Q1 2020 Earnings Call

After the speakers presentation, there will be a question and answer session. You ask a question during the session. You want me to press Star one on your telephone.

If you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Tracy Whitehead. Please go ahead.

Thank you and welcome to include twenties, when he first quarter earnings cool good evening to those of you in the U.S. and good morning to those in this idea joining me on the call today is going to <unk> Chief Executive officer in local CASM into Chief Financial Officer. At this time older a few to our website amcor dot com under the investors section.

Where you'll find a press release and presentation, which will be discussed on this call.

So discuss non-GAAP financial measures as we talk about performance against combined comparative information reconciliations of these non-GAAP measures.

Can be found on the press release and presentation on our website.

So a reminder that statements regarding future performance of the company made during this call a forward looking and subject to certain risks and uncertainties. Actual results may differ from historical expected will predict good results due to very a variety of factors. Please refer to amcor SEC filings, including at statement on Form 10-K two.

Review these factors with that I'll hand over to Ron.

Thanks, Tracy and thanks, everyone for joining us to discuss Amkors first quarter results for the 2020 financial year as Tracy mentioned with me here today as Michael Casamento, Emcores, Chief Financial Officer, and we'll begin with some brief prepared remarks, and then open the line for Q1 as.

Well move on to slide three in the presentation pack and everything we do at EMCOR starts and ends with safety, which is our first and foremost foremost value and so we begin these calls.

With safety likely begin every meeting at EMCOR.

Safety and fiscal 2020 is a busy year for our leadership teams and employees as we seek to simultaneously grow the underlying business and also integrate the legacy beam bemis sites, while making progress against our goal of no injuries.

And while we're not at no injuries, yes, we are working from a position of strength with more than half of our sites around the world injury free for the last 12 months.

And overall recordable case frequency rate of 3.6 per million man hours work.

You may recall that the recordable cased frequency rate for the legacy Amcor business last year was 2.1.

And we know from past experience that acquired businesses typically have higher number numbers of injuries. Then we're accustomed to at EMCOR and this is no different with BMS. So our primary focus this year is on aligning the bemis sites with Emcores safety practices and our approach has been embraced with enthusiasm by our new colleagues. So we look forward to providing updates.

On our progress throughout the year as we make strides towards eliminating all injuries from our facilities.

We move on the slide four to the four key messages. We have four today first we've had a solid start to the fiscal year inline with our expectations for EBIT growth driven both by organic growth and synergies.

Second the Bemis integration is right on track and delivering a cost synergies made an impact in Q1, and we will build through the financial year.

Third we are gaining momentum on sustainability in particular with our key customers with whom we share the same objectives and similar perspectives on how to achieve them and fourth we're on track for the balance of fiscal 2020, and we're reaffirming our outlook for 5% to 10% EPS growth for the full year.

Now on slide five we've got to a summary of the first quarter results and before I get to those numbers just a word on the financials that we're presenting today. The prior year numbers have been prepared on a pro forma basis as if amcor had owned Vms since July Onest 2018.

The key message here in relation to these results is that we delivered strong earnings growth in line with our expectations and therefore, keeping us on track to meet RF, why 20 outlook and we're encouraged by the momentum in the base business, particularly.

Sales revenue for the period was in line with the prior year in constant currency terms and excluding a net negative impact related to the pass through of raw material costs, we saw growth in our larger businesses, including the core flexible packaging businesses in Europe , and North America, and the rigid packaging business in North America, and this was offset.

By sales declines in Latin America, and the specialty cartons business in Europe .

Total EBIT was up 10% in constant currency terms with organic EBIT growth in both segments and synergy benefits of approximately $10 million in the quarter.

Net income and EPS increased by 15% in constant currency terms and the board declared a quarterly dividend of 11.5 cents per share.

And lastly, we started a 500 million dollar share buyback, which we announced in August and we purchased nearly 6 million shares in the first quarter.

I'll hand over now to Michael to provide some more color on the financial performance for the quarter and our outlook for 2020, and then I'll come back to talk about some of emcores longer term growth opportunities.

Thanks, Ron.

Ill start on slide six with a brief recap of the results that each of our two segments, which boasts delivered organic EBIT growth in Q1.

In the flexible segment adjusted EBIT was up 9% in constant currency terms and margins expanded by 110 basis points, which reflects a combination of synergy benefits strong operating cost performance across the businesses and further benefits from the normal time lag in recovering raw material costs.

Sales were broadly in line with the prior year in constant currency terms. This reflects higher sales in volumes in the coal Flexibles businesses in North America in Europe .

Which was offset by customer inventory de stocking in the specialty cottons business in Europe , and lower volumes in Latin America.

We had previously highlighted a very late June quarter in the legacy payments business in Latin America, and although continuing to track at levels below the same period last year. The business has improved sales and earnings considerably compared with the June quarter.

In the rigid packaging segment.

Adjusted EBIT was up over 3%, mainly reflecting the higher volumes and strong operating cost performance. Although this was partly offset by unfavorable mix in Latin America.

Constant currency sales were also broadly in line with last year, excluding the 1% unfavorable impact to revenue from passing on lower raw material costs.

Across North America volumes were higher with mixed favorable and volumes in Latin America were inline with last year, However mix was unfavorable.

Turning to slide seven.

As Ron mentioned, we're pleased with the progress we are making on the payments acquisition overall.

First of all the actual integration of the two businesses is progressing very well.

As we reported in August we achieved a quick start we had planned full and we have two legacy companies functioning as one with no issues around systems will business processes.

Everything works and if you will walk through any of the facilities around the world. It would be hard to tell we've just pull it together two different companies.

We're not taking the good stuff for granted but so far we've been able to keep the focus on moving the company pool.

In terms of synergies, we delivered 10 million in the first quarter and at the current run rate, we feel very confident about delivering our guidance of 65 million for the current fiscal year.

And 190 million by the ended the third financial year post transaction, which will be fiscal 2022.

To date, the synergies of mainly come from overhead reductions within the Flexibles business and corporate functions.

During the first quarter, we continued to reduce Chennai head count and took some of the actions necessary to accelerate procurement synergies.

We also announced the start of consultations for two additional plant closures in Europe , which means we have now announced plans to close full clients entitled to date.

The key takeaway is that we feel very good about where we are in terms of the integration and synergies will represent a significant driver of EBIT growth will amcor over the next three years, including an increased contribution through the remainder of fiscal 2020.

Moving to outlook on slide eight.

This quarter performance was inline with expectations and as a result, we are reaffirming the 2020 guidance, we shared with you in August .

We continue expect adjusted EPS growth of 5% to 10% in constant currency terms.

Using current exchange rates, we would expect minimal FX impacts from translation.

So this guidance continues to imply a constant currency range of 60 164 cents per share.

This is inclusive of 65 million of pretax synergy benefits.

There will be very little impact in the fiscal year 2020 from the share buyback given we will only say a marginal decline in the average shares outstanding for the full year.

Corporate cost interest tax and cash flow will roughly inline with expectations for the quarter and as a result, we have reconfirmed full year guidance for each of these metrics as well.

Looking forward, it's worth mentioning briefly here that sales in rigid packaging in fiscal Q2 last year with particularly strong on the back of favorable product mix in the North American beverage business and especially so given the second quarter in that business is typically the seasonal low point about fiscal year.

Given the unusually strong comparison, we expect rigids to assume a more normal seasonal pattern. This year and earnings in the second quarter will be lower than Q2 last year.

Most importantly, our full year guidance at already incorporated this fighting and remains unchanged.

So with that I'll hand back over to ramp.

Thanks, Michael before we turn it over to for your questions are going to lift out of the details a bit to focus on the longer term for a few minutes.

On slide nine recap sand per strategy, which has not changed in which we've described publicly many times. We've actively managed our way now to a focus portfolio of businesses in four product segments.

Each of those businesses benefits from a small number of differentiated capabilities, which we call. The aim amcor way in which provide real competitive advantage and our aspiration is to win for four key stakeholders and for investors specifically the strong cash flow. Good amcor generates gets deployed in several ways to generate value, which I'll describe on the next slide.

And of course capital allocation framework is on slide 10, and provide some perspective for how we think about creating value from our cash flow for shareholders overtime.

Over the last six years the outcome of this combination of.

Available operator.

This has averaged about 12% per year.

The forward over the next few years.

As someone uncertainty and volatility our higher on the world.

To controllable sources of shareholder value.

Hi, good organic growth and $180 million of cost synergies from the Bemis acquisition.

Our strong cash flow to enable a growing and compelling dividend and the 500 million dollar share buyback we announced in August .

Moving to slide 11, and sustainability as we've highlighted many times previously the single most exciting organic growth opportunity for amcor comes from the increasing consumer demand for more sustainable and environmentally friendly packaging.

And on the topic of sustainable packaging, we have some particular points of view that I want to spend a few minutes walking through now and which are summarized on slide 11.

First let's remember that Amkor is a consumer packaging company and we make primary packaging.

By primary packaging I'm, referring to the package that actually touches and holds food or medicine or other consumer products.

The fact that we made primary packaging for food and health care is important because we have a strong point of view that there will always be a role for that type of packaging in fact, several roles, including preserving food and health care products protecting products through increasingly demanding supply chains, and helping our customers promote and differentiate their brands.

And we know for example that properly engineered food packaging can extend the shelf life of many basic food items and helped to reduce food waste, which is around 30% globally.

In packaging that helps reduce that number not only provides more food for more people around the world, but also helps reduce the environmental impact of food waste, which accounts for roughly 8% of global greenhouse gas emissions and to put that in perspective food waste was a country. It would ranked third behind only China in the us in terms of greenhouse gas emission.

Yes.

So feeding the world's growing population and protecting the planet from climate change our two of the defining challenges of our time and there'll always be a role for properly design packaging that can help address both.

Next turning to slide 13, we have to acknowledge that the requirements and expectations consumers around the world have for packaging continue to increase.

We know that consumers have come to expect packaging that works well is light weight convenient easy to use cost effective in grade looking and now they have an additional expectation and thats for packaging diver responsible end of life solution that doesn't result in more waste or more packaging ending up in landfills or the ocean.

Now we see no end in sight for consumers looking for increased convenience generally including from the packaging. They interact with daily we see sales of single serve products or products with functional packaging continuing to rise for example, and at the same time consumers have been buying more environmentally friendly products and also expressing.

In a willingness to pay more for them.

And how much more to they really have to pay not much actually in the case. The most rigid plastic containers were switching to 100% recycled resin as many of our customers are are doing currently.

Even if that recycled resin carries a 20%.

Operator.

And were less than half.

Thank you for calling May have the name of the conference you're calling to join.

The way to address the growing consumer concerns around waste is through responsible packaging.

And we also believe that responsible packaging requires a total system solution with three parts.

First the right package design.

Second efficient and accessible waste management infrastructure and third active consumer participation.

It's clear we need to continue to design packaging to be recyclable reusable or compostable.

We need to continue designed to design packaging made from recycled materials and of course, we need to continue to design lighter weight packaging using the least amount of material in the first place.

But equally important for responsible packaging is the right waste management infrastructure, whether that's recycling capacity or composting facilities or equipment to support returnable systems and even one that infrastructure is in place, we still need consumers to actually use it and to properly dispose of packaging in an appropriate.

In order to reduce waste.

Now we also believe as slide 14 indicates that responsible packaging does not mean no plastic.

And we know that greenhouse gases and climate change are important consumer concerns and on those dimensions plastics, clearly advantaged versus other materials and just as recycle.

So in addition to all the great functionality plastic packaging provides consumers theres no environmental trade offs. So long as a package is properly disposal, which is also true for any type of package no matter what material it's made from.

And our customers our crystal clear on this point as evidenced by recent comments they've made publicly a couple of which are on the slide here and by their continued commitment to plastic packaging packaging generally.

So we believe there will always be a role for packaging consumers expect more and more from it including less waste and the answer is responsible packaging and so finally, we also believe that amcor is uniquely positioned to lead the way in finding solutions.

As the industry leader, we have the scale and resources to innovate and develop new products.

We are seen as a partner of choice for collaborating with customers and other stakeholders and we have the technical expertise to help inform the debate and educate consumers, particularly around topics like recycling.

So were increasing our support for key partnerships, particularly those focused on waste management and will be increasing and accelerating our external engagement generally.

We are core partners with the recycling partnership, which recently joined with the leading beverage companies in the us to launch the every bottle back initiative as well as the materials recovery for the future project, which also kicked off the first curbside recycling program in the us to accept flexible packaging along with other recyclables.

And of course, we remain core partners in the Ela Mcarthur foundations new plastic.

Economy initiative, which has brought together over 400 organizations across industries and the around the world to work together to help solve the issue around packaging waste.

And finally as you'd expect we're innovating and developing great new products at a rapid pace typically in partnership with our major customers.

This month, we've been helping a major food customer transition and iconic brand to a container made from 100% recycled material.

We continue to win awards for our packaging innovation and last month, we took home another one for one of our paper based materials.

And we also to continue to introduce new flexible packaging structures that are fully recyclable.

All of this innovation and product development will help us reduce our use of Virgin plastic by more than 200000 tons by 2025, while providing consumers with the same grade functionality that they currently enjoy.

So to close off and summarized on slide 17, the 2020 fiscal year is off to a solid start first quarter results were in line with our expectations and Weve reconfirmed our full year guidance, we're making great progress on our longer term priorities, including maximizing the benefits from the Bemis acquisition and taking a leadership role.

All on sustainability.

All of which will further differentiate amcor and create meaningful value for shareholders and that concludes our opening remarks, we'd be happy to take your questions. Thanks.

As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q and a roster.

Your first question comes from the line of Daniel came with Citigroup.

Good morning, Ron Good morning ONGC.

Just a pleasing to see.

That you mentioned that overall volume growth.

What's changing flexible in North America, Europe , North in rigid in North America.

Just wondering if you can you provide some detail on the product cat categories, where you are seeing that strength.

And also maybe provide some god.

From clients into the magnitude of possible Thats My first question.

Yes look we had.

Growth in Flexibles in North America, and in Europe that you would expect in that were used to seeing which is very low single digits Thats. What we would expect from the business and that's what we've seen in our business historically areas of strength continue to be healthcare that would be true globally.

We continue to see strength in.

Yes, liquid packaging or packaging, requiring higher barrier structures, our coffee packaging generally these are actually the same.

Segments that have grown both in Europe and in North America.

And then outside of that we see growth in some of the emerging markets I didn't mention Asian in the prepared remarks, but southeast Asian, India. In particular, we continue to see good growth.

As well so I think like any period. Daniel is there's segments that are going really wellness segments that are softer, but generally we're very pleased with particularly the the bigger parts of the flexible packaging business through Q1.

Got it.

And Mike in terms of operating cash flow I noticed that first quarter as a negative number a talk us through the seasonal draw. This for first quarter operating cash flows being negative.

Yes look as you stated the cash flow was was an outflow in the in in the first quarter on initiatives. This was inline with expectations and meaningfully better than the prior year.

And it also enabled us to to this was included in our full year guidance and so we will Alberta.

Concern that full year guidance is being.

Cash flow after dividends is three to 400 million.

And Thats before hundred million of integration costs. So we indicated back in August at our cash flow will vary widely from quarter to quarter and versus prior year and typically it is seasonally weaker in the first first half as we come off a strong strongest quarter in Q4 so.

We'd expected in Q2 will improve.

And.

But.

We remind is and then we will also have to dividend payments in Q2, as we as we realigned to the quarterly dividend program. So one of those obviously was.

Declared in August and we paid that even in early October and then the one that was declared today, we'll get paid in December . So so that we will have an impact but.

Typically we see the first half cash flow as as a small outflow and we don't see any difference at this stage.

Got it thank you for that and just finally and tends to be at guidance Apple profit growth to be Fox or 10%.

Given the 15% growth.

In the first quota.

Yeah.

He generated and the synergies.

That.

The 10 mill at 65 know that cash should be.

Generated this year.

Actually running ahead of your guidance of 5% to 10% for the full year.

No no look I think we we are expecting the result, we had this is really in line and Thats why we confirmed the guidance where we are.

There were a couple of things in things like corporate cost an interest that we.

We had a lower number in this first quarter, but that will ramp up.

As we progress through the period interest.

Yes, so I think thats, that's what we see.

Okay got it thank you Sir.

Your next question comes from the line of Nathan Riley with Tvs.

Thanks, taking my question just in relation to the the Bemis integration prices it sounds like you're tracking pretty well there from a I guess and operational point of view just curious how you manage to the customer expectation levels through that consensus that we bring to their requirements. So that prices and then.

Just wondering how you placed at this point to start driving some of the revenue synergies through walk through cross selling initiatives and what not just give an update on that would be fantastic. Thanks.

Yes, that's a good question look the first priority with customers is to make sure that we're keeping our eyes on them. The integration is a is a massive undertaking internally and the thing that were most on watch for is that we've become too internally focused so the first priority with regard to management of customers is spending the same.

No more time with them that than we had previously so that's that's been priority one two and three is being as attentive as we can possibly be.

And I'd say, that's all gone very well I mean, I think as as Michael commented the integration in the nuts and bolts of it has gone very well and that includes our continuing service and quality levels with customers, which hasnt hasnt missed a beat in any part of it the business, which is which is just great.

And that gives us great foundation from which to start to talk about the benefits of the acquisition for those customers and those conversations are.

Our continuing there they're accelerating I think we probably talked about this publicly a few times, but this deal. Unlike some others is a little less threatening to customers because there's very little direct overlaps and has very little very few examples where the two companies were supplying the same products to the same sorts of customers in the same regions and so.

Really the onus is on US now to turn the acquisition and the combination benefits into value for customers and I would say that continue to be.

Highly engaged and and and optimistic and the topic of sustainability is the one real thread that has made us even more relevant to add to the customers are both legacy companies.

Hi, it's early days to two to talk about traction on revenue synergies I think those conversations.

Evolve over time and.

I think I would say watch this space on that we're not expecting.

Anything material in the next couple of periods here.

Okay. Thanks, and just finally, just on the sustainability agenda.

Pretty sure that when you when you soldier healthcare assets you had an intention to allocate some of the pricey strong about his sales towards some investment team in sustainability can you just give us an update on on what that is shaping up to look like at this point.

Yes, it's really going to be.

The four buckets, we talked about at the time in August you first of all you're right. We divested some plants to satisfy the antitrust regulator regulators and get the deal approved.

That.

That liberated 550 odd million dollars of cash after tax and we said, we're going to commit 500 million of that two a share buyback and 50 million to advancing our sustainability initiatives.

And the money is going to go in three or four big areas Firstly, the R&D infrastructure.

That will really help us turbocharge the product development efforts.

As a little bit uneven we've got more infrastructure in certain parts of the world and others.

By infrastructure I mean.

Customer prototype.

And design centers pilot equipment et cetera, so that that will be one.

Area.

Second is some capital equipment to make some of the product set a more sustainable whether thats handling recycled resin or some of the flexible structures that require different types of coatings and things.

And thirdly, putting some more money behind.

Our partnerships and there is some really exciting things happening with our partnerships, including in the us with the recycling partnership and their support for the every bottle back initiative. So those would be the big three and then ultimately where where we want to make sure people know we're open for business.

From an innovation perspective, and we will do a bit more open innovation sourcing, which will require some investment as well. So that's where the money will go no no update in terms of something specific to point to but those are the themes that are being.

Work through and will evolve over time.

Okay. Thanks for taking my questions.

Thanks for next question comes from the line of Brian Campbell Crawford with JP Morgan.

Yes. Good morning, Thanks for taking my question and just one on on raw materials for Flexibles apologies, if its materials already but what was the M impact to to sales in the benefit to EBIT in Flexibles division from the pass through of raw materials.

Yes, the EBIT benefit was very similar to what we saw in terms of magnitude in the second half of fiscal 19. So we had a modest benefit about $5 million in the quarter.

Which is basically the same pace throughout in the second half you might recall, we had about a $10 million benefit for the for the full second half.

Overall basket of materials was modestly lower.

But not really material I'd say that we're sort of at the same pace for the second quarter, but nothing in.

Substantive nothing to impacted results substantively that would change either the outlook or.

The results for the period.

And I'd appreciate any sort of comment on the sales lines, while just trying to understand the yen to 0.8% decline reighty for flexible sales that were being pulled down a bit by.

And raw materials, so I'd say.

On a growth rate basis, roughly dollars that the impact from sales.

Add just basically the sales would have been roughly flat.

Okay, great, Thanks, and Cequent Flexibles.

And specialty cartons, and the Destocking, there, which influenced that that business and can you help sort of that line what was what level of decline.

Yes look I mean this happens from time to time in this business and as we reported on a 90 day cycle will become more evident that this happens I mean customers.

Managed through excise tax changes or packaging regulatory changes in different ways, depending on the jurisdiction and in the quarter. There were a couple of changes in eastern Europe .

Where it was actually to their customers advantage to deplete inventories and when that happens then we were it through the topline.

I think we've seen that before we note that these are temporal.

So we're comfortable with where the business is on.

Okay. Thanks.

Your next question comes from the line of Brian Maguire with Goldman Sachs.

Good morning, depending on where you guys right.

Just.

First question just on the the Twoq outlook I think did you say that in the prepared remarks, the expected EBIT to be down year over year I wasn't sure if that was to the whole company or just specific to to North America rigid.

Now that we're just flagging that ridges last year had.

Extraordinarily strong quarter on really strong volume and mix and for this quarter. It will be more of a normal pattern, which typically the second quarter and rigids is the seasonal low for the year.

So the EBIT in Rigids for Q2 will be lower than the prior period EBIT for the company will grow.

Okay, and all of which mature moving our yes, and this is all factored into our full year guidance.

Okay, Great and then I think did you also mentioned that the impact to EPS from currency expect to be pretty minimal and just wondering if that's what you said in it so light it seems like the FX rates might have moved a little bit more than in the minimal levels since the averages.

Where we were in fiscal 19, and then sort of early to question on that I see you guys are excluding some hyperinflation costs.

Just wondering what's the policy on that and why exclude that.

Yes, so look on the currency, we look we had a very small impact in that period was about 3 million.

Based on today's rights and the convergence of currency over the balance of the.

The impact we don't seem to be material. So we basically cold out that you.

We don't see materially impact for the there'll be some but it will be small.

Based on what we see if you take today's rights.

In terms of the hyperinflation adjustment really thats just always trying to do there is is provide a comparison of the results.

And so when it wages taking below the line the translation impact on that front.

Due to give a comparative as a period year on you.

Okay last one from me just on the.

And on the sustainability topic, just wondered how your conversations are going with some of the supply chain partners that you're going to need to partner with too.

Yes develop the sourcing for recycled plastic.

Hi that I imagine, it's still sort of early days with some of these 2025 targets. It a lot of companies have but yes. As you said a lot of Capex a lot of we'll need to be put in place today to kind of satisfy those goals.

How are those conversations going are they still high level or are we.

At the point, where you're starting to see a lot of capex dollars be allocated to that and.

Actual like rubber hitting the road.

I think you're seeing an intensive I think you're seeing in intensifying or the effort generally I think first thing I would say is.

The Big brand owners remained committed to their current package formats Thats. The first thing I would say I mean, I think they're under a lot of pressure and they need to show.

Traction and evidenced of progress and they're making that but they remain committed to providing the consumer the same experience that he or she has today with the added benefit of a more recyclable or more responsible end of like solution. So thats the first thing.

I would say that you are seeing an acceleration of of activity and conversations and spend and I think the announcement in the US last week from the American Beverage Association and the every bottle back initiative, which is essentially a joint statement by.

The three major beverage brand owners in the U.S is a great example of that I mean, there's there are hundreds of millions of dollars behind that.

I think separately each of the three would make the same comment that amkor would make which is we would happily.

Secure and convert every pound of recycled resin that we could get our hands on.

And I think you're starting to see real evidence of people, putting their money where their mouth is so I think we all know that.

The challenge here is not just the package design, but also the infrastructure, which will require capital and.

Coordination, but also the consumer and their understanding of how to deal with the package when its.

When it's been used.

What to do with it and they are active participation. So I think it'll be a journey, but there are some real greenshoots the 0.24 increasing activity.

Okay. Thanks very much.

Your next question comes from the line of Davy Jones with Deutsche Bank.

Hi, Thanks for taking my question My first just a follow up on previous volume questions.

Could you remind us why Q2 volumes were strong in rigid packaging last year.

And then.

In the specialty carton weakness that you talked about are you actually seeing improvements in a quarter and the current quarter is that something that will linger into this quarter.

Last year Debbie in the second quarter, we had first of all for the whole half last year, we had double digit growth in hot fill which is the higher value added part of the rigid beverage business.

And that that volume growth was pretty benign in the first quarter last year and was.

Just extraordinary in the second quarter and.

That's not going to happen again, we're in a more normal pattern.

And.

That's all that's all been out there for a year. So it's consistent with with the results for last year on on specialty cartons.

We definitely see signs that the Destocking will abate I think that it will continue a bid into the second quarter.

There's a couple of changes in Russia, and Turkey in particular.

Which will go into effect in the beginning of the calendar year and so.

Those as as you work your way towards January Onest start to see the the impact of the Destocking dissipate as consumers, whereas customers resume normal ordering pattern. So it's not something that will linger into the second half, but the second quarter will have a bit of a negative drag as well.

Okay. Thank you and then my second question.

Yes, I mean, the slide I was very helpful on sustainability and responsible packaging and the message around the carbon footprint.

My question is really around its though waste infrastructure and it's kind of your your optimism and thoughts about.

Whether that can improve no sooner rather than later I know that's a very broad question, but you sounded pretty optimistic about some of the programs you threw out there.

That are being supported by your customers or whatnot, but it just it's a little unclear to me what.

Where are the optimism lies in like how soon that kept that problem can be addressed because it seems like one of the big issues around kind of shifting away from some of these other packaging.

Well look I think what we're seeing is is the brand owners realizing that the format that their consumers prefer.

Just like all the other formats has to have an outlet in a responsible way. So we need waste management infrastructure, regardless of whether you're talking about a can or a glass bottle RPT container.

And I think we're also seeing is those brand owners remain committed to.

To the same sort of mix that they've had so they realize now that they've got to shift gears a bit and if you go back over several decades and you just think about the positions that.

Several of the actors in the value chain have had on things like bottle bills and things like sponsorship for this to sort of activity waste management in particular, I mean, and how that shifted pretty dramatically.

And Thats, where the optimism comes from I think it comes from the fact that.

If the consumer wants a package that is fully recyclable.

It can be turned into a new our package over and over and over again than they have a choice because PT is just as recyclable and justice.

Reprocess a bowl as any of the other substrates. They don't have to give up the functionality that they have come to enjoy and appreciate.

But they also now have a particular desire to see a more responsible solution and thats going to require infrastructure. So I just think the pressure through the system. Now is is that a point, where there is action and not just words and how fast does it get addressed is a good question. I mean, you would you would know in the us only 60% of household.

Lets have access to curbside recycling that's not enough.

And you'd know that in the us its fragmented right its city by city municipality by municipality. So it will be a journey, but I think that today's consumers is educated enough and committed enough to help ensure that outcome in the brand owners or are our phone so.

That's where the upcoming Thats, where the optimism comes from.

Great. Thanks, Thanks for all the information and I'll turn it over.

Thanks, Nick.

Next question comes with one of John Patel with.

Macquarie.

And your line is open.

Hi, guys.

Just a couple of questions.

Okay.

Hi, Ron look just in terms of sustainability I mean, youve, obviously highlighted some of the longer term issues, but just in terms of once you seeing as far as impacts on the business in the short term you'd called out of North American water, but what other impacts you, saying.

On the positive or negative on the business right now.

Look if thats a good that's the great question I mean, the short answer John as we really don't see anything in the here and now I mean, if you if you look at the industry figures.

And everyone focuses on PT, which which is easy just wanted to focus on it's not the biggest part of our business, but it's obviously quite visible. If you just take PT in beverages in North America. The growth in the third quarter was the strongest quarterly growth that PT has had in the last five or six quarters and so.

There doesnt seem to be.

Any real shift.

In terms of demand patterns in the market at large that's the first thing. So we don't really see it impacting the business I think where.

We see action in the business.

Not so much in the results, but in terms of activity is sourcing of recycled materials no question Thats intensified our own activity in sourcing more recycled material.

And then I think the other thing is obviously the product development agendas and the dialogue with customers.

It is is probably increased by order of magnitude. So those are the those are the current impacts you see on the business today, it's more activities activity level as opposed to financial statement income impact.

Hi, guys just.

Just sorry lastly.

Sorry, two part question you for the sake and I'm just in terms of North American Flexibles, what drives the high styles and volumes and obviously you've put up a couple of things happening there in terms of growth can probably chain in terms of meat and cheese, but weakness in dry goods.

How did that sort of play out.

Well for our business really the growth in the quarter was from health care and from what we would call liquid packaging or packaging that is.

As a higher barrier properties that is a.

A substitute for metal cans.

Or is for refillable formats as well so it would be more the structures that provide high barrier, where we saw good growth and the health care end markets, both medical and pharmaceutical would be the particular areas of strength.

Thank you and just last one Latin American volume weakness, how did that track through the quarter end.

Payments you mentioned previously was profitable in July how that trend through September . Thank you.

Yes, Thats well, that's right John I mean, the softness in Latam in the Flexibles business.

Was that was primarily from that legacy Vms business that we flagged in August .

And what I would say there is really.

It's a good news stories sales are obviously weaker than prior period, there continue to track weaker than prior period.

But the businesses in is in a much better place its return to profitability for the quarter.

The bottom line has benefited from the brick actions that were taken in the summer north north northern somewhere around the cost base head count that pick out and.

Some of the other thing so I think we probably feel a lot better about that business than we did three months ago were two months ago. When we last spoke.

But the topline is still soft and I wouldnt say that there was any.

Major shift through the quarter sequentially, so we're going to where a bit of a softer topline there, but the businesses back in the black.

Hi, guys. Thank you.

Your next question comes from the line of Salvador, Atlanta with vertical research.

Yes, hi room on Mike.

Michael.

So I wanted to ask Bob your rigid packaging firstly can you clarify it will be the mix impact than.

Latin America, because it seems.

Sales, excluding currency enrollments and we also were still down despite.

Mostly volume and mix in North America, So I'm trying to understand I will be to walk you know what it was the mix impact that drove the entire segment down.

Yes, the mix in this business is driven by a number of factors, but the one is that that impacted the quarter, primarily was the product mix in Latin America. So if we sell.

More preformed unless hot fill containers that we'll have a negative mix impact both on the sales line and the profit line and Thats really what we're referring to there.

Okay and can you also provide a little bit more clarity with the car with regard to North America volumes.

What drove the growth was the cultural coalfield, how did you do in specialty container sand.

Are you essentially do you believe you are growing with a market or are you still gaining market share like classics I've been doing historically.

Look I think our growth was pretty flat in.

In the beverage space, we had good growth in in some of the other segments food and and healthcare, which we would put in the specialty bucket.

I wouldn't read too much into a 90 day period I'd say generally the format took a bit of share and grew about two and half percent.

And we over time have been gaining share in that that hasnt hasn't changed.

But I think for the quarter would be safe to say the volumes are more or less flat in the beverage categories.

With a little bit of growth in the specialty space.

Perfect and one last question you know, we've talked about sustainability and it seems a big companies that do make plastic packaging are now starting to fight back and make a you know a stronger case for their product.

And the corporate World seems I understand you haven't disclosed by some of your very large customers about the importance of plastics, but have we seen any change even add to the legislators.

Well.

That's that's a good question look I mean, I think maybe I'll respond to the first part of the question I think Theres no doubt, there's a shift in the communications from the Big brand owners over the last several months I think you can track comments by any of the large.

Mncs and what I think you see is a much more balanced.

Position.

On the topic I think you see an acknowledgment of the impact of greenhouse gases.

I think you see an acknowledgement of the need for more waste management infrastructure and I think you're also starting to see.

The acknowledgement that the consumer has a role to play on this.

That even with the right package design and even with the race what rate waste management infrastructure, we still have to make sure consumers understand what they're supposed to do.

At the end of.

The use of a package and that they actually do it. So I think I would say that the the narrative, particularly from the industry at large and that includes our suppliers in our customers and probably some of our competitors I think the narrative is much more balanced and help for an informative.

As far as what legislature legislators and regulators have to Santa topic, I'd not sort of.

Probably not comment.

Okay. Thanks very much.

Your next question comes from the line of Leerink handler with credit Suisse.

Thanks, gentlemen.

If I can just ask some finance questions to start.

Hi, just in terms of net debt.

In the gap balance sheet.

If you just take the liability short and long term less cash you get about 5.5 billion.

Michael can you sort of reconcile that to the about the 5.3 of adjusted net debt in the media release.

Hi.

Just to give you want to stick at around seven I mean, the net debt was fight we ended at five point.

5.2 for the period are you taking went to sorry.

Yeah 5.2, not was the net debt and that's after taking into account the cash balances.

And the short and long term debt.

Position so.

What's the number you're looking at levels looking on that.

Oh I'm just looking at the added the gap balance sheet in the 10-Q has.

Hi, guys hedges.

[noise] about five point.

5.5 billion if you take.

The the the lie but long term in short term liabilities less.

Hi, Larry but that's okay.

Yes, well get IOD, we'll take it offline yeah, yeah I.

I guess related to that they need some there's an asset held for sale.

Of $460 million is adding your adjusted net that figure have you sort of I think it was that you actually go can be taken off.

Yes, you are looking at the city June numbers day Larry.

Okay, Oh, Okay, yes, you're right all right great. So that makes a comp non they've done it.

I will call in the.

There are different in the net net debt as well you are in their own call.

Yes, thanks for that picking up okay, great. Thanks, Michael.

Hi, just my other question related to.

Oh Latin America.

And I'm, just wondering Ron if you're starting to see.

Reusable containers.

Perhaps explain some of the flatter volumes in last time that you achieved rather than.

Any other factor there.

No actually we've seen really good growth in reuse evolves I mean in a market like Mexico. It's it's doubled the volume of two years ago, but the base is very very small.

It's a it's a low single digit percentage penetration in terms of our mix and it's actually those containers would be accretive to our mix as well that tend to be high margin than there is a bit of technology in the design. So I would say that's encouraged it's encouraging because the brand owners are also putting a lot of emphasis behind.

Those containers in Mexico, and Brazil in particular.

And we're right there in the middle of it but at the moment the numbers are are pretty small.

Right, so that doesn't eat into your one way package volume, having a growing reusable based there.

No. It's actually typically its geared towards a different segments. So the returnables tend to be two liter or even three leader now as some of the latest formats, three liter carbon and softer and containers in or in a refillable format and a lot of the growth that we see in that region is in single serve.

For away from home consumption, so, it's really tapping into two different occasions.

Okay, great, especially cartons North America.

Yes out your reported some weak volumes there, but you guys seem to be bucking.

You know at least in terms of revenue, but bucking that trend just wondering if you could comment on how you guys pulling that out.

Yes look we while we have a mix of customers in that business as you know and we actually had growth in.

In the Americas, which continues last several quarters of growth modest.

But foot positive and yes that customer did have.

And have week.

We find for the quarter, but.

Look I think.

Theres still share opportunities in this business, there's still premium innovation opportunities, which helped drive the topline.

And the business in the Americas is quite healthy.

Yeah. That's why I was wondering so it is pricing a main driver of the better revenue performance there.

In the Americas.

It's a little bit of a little bit of the all the drivers that you would expect including some volume.

Okay.

And I just want to ask something on the sustainability side of things.

So it's my understanding that Yum virtually 80% of the mismanaged plastic waste comes from.

Five or six countries on the planet.

So there's a lot of discussion about recycling infrastructure and waste management infrastructure.

Which sort of goes to the develop world but.

You know what can amcor due to.

You know really improves the waste management infrastructure or.

Motivate governments, perhaps you can help fund that we spent a good infrastructure in the countries where.

The plant is really being affected.

Which is you know, India, Indonesia et cetera.

Well I mean, it's a good good points of perceptive point, I mean, I think it side. There's a handful of river is actually in Asia that account for big chunk of the Ocean plastics in the World. So you could you could start there and make a real impact I think.

Look what can we do I'd say, it's the same mix of of levers we have in developed countries as well first of all we got to do our part we're going to make sure that the packaging is recyclable or compostable in the first place and we're making good progress there I think secondly.

We're big company, but only one company. So we're going to have to work with others. It's a big scale macro problem and we can help inform the debate by providing insights and messaging and technical expertise and the other thing. We can do is help fund pilots and pilots can be really impactful I mean, we happen to be.

Along with others.

Launching one and in Pottstown, Pennsylvania.

In which is the at the MRF pilot I referred to earlier and there is plenty of opportunities for us to support pilots like that in the developing world as well.

So I think Larry it's it's we can we can make sure. Our packaging is is designed right in the first place we can help inform the debate, including with governments and then we can also help contribute in this form of pilot projects that can then eventually scale out so it's.

I'd say, it's a it's a with full frontal attack on multiple multiple dimensions.

Do you think these countries need a razen tax whichever used a couple of times in my research.

Help fund waste management infrastructure do you think that's a solution.

Look somebody has to pay for the infrastructure.

And.

Im not sure that are resin tax that is applied just to one substrate is the answer because ultimately the so the issue here is waste.

I don't think that.

Tax on one type of material, which may disadvantaged it versus others is necessarily at the right answer but as it relates to things that are closed loop in nature, where the funding that's generated goes directly to the required infrastructure, where we're much more interested in those sites. So it's a solutions.

HM Okay.

Okay, absolutely alright, thanks, guys for you help.

Okay. Thanks, Larry.

Your next question comes from the lineup Richard Johnson with Jefferies.

Thanks, very much Ron could you talk a little bit more generally about the performance of the bemis assets in the quota and I'm, particularly thinking about in relation to the 112 million it's reported.

If I, if I think about that number compared to what historically that produced in the September quota and the fact, presumably is the one twelves got some synergy in it and it benefits from some from some accounting changes on the is it reasonable to assume there's little no growth from those assets.

[noise] Richard now, it's not reasonable to assume there's no growth there is good organic growth across the businesses, both flexibles and originally we had.

10% EBIT growth of which.

A good chunk of that was the base business and then the 10 million of synergies that that we referred to I think.

You might be talking about last year's number there is a table at the back which is the comp 112 million was the.

I guess can be much contribution.

Kevin I'm, just I'm, just thinking about Bemis standalone and if I think about what historically they produced in the September quarter that 112.

Doesnt suggest to me, there's a lot of grows because that one twelves being flattered by accounting changes anyway, when you compare it to legacy Bemis.

So I'm just trying to get a sense of whether that those assets was actually delivered growth in the quarter.

In the short answer is those assets have delivered growth in the quarter and I think the 112, you referred to as last year's number.

Okay got you Okay. That's fine and then secondly on sustainability, another very large north American packaging company, Yes, I made the comment, but they still plastic pellet plastic replacement opportunity was $5 billion.

The time, so just be interested to get you will you will sort of take on that and they called out the beverage market, which had done previously so I just wonder if you could update where the beverage over at business at the in the sits at the moment.

The overall business is.

It's it's one of many flexible packaging formats and it's a good healthy business is actually technology and bundle shrink wrapped for beverages.

You'd have to go too.

Pretty dramatically different format with different functionality. If you wanted to replace that doesn't doesn't mean, it's not possible, but that's not a ton of very meaningful part of the portfolio.

Okay, that's great thanks very much.

Your next question comes from the line of grant slate with Morningstar.

Hi, running Michael Thanks for taking my question just it really quick one from me on the remaining synergies that you expect to flow this fiscal year.

How should we think about the remaining 55 million being allocated between but flexibles and other segments.

Thanks.

Well look the synergies are really accruing in the flexible space Flexibles incorporation.

I think that you're going to see the vast majority of them in flexibles overtime I think because this year is is more heavily skewed towards overhead synergies you will see more balance in.

A little bit more and corporate.

And there'll be more to come I think we called out five in Flexibles and five and corporate for the quarter, you'll obviously see both numbers grow but as we get to the it later quarters, you're going to see the flexibles portion increased disproportionately.

Okay, great. Thanks for that.

Your next question comes from the line of Keith Chow.

See marquee.

Good morning lot of Michael I'll keep this Bruce just specific question around the discussions with customers.

Ultimately trying to shift towards using more the cycle in court sorry inputs as this happens.

Well I think we'll be able to pass through the costs.

Recycled you'd say for example strikes where the customers largely net.

Due to the house prices now sort of bogs vision 18 in some regions in other words is it simply lock imposter likes it Wasnt falls associated with the old parcel at the discussions with customers somewhat.

Centered around the sharing of the data.

So at the moment, it's a it's a straight pass through I think the challenge for everybody in the value chain now as we get their hands on as much recycled material as possible.

It has historically and continues to carry a premium.

But I.

I think it's clear the way the industry model has been set up over decades. The pass through of raw materials is fundamental to the to the where the business operates so the cost of recycled resident gets passed along just like the cost of Virgin materials bus.

Okay. Thanks, Ron and just a second follow up on.

Flexibles business I think you briefly spoke about.

Applying some of that $50 million of sustainability Spencer I.

I guess impart changing some of your assets to the other type of new materials as a matter of 'em reconfiguring your existing fleets of assets to the out of the handle alternate film products like recycled plastic will bought it best films or is there you know if we really take this two extremes and talk about the any type of fleet being embedded together.

I guess handle some of these I'll turn it over cycles films is there much cost associated with that.

No look it's a good question, it's not really a question of Reconfiguring. The existing fleet. We have met we have machines that laminate different materials together.

And you know they can laminate any type of.

Oliver substrate, whether it's made of recycled content or Virgin content. So it's not so much about re reconfiguring.

Some of the investments will be in places, where we're literally just sold out where we've got more demand for some of their recyclable structures than we have capacity before.

Or some of the ancillary equipment to handle.

New materials and recycled.

Inputs, so that they have the assets in the business.

Both in Flexibles and in a rigid packaging.

Our fully fungible between Virgin material in recyclable.

Okay. Thanks very much appreciate it.

At this time you have no further questions do you have any closing comments.

Operator, I think we'll we'll leave it there thanks, everyone for joining the call today.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.