighted multiple commercially oriented drivers that have enabled us to deliver solid and sustainable organic earnings growth over the last three years. These drivers include opportunities and priority segments, emerging markets and innovation, and they've not changed and when combined with our ability to deliver continual cost improvements by leveraging our scale advantages and capabilities, these drivers give us the confidence we'll continue to consistently deliver solid organic earnings growth from the underlying business, even in the face of continued challenging and evolving macroeconomic conditions. Our focus on priority segments, including protein, healthcare, premium coffee, pet food, and hot fill beverages will continue to be a driver of growth and mixed benefits with more than $4 billion in collective annual sales, we have leading positions in each of these large addressable markets that have been growing at higher than market rates for us historically. And over time, we expect they'll continue to grow at mid-single digit rates with higher than average margins. As Michael mentioned, healthcare was a particular standout in the first quarter with strong growth across all regions. Emerging markets also continue to be a focus for Amcor. We have a large scale diversified emerging markets portfolio, which generates annual sales of more than $3 billion, and this is another source of organic growth. And over the long term, we expect these markets collectively we'll continue to grow at mid-single digit rates. In the last quarter, several emerging market countries delivered double digit earnings growth, including India, Brazil, and Mexico. Innovation provides a third opportunity for us to drive growth and value, particularly as customers and consumers focused on the critical need for more sustainable high performance packaging solutions. Amcor has industry leading r and d in material science capabilities and expertise and when coupled with our unmatched scale and geographic reach, these capabilities provide unique ongoing opportunities to develop differentiated products to meet the needs of our customers. For example, we're winning new business by taking fresh protein packaging solutions initially developed by the legacy beams business into the Asia-Pacific market, including modified atmosphere packaging solutions in China and the ecotype high barrier recyclable films in Australia. And a cross-functional and import team came together to partner with Pfizer to develop packaging for the first commercial batches of packs, Levi in the US market. Leveraging technology developed by our teams in Europe and our global footprint, we were able to start production of living and base material at the same time in five Amcor sites across five countries in order to fully meet Pfizer's requirements in one third of the standard lead time. Looking ahead, the strategic choices we've made to focus on these organic growth drivers will guide how we prioritize investments back into the business. We see at a wide range of attractive growth opportunities across each of these areas, and we're actively investing to sustain the organic growth momentum we've built over several years before closing a few words on sustainability. Sustainability is fundamental to everything we do and is deeply embedded in Amcor strategy and risk management framework and the basic start within our own operations. Our 2022 sustainability report will be released in a few weeks and will highlight some of the important progress we've made through the year. This includes reaching a cumulative reduction in greenhouse gas emissions intensity of 35% since the launch of amcos and Bio action program in 2008. A critical journey will continue through our commitment to achieve net zero emissions by 2050. In addition to carbon related objectives, we maintain robust targets for reducing water and waste and achieved significant milestones during the year. A few weeks ago, we also released our first TCFD report highlighting the important work we're doing to help ensure we make the right decisions on climate and packaging sustainability. Turning to Slide 12. We continue to make progress supporting the development of circular systems through the three pillars of our responsible packaging strategy, innovation, infrastructure, and consumer participation. Today, nearly a hundred percent of our rigid and specialty car and packaging portfolios are fully recyclable and in our flexible packaging segment, 83% of our product portfolio is designed to be recycled or has a recycle ready option available for trial. In fiscal '22, we used more than 130,000 metric tons of pcr, up 30% from the prior year, and representing 6% of our total re usage. And we're now building an increasing on our objectives with a new commitment that 30% of our total revenue use will be recycled material by 2030. In one example, to bring this focus on recycled content to life, we've worked closely with monies on the recent launch of packaging for several Cadbury Dairy milk products incorporate incorporating 30% food grade recycled content in both the UK and Australia. This is an important example of how a combination of strong relationships, differentiated capabilities, and a global footprint can translate into volume growth and mixed benefits. For Amcor, we've also continued to collaborate with others to support the development of recycling infrastructure. On October 12th, Amcor was the only packaging company to join 11 brand owners in the consumer goods forum to publicly signal a commitment towards further increasing the use of recycled materials and packaging. Together we express that our common interest in purchasing commercial volumes of chemically recycled plastic and our support for the development of credible, safe, and environmentally sound chemical recycling infrastructure. Our sustainability journey is ongoing and our long term strategy is helping to create a responsible packaging industry for the benefit of Amcor and its customers, but crucially for the environment as well. Turning to Slide 13, we've built a strong foundation to deliver growth and value creation, and we've consistently executed well against our strategy. We don't expect to be immune economic challenges and uncertainties, but we believe we're relatively well positioned with a defensive consumer staples and healthcare focused portfolio in multiple drivers of growth and cost productivity. And our consistently strong cash flow provides the ability to reinvest in the business, to pursue acquisitions or repurchase shares, and to grow the dividend and positions us well to generate strong and consistent value for shareholders over the long term. In summary, on Slide 14, despite a continued challenging economic backdrop, we've had a strong start to the financial year. Our consistent execution has enabled us to deliver solid sales growth and excellent operating leverage, resulting in double digit organic EPS growth. We're confident in our ability to deliver against our outlook for EPS growth and free cash flow, which we've reaffirmed today, and we're executing well to deliver long-term value for shareholders, including by making further progress against our sustainability agenda. And operator, we're ready to open the call for questions

Ghansham Panjabi:

Thank you, operator. Good day everybody. I guess first off, Ron, many consumers stapled to customers of yours are aggressively raising prices and, you know, as a consequence of reporting weaker volumes along with de stalking, which I assume is part of the reason your volumes were sluggish in both segments for the developed markets. How do you sort of see that dynamic evolving as we cycle more fully through into your fiscal year '23? I guess what a customer sharing with you in terms of their own outlook at this point for next year?

Ghansham Panjabi:

Okay, terrific. And then in previous quarters you've called out limitations on certain residents as it relates to availability and all sorts of disruptions and force. Can you just give us an update on that dynamic and some of the volume you've given up in the past as you internalize production and focused on higher mix? Is there an opportunity now to go and recapture that share for the rest of your fiscal year?

Operator:

Your next question comes from the line of George Staphos from Bank of America. Your line is open.

Ron Delia:

Yeah, look, I think, from a -- the first part of your question about where is the demand, I guess the most elastic, where are we seeing it often the most, I would answer the question more geographically than, than at the segment level. I think firstly I would say our healthcare volumes globally have been very, very strong. So that's the other side of the discussion is that healthcare has remained very robust, particularly pharmaceutical packaging. And that's been true everywhere. I think as it relates to food beverage packaging, home and personal care to some extent. Where we've seen the most softness has, has been in the developed markets in Western Europe and in North America. Presumably, you know, that's where the inflation is biting the, the most, I mean, we've got act actually at the moment, more modest inflation in some of the emerging market countries we're participating in. So really where we've seen the most softness and the increasing softness has been in North America and western Europe. And then I guess I would also add China to that list, but we believe that the China softness is primarily a result of the COVID related lockdowns. We believe that based on the patterns across the global footprint or the national footprint we have in China. So I'd answer to the question that from a geographical perspective, more than a segment perspective, and then as it relates to protein, protein is a high priority segment for us. Without question, it's an attractive segment for a lot of reasons, a lot of innovation in that space in particular around the films and materials. And, we had a, a flattish quarter globally across the protein space, so that's not what you'd expect, and it's not what we've experienced over the last several years. We, we would expect mid-single digit mid to high single digit growth in that segment, and we were, we were more, more or less flat for the quarter.

Ron Delia:

Yeah, thanks, George. No, it's a good observation and it's a good insight. I would, I would agree with your insight there that generally speaking the hot fill space is, is a space where there are more premium beverages being sold. A lot of that goes through the convenience channel. I think what we're seeing there, to some extent is function of our customer mix. It's a function of new product introductions. Some segments actually held up pretty well through the quarter as, as whole segments ready to drink teas sports drinks to some extent some of the hot filled juices. But I also think its 90 days, and I think in a 90-day period, you, you have distortions that relate to inventories and different customer performance. So I'm not sure I would read too much into that, other than our hot fill volumes have continued to grow at attractive rates. And it's one of the reasons we've prioritized that segment.

Jakob Cakarnis:

Hi Ron. Hi Michael. Michael, can I just get you to give us a sense of where that inventory is at the moment in both a units and value perspective? Just noting, obviously it continues to build alongside the inflation. Just want to get a sense of how clean that might be given the volume outlook that we've just spoken to.

Operator:

Your next question comes from a line of Keith Chau from MST Marquee. Your line is open.

Ron Delia:

Yeah, Keith, I'll touch on volume and then Michael can talk about the, the raw material side. I, I think they, I think to be very plain spoken about it, we do expect soft volumes the rest of the year. I mean, I think that's the cautious, more conservative approach to take. I think you can tell by the operating leverage we got in the first quarter, we've been really proactive at getting after cost. You know, cost performance in the operations in both segments was really strong in the first quarter, and we will continue to be strong, and that's because we expect a pretty soft volume environment, which I think is very consistent with what everyone else in our, in our value chain is experiencing as well, but maybe on the, on the raw material side?

Keith Chau:

Michael, can I just quickly follow on with that? So you've got inventories from a volume perspective quite significantly high. So 40% of the total uplift, if you're winding back those inventories going into the balance of the year, what type of operating inefficiencies are we likely to see given you've had a period of actually efficiency benefit as you've ramped up inventory? So are we, should we expect a margin impact as you wind back those?

Ron Delia:

Yeah, it's raw, it's raw material, Keith. So, so in that respect, I mean, it's going to flow through get passed through to the customer.

Kyle White:

Hey, good morning. Thanks for taking the question. I wanted to go to the beverage volumes down 3% in North America. I know it may be a little bit difficult to say, but is do you think that's a function of some of the destocking that we've been talking about, or is that more longer lasting volume weakness with customers choosing value over volume and, and the inflationary pressures impacting consumer demand?

Kyle White:

Got it. And then you touched on it a little bit earlier, but I think the volume challenge in the fast moving good space, it's understood. But can you touch on what you're seeing in the healthcare space more specifically and how that trended through the quarter? And do you anticipate any challenges to, to volumes here from some of the economic challenges as well as the inflationary environment we have?

Operator:

Your next question comes from the line of Adam Samuelson from Goldman Sachs. Your line is open.

Michael Casamento:

Yes. Thanks, Adam, for the question. Look, in terms of our guidance, obviously, we've got a range of outcomes in the 5% to 10%. I mean the base assumption is that volumes are going to be fairly modest. We're not expecting any major volume growth. Clearly, in the first quarter, we were flat and market conditions are pretty tight and tough out there. So where we are focused, obviously, is continuing to drive the business to recover inflation and the raw material costs and actively taking cost out of the business, which also supported the result in the quarter as well as strong mix through continued innovation and mix management driving the focus segments and the like. So in that 5% to 10%, clearly, there's a range of outcomes. If we do better on the volume side in some of the focus segments, then we'll potentially have better mix and end at the higher end of the range. if you see more recessionary impacts and softer consumer demand, that could drive us to the lower end of the range. Obviously, raw material prices, as I touched on earlier, can impact as well. So inflation is the other big one. We did well in the quarter to recover inflation through price and mix. And we are expecting more inflation as we head through the year and expect to recover that. But that's another factor that could drive a range of outcomes in that guidance.

Daniel Kang:

So just a question on the Russian process. Can you talk us through how it's progressing? I noticed that some of your peers have achieved a better outcome than expected.

Daniel Kang:

Great, Ron. And the proceeds would just go to debt repayment, I'm presuming?

Operator:

Your next question comes from the line of Anthony Pettinari from Citi. Your line is open.

Ron Delia:

Yes. Well, look, I'd say the ability and the willingness are both high. But it always takes two to tango in an M&A situation. And we're actively pursuing deals. I mean that's part of our formula and has been for a long time. We think there are good bolt-on opportunities across our portfolio. I think what I would say is you can safely assume that anything that's in the market, in the packaging space or at least in our segments, we're having a look at and a close look at. So the appetite is there. The willingness is there. The balance sheet and cash flow are there. We're pretty clear on our strategy in terms of the segments we want to grow in, the geographies we want to grow in. So we'd like to try to be active. In some respects, a tough macroeconomic backdrop might not be the worst context, the worst setting for us. If you go back over a number of years, we've tended to be more active when asset prices were more modest or at least more in line with long-term trends. And we're going to remain disciplined and actually hope that's the case in this cycle. ePAC, just quickly on ePAC, it's more of a corporate venturing type investment. So we've got a minority stake. We've put some more money into it but it's still a minority position in a start-up -- relative new startup called ePAC, which has been around about five or six years. It's a digitally enabled flexible packaging company. They essentially rely on digital printing. The whole process is digitized. And it's a really exciting opportunity. It's a business that's targeting small and actually micro customers with quick lead times and very responsive service model. And it's been growing really almost by triple digits over the last five or six years. So we're pretty excited about that business.

Richard Johnson:

Just a question on Russia, if I may, please. I noticed you've got a $90-odd million restructuring program related to the sale of the three plants. Just intuitively, that feels like a very high number. And I was just wondering if you could help me understand what's behind it.

Richard Johnson:

Yes. But if you break down that $200 million, Michael, you talk about $62 million and restructuring costs was a further $30 million to go this year. So it's really that bit I'm trying to understand what that is.

Richard Johnson:

And while you're on the line, just on the interest charge, very helpful guidance you've given. I was just trying to get a sense of what that number would be on a constant FX basis.

Operator:

And your next question comes from the line of Mark Wilde from BMO. Your line is open.

Michael Casamento:

Yes. Look, the fixed and floating piece at the end of September was 50-50 fixed and floating. Since that time, we have taken some fixed rate swaps. And so we're -- today, we stand around about 65% fixed versus 35% floating.

Ron Delia:

I think making sure that the teams stay focused on trying to drive growth in the segments that we've nominated as areas we want to grow and at the same time, being out there and really aggressively focusing on recovering inflation. I think that's the key. I think -- there's one other one I'll come to. But I think, generally speaking, we're trying to do two things at the same time, which you could consider to be contradictory. We're trying to grow the business and generate momentum on the top line. And we feel like we've never had more tools at our disposal to do that. And we're investing more CapEx and more R&D, et cetera, et cetera. But at the same time, we've got to be out front of inflation. And so just trying to manage that message internally and managing the balance between those two things is the real challenge. And then the second thing is just -- there's just been a lot of exogenous factors out in the operating environment over the last several years, starting with the pandemic and then the supply chain disruptions and then in the parts of the business impacted by the Russia-Ukraine conflict. There's been a lot of different exogenous factors out there. And so I just want to make sure people have energy and they're renewed and they're pumped up and fired up to come to work every day. I think that's not an insignificant challenge when there's so many different things being thrown at them. They really have nothing to do with the base business of selling packaging.

Larry Gandler:

Just in terms of your cash flow guidance, do you need to take further price increases from here to expand that tailwind of price cost lag?

Larry Gandler:

That's further price increases that you guys take as opposed to cost increases, just to be clear.

Larry Gandler:

Yes. Okay. And I don't know, Mike or Ron, if you could just talk to the pet food category, maybe in Europe and U.S., how that played out over the last quarter and maybe recent trends?

Operator:

Your next question comes from the line of Nathan Reilly from UBS.

Ron Delia:

Yes. Look, it's a good question. We're really pleased with the plant performance. So firstly, in terms of the availability of the imports, as I noted earlier, the raw material availability has improved. There are still some specialty materials that are in short supply, and I think that's going to continue for a while. But many of the constraints and bottlenecks we were dealing with over the last 12 to 18 months have abated. So that situation has improved. And generally speaking, the labor availability has improved across the network. Certainly, this time last year or even the earlier part of calendar '22, we had some real labor challenges, especially in North America and in Europe as COVID spikes rolled through those regions. That seems to be behind us at the moment. And we've not had real labor constraints for some time. So I think from a factor availability or input availability, the plants have been able to run more unencumbered. And then I think as far as the productivity and the efficiencies, we're really pleased. We think that's one of the highlights of the first quarter. If you look at our 9% EBIT growth, we'd say probably about 1/3 of that came from price and mix but two third of it came from the cost performance in the plants. And so that's where we got the operating leverage to turn really flat volumes, actually modestly down volumes into 10% EPS growth. So we're pretty pleased with the way the plants are performing. And it's important because we're going to need them going forward.

Brook Campbell-Crawford:

Just to follow up on an earlier comment around the restructuring in Europe. Are you able just to confirm, is the plan actually to close plants in Europe going forward? Or is it -- is this provision that was taken, I guess, 3 months ago now more relating to the closure of Russia and you're not actually planning to close plants in Europe?

Brook Campbell-Crawford:

Okay. Great. And I guess the free cash flow guidance this year is unchanged. But what's the expectation at this point for the cash significant items that, of course, sort of falls outside of that $1 billion to $1.1 billion guidance range?

Operator:

And your next question comes from the line of John Purtell from Macquarie.

Ron Delia:

It's really hard to say. The only segment where you feel like there's more inventory and maybe got a little bit of a bump in hindsight is the coffee space. We do -- primarily our coffee business now is primarily single serve and systems -- coffee systems, which -- this is more intuitive or hypothesis than it is borne out by facts. But intuitively, more at-home consumption -- more people at home would have driven more at-home consumption of single-serve coffee and coffee system sales pods and the like. And so we may be seeing a little bit of the unwind of that. But I think the more important thing is that long term, these segments, the secular tailwinds that relate to greater packaging intensity to provide the consumer the convenience and functionality that they're now used to. And so we continue to be bullish on these segments over the medium to longer term.

Ron Delia:

Yes. Look, on the private label versus branded mix, our mix kind of looks like the market. I think you have to get to the segment level. And certain segments have much higher penetration of private label than others and our mix kind of reflects that. And so I would say there's not a whole lot there in terms of what the impact will be as consumers shift potentially to private label from branded goods. On the sustainability platforms, look, we are starting to see some traction. The sales are in the tens of millions of dollars now, which is growing off a low base. So this is sales of the platforms that we talked about before, the AmPrima and AmFiber and AmLite and Sky. So we're starting to get there. I think it's just all part of the formula of continually driving mix benefits and margin expansion off of the organic volumes of the business.

Ron Delia:

Okay. Thanks, operator. Thanks very much for your interest in Amcor today. We feel like we had a good strong start to the fiscal year. And we're maintaining our expectations for the performance of the base business for the rest of fiscal '23. And we look forward to continue to provide updates along the way. Thanks very much. And with that, operator, we'll end the call.

Operator:

Ladies and gentlemen, thank you for standing by, and welcome to Amcor's Full Year 2022 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. Tracey Whitehead, Head of Investor Relations, you may begin your conference.

Ron Delia:

Thanks, Tracey, and thanks everyone for joining Michael and myself today to discuss Amcor's financial results for fiscal 2022. We'll begin with some prepared remarks before opening for Q&A. And kicking off with Slide 3, which covers safety, our first and most important value. Throughout fiscal 2022, we continue to make good progress on our long-term objective of eliminating injuries across our global operations. The focus of our teams on implementing additional safety best practices resulted in a further 3% reduction in the number of reported injuries globally, and I'm pleased to report that well over 50% of our sites continue to be injury free for the past 12 months or more. We pride ourselves on making the well being of our 44,000 global employees our number one objective, and we'll continue to strive to achieve our goal of no injuries. Turning to our key messages for today on Slide 4. First, FY '22 has been another outstanding year for Amcor. We could not be more pleased with how our teams have demonstrated remarkable perseverance and agility, continually adjusting to challenges in the operating environment from raw material shortages to high inflation, while remaining focused on driving value for our customers and our shareholders. As a result, financial performance was strong with growth across all key metrics. The business finished the year with good momentum, more than offsetting any external headwinds so that Q4 was our strongest quarter of sales and EBIT growth, and full year EPS growth of 11% was at the top end of our guidance range. Second, we expect the business to continue performing well and we anticipate sustaining strong underlying growth in FY '23. And finally, we have a resilient and compelling investment case, which has consistently delivered significant shareholder value through a combination of organic growth, value creating acquisitions, and cash returns to shareholders. Turning to some financial highlights for the year as outlined on Slide 5. In short, we've added to our track record with another year of sustainable growth in the underlying business. Focusing on the strong June quarter, net sales growth was 13% and this included approximately $1.7 billion of incremental price increases on an annualized basis related to the pass through of higher raw material costs. Excluding this pass through, organic sales growth accelerated through the year reaching 6% for the June quarter in both the flexibles and rigid packaging segments, and our strong performance reflects good work by our teams to recover broader and higher levels of general inflation, mostly through the second half of the year. It also reflects favorable volume and mixed benefits. And as we have in the past several quarters, we benefited from mid to high single digit growth in high value priority segments, which confirms that our focus on these faster growing markets is paying off. This top line growth converted into adjusted EBIT growth of 9% in the June quarter and it's worth noting that this high single digit earnings growth was achieved in a quarter which clearly no longer benefited from any synergies, and while we continue to experience significant inflation and an unfavorable price cost lag related to raw materials. Flexibles delivered outstanding EBIT growth of 11% in the quarter and in line with our expectations, earnings growth continued to improve in rigid packaging. For the full year, net sales growth was 13% and 4% on an organic basis, which represents our third consecutive year of accelerating top line growth. Adjusted EBIT of 1.7 billion was 7% higher than the prior year, and adjusted EPS of $0.805 per share was 11% higher than one year ago. Our financial profile remains strong with return on average funds employed at 16.3%. And we also returned more than $1.3 billion of cash to shareholders through share repurchases and a higher annual dividend. Now, before handing over to Michael for more detail on the financial results, let me provide an update on our business in Russia. As previously announced, we've been exploring all strategic options for our Russian business. And after a thorough assessment, we've decided to sell our three manufacturing sites in Russia. Until completion, which we expect will occur in the second half of our 2023 fiscal year, we remain committed to supporting our employees and customers, while preserving value for shareholders through an orderly sell process. We're also practically undertaking initiatives to help offset the future impact of the divested earnings, including optimizing our European footprint and adjusting our regional cost base. With that, I'll hand over to Michael who will cover the estimated impact of this sale on fiscal 2023 guidance.

Ron Delia:

Okay. Thanks, Michael. Before turning to Q&A, I want to refocus for a minute on the longer term and our financial performance continues to reflect consistent delivery against our strategy and a resilient investment case which is shown on Slide 10. We enter fiscal '23 with leadership positions in most of our chosen primary packaging segments and with over 95% of our sales for consumer staples and healthcare products. We also have absolute and relative scale advantages in all key regions, and industry leading commercial and innovation capabilities. With this portfolio, we have a long track record through multiple economic cycles of delivering earnings growth, margin expansion and significant free cash flow, all while maintaining a strong investment grade balance sheet. Our cash flow and balance sheet strength is enabling us to step up investments for growth, and continue to return additional value to shareholders in the form of a growing dividend and regular share repurchases. The starting point in creating value for shareholders will always be the underlying organic growth of the business. And as we've continually strengthened the base business, including over the last few years with the Bemis acquisition, we've built sustainable organic sales growth momentum. We have multiple drivers of organic growth that have contributed to that momentum and which are shown on Slide 11. We've been focused on these areas for some time and we're investing across each of them. First, Amcor has leading positions in higher growth, higher value priority segments, including healthcare, meat, cheese, premium coffee, pet food, and hot fill containers. Collectively, we generate more than $4 billion in annual sales across these categories. And they're growing at mid single digit rates and offer significant opportunities for differentiation, contributing to margin expansion. Over time, they'll represent a higher proportion of our sales mix and become an increasingly relevant driver of earnings growth. We also have a leading and well diversified emerging markets portfolio generating more than $3 billion in revenue, which we expect will also grow in mid single digit rates over the long term, as has been the case for many years. And innovation continues to be one of the most critical drivers of differentiation and growth in the packaging industry. And Amcor is coming from a position of tremendous strength with deep R&D talent and capabilities. And finally, sustainability is fundamental to everything we do from an innovation perspective, and remains at the forefront of discussions with global brand owners. As the sustainability leader in the packaging industry, we continue to be the supplier of choice to help our customers achieve their goals in a meaningful way and at scale. Organic growth has accelerated over the last three years, and as Michael mentioned, we're stepping up CapEx to around 4% to 5% of sales on an ongoing basis to maintain that momentum. In our industry, there's also a rich pipeline of acquisition opportunities available to supplement our organic growth. We have a pragmatic and disciplined approach to M&A, and we've completed around 30 deals in the last 10 years and we continue to be active. Earlier this month, we acquired a world class flexible packaging plant in the Czech Republic. This plant features state of the art equipment and immediately increases our capacity in Central Europe to satisfy strong demand in priority segments, including coffee and pet food. The acquired land and buildings also provide optionality to scale and potentially consolidate operations in that region, while giving us a highly efficient production hub in a strategically attractive lower cost location. We've also invested in several new opportunities through our open innovation and corporate venturing efforts. These typically start small, but we're very excited to have recently increased our strategic investment in ePac, a fast growing flexible packaging player leveraging digital technologies to offer smaller production runs and shorter lead times. This increased investment in ePac is an excellent example of our objective to partner with high growth, visionary companies to learn from and to leverage new innovations and business models. As you heard from Michael, we have a strong investment grade balance sheet and we expect another year of robust cash flow in fiscal '23, which means we can continue to invest in growth and return a substantial amount of capital to shareholders. We're committed to growing our already compelling dividend every year. And Amcor is one of a small number of companies included in the Dividend Aristocrats Index, which recognizes companies with a 25-year or longer history of consecutive dividend increases. Our current yield is especially attractive at approximately 4%. And we've also been a regular repurchaser of our own shares, allocating $1.5 billion of cash to share repurchases since 2019. And over that time, we've bought back more than 8% of our outstanding shares, or roughly one-third of the shares that were issued to acquire Bemis three years ago. And looking ahead, we expect our strong cash generation to continue supporting regular share repurchases, including approximately $400 million in fiscal '23. In summary, on Slide 14, Amcor had another strong year in fiscal '22, generating sustainable momentum and delivering earnings growth at the top end of our expected range. We expect to deliver another year of strong growth in the underlying business in FY '23, and we're committed to continuing delivering for shareholders by increasing investments in the business and returning value through a compelling dividend and ongoing share repurchases. So with those opening remarks, operator, we can now turn the line over to questions.

Anthony Pettinari:

Good afternoon. In rigids, you saw really good volume growth in North America bev and some of your packaging peers have talked about customers pushing price over volume and maybe reducing some promotional activity. I'm wondering if you could just talk about maybe the outlook for bev volumes in fiscal '23 and the dynamic that you're seeing there. Do you think that you're gaining share or maybe you're kind of overweight in some categories that are winning in the marketplace? Just any kind of further detail there would be very helpful?

Anthony Pettinari:

Okay, that's very helpful. And then just switching to flexibles. In terms of improving material availability, what inning do you think you're in there or at what point does that maybe run its course? And does the guidance assume maybe kind of a modest mix headwind in '23 as you kind of maybe go back to some maybe lower margin customers? I don't know if that's the right way to think about it, but any color there?

Tracey Whitehead:

Operator, we will take the next question please.

Ghansham Panjabi:

Thank you. Good day, everybody. I just wanted to follow up on Anthony's question on the elasticity impact. Ron, maybe just a broader portfolio question, just rigids but flexibles as well. Have you seen any sort of impact as it relates to new product introduction activity or anything like that, because clearly a lot of your customers are talking about consumer elasticity taking hold? And then also just to clarify, the 3% price contribution in flexibles, apart from the 11% pass through impact, what exactly does that encompass? These market based price increases as you attempt to adjust for higher freight and labor costs or is there something else there? Thanks.

Michael Casamento:

Yes, sure. In terms of the pricing, so as you've seen from the results, our teams have been out there working really hard to get not only the raw material increases back in the year, and when you see it, we put through about 1.5 billion in raw material related price increases through the year, so about 12% of revenue. And that kind of counted at 25% increase generally across the board in raw materials. But in addition to that, clearly we've seen pretty significant increases in inflation across things like energy and freight, and to a lesser extent some labor. And so clearly, our teams have been out in the marketplace recovering those non-raw material related items as well and working really hard to do that. And if you think about energy and freight as a component of Amcor's cost of goods, they're a smaller component, they're around about 3% of our cost of goods. And during the year, we've seen somewhere between 15% to 20% increases in those items. And that equates to around 100 million, 110 million. And then if you take labor and a few other things into account, the overall inflation for the year was somewhere around $150 million mark. And if you look at our price increases across the board, we had about a 1% price increase in non-raw material added, so 1% in sales growth. That's a pretty similar amount to the inflation that we saw.

Operator:

Our next question comes from the line of Brook Campbell-Crawford with Barrenjoey. Your line is open.

Ron Delia:

Yes. Look, I would describe it as basically the components that you just outlined. So we start with expectation of low single digit volume growth. We start with the expectation that that volume growth will be more heavily weighted towards the more differentiated higher value segments that we've called out. We would expect to continue to get inflation recovery. And we would expect to continue to drive cost productivity in the business. So those building blocks probably haven't changed much. In certain years, we've had acquisition synergies to contribute. We don't have that obviously in '23. But those are the building blocks.

Michael Casamento:

Yes. Thanks, Brook. It's Michael. Look, that was just the end of the program, so there's some tail off on certain costs relating to -- mostly relating to footprint related items, the impairments and other things. So that's specifically on the Bemis program, which is now closed out. So you should not expect any more costs below the line for that program, which we completed this year.

Larry Gandler:

Thank you. Just making sure you can hear me.

Larry Gandler:

Thank you. Okay. First question, I guess, Michael, with regards to the cash flow guidance, I was hoping for at least raw materials inventory not to be a drag on cash flow in F '23. Given the cash flow guidance is not in advance of F '22, it does seem like there is a bit of a drag. Just wondering if you can walk us through that? And my second question is related to -- you recently appointed -- this is probably a question more for Ron. You guys recently appointed a Head of Global Sales I guess to harmonize some of those high margin categories and your presence across Europe and U.S. Ron, maybe you can just talk about the priorities there?

Michael Casamento:

Yes, sure. So I'll start with the cash flow. Look, we're looking forward to another strong year of cash flow in that 1 billion to 1.1 billion range. There are several factors that drive that. Obviously, we're going to have some -- we'll have higher EBITDA within that cash flow from a working capital standpoint. In FY '22, we had a cash outflow of around 150 million on the back of the raw material price escalation and holding more inventory on the back of the volatile and disruptive marketplace. So we're not anticipating an additional outflow as a result of that. But at the same time, you're going to see increased sales and further pass through. So there will be some working capital impact from that, albeit we'll be holding working capital to sales around that below 8 ratio, which we've been pretty consistent on over the last few years. So no real impact on the inventory side. It's also going to depend on what happens with raw material pricing and how the market supply chain works. But pretty much, we're looking for neutral [ph] working capital impact. Obviously, we're going to be spending more in CapEx. So we talked about a 15% step up in CapEx, which will -- that's included in the guidance. And then with the higher interest, that's an outflow that we didn't have this year. So when you put all that together, looking forward to another strong year in that 1 billion to 1.1 billion range.

Operator:

Your next question comes from the line of George Staphos with Bank of America. Your line is open.

Ron Delia:

Yes.

Ron Delia:

Yes. Thanks, George. And I'll take it. Michael can tag on here at the end. But we've decided to sell these three plants, which have historically produced around 4% to 5% of our EBIT. The planning assumption and the assumption that's embedded in our guidance for the year is that we complete that sale process at some point in the second half of the year. And between now and then, we're scaling back the operations, which is all consistent with what we had said back in March and I think on our call in May. Now as far as the difference between roughly a 2% headwind in FY '23 and whether or not there's any residual impact in '24, look, we're pedaling really hard to offset the gap. And so we don't expect any meaningful residual impact in FY '24. Clearly, we're losing 4% to 5% of earnings. We're going to take a hard look at the cost base in that part of the business. We'll be rightsizing, if you will, the cost base in that part of the company, looking at footprint as well. And so we expect to mitigate the remaining impact to the extent there is any.

Adam Samuelson:

Yes, thank you to everyone. I guess first question is just thinking about maybe the growth you've delivered in the quarter and your thoughts in fiscal '23, maybe a bit more regionally. I'm just wondering -- you gave some color regionally in the rigids business, but help us think about kind of what you're seeing in Europe, Asia. China had lockdowns in the most recent quarter that could have proven disruptive. And especially in Europe, as you look ahead, weaker economic growth, kind of how you -- and the impact of energy and power prices, how that's both impacting your view of costs but also your view of consumer demand? And I think high level, Ron talked about kind of low single digit volume growth outlook as a starting assumption for fiscal '23, and I'm just trying to build up to that a little bit more?

Michael Casamento:

Yes. So look, in terms of energy, as I said earlier, we've certainly seen inflation in our energy costs around the globe and in Europe, and that actually in Europe accelerated in the second half. But we've been out there recovering it. And we're certainly anticipating there's going to be more inflation to come. But the teams are out there and covering it. And the level is dependent on where things get to in that marketplace. And obviously, we've factored that into the guidance range and the range of outcomes in that guidance range. So overall, we're expecting inflation to continue and the teams are out there recovering it.

Ron Delia:

Thanks, Adam.

Jakob Cakarnis:

Good evening, Michael, and good evening, Ron. Just a question on the CapEx outlook. Obviously, the third quarter update, you upgraded the CapEx to sales guidance to be between 4% and 5% of revenue. And today, you've mentioned that there's a 15% increase in the CapEx guidance. Can you just give us some indication as to where that CapEx is being allocated? Is it going to allow Amcor to compete more in the sustainability and recycled materials space, or are we looking at kind of BAU investment back into the business? I'm just wondering how it sets you up strategically moving forward.

Operator:

Your next question comes from the line of John Purtell with Macquarie. Your line is open.

Ron Delia:

Good, John. How are you doing?

Michael Casamento:

Yes. Hi, John. It's Michael. I can take that one for you. Look, throughout this year, we've seen pretty volatile and persistent increases in raw material mixed across the globe. If you remember, we buy a broad basket of raw materials and geographies, and they move at different times in different ways. But what we did see through the year was a recovery of that. But for the entire year, it was a headwind, a manageable headwind. I'd say it eased as we got into the second half and in Q4 certainly was a marginal headwind. Where raw materials are today and what we see moving forward, there are still movements upwards. Aluminum is probably one that's come down, but the marketplace is still, across the globe, volatile. But what we've included in guidance for now is that we think in the first quarter, things are going to be relatively stable based on what we see today, and we could start to see some marginal tailwinds as we get to December. But what happens in the second half, we'll see. It's all going to depend on where the raw materials move. But that's all been factored into our guidance, the guidance range that we've put out there in that 5% to 10% underlying business. Obviously, if raw materials come down fast, and that's one of the elements that could get us to the higher end of the range and if they continue to escalate, then as you know, we recover it but there is always a lag in that. And so that could be one of the factors that leads us to the bottom end of the range. But where we sit today, fairly neutral in Q1, perhaps some slight tailwind as we head into Q2.

Operator:

Your next question comes from Richard Johnson with Jefferies. Your line is open.

Ron Delia:

Yes. Look, on the hot fill space, in response to someone's question earlier, I pointed out over the last two years, hot fill volumes are up 14%. Across any of the categories that we're exposed to, there's not been 14% growth, I can tell you that. So I think that our share has improved over the last 24 to 36 months pretty meaningfully. Michael, on the interest --?

Richard Johnson:

Thanks very much.

Kyle White:

Thanks for taking the question. Ron, a little bit more longer term question here. Just curious how we should think about the shareholder growth algorithm over the long term? You're still targeting a 10% to 15% shareholder return. I guess why shouldn't it be higher, given the increase to CapEx and organic investments, especially towards some of these higher value end markets that you're targeting? I guess, obviously, you're increasing CapEx now. It takes time to get those returns. But do you see runway for this algo increasing, especially as you include M&A to it?

Operator:

Your next question comes from the line of Daniel Kang with CLSA. Your line is open.

Ron Delia:

Yes. Look, as Michael alluded to, the basket of resins that we buy have moved in different directions and at different paces. And so overall, we actually saw resins across our global basket go up a bit in the fourth quarter. But there's definite signs that things will ease. And in the medium term and even maybe a bit sooner, in certain regions of the world, there is more capacity coming on stream in some commodities, and that will certainly take some of the heat out of the pricing. Remember that supply/demand is one element. We also have the underlying feedstock prices playing a role as well, so oil and natural gas which have come off a little bit, and I'm talking very recently now. But it's really those two things that drive the prices in the polymers that we consume. And for the last period of time here in this more recent inflationary cycle, we've had pressure from both. We've had raws supply/demand working against us at times and we've had inflation in oil and gas. It's possible that in the near term or certainly in the medium term, both of those factors abate and we start to see some more meaningful softening and more sustained softening across the basket of raw materials that we're buying.

Ron Delia:

Not yet, but you would have to believe that as rates go up, as the high yield market maybe gets a little tighter and a little more constrained, that there will be maybe less competition for deals. That would be the theme that you would expect to emerge. It's a bit early in the interest rate cycle and it's a bit early generally in the asset pricing cycle for us to have seen that yet. But we're in a great position, because we know exactly where we want to go strategically. We know exactly the segments that we'd like to acquire in to advance our strategy. And we've got a great financial position to work from with a really strong balance sheet and lots of cash flow. So we'll certainly be in the deal flow to the extent assets do come to market.

Mark Wilde:

Thanks. Good evening, Ron. Good evening, Michael.

Mark Wilde:

Just curious about just any inventory destocking behavior that you're seeing? We've heard a lot of conversation about this with different retailers, but I think there have also been questions about whether upstream from them, whether some of the CPGs have taken on a little extra inventory over the last couple of years and whether they might be starting to bleed a little bit of that back out now? Just any thoughts around that, Ron?

Mark Wilde:

Okay. And then if I could just follow on real quickly. Can you just update us on sort of where volume is at in both kind of healthcare and medical devices, because you did mention some incremental healthcare and device investments? I know earlier in the pandemic that some of those volumes were weak. I'm just curious about where you stand right now.

Operator:

Your next question comes from the line of George Staphos with Bank of America. Your line is open.

Ron Delia:

Yes, thanks. Look, it's a great question, George. I would say the two factors that you outlined are inextricably linked. As you think about doing an acquisition, especially anything of meaningful scale, you'd be thinking more beyond the first couple of years of ownership. And so you'd be thinking about the sustainable growth in a business that you'd be acquiring. You'd be thinking about the sustainable competitive advantage. All of those things in our universe are going to be linked to sustainability. So it's inconceivable that we would buy something that didn't further enhance our sustainability, the sustainability credentials of our product portfolio. That being said, we like our product portfolio as it relates to sustainability. We think that we've got the key to more sustainable products with the staple of product segments that we're in today. So we don't see any real need to step out. But anything that we look at will increase -- will be accretive, if you will, to the sustainability profile of our product portfolio. And because for no other reason then, it will lead to better financial outcomes over time and higher returns ultimately. Just really quickly to close off on the Czech plant, we bought a plant which is relatively new, and it was opened right at the outset of the pandemic so it's very low utilization, gives us instant capacity in Central Europe, and it happens to have assets that are easily directed towards some of our priority segments, including coffee and pet care. So it's essentially -- we're essentially buying a plant more so than a business. And we closed on that in early August, and we'll be working over the next couple of years to fill up that site. And if things go well, then we've got optionality to expand the site as well. So pretty excited about that little bolt-on in that part of the world.

Ron Delia:

Okay. Thank you, operator. Thanks everybody for joining the call today and your interest in Amcor. We've had a strong year in '22 and we're expecting another strong year in '23 and expecting that the resilient investment case we've built up over the years will be especially compelling in this environment. So thanks again, and we'll close the call there.

Operator:

Good day. My name is Savannah and I will be your conference operator for today. At this time I would like to welcome everyone to the Amcor Third Quarter 2022 results. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise, and after the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. And I would now like to turn the conference over to Tracey Whitehead, Global Head of Investor Relations. Please go ahead.

Ron Delia:

Thanks Tracey and thanks everyone for joining Michael and myself today to discuss Amcor's financial performance at the end of the third quarter. We'll begin with some prepared remarks before opening for Q&A. And since safety is our first and most important value we'll start on slide 3 with safety as we do in every meeting at Amcor. And we believe our ultimate goal of zero injuries is absolutely possible and we continue to make good progress. So far in fiscal 2022, we reduced the number of injuries across the company by 5% compared to the prior year and more than half of our sites have been injury-free for at least 12 months. Now of course this quarter our attention has turned to the tragic and devastating war in the Ukraine. We moved quickly to close our Ukraine site in Kharkiv before the start of the invasion to protect our local team. And we continue to support those coworkers and their families in any way we can, including through direct financial support and by assisting those who've been displaced. All up, we've contributed more than $1 million to vital humanitarian relief efforts. We also announced our decision to scale down our operations in our three Russian sites and to explore all strategic options for those plants. As always, our path forward will continue to be guided by our values and by our responsibilities to all of our stakeholders. I'd like to publicly thank all of my Amcor colleagues who are contributing from near and far to this challenging and upsetting situation. Your commitment, caring and generosity has been an inspiration. Turning to our key messages for the quarter on slide 4. First, the business delivered another strong result with the March quarter representing our strongest period of sales and earnings growth for the fiscal year so far. Second, our teams have continued to demonstrate an exceptional ability to remain focused on managing sales mix and inflation while delivering for our customers. Third, given the strong execution and consistently strong earnings growth through the year, we've raised our guidance for fiscal 2022 EPS growth. And finally, Amcor has established a strong foundation for growth and value creation over the last several years and we're increasing capital investments in priority segments and geographies as well as in our innovation capabilities. Turning to the financial highlights on slide 5. March quarter performance was strong across the board and I'll start with a few highlights. Net sales grew 16% in the third quarter including more than $450 million of incremental price increases related to the pass-through of higher raw material costs. Excluding this pass-through, organic sales growth was 5% in both the Flexibles and Rigid Packaging segments. Consistent with the first half, we continue to benefit from favorable mix as well as actions to anticipate and recover higher levels of inflation than we've seen for many years. This top line growth converted into adjusted EBIT growth of 9% in the quarter. The Flexibles segment delivered EBIT growth of 10% and in line with our expectations Rigid Packaging returned to earnings growth after experiencing a unique set of supply chain challenges in the first half. As you see on the bottom of the slide this strong March quarter builds on a solid first half, so that on a year-to-date basis, net sales have increased 13%, adjusted EBIT has increased 6% and adjusted EPS is up 11%. And our financial profile remains strong and we continue to increase cash returns to shareholders. We expect to repurchase $600 million of shares this year, which when combined with our annual dividend, means we anticipate returning around $1.3 billion of cash to shareholders in fiscal '22. Before I hand over to Michael, I want to come back to a slide we presented last quarter, which touches on our priority segments. Amcor has a leading position in each of these categories, which collectively generate over $4 billion in annual sales and share a few common features, including large addressable markets, higher-than-average growth rates and significant room for Amcor to grow and differentiate. By making deliberate choices to focus on these high-value higher-growth categories over time they represent a higher proportion of our sales mix, contribute to consistent margin expansion and become an increasingly relevant driver of earnings growth for Amcor. And we've seen this trend so far this year in both Flexibles and Rigid Packaging including in the March quarter and we expect this will continue as we allocate more capital and resources to these segments. You'll hear more about these mix benefits from Michael, as he provides some more detail on our financial performance.

Ron Delia:

Thanks, Michael. Before turning over to Q&A, I'd like to spend a few minutes on the longer term starting with our investment case on slide 11. We've maintained a consistent strategy that's guided how we've evolved our portfolio over the years, so that we're the clear global leader in most of our chosen segments within the primary packaging space for fast-moving consumer goods and health care products. We have absolute and relative scale advantages and a strong track record of earnings growth, margin expansion, significant and growing free cash flow of over $1 billion each year and maintaining a strong investment-grade balance sheet. And that cash flow and balance sheet strength enable us to step up investments for growth to drive increased momentum in the business. At the same time we have the capacity to return a significant amount of cash to shareholders in the form of regular share repurchases and a growing dividend, which currently yields around 4% or double the average of the S&P 500. We continue to see no shortage of high-quality organic growth opportunities across the three areas that we've highlighted in previous quarters and which are shown on slide 12. I already mentioned priority segments and Michael's comments highlighted the mix benefits that are important -- are an important driver of earnings growth. We also have a leading and well-diversified emerging markets portfolio, which we expect will grow at mid-single-digit rates over the long term. And innovation is increasingly a clear differentiator and growth driver for Amcor, particularly as it relates to the development of more sustainable packaging, such as the groundbreaking global product platforms shown on this slide, including AmLite AmSky and AmFiber. And slide 13 is a double-click on AmPrima, another example of a global product platform that sets us up as the partner of choice for customers as we work together to meet our mutual sustainability goals. AmPrima is a family of packaging solutions that are designed to be recycled and deliver significant sustainability benefits without compromising critical performance features, including heat resistance, high barrier, transparency and run speed. Over time, we've introduced second and third generations of AmPrima, expanding the number of end market applications and adding recycled content options for certain products and the material structure is now pre-qualified by the How2Recycle program in the United States. Volume growth is now increasing rapidly, as some of the most recognizable global brands begin to move from qualification and trial into commercialization. And AmPrima is also a great example of a revenue synergy unlocked by the Bemis acquisition. Capacity was first implemented in Oshkosh, Wisconsin with some capacity allocated to other regions to see demand. And as volume commitments have grown, we've scaled out adding capacity in Europe and soon in Latin America as well. Moving to Slide 14 and to dimension the increasing investment we've referred to a few times and to bring it to life with some more examples. We've been stepping up CapEx by around 15% per year including in the current 2022 fiscal year, as Michael mentioned and we expect this will take our CapEx to sales ratio from the 3% to 4% range historically to 4% to 5% on an ongoing basis. We have a number of projects already underway or nearing completion, which will generate attractive returns and drive organic growth going forward and this slide showcases a few examples. In Brazil and in the United Kingdom, we're adding multilayer film capacity to serve growth in the priority health care and meat segments. In Ireland, we're adding new state-of-the-art thermoforming capabilities to strengthen our leadership position in medical packaging. And in Italy, we're adding production capacity for one of our global product platforms AmLite Heatflex. And since launching this recycle-ready pouch for retortable applications we've seen significant interest from a long list of customers and the majority of this new capacity is already sold out. Just a few words on our broader sustainability agenda on Slide 15. Better package design like AmLite and AmPrima which takes into account the full product life cycle is a critical element of responsible packaging. But achieving the type of lasting large-scale impact we envision requires broad cooperation with expert partners from across the value chain. One way we've been most impactful is by bringing our capabilities to the table as standards are developed to make circularity the norm. Through the consumer goods form Amcor recently contributed to the development of principles for advanced recycling technologies which can play a critical role in reducing the environmental impact of hard-to-recycle plastic waste. We're also actively contributing to the changes needed in waste management and recycling infrastructure by creating demand. In April, we announced a partnership with ExxonMobil providing us access to their advanced recycled materials which can be used in health care and food packaging applications. We have similar agreements in place with multiple suppliers and as we increase our use of recycled materials the carbon footprint of our products is also reduced. And that reduction combined with ongoing efforts to make our own operations less energy-intensive sets us up to achieve our net zero ambitions which we announced earlier this year. To summarize on Slide 16, Amcor delivered another strong result with the March quarter representing the strongest period of sales and earnings growth for the year. We continue to manage well through inflation and improvements in our sales mix while delivering for our customers. With strong year-to-date performance and good momentum, we've raised our guidance for fiscal 2022 EPS growth. And looking over the longer term, we've built a strong foundation for value creation and we're stepping up our investments to drive growth margin expansion and long-term value for shareholders. That concludes our opening remarks. Operator, we'll now open the line for questions.

Bryan Burgmeier:

Hi. This is actually Bryan Burgmeier sitting in for Anthony. So you raised the EPS guidance, but free cash flow guidance moves towards the lower end of your range. Is that delta driven by working capital impacts from resin costs? And is there anything else that we should be mindful of in regards to your updated free cash flow guidance such as CapEx or payables or receivables?

Operator:

And our next question will come from Keith Chau of MST. Please go ahead.

Ron Delia:

Yes, just to dimension the Ukrainian position and Russian business, as Michael alluded to, we've got four sites in that region one in the Ukraine and three in Russia. We've got about thousand people working in those four sites. The Russian and Ukrainian businesses combined generated about 2% to 3% of sales, 4% to 5% of EBIT and as Michael pointed out, $200 million to $300 million of balance sheet. The Ukrainian site has been closed. Obviously, our first priority has been keeping our people safe as it always would be you'd expect. And so we closed the site in the Ukraine just before the invasion started and we're able to get our people safely out of that area. The Russian plants are continuing to operate. We're well aware there's a number of public announcements that customers have made. And I would remind you that our business in Russia is focused exclusively on a very small number of multinational customers, all of whom despite whatever the public announcements have been, continue to operate there. And so we continue to support them while we explore our own options and look our options range from continuing to run the business to every other possible extreme that you can imagine. Our tendency and our history has never been to be overly prescriptive about strategic moves like that. So, I think we'd ask you to wait and see and view our actions more so than anything that we might say in advance. And as far as the guidance impact, clearly, the Ukrainian site is not running, the Russian plants are running at different degrees of utilization and that's all factored into the EPS range that Michael outlined.

George Staphos:

Thanks very much. Hi everyone. Good day. Thanks for the details and congratulations on the quarter. Ron I was hoping you could talk a little bit about the Flexibles business and go through a bit more of the drivers in the quarter. Overall, I think you said volumes were relatively flat even though it looks like European Flexibles accelerated in the quarter, while North America stayed in a low single-digit range. If I'm correct what drove the European acceleration? And it looks like Asia decelerated to maybe a flat or down, LatAm remained down, even the mix was good. Can you say whether that was in fact the case and talk about the drivers in some of the end markets in those regions and countries as well? Thanks very much.

Operator:

And our next question will come from John Purtell with Macquarie. Please go ahead.

A – Ron Delia:

Hi, John

John Purtell:

Just in terms of raw materials and any impacts on demand. I mean you continue to do a good job of recovering higher raw material costs and I think that's true of the sector as well. A lot of this has been passed on to the customer and now we've got another up leg in commodities. So just be interested in any demand disruption that you're seeing in end markets? And are you concerned about that type of event?

Operator:

And our next question will come from Adam Samuelson with Goldman Sachs.

A – Ron Delia:

Yes. Look Adam, it's a good question. If you go back and look over a long period of time at Amcor the margin expansion period-on-period has been very consistent. And this -- I'm talking about a five or 10-year view. You'd see consistent margin expansion regardless of the raw material cycle anywhere from 10 to 30 basis points in a given period when we're in a more steady-state environment absent any major M&A. And a big part of that margin expansion story has been the strategy we've had in place for a long time to constantly optimize the mix both the product mix, the segment mix and the customer mix. That's been the focal point for our commercial teams for a long period of time and that's going to continue going forward. As far as where to from here, we don't expect that mix improvement impact to slow. What we do hope is that raw materials become more plentiful and more available and we can satisfy all of the demand that we have. I mean we're still in an environment where certain materials are constrained and we still have probably forgone in the low single-digits of volume growth for lack of raw materials. So if we look forward, we would hope that that normalizes and the mix improvements will continue as they have for a number of years now.

Larry Gandler:

Hi, thanks, guys. My question is on the CapEx guidance Ron. I think you said 3% to 4% for the – was it 4% to 5% for the foreseeable future. And I can understand at the current point you're building quite a few factories there that it's 4% to 5% now. But I'm just wondering are you thinking that philosophically, the business needs to invest more organically and maybe you can roll up into that perhaps the acquisition pipeline for quite some time might be something you're thinking won't be too active.

Operator:

Our next question will come from Mike Roxland with Truist Securities. Please go ahead.

Ron Delia:

Yes. It's a great question, a great observation. I mean you can rest assured we are doing everything we can to find viable alternatives when materials are just constrained. I think that – we have an advantage in that we're a large-scale buyer and we're buying materials in multiple regions. So the first thing we do when we run into any kind of a constraint is we look to source the material from another region. And so we've been able to tap into our global network and our global footprint to I think navigate the situation quite well. But there are times when there's just no material available globally. And that's why in parallel we're looking at reformulations wherever possible. Those typically do not happen quickly. And I think there's nothing I could point to in the quarter that's material enough but there is plenty of activity in terms of qualifying alternative materials and looking to reformulate away from materials that have been more prone to outages.

Nathan Reilly:

Yes, thanks for taking my questions. I'm just interested Ron, how much headroom have you got in terms of your plant capacity utilization at the moment. Obviously, I appreciate you've been somewhat volume-constrained as well recently. But I'm also just curious to understand what type of volume uplift you'd be expecting to see from the increased investment in CapEx that you're playing going forward?

Operator:

And our next question will come from Ghansham Panjabi from with Baird. Please go ahead.

Ron Delia:

Yes. Look on the materials that are short, I mean, it's been a bit of a whac-a-mole game to be honest with you in terms of where we're short which material and which region in which month or which week, I guess, you could say. And more often than not it's been some of the specialty materials in Flexibles and rigids which are additive to the primary material. So it's not been -- to a large extent for quite some time now it's not been the base polymers that we buy the big commodities like polyethylene or polypropylene. We did have some shortages in PET for a while but those have abated. It's been more the specialty materials that are added to provide barrier or some other property that's required to deliver the full functionality of the package which have really been highly volatile. Aluminum to some extent, I guess, would be the other main commodity which at times has been in short supply. Look, I think, this too shall pass. I mean there's no reason why we should expect indefinite outages. But at the moment it's just been continued volatility.

Richard Johnson:

Thanks very much. Ron, my question is on rigid plastics. One of your major -- in fact your major competitor in the US talks about resin being something over 40% of the cost of sales. Is that the same for you? And probably more pertinently can you talk please about the 60% of non-raw material cost and give -- and provide whatever detail you can on the inflationary pressures in that part of your cost basket please?

Michael Casamento:

Yes. Look I think the general inflation across the globe I mean where we're seeing increases is predominantly in energy and freight and it varies by region. But in -- we're seeing inflation there in the range of kind of 15% to 20% but the point to remember is that those elements of our COGS are quite small low single-digits. So we're out in front of that. Some of that we can pass through to customers. Other parts of that we've got to take price. And we're out in front across the globe working our way through that to recover those increases that we're seeing in general inflation on those two items. In terms of labor it's been more supply than I guess labor wage rates for us. So we've had disruption in labor particularly in North America and Europe around COVID and the like which we've had to deal with. And we've seen some elevated over time and other labor costs associated with that. But it's again been manageable and we haven't seen the rate increases although we are expecting some of those to start to come through.

Kyle White:

Hey, thanks for taking the question. I know your exposure to China is relatively limited, but just curious what impact you've seen from the lockdown situation there on your production and demand in that region. And what did you assume in your outlook going forward from that situation?

Operator:

[Operator Instructions] Our next question will come from James Wilson with Jarden Australia. Please go ahead.

Michael Casamento :

Yeah. Hi, James, thanks for the question. I'll take that one. Yeah, look what we've seen actually year-to-date in working capital is about a $200 million outflow versus prior year and about half of that is price. The other half is building raw material and finished goods. This year, particularly, we've been able to build some inventory in the Rigid Packaging space, which we weren't able to do last year and that's ahead of the heavy season in Q4 which is typically what we would normally see. We would normally see inventories build leading into Q4. So that's part of it. In addition to that in the Flexibles space and across the board we've also conservatively increased in inventory particularly in some of the products we've had shortage of supply on. So we'd expect that that is going to unwind that component of the – the inventory increase. It's going to unwind in Q4 as we cycle through our busiest quarter of the year. So that's how we factored that into the full year guidance.

George Staphos:

Hi, guys. Thank you. Thank you very much. Thanks for taking the follow-on guys. You had talked about increasing your growth investments and you cited regionally where you're putting various products. Ron given some – and Michael some of the volatility that we've seen over the last couple of years would that perhaps change where you'll put the next growth investments in high-value investments, or really it doesn't really affect where you might put either a coffee line or a high-barrier line or personal care line? And are you at all raising the required rates of return given the volatility that we've seen in some of these markets again either for geopolitical or from macro reasons? Thanks guys and good luck in the quarter.

Operator:

And our next question will come from Larry Gandler with Credit Suisse. Please go ahead.

Ron Delia :

Yes. There's a lot of legislation in play in Europe and in the United States and elsewhere in the world. We're across all of it, Larry, as you could expect, where we provide comments. We're often consulted for perspectives, which we provide both directly and through the various associations and affiliations that we have. Generally speaking, we see these regulations as innovation opportunities and ways to further differentiate and add and create value to our customers. In many cases where there's an extended producer responsibility, regime or plastics tax or something of that nature, there's an eco modulation component, which means the fee that the brand owner ultimately the consumer will pay can be reduced if the package or the product overall has a lower environmental footprint. So that creates an opportunity for us to add more value to our customers as they deal with these regulations. And generally speaking, if it's a well-constructed EPR where the industry has some control over the framework and where the funding goes back to the waste management infrastructure, we're supportive. We're certainly not supportive of general revenue raising taxes and things like that, but where well structured frameworks are in place we're certainly supportive.

Andrew Scott :

Thank you. Thank you. Hi, Ron. Just a question on the Flexibles business. You've spoken about targeting or focusing your capacity towards your higher value customers, which obviously, perfect sense. Just interested as we go forward and capacity comes back, do you see all of those customers coming back into the mix, or do you for want of a better word see yourselves doing some bottom-slicing which is something you've done historically very well.

Operator:

And that will conclude today's question-and-answer session. And I would now like to turn the call back over to Ron Delia for closing remarks.

Operator:

And this will conclude today's conference. Thank you for your participation and you may now disconnect.

Operator:

Welcome. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to the Amcor 2022 Half Year Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Tracey Whitehead, Head of Investor Relations. You may begin your conference.

Ron Delia:

Thanks, Tracey, and thanks, everyone, for joining Michael and myself today to discuss Amcor's fiscal 2022 first half results. We'll begin with some prepared remarks before opening [Technical Difficulty]. I'll start with safety, which is where we start every meeting at Amcor. It's the first and most important of our values and keeping every one of our 46,000 employees around the world safe and healthy is our highest priority. In the last six months, we reduced the number of injuries across the Company by 10% compared to the prior year and 58% of our sites have remained injury-free for at least 12 months. Our teams have continued to make good progress on safety despite the complex environment, and we're proud of their focus, dedication and performance. However, our ultimate goal is no injuries, so there is more for us to do. We have four key messages set out today on Slide 4 for those following along with the webcast. First, we delivered a solid result through the first half, and we can confidently reaffirm our full year guidance. While we continue to navigate through the challenging and dynamic operating conditions affecting the entire industry, our teams are executing and performing exceptionally well. We continue to prioritize our customers and our scale and operational agility have enabled us to service demand and drive growth in priority segments, while also recovering higher input costs at the same time. We've also increased cash returns to shareholders, which is our second key message. We now expect to return more than $1.3 billion of cash in fiscal 2022 through dividends and share repurchases. Third, we built a strong foundation over the last several years, and we're focused now on investing for long-term growth, with an emphasis on priority segments and geographies and our innovation capabilities. And finally, for many years, we've made great progress against a broad range of sustainability goals, and we're raising our ambitions again with a commitment to achieve net zero greenhouse gas emissions by 2050. Turning to the financial highlights on Slide 5. We delivered double-digit net sales growth, which includes approximately $650 million of price increases. We remain incredibly proud of our teams and in the tools and capabilities we've developed over many years that enable us to continue recovering and increasing costs in an environment characterized by broader inflation that we've seen for some time. Excluding this pass-through impact, organic sales grew 2% on the back of higher volumes and favorable mix. Both segments in every geographic region contributed to organic sales growth and volume growth accelerated in the second quarter in both our flexibles and rigid packaging businesses. The Flexibles segment had a particularly strong quarter, generating high single-digit earnings growth and margins remain strong. In Rigid Packaging, our results for the half were in line with our expectations. The business continued to experience a particularly challenging environment in North America, which resulted in operating inefficiencies and higher costs, although we're encouraged by a number of favorable trends we've seen through the half and earnings improved as we exited the second quarter. EPS increased 9% for the half. Our financial profile remains strong and cash returns to shareholders are significantly higher. We've repurchased almost $300 million of shares in the first half, and we expect to repurchase a total of $600 million through fiscal 2022, which is $200 million higher than we anticipated last quarter. Combined with dividends, this means we anticipate returning more than $1.3 billion of cash to shareholders for the fiscal '22 year. With that, I'll hand over to Michael for some further detail on the financial performance.

Ron Delia:

Okay. Thanks, Michael. Before closing and turning it over to Q&A, just a few minutes on the longer term, starting with our investment case on Slide 10. And we've maintained a consistent strategy for several years now that's guided how we've evolved our portfolio and developed our capabilities. And as a result, Amcor is better positioned strategically than ever before with a stronger foundation for growth and shareholder value creation. We've managed the portfolio so that we're now the global leader in most of our chosen segments within the primary packaging space for fast-moving consumer goods and health care products. We have absolute and relative scale advantages and a strong track record of performance, and that track record relates to our consistent earnings growth and margin expansion and the significant free cash flow we generate every year. And with a strong balance sheet, we're able to use that cash flow to step up investments for growth including in fiscal '22, where we expect CapEx will be about 15% higher than last year, and we can see that leading to increasing momentum across the business. At the same time, we're also returning a significant amount of cash to shareholders in the form of regular share repurchases and a growing dividend. Now organic growth has always been a key driver of our overall financial performance, and we're actively investing in several areas highlighted on Slide 11 that will continue to drive long-term growth. First, we're strategically focused on the most attractive segments, and this guides how we prioritize investments back into the business. We'll talk more about these segments in a minute. Second, we continue to see tremendous opportunities to invest and extend our competitive advantages in emerging markets. And we already have a leading emerging markets portfolio that generates roughly $3 billion in annual sales and we see no shortage of growth opportunities in these markets, where we expect mid-single-digit growth and good profitability over the long term. Third, innovation in our world-class R& D capabilities remain a clear differentiator for Amcor. Innovation will increasingly contribute to organic growth going forward as we partner with customers to develop more sustainable and high-performance solutions for their specific needs and those of their consumers. Slide 12 takes a closer look at some of those higher growth priority segments. And these attractive segments are expected to represent an increasing percentage of our sales mix and contribute to consistent margin expansion. And Amcor has a leading position in each of these categories, which collectively generate over $4 billion in annual sales today and would share a few common features. First, these are large addressable markets, each well over $1 billion and the growth rates are all higher than the average across broader consumer markets, meaning there's significant room to grow. There are also many opportunities to differentiate across these categories, given the need for higher performance features such as barrier, heat resistance and resealability, which in turn drives higher margins. And in order to fully capitalize on the great potential, we're increasingly allocating capital towards these segments. In health care, we're investing to add capacity and capability in Europe and Asia. In this quarter, we celebrated the opening of a state-of-the-art medical packaging facility in Singapore to service accelerating demand in the Asia Pacific region. We recently began ramping up production on new assets in Coffee segment, and we're adding hot fill capacity in our rigid packaging business in North America, given the sold-out environment and positive growth outlook. Over time, we expect mid-single-digit growth in these segments, which will drive continued sales mix improvement and sustainable margin expansion. Moving to Slide 13. Sustainability is increasingly embedded in everything we do, and we continue to believe this represents our greatest opportunity for growth and differentiation. We also continue to believe responsible packaging is the answer to addressing concerns around packaging waste. And by responsible packaging, we mean the combination of packaging design, waste management infrastructure and consumer participation. Amcor recently commissioned a global survey, which enabled us to hear directly from 12,000 consumers around the world and provided several powerful insights. Among them, recyclability is considered by far the most important environmental attribute of packaging, more important than which material is used or whether the package is reusable. 3/4 of respondents indicated they would like to recycle more and more than 2/3 said they're willing to pay more for a product for the package that's recyclable. Now our package design efforts have always had the consumer front and center, and we're making great progress innovating against those consumer needs. Across our own portfolio, over 95% of our rigid and specialty container packaging -- specialty carton packaging is recyclable today. But our most significant progress over the last two years has been in our Flexible Packaging segment, where multiple materials are often required to deliver the required functionality. Today, 76% of our flexible packaging portfolio has a recycle-ready alternative and this represents substantial progress from 56% just two years ago. An important contributor to this progress has been the launch and commercialization of new product platforms such as AmLite, AmPrima and AmSky. And last week, we announced AmFiber, a new platform of performance paper packaging. These technology platforms will be leveraged across our global footprint, across multiple categories and for multiple customers to provide the more sustainable and high-performing packaging consumers are looking for and to drive growth and margin expansion for Amcor. Responsible packaging is a critical element of our sustainability agenda, but every company's environmental footprint goes beyond the products it makes. And to lead the way and reach our own ambitious goals, we launched Amcor's EnviroAction program in 2008, and since then, we've reduced the environmental impact of our operations by continuously exploring new and more impactful ways to reduce emissions, waste and water at every location. The value created for our customers in the environment through our work on a range of ESG initiatives has been recognized by several independent organizations and Amcor is continuing to demonstrate industry leadership. Last week, we increased our ambitions again by committing to achieve net zero greenhouse gas emissions by 2050, with near and long-term targets aligned with the science-based targets initiative. We're excited to step up our ambitions to further reduce the carbon footprint of our products and operations, and to support our customers as they strive to meet their own goals for functional high-performance packaging with the lowest possible environmental impact. And finally, on Slide 15 to summarize, Amcor delivered a solid result through the first half as we continue to perform well through challenging and dynamic operating conditions, and we've confidently reaffirmed our full year guidance. We've also increased cash returns to shareholders and expect to return more than $1.3 billion in fiscal '22 through dividends and share repurchases. And looking over the longer term, we've built a strong foundation for growth and value creation over the last several years. We're investing to capture that growth, and we're building on our sustainability progress as we use science-based targets to define our journey to net zero emissions. And with that, operator, we'll open the line for questions.

Ghansham Panjabi:

Yes. So for my first question, just the comments that you had in your press release about volumes being lower in certain categories like cheese, coffee, frozen food, and then up in health care, I mean, as you kind of step back around, is that just a function of mean diversion relative to pre-COVID levels? And maybe you could just talk about what's actually going on in the end markets, in terms of other like demand as the consumers in different regions such as the U.S. and Europe navigate extremely high inflation relative to the previous baseline in terms of purchasing patterns.

Ghansham Panjabi:

Got it. And then for my second question, there's obviously an enormous amount of beverage can capacity being added in North America, which will start to hit this year in particular. As you sort of look at your rigids business and look at your backlogs, your share of new product introductions that the beverage customers may be introducing, et cetera, how do you see that dynamic kind of playing out for Amcor's rigid business?

Operator:

Your next question comes from the line of Anthony Pettinari with Citi. Your line is now open.

Ron Delia:

Yes. Look, good question. I mean, first, the first question in terms of the outlook. The business has been improving. Profitability has been improving through the first half, it continues to improve as we go into the third quarter here. What we've said today is that we expect profit growth in the second half versus the second half last year. The pace of that is going to depend on a number of factors. So we're not calling out specific guidance for the third quarter. I do expect as we get towards the back end of this fiscal year, which is sort of May, June period, were the new high season. I'd like to think that we're going to exit this year at a more normal level of profitability. And the reason I say that is there's a number of things that are working in our favor here. Firstly, demand remains strong, and it always starts with that. To Ghansham's question, demand has remained very robust, particularly in the beverage space. So that's the first thing. Secondly, we've been increasing capacity, and we've been adding incremental capacity throughout the last couple of quarters, almost on a monthly basis. So we're going to end up adding around 5% to 10% capacity in the hot fill network. And then thirdly, we're entering the third quarter with inventory and with a reasonable amount of inventory, which is where you would typically expect to be at the start of the third quarter. It's a seasonal business, and you need to enter January, February with inventory. Last year, we didn't have any. And so that led to a bit of a ripple effect that we're still working our way out of. So those are the reasons why we feel pretty optimistic about the second half. And the pace will be determined by just how quickly we can bring capacity on-stream and our availability of inputs. As far as the second question about the drivers of the profit impact. I mean, look, it's really hard to parse them out. There's three things going on there, I would say. One is demand just really outstripping supply at a rapid pace, that's led to inefficiencies in a sold-out environment trying to service every last bottle of demand is, let's say, just inefficiencies in the system. The second thing is we do have inflation, and we're out recovering. You can see the price impacts on the sales line. And then the third thing is just the performance of the business, right? And as managers, you're always trying to isolate how much of it is the performance of the business. We think it's actually been quite good. But it's very hard to piece out the quantitative impact of those three different drivers.

Ron Delia:

Yes. Look, it's rejuvenating categories, which historically have not been at the highest level of priority. So confectionery is an important category in volume terms for us. This is a differentiated product that we're going to start launching in that particular segment that just changes our outlook on the attractiveness of that space and the profitability. Firstly, what is it? It's a paper-based platform that really kind of threads the needle between the issues that pure paper solutions have, which is that there's no barrier or coated paper, which tends to result in much lower fiber recovery and therefore, at times is not recyclable. The AmFiber platform kind of threads the needle between those two extremes. So it's barrier, there will be barrier properties. The product runs on the customer filling lines at generally the same speed. So there's no productivity discount that the customer has to wear. And so we're really excited about it. And we're going to roll it out globally. I wouldn't expect any material change in CapEx specifically related to this platform. But we are investing behind these platforms generally and these growth segments. We've alluded to that several times. So we'll continue to deploy capital against the growth opportunity.

Jakob Cakarnis:

I just wanted to get a better understanding of the working capital build. I know that you mentioned that some of that does relate to some of the price increases that you're seeing across the raw materials. Just wondered how much of it is anticipatory as well just so to avoid some of the supply chain issues that you mentioned that the Company was facing in the second quarter?

Jakob Cakarnis:

And then just the second part, maybe one for Ron. At the first quarter, you did mention that you expected the resin supply as it relates to the rigids business to improve into the second half. Is that still the case? Is there anything that you're seeing on the horizon that would bring that resin availability into question?

Operator:

Your next question comes from the line of Larry Gandler with Credit Suisse. Your line is now open.

Ron Delia:

Yes. Look, let me take the questions in order, Larry. So firstly, on the greenhouse gas emissions, this is the next logical step in our evolution and our journey. We've been on the greenhouse gas reduction path for over 15 years now. Back in 2008, we set our first public targets to reduce greenhouse gas intensity by 60%. And we're well on our way to doing that. That was a 2030 goal. And every few years, we set a new benchmark for each of these -- each of the areas of our EnviroAction program, greenhouse gases, waste and water. And so that's where we're at. We're at a moment in time where it's time to rethink our objectives and also speak in the same language as others. And the science-based targets initiative has helped I think, bring some standardization in a sense to the way companies talk about their greenhouse gas profile. And so we're jumping on board that and with that initiative, and we'll set some near-term targets over the next 24 months as we work with that group to validate and qualify our targets. We'll set and be -- and report out on what those targets are on the pathway to net zero by 2050. As far as the waste management part of the equation, firstly, you're right, we're making fantastic progress on the packaging design aspect of responsible packaging. And we're going to, without question, get to 100% of the portfolio with a recycle-ready option by 2025. We have no doubts about that at all. And the take-up and the interest and demand from customers has never been stronger. That just continues to intensify. Many of them have the exact same goals. The waste management piece of the equation is also one that we can influence, but not alone. And that's where some of the alliances that we're in, some of the work that we're doing with the alliance to End Plastic Waste, some of the work with the Consumer Goods Forum, the Minderoo Foundation, See the Future initiative. It's going to take partnerships. And I think, ultimately, what we want to see is that our packaging is not just designed to be recycled, but it actually is recycled. And we know and when we cited today this consumer research that we've done, that consumers want to recycle more. They would gladly recycle more if the infrastructure was more available. And so we all have a role to play, including government and Amcor and our suppliers and customers to make that happen, but that will not be Amcor alone.

Ron Delia:

Look, I'm not anticipating that we're going to put real meaningful capital in that part of the value chain. I mean we are investing in pilots, and we're happy to help fund pilots that are proof of concepts, and we're also happy to supply demand in the form of off-take agreements. We've got lots of pilots underway with a number of our suppliers on chemically-recycled material, et cetera. But look, waste management, it's not a narrow exercise, right? So the waste management is a very local activity, and it's usually collecting all sorts of materials, some of which are packaging after it has been used, but only a portion. So I fully agree with the notion that it's going to take a lot of money to get the waste management infrastructure around the world where it needs to be. I'm just not sure that as a converter, it's the best use of our shareholders' capital.

Ron Delia:

Yes, it's a good question. I mean, firstly, we would like to be active. I mean we clearly -- the industry has been acquisitive and a reasonably good track record of generating value out of acquisitions, and we would like to continue to do that. We will continue to do that. We're constantly in the deal flow. If there's a deal in our space that you're reading about, then you can rest assured that we've had a look at it. I think there's a couple of things going on. It's only probably the last nine months or so or six [Technical Difficulty] we've embedded down Bemis. Now remember, that was the largest acquisition the Company had ever done by a factor of three, and we were laser focused on making that a success for the first 2, 2.5 years, which is pretty much just bringing us to the last couple of quarters. I think that's well and truly behind us now, and we certainly have the capacity to take something else on. I think at the same time, we've got asset prices that are quite elevated, and we've got businesses that are particularly difficult to diligence right now. Increasingly, that will dissipate. The complexity that I'm referring to relates to the top line impacts that COVID has had on different businesses. And it's very difficult to assess that. So it's a challenging period. We're going to remain really disciplined, but we'll be active, and we'll get back on the acquisition bandwagon here sometime soon.

Mark Wilde:

I wondered for the first question. Ron, I just want to confirm kind of where we're at in terms of kind of the recovery in the medical device packaging area. I know Bemis has put a lot of money into a new facility up at Oshkosh, it sounded like with the drop-off in elective surgeries, that business was running kind of well short of capacity. Can you just update us?

Mark Wilde:

Okay. And then the second one I had is another follow-on around M&A. A long-time entrepreneur in the premium carton market has a new private equity vehicle. So just kind of -- in my mind, there is a question about how you would assess the options around your carton business. It's a smaller piece of Amcor overall. So if somebody was out there looking for kind of premium folding carton assets, you've got them. How would you have us think about how you assess that business?

Operator:

Your next question comes from the line of George Staphos with Bank of America. Your line is now open.

Ron Delia:

Yes. I'll take the rigids question and Michael can comment on flexibles and the raw materials impact there. Richard, the contracts are quite robust. Ultimately, we always have to make a choice at the level of demand that we've seen in that business, and you run into this periodically, you're sold out when you're sold out, then the cost to produce the marginal unit are almost infinite, right? And so you end up in this conundrum, even with we would say are pretty water-tight contracts that have served us well over the years and have been quite fair, I think, with the customer as well. You end up in a situation where you probably would make more money if you didn't take the last order. While we're in this for the long haul, and we've got customer relationships that date back decades and we expect to maintain for decades into the future, so you sort of have to wear it a little bit. I would imagine that the customers are also wearing and we know this for a fact, they've got their own disruptions from trying to service their own peak demand. And I'm not sure that there's a contract mechanism to capture the uniqueness of the environment that we've just faced. I think the answer to it is to get out in front in terms of inventory build when you have a seasonal business like we have and to just make sure that we're keeping abreast of the capacity needs and adding capacity on a regular basis, which is what we're doing. Maybe Michael can comment on the flexibles profit impact and profit leverage?

George Staphos:

I appreciate the thoughts, and then a quick one, just in terms of the increasing of the value return. I don't think anyone's complaining, but considering that you only maintained your guidance, and again, you're having a very solid year, it's in line with expectations, what prompted your ability to raise the value return recognizing going to happen at the end of the year? Thanks guys. And good luck the rest of the way.

Operator:

Your next question comes from the line of Nathan Reilly with UBS. Your line is now open.

Ron Delia:

Yes. Look, I think the short answer is yes. I mean, I'd like to believe that we've been extracting commercial benefits from day one and different ways of managing mix and managing raw material pass-through and the way the capabilities that I think Amcor brings to the table, I think, have been accruing benefits over the legacy Bemis portfolio from the beginning. But as far as it relates to growth, YEs. I think no question. The organization is now oriented itself towards generating a bit more growth. We've got a number of tools at our disposal to do that. And I think you're seeing evidence already of things that you could label revenue synergies. If we look at some of these new product platforms that we've spoken about, in some respects, those are examples of revenue synergies, the AmLite platform, which is a recyclable pouch for human food or pet food is an example of an innovation that Amcor had developed, which will be leveraged over the legacy Bemis footprint. And on the other -- going the other way, the AmPrima platform, which is, again, recycle-ready, all polyolefin structure is a legacy Bemis platform that we're leveraging around the world on the legacy Amcor footprint. So I think you're seeing examples already. And there's a lot more sort of smaller examples where we supplemented capacity from out of the region, we've ceded some of the health care growth in Asia from some of the legacy Bemis assets that someone asked us about earlier. So I think short answer, Nathan, is yes. The agenda is evolving. But I think we're also seeing some benefits in real time here and probably have been for the last couple of years.

Ron Delia:

I would say another 1% or 2%. I'd say it's the delta between long-term average of low single-digit growth, which is a couple of percentage points and where we were. I think it's pretty -- it's as straightforward as up. This is a business that prioritizes mix, right? So, the mix is the thing that we're constantly trying to optimize. And when you do that, sometimes you don't satisfy a relapsed order. So I'd say it's a couple of percentage points.

Kyle White:

On M&A, you have integrated Bemis, which was a large transformational acquisition as you mentioned. Would you have the appetite and willingness to complete another large transformational dealer in the near term and maybe increase your resin buying scale, if such a deal were to come to market? Or would you be looking at bolt-on deals or for specific technologies or end markets rather than just scale?

Kyle White:

Got it. And then on Latin America, it seems like volumes are up nicely in that region. I guess are you just seeing any impact from maybe the slowdown in the macro economy in Brazil or the rise of COVID cases in that region?

Operator:

Your next question comes from the line of John Purtell with Macquarie. Your line is now open.

Michael Casamento:

John, it's Michael. I can take that one. Look, overall, it was a pretty consistent performance quarter-on-quarter. I mean it's a 90-day period. There's some minor puts and takes. In terms of the raw material price costs, that remained pretty consistent as the lag overall is pretty consistent and manageable, as I said earlier. So really, it's a 90-day period. It's been pretty consistent. We've got 7% for the half. We had 8% in the first quarter, 6% EBIT growth in the second quarter. So nothing really to call out on that front.

Michael Casamento:

Yes, John. I mean on the raw material side, you're right. It's a little bit mixed across the globe as we exited the second quarter. We did start to see some easing in North America and Latin America on certain input sites, IP, et cetera. But then in Asia and Europe, you're still seeing some increases there. So as we look forward, I'd say it's reasonably balanced and stable as we look ahead, but there's some mix differences across raw material inputs and geographies. So -- but overall, we kind of see things reasonably stable and perhaps coming off slightly in Q4, but we'll see where we go with that.

Salvator Tiano:

Yes. So I want to come back a little bit about -- on the fiber packaging that you're investing new. And firstly, if you can talk a little bit about your view on plastics versus fiber, especially because we've seen some being really vocal that plastics are better and can be better from a sustainability standpoint. And generally, you're not -- you mentioned you're not really seeing any substitution or at least in a big scale in favor of paper. So how has your view changed? And are you seeing bigger threats to plastics in some regions?

Salvator Tiano:

Great. So essentially, it's more of an offensive move rather than defensive here?

Salvator Tiano:

And the other question again regarding the fiber packaging option. Can you remind us a little bit, excluding obviously folding carton tobacco, which is kind of like a different category? What is your -- what paper converting opportunities -- sorry, businesses do you have in which regions? And how important would be M&A to expand your new innovations in fiber packaging?

Salvator Tiano:

Great. And just on M&A, would that be important strategy to expand here?

Operator:

Your next question comes from the line of Adam Samuelson from Goldman Sachs. Your line is now open.

Ron Delia:

Yes. Look, it's a good question. I think it's on everyone's mind. Firstly, I would contextualize it by just reminding you that for -- in almost every category that we're participating in, the package is a very small part of the overall cost of goods that our brand-owner customers or our health care customers are bringing to market. So it's not the most material driver of their income statement January...

Ron Delia:

Yes. So no, I get that. I just wanted to make sure I make that contextual point. But that said, look, no, from the conversations we've had with customers, and I think also their public commentary through this earnings season and probably even the last one, they're not seeing the elasticity that they may have historically had modeled and anticipated. At this point in time, price increases seem to be going through across the categories that we're exposed to.

Keith Chau:

First question, Ron, just following up on John's question earlier on price cost and completing that discussion point. So price cost was upside down in the quarter, and raw materials have now flattened off. You've got price increases in the mix now. Do you expect price cost to come out neutral in the third quarter and potentially right side up in the fourth quarter? Can you give us a bit more clarity on that?

Keith Chau:

So just to be clear, you're not expecting the price cost issue to get worse as the year progresses? It should be a lag on the second…

Keith Chau:

Okay. Excellent. And then just secondly, on cash flow, I know we've talked a lot about working capital unwinding. But the quantum of cash flow into the second half of the year is our target. I think in the last couple of years, it's been around 75% of target that you need to deliver in the second half. So will it purely just be the factors that you've called out, working capital unwind and slight improvement on capacity to generate more cash flows that will drive that outcome? Or are there any other factors that we should be considering outside of that?

Operator:

Your next question comes from the line of Scott Ryall with Rimor Equity Research. Your line is now open.

Ron Delia:

Yes. So we have a target now to 10% of what we use to make packaging be recycled content by 2025. And we're making great progress. So predominantly, the predominant use of recycled content at the moment is in our Rigid Packaging business. And we've gone from 5% in that business in 2019 to over 10% last year. This year, we'll be well over 15%. And in terms of actual tons or pounds of material, that number is doubling just about every 18 months. So we're making really good progress. And then in parallel, we're pretty excited about some of the applications in flexibles as well as some of the projects that we're working on, on chemical recycling to get that number up even further.

Ron Delia:

Absolutely. Yes, listen. The pricing...

Ron Delia:

Yes. Absolutely. Look, they're at a premium in rigid packaging, which is the primary user of recycled PET in our business. The premium now for recycled PET is between 40% and 50%. That number ebbs and flows, but it's as much demand driven right now as it is supply and cost driven.

Richard Johnson:

Ron, just a couple of quick questions on back on rigid plastics. To what extent do you think that the business is in a strategic disadvantage and that may explain some of the profit impact that we're seeing at the moment? And what I mean is that your principal competitors have a far greater on-site presence than you do. And I was just kind of wondering whether that's having an impact?

Richard Johnson:

Okay. So sort of following on from that, when you think about it strategically, given that pretty much everybody else in that space has moved to an on-site strategy, how do you think about your long term -- the long-term prospects of that business given that you've gone in the other direction?

Operator:

Your next question comes from the line of Brook Campbell-Crawford with Barrenjoey. Your line is now open.

Ron Delia:

Yes. Look, it's -- the structures that still are to be redesigned or some of the more sophisticated structures out there. I mean you wouldn't be surprised to hear me say that. And quite often, they are ones where we have something very different in the market and some sort of a competitive advantage. And that means that the science and the research required is just going to be more difficult and take some more time. There are segments in the certain medical segments or the health care segments, I should say, some of the protein structures, we're still working on alternatives for those would be something that come to mind, Brook. But generally speaking, what's left is the harder part of the portfolio, but on the other hand, some of the more profitable segments that we're participating in to.

Ron Delia:

Thanks, operator, and thanks, everyone, for joining us today and for your interest in Amcor. We've had a solid first half and our outlook is for a strong finish as well and a very strong fiscal 2022. So I think with that, we'll close the call.

Operator:

Good day. And thank you for standing by and welcome to the Amcor 2021 full-year results. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Tracey Whitehead, Head of Investor Relations, please go ahead.

Ronald Delia:

Thanks Tracey and thanks to everyone for joining us to discuss Amcor's Fiscal 2021 full-year results. Joining me today, as Christine mentioned as Michael Casamento, Amcor's Chief Financial Officer. We'll begin with some prepared remarks and then we'll open the line for Q&A. We start every meeting at Amcor with safety, we'll begin there on Slide 3. Safety is the first and most important of our values and Amcor has been on a long-term journey towards our goal of no injuries. Our safety performance has shown continual improvement, including in the last 12 months where our performance has been a real highlight. Across Amcor, we reduced the number of injuries by almost 25% compared to last year. All of our businesses reported fewer injuries and over half of our sites have remained injury-free for at least 12 months. And through a year where the pandemic continued to present operational challenges in many countries, our focus on safety was unwavering, and we're incredibly grateful that our people continue to be engaged and focused on staying healthy as well as safe. We're proud of our safety performance, which we believe is the best in our industry and the progress we've made over a number of years but we're also convinced that our objective of no injuries is absolutely possible, and we continue striving towards that goal. We have 4 key messages today, which are set out on Slide 4. First, FY '21 was an outstanding year for Amcor on multiple dimensions. The operating environment remains highly dynamic, but our teams stayed fully focused on the key business drivers within our control, remained agile as conditions changed, and demonstrated exceptional execution and consistency all year. Financial results exceeded our expectations as the year progressed. We ended the year with momentum and we expect another strong year in fiscal '22, which is the second key message. The third, our recent performance in many ways is a result of the financial and strategic benefits from our 2019 acquisition of Bemis. 2 years on immigration is now essentially complete. The financial benefits are ahead of our expectations and strategically we're better positioned than ever, with a stronger foundation for growth into the future. And lastly, we're capitalizing on that strong base by investing in the number of organic growth initiatives, which will maintain our momentum beyond fiscal '22, and for the long term. Turning now to the financial highlights on slide 5, FY '21 was an exceptional year financially for Amcor with record earnings, exceptional margin management, despite steep raw material cost increases and supply constraints, and momentum building through the year. Organic sales growth was 2% and we exited the year in Q4 with sales 3% higher than the prior year. EBITDA growth was 8% with the flexibles and rigid packaging segments, both delivering strong results, growing in several higher-value end markets, and contributing to margin expansion. In Fiscal '21, Amcor's EBITDA margins increased 60 Basis points to reach 12.6% for the year, which is a new high, and an exceptional achievement in an environment where raw material price increases in supply disruptions continue to require an intense focus on securing the availability, as well as managing price recovery. We estimate Bemis acquisition synergies were around $75 million. And as we close out the final integration activities, we expect to exceed the original synergy target by at least 10%. EPS increased 16% for the year and with the head of guidance, which we're able to continuously increase through the year. And free cash flow of $1.1 billion was at the top of our expected range. Return on capital or return on average funds employed finished well above 15% at a time when our cost of capital is at an all-time low. And through the year, we returned $1.1 billion of cash to shareholders through share repurchases and higher dividends. The key message here is that the fundamentals of our business continue to strengthen, our teams around the world have demonstrated [Indiscernible] focus on executing against our strategy, and as a result, we've delivered another year of outstanding financial performance with momentum continuing to build as we begin fiscal '22. I'll turn it over now to Michael to provide some more detail on the financial results, and I'll finish up with some comments on growth and sustainability.

Ronald Delia:

Thanks, Michael. I'll start with a few points to recap the Bemis acquisition on slide 10. The all-stock acquisition of Bemis was completed in June 2019 and was the largest in Amcor's history. So, two years in now, our integration efforts are essentially complete and the outcomes are clearly exceeding our original expectations. Firstly, from a financial perspective, the transaction unlocked substantial value through the realization of cost and cash flow synergies, which have materially strengthened Amcor's financial profile. More specifically, based on our Fiscal '22 expectations over the 3-year period post-closing the acquisition, we will have out-performed the original cost synergy target of $180 million by at least 10%. And as Michael mentioned, the cash released from working capital over the last 2 years funded the cash costs to achieve those synergies. Margins in our flexible segment will be more than 200 basis points higher than in fiscal 2019. EPS will be at least 35% higher, or at least $0.21 per share. We will have repurchased approximately 25% of the shares issued to fund the acquisition. And the annual cash flow will be close to double Amcor's annual cash flow in the year prior to the acquisition. Strategically, Bemis was a perfect fit for Amcor. It was pure-play coming into what was already the world's largest global flexible packaging business. And putting these two companies together created the only truly global flexible packaging platform able to serve multinational customers around the world with an even stronger value proposition, especially in the most attractive end markets like healthcare and protein, where our participation has meaningfully increased. Amcor's now the clear Flexible Packaging leader in every major geography, with greater absolute and relative scale advantages. And we have strengthened our talent and capabilities, particularly in R&D, so we can support large and small customers with the broadest range of innovative and sustainable packaging solutions. Today, as a result of the Bemis acquisition, we're better positioned than ever with a strong foundation for growth looking forward. With that stronger foundation, we have a range of organic growth drivers that we're investing behind, and on Slide 11, we've highlighted a few. First, an increasing percentage of our sales are coming from the most attractive, higher growth, higher value-add segments, where we have the best opportunities to differentiate, including healthcare and protein packaging and flexibles, and the hot-fill products segment in Richard's. Our Global Health Care business is approaching $2 billion in sales across medical device and pharmaceutical packaging, segments that required unique capabilities that are not easy to replicate. We're investing to add both capacity and capability with current projects underway in Malaysia and Ireland, to highlight two examples. In protein and meat packaging, we have a great opportunity to leverage our capabilities and high barrier films and our growing business in North America to the benefit of our other businesses around the world. In the hot-fill rigid packaging segment, we have extensive intellectual property and product design capabilities, and we had to partner with customers to help them drive growth through innovation. Given the sold-out environment we're in and the growth outlook, we're adding capacity across our North America plant network. The second organic Growth driver we're highlighting today is our leading emerging markets portfolio with over $3 million in annual sales and a long history of profitable growth. Again, we're investing behind the emerging market opportunity, including in the new greenfield plant in China that we highlighted on our last call. And third, innovation and new product development will increasingly contribute to organic growth going forward. We've been investing in this area as well to extend our global innovation center network into Europe and China, through the recently announced partnership with Michigan State University School of packaging. And with our entry into the corporate venturing space earlier this year. And finally, the number 1 organic growth driver for Amcor going forward, which cuts across the other 3, and really everything else we do will be the increasing need for more sustainable packaging. And we know there will always be a role for packaging for essential food and health care products. And so, the ability to provide that packaging so that it meets all consumer needs and is more sustainable creates unique opportunities for growth. Slide 12 highlights sustainability a bit more, and as we take stock at the end of one financial year and start a new one, we are particularly pleased with the progress we are making to accelerate responsible packaging through advances in package design, waste management infrastructure, and consumer participation. Examples of recent progress on package design demonstrate the breadth of our product range across substrates with packaging that uses less material overall and more recycled content, eliminates problematic materials, and has a better end of life profile. In terms of materials, our use of recycled resin in rigid packaging has almost doubled over the last few years, and we expect to almost double again over the next 12 to 18 months. We've also announced our new AmSky platform, which eliminates PVC and has the potential to transform the sustainability profile of health care packaging in particular. To improve end-of-life outcomes, we've commercialized several new recycle-ready product platforms, including the polymer-based AmLite and AmPrima, and the paper-based Matrix product ranges, and we've entered into a new partnership to extend our offering of compostable solutions. Demand is growing for these new products and we'll be scaling up to capture the growth opportunity. Making progress on weeks managing infrastructure and consumer participation will be equally important and both require close collaboration with others across the value chain. We stepped up that collaboration over the past year through our partnership network where Amcor's increasingly relied upon to shape and established packaging design standards around the world, which commended infrastructure investment and consumer education to help to prepackage out of the environment. We'll talk more about our sustainability agenda following the publication of our annual sustainability report later this year. Slide 13 is a slide we shared late last year at our Investor briefing, but it remains relevant today. And we believe the Amcor investment case is as strong now as ever, and we set off the reasons why in the slide. Several of the points have already been made, but in simple terms, we generated significant and growing free cash flow every year. In fiscal '22, that free cash flow will be up to $1.2 billion and that cash flow will comfortably support reinvestment in the business, as well as M&A and regular share repurchases, which in turn drive strong EPS growth. And in addition, we will continue to pay attractive and growing Dividends. We also believe that momentum matters and momentum has been building in Amcor, which is clear from our recent performance and outlook comments, and the expectations we have for our Fiscal 2022 year. And finally, on Slide 14, a quick recap of our key messages from today, Amcor had an outstanding year in FY '21. We believe momentum is building and we expect another strong year in FY '22. The Bemis integration is essentially complete and we've summarized the outcomes today which have exceeded our expectations. And finally, we now look forward to capitalizing on a range of organic growth drivers, and we're investing in the business to make that happen. With that Operator, we'll conclude our opening remarks, and we'd like to open the line for questions.

Anthony Pettinari:

Good evening. For the 2022 guidance, is there anything that you'd say about the cadence of earnings growth, whether you'd expect that to be more second-half weighted or first half-weighted, given you. have a few moving Prices with cost inflation and some volume comps that are maybe a bit unusual?

Anthony Pettinari:

Okay. And then you obviously have a large global footprint. Is it possible to say how the Delta variant has impacted demand if at all, across the regions that you operate in, and is there anything sort of anticipated in Fiscal '22 guidance from that perspective?

Anthony Pettinari:

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

Matthew Krueger:

Hi, good evening. This is actually Matt Krueger sitting in for Ghansham. I guess -- I just wanted to start out with given several moving pieces, including some unusual volume comps and things like that. Can you outline what your budgeting volume growth by segment and/or by region might look like for fiscal '22? And then just given that we're halfway through August already, can you -- can you talk about how the -- some of those sales in key segments or end markets are trended to kick off the year here?

Ronald Delia:

I think also if you look back over time, we have typically grown kind of mid-to-high single-digits in emerging markets and kind of low-single-digits in developed markets, which is consistent with consumption patterns in those different parts of the world. And then from an end-market perspective, we are pleased with the performance in some of the higher value-added segments. where we're really pushing. typically, protein pet food, coffee, the things where there's more differentiation. Healthcare would typically be at the top of that list, but obviously, we're in a bit of a blip because of Covid at the moment, but that's how we think about getting to that low single-digit expectation over time on the top-line.

Michael Casamento:

Yes, all right. I'll take the financial [Indiscernible] to be alike, the first thing is, as you know, in standard industry, we pass through raw material pricing to customers on a contractual basis so it's a timing issue more than anything on that front. The other point about Amcor, obviously we have a broad and diverse range of raw materials and consumption around the globe so you've got to take that into account. As you look at our number through the year. And then, of course, we built capabilities of the -- many years of getting that raw material pass-through. So, from where we sit today, we're really pleased with how we dealt with some of the spikes in '21. As we've said in the remarks, we have covered over 100 million in flexibles in Q4 alone and exited the year on an annualized basis that was about 500 million in those prices and more to come. The price lag costs as manageable as it was in Q3. And so, we haven't called that out specifically. And really the evidence around that is through our margins. So, you can see that our margins continued to expand in Q4 and in fact expanding in every quarter throughout the year.

Ronald Delia:

As far as the outlook in terms of the commodities - I mean, as Michael said, we are pretty diversified, so it's always a little bit of a mixed bag, but generally speaking, we see things moderating and possibly the increases abating over the next quarter or 2. As you pointed out, Matt, the supply availability, availability of certain materials is probably the bigger issue potentially. At the moment we have not taken any downtime to answer your question specifically, but there are certain materials, particularly some of the specialty grades that are in short supply and that are on allocation. And that didn't quite disruptive and it consumes a lot of management time just to ensure that we are getting access. And I think we've done a good job of that by virtue of the scale and relationships we have in the breadth of the supply base we have, but that isn't big an issue as the price inflation.

Ronald Delia:

Okay.

Salvator Tiano:

Yes. Hi, Ron, Michael, thanks for taking my questions. So, the first thing I wanted to understand all VPs, as we think about that 7 to 9% to EPS growth for next year

Salvator Tiano:

Okay, great. And then I'm not sure if I missed it but do you have any outlook with regard to some other items, components of your EPS or free cash flow guidance, like interest expense, CPS, working capital expectations, and also cash boasted that you exclude from your adjusted free cash flow guidance?

Salvator Tiano:

Okay, great. Thank you very much.

Kyle White:

Hey, thanks for taking the question. Wanted to focus on rigid packaging for my first question. Hot-fill volumes continue to see nice growth here. Can you provide a bit more details on what exactly is driving this? Is it still at home consumption with some of the large multipacks growing or is it really just being driven by the new product introductions and innovation that you're seeing on the net market?

Kyle White:

Got it. That's helpful. And then on flexibles and healthcare packaging is just given to higher value, product for you or mix for you. What's the update there? Are you seeing a recovery in that end market or has it been dulled now, recently would come to uptake COVID cases with the tops inflation rates that we're seeing?

Kyle White:

Got it. Appreciate the details and good luck in the next fiscal year.

Operator:

We have our next question coming from the line of Andrew Scott with Morgan Stanley. Your line is open.

Ronald Delia:

It's an interesting question, I -- there's a couple of things that have changed. What Bemis would have brought is just greater diversification in the buy. So, we got bigger, obviously, but -- and that helps. The relationships we have with the big suppliers are not unlike the relationships we have with big multinational customers. It definitely matters to be big on a global basis. And there's a lot of discussion about these regional markets or global markets, I think ultimately, we have some big global relationships and it's helpful. So, Bemis brought to scale, it brought further diversification in the spend, and that's -- I'm sure it helped. But I think the other thing Andrew, and you've covered us for a long time, I think the experience curve, we continue to go down and we've kind of learned over the years and I've been around long enough to been through probably 3 of these peaks in the last 10 years. And I think with every cyclical peak, like the one we've been going through, we get better and better in terms of the internal processes and capabilities to, first of all, measure what's happening and then take action and mitigate it. So, it's probably a combination of BMS and maybe just getting further down the experience curve that's kind of help us through this cycle.

Ronald Delia:

Look, I don't think you should see it as an either/or. I think what you're seeing with this result -- we've been talking about the cash fix business, but that's for a long time, and this is going into our fiscal year with a line of sight to excess cash flow, even after continuing to fund the dividend and continue and actually fund more CapEx. As Michael pointed to, CapEx will pick up again in FY '22. Even after those two allocations of cash, the business will generate a substantial amount left over. And we go into the year with an expectation that we will have to lease, buy back shares. And if there is an acquisition that popped up, we will not hesitate for a second to either suspend the buyback or to find the funding, which we would comfortably be able to do. So, it's, I think it's an And Andrew, it's not an Oar.

Ronald Delia:

Thanks.

Adam Samuelson:

Hi. Yes. Thank you. Good evening or good morning, everyone. I may be following up on that last question and your response, Ron. Just thinking on the M&A front, if you think about the kind of growth potential beyond Fiscal '22, obviously there are some more Bemis synergies that you're capturing and annualizing as you roll into your Fiscal '22 outlook. The size and scale of that being this opportunity was fairly unique and probably not going to be easy to replicate. And so, I'm just trying to think about the ability or the confidence that you have to drive the inorganic growth, and especially not just to buy the businesses, but to extract value from them at scale moving forward where it might be harder to find businesses of Bemis resized moving forward?

Adam Samuelson:

Okay. And then maybe just following on the discussion on growth investments. Can you give me a little color on some of the capacity adds within the growth CapEx? I think I heard a $500 million number referenced earlier, so 100 million, 150 million or so of growth capital, just where that's being directed and more broadly, is meeting with some of the responsible packaging’s invest, think the opportunity to pursue, if those might be greater uses of capital moving forward.

Ronald Delia:

Look, anecdotally some of the places that we're deploying cash, I highlighted a few. We're putting some capacity in the hospital space in North America. Great use of Capital, particularly when it's on-site, co-located within customer premises. Those are as good as it gets, in terms of organic investments. We're investing in the medical space -- medical device packaging in Malaysia and in Ireland. We've got some capacity we're going to put in Malaysia for a certain product category that we typically export out of North America or Europe and we're going to localize that, which opens up just a whole other set of growth options for us. And in Ireland, we're going to get into a product line and in medicine that we hadn't been in before. And then from our sustainability perspective, we made a number of announcements over the last 6 to 12 months in new products. So, we've talked about. a couple of platforms like AmLite, which is recyclable, or ready to be recycled retort pouch, which is unique and the demand has just been outstanding. The product is sold out before it's even, barely getting been launched and so we're going to add capacity in Europe for that. So those are just some examples, but that all fits within that roughly 4% of sales number that's embedded in our free cash flow guidance.

Operator:

We have our next question coming from the line of George Staphos. Your line is open.

Ronald Delia:

Yeah, let me answer the second part first. We do believe we have the best technology in the marketplace. We also are humble enough to realize we don't have all the good ideas out there. And so, if there is an acquisition that would add to our product portfolio, we would absolutely do it. And it's one of the reasons why we're going to be much more active in the corporate venturing space. It's another -- it's also one of the drivers of the investment with Michigan State. So, we're going to do much more in terms of external sourcing of, let's call it good ideas and innovation to supplement what we do believe is industry-leading R&D. So, I'd say watch this space. As far as the sales into we might describe it as more sustainable packaging, if we think about it through the lines of what's recyclable, or just take that lens, we're not for a second suggesting that that's the only answer here, but that tends to be the most readily available end-of-life solution. We've got three broad segments, two of which are fully recyclable. So pretty much everything that we produce and sell on rigid packaging is recyclable. Everything we make in the carton segment is recyclable. That leaves the flexible segment. And in that space, right now of the sales in the flexible packaging segment, about 60-odd% of what we're selling today is considered designed to be recycled. There's probably another 75% of our sales that could be. So, there's 10% to 15% that could convert, it would just require customers to adopt a different structure. And then you have additional platforms like AmLite, AmLite Matrix, and like AmPrima, which helped move those numbers up in steps. None of them are going to move that needle on those metrics in a material way, in a given year. But over time, the percentage of our flexibles that are recyclable will start to increase as those products get to take up. I'll stop there, but we are also acknowledging that's not the end of the story. We've got to have the waste management infrastructure and the consumer has to participate as well too but as far as the package design, that's about where we're at.

Ronald Delia:

Yeah, thanks, George. I mean, that's basically it's the same story that we have in flexibles all year, it's healthcare. Healthcare is a sizable business if you just think about it as in between $1.5 billion and $2 billion in sales if within that flexible's portfolio, or when you think about the big North America Medical business and European pharmaceutical business being down double-digits. That took a couple of percentage points off of what you would expect from a growth perspective, right? They should be growing mid-single-digits and they were down double-digits. So that takes a meaningful fight out of the overall segment growth.

Ronald Delia:

Thanks, George.

Richard Johnson:

Thank you very much. Good morning, everybody. Ron, our first question I just wanted to ask about organic growth in the Flexibles division. If I look at this over the last two years and absolute dollar change, all the growth comes from cost or efficiency lines. In fact, the mix of volume and price is negative. So that's obviously very impressive. So really my question is, how sustainable is that?

Ronald Delia:

Look, I mean, Richard, you followed the Company for a long time. The top-line sales are growing kind of low single-digits, actually about 2% for a long period of time. Flexibles would normally be in that space. I think the last couple of years is a tougher read-through if you're talking about the long-term trajectory of the business. And that being said with that level of growth, we've been expanding margins for over a decade. And the flexibles margins now being up over 14% from where they were 10 years ago or so, probably 6 or 7, I think gives us some comfort that at that level of relatively modest top-line growth, which mirrors the end-markets that we supply. We're continuing to grow profit and expand margins.

Ronald Delia:

Yeah, with the carton business which is about 8% or 9% of sales, had a very good year. The business had a good year on profit. The profit was up. Great job managing costs. And actually, the volume performance is probably a little bit ahead of the long-term trend. That business from a volume perspective is likely to be flat to declining on a single-digit. Last year it was close to flat on a volume perspective too. It's -- by region, we start to get into some smaller parts of the business, but the bigger parts of Europe and the Americas would mirror the trends that I just described.

Operator:

We have our next question coming from the line of John Purtell with Macquarie... Your line is open.

Ronald Delia:

Hey, John, how are you?

Michael Casamento:

Hey John. Yeah, I'll take that one. I mean, in terms of returns on CapEx, we really haven't changed the model there. I mean, it's a cash investment, we expect 20% return on those as a minimum, and that's typically what we work towards, so no real change there over the term. With respect to working capital, yeah, we saw some high [Indiscernible] during the period and some high receivables as we started to flush that through the system. And then the offset was payable. So, from a year in perspective, it wasn't a meaningful impact, but there's probably still a little bit of that to flow through the system and it's more timing issue than anything. But in the cash flow that we saw at the year-end, we were pretty pleased with where we ended, it was a strong performance and we had a good finish in the year, and that's really on the back of the continued focus in working capital. And particularly around things like that as an overdue, we've had a really good performance there across the board. Just generally, inventory management is been strong, and we continue to manage with our supplies as well so I've already placed on the working capital front.

Operator:

We have our next question coming from the line of Anojja Shah with BMO Capital Markets. Your line is open.

Ronald Delia:

Well listen, it's becoming more and more important, obviously, to our customers. A lot of what we use and maybe just to mention the numbers. So, across Amcor, rigid packaging would be the place where we're using the most recycled resin. We exited FY '21, converting about 10% recycled resin out of the total that we convert. And that number is growing in absolute tons as you referred to. But it also it's growing at a percentage of the resin that we convert. In that space, we are clearly the biggest buyer out there. And so, we have been actively sourcing both from new entrants into the recycled resin space, as well as some of the virgin resin providers that have gotten into PCR. So, it's a pretty broad book that we're buying across. And then in flexibles, it is a little bit more challenging when you're trying to source polyolefins and that's still pretty nascent. A lot of the material that we're using for food for Flexible Packaging it's coming from food-grade, milk and water jugs and things and those are in scarce supply. That will change over time. Chemical recycling will be a contributor over time. We're active in more than half a dozen different pilots and feasibility projects on chemical recycling around the world, which will be part of the mix too. So, I'd say what's the space, but we're so far, we've been able to satisfy our demand.

Ronald Delia:

Yeah. So, the retail number was $180 million, and that's the number that we're going to be buyback 10% or at least 10%. We talked at the time of the deal about three big sources. First G&A, overhead reductions. We estimated that would be about 40%. That's more or less track, and probably a little bit ahead of that number, but it's been in that ballpark. Procurement, we said would be another 40%, that's more or less in line.

Anojja Shah:

Great. Thank you very much.

Operator:

We have our next question coming from the line of Larry Gandler with Credit Suisse. Your line is open.

Ronald Delia:

Yeah. It's a good question. I mean, you picked on one -- I'm not sure it makes the top 3. I'm going to elevate up on the top 3, but on the medical point, Asia specifically, absolutely. I mean, we're actually doing that now and that's the investment in Malaysia that I referred to where we're putting capacity in that part of the world that enables us to be much nimbler and more responsive to this local market demand, which is substantial. So that absolutely is part of it. If I zoom out and I try to think thematically, one thing that comes to mind is broadening our participation in some of the higher value-add segments that were deepening in one region. Pet food, coffee, protein, these are segments that we have really strong positions in, but it's uneven so we might be particularly strong in Europe in 1, and a little bit weaker in North America. And so, evening out that participation is going to be a big source of organic growth. As a region, as a whole, I would say Asia particularly China and India. And I would probably elevate up from medical and just say generally in the places we're choosing to play in those high-growth Asian emerging markets, that would make the list. And then I probably wouldn't rule out rigid packaging in North America, particularly as we continue to expand the healthcare -- sorry, the hospital franchise that we have and grow in the Specialty Container space where there is technology and differentiation, but also share opportunities. So, it's a good question, Larry, I sort of give you those three -- certainly amongst the top 4 or 5. [Indiscernible].

Ronald Delia:

Yes.

Ronald Delia:

Listen, Larry, I think it's finishing observation. I would say that all the different partnerships and organizations that were part of have catalyzed the most actual funding by a long shot. And so, I take on board some of these projects that have been launched are smaller. And I think -- to contextualize it also, we have to keep in mind, this is a new organization. Essentially it was started a couple of years ago and then as soon as it stepped up with full-time management, the pandemic kind of has slowed things down, but there is more capital that's been committed by the executive committee and the board of that organization than anything else that we're associated with, it's real money, I mean, we write the check.

Ronald Delia:

While like any NGO, Larry, sometimes our industry association is not always this transparent, but the money that the participants are putting into that organization will crystallize and will catalyze action. And there are good examples. In the project stopping in Indonesia is a good pilot. There's one in the U.S. now called First Star, which is small. And I think as -- as the initiative gains steam, we will have bigger, bolder projects to point to. But for the early days, I'm pretty pleased with the way it's distributing its resources.

Ronald Delia:

Okay. Thanks, Larry

Nathan Reilly:

Hey, Ron, it's pretty clear that you are signaling the completion of the Bemis integration, which I guess gives you the bandwidth to go and pursue some of those smaller bolt-on M&A opportunities. But just given we haven't seen you too active in that space for the last few years, can you just remind us of your bolt-on M&A investment criteria? Just in terms of return metrics, but also where you'd be comfortable, taking leverage to. And also, where are you seeing the most attractive M&A opportunities right now?

Nathan Reilly:

Excellent. Thank you.

Operator:

Our next question coming from the line of Keith Chau with MSV. Your line is open.

Michael Casamento:

The range is there. It's a reason why range 1.1 billion to 1.2 billion. Obviously factored in that is the earnings guidance range so we've given a range [Indiscernible] 7% to 11% depending on where we end up in that range. We will drive the cash flow as well. And of the other key component is really the working capital movement. I said earlier, we've had some raw material increases which we manage pretty well into the end of it by '21, that can be a factor as we head into '22. there can be some movement there to the upside or the downside. But that's really what's in the range. That said we've managed working capital really well. We had the last 2 years takin

Keith Chau:

Do you think Michael you can continue to improve that average moving capital to sales ratio, absent any other movements and raw material costs? I know you've done a good job, particularly in the [Indiscernible] '20. Any more opportunities to come from that?

Keith Chau:

Okay. Thank you. And then just a second question and forgive me if I've missed this one, but I think there were labor and transport costs called out for the rigid packaging business in part due to volumes growth that you're seeing within that business in North America. Is there an expectation for those labor and transportation costs to ease in the coming periods?

Michael Casamento:

So, we would be touched on today that we are installing new capacity in that off [Indiscernible] particularly. So, we'd expect over time they should start to obey as we get that capacity comes online.

Michael Casamento:

Yeah. It was about -- it was a few million in the quarter.

Operator:

We have our next question coming from the line of Scott Ryall with Rimor Equity Research, your line is open.

Ronald Delia:

Thanks, Scott. It's a good question. I mean, the short answer is no. I mean, we're going to be active in bringing responsible packaging to life in a number of different ways. But we'll also be -- and we'll have to be somewhat judicious and focused and disciplined about where we deploy our shareholder's capital and we think the best use of the capital is in developing packaging that is going to have a better end of life profile or uses more recycled material or less material in the first place. That's where most of our efforts will go. As far as waste management infrastructure, there's a number of different things and means to fund that, including extended producer responsibility regimes, bottled deposits, and things like that. And when those are properly designed then we're very supportive of those, and that can likely be part of the answer, but I don't envision us putting capital to work in that part of the value chain on any extensive basis other than maybe just some pilots through a partnership or an alliance.

Operator:

Ladies and gentlemen, thank you for standing by, and welcome to the Amcor Third Quarter 2021 Results Conference Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Tracey Whitehead. Please go ahead.

Ronald Delia:

Thanks, Tracey, and thanks, everyone, for joining us today to discuss Amcor's year-to-date results. Joining me on the line, as Tracey indicated, is Michael Casamento, our Chief Financial Officer. And we'll begin with some prepared remarks and then open the line for Q&A. Starting with Slide 3. We begin every meeting at Amcor with safety, so we'll start today with safety as well. And this year, our safety performance has been a real highlight. Across Amcor, we've reduced the number of injuries by almost 30% in the first 9 months of the year, and all of our business groups reported fewer injuries, with over half of our sites remaining injury-free for the last 12 months or more. And of course, over the last year, we've also been equally focused on keeping our co-workers healthy as well as safe. And as the COVID pandemic continues to present challenges in many countries, maintaining our protocols and our vigilance remains a top priority for our teams around the world who also understand the critical role we play in helping maintain availability of essential health care and food products. Given the continued challenges of navigating the pandemic, we're particularly pleased with our safety performance so far this year, and we remain confident that our objective of no injuries is, in fact, possible. Our key messages for today are set out on Slide 4. First, our year-to-date financial results have been strong and ahead of expectations, with organic momentum continuing through the year such that the March quarter has been our strongest thus far this year despite the operating environment remaining dynamic and volatile, maybe even more so over the last few months. Our teams have navigated that volatility by demonstrating an exceptional ability to stay focused on the key business drivers within our control, to respond quickly as conditions change and to execute to deliver results despite the circumstances. The second message here is that the strong performance translates into higher expectations for the 2021 fiscal year, and we've raised our outlook for full year EPS growth to 14% to 15% on a constant currency basis. And third, we're actively investing in several growth initiatives, which illustrate the range of opportunities we have over the medium term to maintain our momentum. The strong result, increased guidance and growth investment examples demonstrate the strength of our investment case, which I'll touch on briefly on Slide 5 before returning to the results in more detail. The Amcor investment case is set out on Slide 5 and it's one we've shared a few times this year. We believe the investment case is as strong as ever, and this slide sets out the reasons why, including our global leadership positions, consistent growth from attractive end markets, strong balance sheet and significant annual cash flow of more than $1 billion, and growing, to fund growth investments and dividends. And lastly, momentum's been building, which you can see in our upgraded guidance, and we believe that will continue. Looking ahead into fiscal '22, we would expect EPS growth to benefit from continued organic growth, additional synergies from the Bemis acquisition, a lower share count after the repurchases during FY '20 and '21 and the value that will be created from the $300 million to $400 million of free cash flow that will remain after CapEx and dividends. So the Amcor investment case has not changed and that's part of the message here today. Despite volatility in our operating environment and maybe even more so because of that volatility, the Amcor investment fundamentals remain very attractive and will continue to generate total value of 10% to 15% each year across EPS growth and dividends. Slide 6 includes the actual outcomes of that investment case over the last decade. Over this period, we've always maintained an investment-grade capital structure. We've delivered consistent sales and profit growth, including margin expansion organically through multiple economic and commodity cycles. And we've consistently paid out a compelling dividend. And that growth and yield has been supported by best-in-class free cash flow conversion and return on invested capital, which have also contributed to strong total returns to shareholders as well. Organic growth has always been a key driver of our overall financial performance, and that will become increasingly evident going forward. Slide 7 highlights 3 of the key organic growth drivers for Amcor. The starting point on the left is the set of growing end markets we serve around the world. Now Amcor has substantial positions in several higher-growth, higher value-add, more packaging-intensive segments like health care, protein and premium coffee or hot fill beverage containers and barrier films. In each of these segments, market growth tends to track higher than average. And in each one, we have differentiated positions -- scale positions, differentiated products and global leverage opportunities. Second, emerging markets will also continue to be a key source of organic growth for Amcor. We've got a scale emerging markets portfolio with over $3 billion in annual sales from 27 profitable emerging market businesses, where we benefit from leadership positions and differentiated capabilities, and where we have a long history of profitable growth. And third, growth enabled by innovation, which is an area where we continue to differentiate ourselves from competition, and we're investing to extend that lead. All of our businesses go to market with world-class innovation and R&D capabilities, which are increasingly valued by our customers as they look for packaging to meet shifting consumer needs around the world, particularly around sustainability, which I'll come back to in a minute. We're also allocating capital and actively investing for growth in a number of areas, and Slide 8 shows 2 examples. First, the example on the left. Within a few weeks, we will expect to begin commissioning a major capacity expansion for one of our aluminum-based product segments at a Flexibles Packaging plant in Switzerland. Now this investment will support the continued high growth of the premium coffee segment and is underwritten by a long-term supply agreement with a key customer. We've made a number of similar investments over the years and several recently where we have real long-term partnerships with higher-growth customers who value the various ways Amcor can help them grow. In the other example on the right-hand side of the slide, in the last quarter, we began construction of a new greenfield plant in China to add capacity to our business in that high-growth market, where we already maintain a leadership position and healthy financial profile. The new state-of-the-art plant will be the largest in Amcor's China network and will start up by the end of calendar 2022 to support a range of global and local customers, primarily in the food and personal care segments. And turning to Slide 9. Last week, we announced a corporate venture-type investment in ePac, a relatively new startup in the flexible packaging space, who has leveraged technology and a unique business model to grow to $100 million in sales in just over 4 years. Now as excited as we are to work with ePac, the key point of this slide is to make clear our intentions to do more with regard to open innovation and corporate venturing generally so that we can complement our internal innovation capabilities with great external ideas from all around the world. We're looking forward to exploring opportunities across new packaging products, processes and business models and will be much more systematic and purposeful in this area. And moving to Slide 10, it remains very clear to us that our best and most exciting opportunity for growth and differentiation will come from the development of more sustainable packaging. More sustainable packaging means responsible packaging, starting with better package design. And on that dimension, which needs to take into account the full product life cycle, there's no one better positioned in the industry than Amcor and we're demonstrating that with a steady stream of new product platforms and launches around the world. Waste management and consumer participation will be equally important, and both require close collaboration with others across our value chain. And Amcor has been actively partnering with others in both areas to drive scalable solutions and real impact, and I'll describe some of the progress we're making on the next slide. The KITKAT example on the left is a great one because it demonstrates the potential for Amcor to use chemically recycled resin in food-grade flexible packaging, and it also highlights the level of collaboration that's possible across the full value chain to make it happen, in this case, in Australia. In the middle is AmSky, which is a breakthrough innovation launched by Amcor just last week. Now Amcor created the world's first recycle-ready thermoform blister packaging by eliminating PVC without compromising functionality or the consumer experience. And AmSky is an exciting development, which has the potential to transform the sustainability profile of health care packaging, particularly for solid-dose pharmaceuticals, but it also highlights the potential to eliminate PVC and other packaging segments as well. The example on the right-hand side of the slide is another one that brings to life the concept of responsible packaging with a real example in practice, in this case, in the U.K. The supermarket rollout of this rice product in a recycle-ready microwavable pouch made with Amcor's HeatFlex technology coincided with a number of U.K. retailers announcing in-store trials to collect and recycle flexible packaging. And this one demonstrates that responsible packaging design enabled by Amcor can catalyze change and motivate progress on the waste management and consumer participation requirements as well. And finally, in March, Amcor also took an Executive Committee role in the Alliance to End Plastic Waste, a group whose mission is fully aligned with our vision for responsible packaging through design, infrastructure, innovation and consumer participation. Turning now to a summary of our results on Slide 12. The business has delivered strong year-to-date earnings growth, with EPS up 16% on a comparable constant currency basis. And of that EPS growth, 7% was organic as overall demand for our products has remained healthy and combined with outstanding execution, has resulted in organic growth continuing to build each quarter. 6% of the EPS growth comes from incremental Bemis acquisition synergies, which have reached $55 million so far this fiscal year. We continue to progress ahead of initial expectations, and we're well positioned to deliver at least $180 million of synergies by the end of fiscal '22. And the remaining 3% EPS growth reflects benefits from share repurchases in fiscal '20 and '21. Free cash flow in the balance sheet continue to be strong and in line with our expectations. And we've returned more than $850 million so far this year of cash to shareholders through higher dividends and share buybacks. So the key message here is that we're executing very well, building momentum, delivering strong growth and cash returns to shareholders. With that, I'll hand over to Michael to provide some further detail.

Operator:

Pardon the interruption. Mr. Casamento's line disconnected.

Operator:

[Operator Instructions]. Your first question will come from George Staphos of Bank of America.

Ronald Delia:

Yes. Look, good question, George. Look, on the volatility index, it's not a measure that we use pervasively inside the company. I mean I think the -- what we're really focused on is launching products that are commercialized -- commercializable and will have take-up in the market and then tracking the sales of each of those, none of which are material to the group per se. But we think it's important to continue to demonstrate the vitality of our innovation pipeline because ultimately, that will contribute to the positive mix and the positive margin that we want to drive in the business. And so the ultimate vitality index for us is the margin expansion that we've generated period after period after period for well over 10 years now. That's the vitality index because what it says is that each new product that we sell today is a higher-margin product than the unit it's replacing from prior periods. So that's maybe the roundabout way of answering your first question. On Q3, we'll talk about Q3. I mean we do tend to focus on the full year to try to orient the conversations in the longer term. But that being said, the third quarter was our strongest quarter of the year on a number of dimensions. We had increasing organic momentum -- profit momentum across both Rigids and Flexibles. And we're really pleased with the execution because the environment in the third quarter, fiscal third quarter for us from an operating perspective, was probably as difficult as it's been so far this year. As it relates to the sales side of things, yes. I mean look, I think these businesses, both Rigids and Flexibles, will generate low single-digit growth over the long term. I think that's roughly where we've been -- where we were through 6 months. That's likely where we'll be at the end of the fiscal year. The 90-day period that was Q3 was a little bit softer in Flexibles, particularly because of the weakness, the ongoing weakness in the medical device packaging and pharmaceutical packaging. But more or less, we're consistent with our long-term trends in both businesses for this fiscal year at sort of low single digits.

Ghansham Panjabi:

I guess, Ron, just kind of following up on George's question in terms of the cadence of volumes as we look ahead. Some CPG companies, as they reported, have talked about an abrupt sort of shift in terms of volumes as you cycled through the tougher comps from a year ago. Mobility in certain parts of the world are starting to increase, in North America, for example. So can you just sort of give us a real-time pulse as to what you're seeing so far in your 4Q and then how exactly you expect volumes to sort of evolve over the next 2 to 3 quarters?

Ghansham Panjabi:

Understood. And then for my second question, on raw materials, your favorite question, I'm sure. So with the reflation dynamics that we saw in the U.S. coming into this year and then Winter storm Uri, just give us a sense as to how you're navigating pricing in the context of just significant cost inflation on the resin side plus logistics, et cetera. And what's different, if anything, post-Bemis in terms of how your commercial guys are tackling higher cost inflation?