Q2 2020 Earnings Call
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Ladies and gentlemen, it's just the operator for today's conference call schedule to get momentarily until that time Ulan forgive me place and hold thank you for your patience.
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Ladies and gentlemen, thank you for scanning die and welcome to the Amcor half year 2020 results conference call. At this time, all participants are going to listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session. You want me to press Star one on your telephone if you acquire any further assistance. Please press star zero.
I would now like to hand, the conference over to your speaker today, Tracy weighted head of Investor Relations. Please go ahead.
Thank you and welcome to include Finch, Outstandings cool, but anything that you in the U.S. and good morning in Australia, joining me on the cold today, it's going to the Chief Executive Officer, Dan and mom CASM into Chief Financial Officer. At this time go directly to a website <unk> dot com under the Investor section, where you'll find a press release at present.
Patients, which will be discussed today.
They discuss non-GAAP financial measures that we talk about woman against combined comparative information reconciliations of these non-GAAP measures can be found in the Prince for these and presentation on their website <unk>.
I also heard Monday that statements regarding future before that the company major reason is cool a forward looking and subject to certain risks and uncertainties.
Actual results may differ materially from historical expected because these good results due to a variety of factors. Please refer to and Glenn It's easy filings, including a statement on form 10-K to review these factors, which I hope to individual.
Thanks, Tracy and thanks, everyone for joining us to discuss afterwards first half results for the 2020 for next year as Tracy mentioned with me here today as Michael Kass, Minnow, Emcores, Chief Financial Officer, and we'll begin with some brief prepared remarks, and then open the line for acumen.
Let's start with the slides three in the presentation par.
Everything we do it and of course starts with safety in some safety is where we began these calls as well.
For some time memorable there's been no injuries and we're not there yet, but we continue to believe it's possible.
And we see evidence of that with over 150 of our sites are injury free for six months or more and our overall recordable kids frequency rate from the house I was 3.2 per million man hours worked the rate for the legacy EMCORE business during that period. It was 2.1, and we know from past experience that acquired businesses.
We have higher numbers of injuries and this is no different with Bemis. So our primary focus this year remains.
On a lining airports safety practices across all of our sites.
And on building on the progress we made in the first six months, where we had a 6% reduction in injuries across the company, we look forward to providing updates throughout the year as we drive towards eliminating all injuries.
Moving to the five key messages we have for today on slide four first we've had a good first half with the business delivering solid earnings growth and strong cash flow.
Second taking into account the good first half performance organic growth expectations for the rest of the year and faster delivery of synergies our outlook for constant currency EPS growth has improved to a range of 7% to 10% for the year.
Third integration of the Bemis business is progressing well not only in relation to synergies, but also in terms of the organic earnings growth delivered by the business as well as the opportunities we see to leverage our customer value proposition, which has been improved as a result of the combination.
Fourth we're continuing to lead the way of sustainability, we're uniquely positioned fully committed and taking action on multiple fronts and then finally, our market positions in our exposure to defensive consumer segments leave us very well positioned to continue generating consistent returns for shareholders, regardless of macro economic conditions.
Slide five provides a summary of the first half results, where we delivered strong overall earnings growth synergies at a faster pace than we had initially expected and we returned a significant amount of cash to shareholders.
Sales were generally consistent with what we saw in the first quarter sales revenue down 1.4% in constant currency terms and excluding the negative impact related to pass through of lower input costs.
Volumes grew modestly in our larger flexible packaging businesses in Europe, and North America, and there is no volume impact on sales in rigid packaging. However, sales were lower in Flexibles, Latin America and in specialty carbons.
EBIT was up 4.4% in constant currency terms with 8% EBIT growth in the flexible segment driven by mid single digit organic growth plus synergy benefits of approximately $20 million.
Earnings were lower in the rigid packaging segment as we highlighted would be the case on our first quarter earnings call.
EPS increased by 11% in constant currency terms and the board declared a quarterly dividend of 11.5 cents per share.
Free cash flow before dividends was strong and we returned more than $600 million to shareholders through dividends and share repurchases during the half.
Before handing over to Michael who will cover the financials in some more detail just a few words on the Bemis acquisition looking at the next slide slide six.
First of all the integration of the two businesses is progressing very well the two legacy companies are functioning as one and the excitement in the focus is demonstrated by our employees has enabled the flexibles business to simultaneously grow organically and to surpass the synergy targets. We originally set for the first six months of the year.
The response from customers has been very positive given emcores enhanced global value proposition, which includes a broader and more sustainable product offerings.
In terms of synergies, we delivered $30 million overall in the first half which was ahead of our initial expectations and are mainly coming from overhead reductions in procurement benefits.
We've increased our guidance for the current fiscal year from 65 million to $80 million incentives and we feel very confident in our ability to deliver the full 180 million by the end of fiscal 2022.
As a key takeaway today is that we feel very good about where we're at in terms of the integration and the delivery of synergies.
Ill hand over to Michael now that will come back and talk about some of emcores longer term opportunities.
Thanks, Ron Good morning, everyone, starting with the flexible segment on slide 7000, 1.4% low than the prior period in constant currency terms and excluding a negative impacts related to the top sort of lower input costs.
This reflects a continuation of the volume trends experienced in the first quarter, which Ron just mentioned.
Adjusted EBIT was up 8% in constant currency terms and in addition to delivering synergy benefits. The base business performed very well with organic growth of 5% driven by strong cost of funds across the businesses.
Benefit from the normal timeline recovering more material costs.
Overall, we are really plays with the way the Flexibles business is performing.
And we're excited about the long term opportunities for the newly combined business.
In the last six months of secured a number of long term commitments in North America based on the strength of enclosing hedge value proposition and we continue to improve the cost base in Latin America, as well as taking steps to reduce the complexity in that business.
Turning to rigid packaging on slide 8000, 1.6% held in the prior period in constant currency terms after excluding a 2.4% unfavorable impact to revenue from passing on lower raw material costs.
And this was driven by unfavorable product mix given the sales volumes were flat during the period.
Turning to the second quarter, allowing constant currency terms, which was expected given the business cycle that particularly strong comparative period.
In North America overall mix was unfavorable by beverages, Vishay containers, which also led to high cost us about bonds.
This compares to the prior period, which benefited from exceptionally strong Mitch.
Average volumes were flat compared with last year into hot fill container volumes oversight.
Supported by market growth and share gains the range of customers will achieve Casey format.
In Latin America volumes were 2% higher.
Earnings were lower than the prior period as mix of unfavorable and the business benefited from early recovery of cost inflation in Argentina in the second quarter last year.
Most importantly for the rigid packaging business, we expect to return to profit growth in the second for the year and this is taking into account in our full year EPS guidance.
On slide nine adjusted free cash flow of 310 million was inline with expectations and keeps us on track to generate more than a billion dollars for the.
One of the consistent highlights for the business is based on working capital performance and on a like for like basis. The working capital to settles ratio has improved by 30 basis points in the half to 10.4%.
And we will maintain our focus in these areas to reduce this ratio further over time.
Free cash flow and proceeds from asset divestments to complete the Davis acquisition enable us to return more than 600 million in cash to shareholders during the half.
While this 391 million lives through dividend payments and pull had a strong track record of cash return through a competitive dividend and it was great to be added to the prestigious S&P 500 dividend aristocrats on every the seat.
The remaining 223 million was returned by repurchasing nearly 22 million shares through to the end of December.
We have roughly halfway through the 500 million share buyback program that we announced in August of 2019, and we're on track to completed by the end of June 2020.
On slide 10, we have provided some balance sheet highlights in simple terms the balance sheet remains strong with leverage at 2.9 times and we continue to being a very comfortable position with access to a diverse range of funding sources at very competitive grades.
Combined with the ability to generate significant free cash flow the balance sheet provides flexibility and capacity to simultaneously invest in the coal business.
A compelling dividend buyback shares in growth through acquisitions.
Finally living outlook on slide 11.
The businesses delivered good desktop result from the momentum building in relation to the delivery of synergy benefits.
The lower expectations for interest cost outlook for adjusted EPS increased to a range of 7% to 10% in constant currency terms.
This is now inclusive of 80 million of pre tax synergy benefits.
An increase of 15 million from previous guidance.
And shames net interest cost for the year will fall within a range of 210 to 230 million, which is $20 million lower than previous guidance.
Corporate cost tax and cash flow rolled in line with expectations for the first half and as a result, we have reconfirmed guidance to each of these metrics.
Got it is in constant currency trends and assuming average exchange rates from the first half of Twentytwenty prevail for the balance of the.
Currency headwinds would have an unfavorable impact to reported EPS and approximately one cents per share.
So with that I'll hand backup Toronto.
Thanks, Michael before we turn the call over to you for questions, we're going to lift out of the detailed for a few minutes focus on the longer term.
In slide 12, recaps and for our strategy, which has not changed we've described it many times before we've actively managed our way to a focused portfolio of businesses in four product segments and each of those businesses benefits from a small number of differentiated capabilities, which we call the EMCORE way in which provide real competitive advantage and then finally our aspiration.
One is to win for four key stakeholders and for investors, specifically winning means taking the strong cash flow, we generated and deploying it in several ways to generate value, which I'll describe on the next slide.
Slide 13. This is amkor is capital allocation framework and it provides a perspective on how we think about generating value for shareholders over time.
Over the last six years, the outcome of allocating our cash and capital in this way has resulted in average value creation of about 12% per year through combined EPS growth and dividend yield and looking forward over the next few years at a time when uncertainty and volatility our high.
We are clear visibility to controllable sources of value through continued organic growth.
And $180 million of cost synergies from the Bemis acquisition, along with continued strong cash flow to fund a compelling dividend and to complete the $500 million buyback, we announced in August of last year.
As we did in the first quarter I want to touch on sustainability, which remains the most exciting organic growth opportunity, we have at EMCOR and it's not a new topic for us and we've been fully committed to making a positive difference here for several years now in fact made our first public aspirations in January of 2018 over two years ago with our too.
25 pledge and in August last year, we demonstrated that conviction again by committing another $50 million that investment to accelerate our sustainability agenda.
And over the course of our journey, we've developed some particular points of view, which are outlined on slide 15.
Firstly amcor makes primary consumer packaging that actually touches in holds food and medicine, and other consumer products and as world population and consumer needs grow. We believe there will always be a role for that type of packaging first and foremost to reduce food waste, which is around 30% globally and contributes by itself 8%.
End of global greenhouse gas emissions.
Second we know that consumers have come to expect a lot from packaging and they want packaging that works well is lightweight convenient easy to use cost effective great looking.
And whats goes on and now they have expectations that the packaging has a responsible end of life solution as well that doesn't result in more waste in landfill or the ocean.
And the third point is we believe that's possible and the way to get there is through responsible packaging.
And lastly in most importantly, amcor is uniquely positioned and taking action on that front.
When it comes to responsible consumer packaging and elimination of waste, we believe a total system solutions required across three elements.
First smart packaging design that takes into account environmental impacts throughout the product lifecycle and that means packaging, that's recyclable reusable or compostable made from recycled materials and uses less material in the first place.
And second to rate waste management infrastructure needs to be in place whether thats recycling. Our conquesting facilities are returnable systems, and finally consumer participation is critical to properly dispose of packaging in an appropriate way either by recycling or composed seeing were in fact reusing.
Here a couple of other important things we believe when it comes to responsible packaging.
Responsible packaging also does not mean no classic in fact, our customers continue to use and believe in plastic because it provides great functionality is fully recyclable and it's clearly advantage versus other packaging materials from an overall environmental footprint.
And the benefits of plastic relative to other materials will grow over time as waste management infrastructure increases and consumer participation grows as well.
When it comes to making responsible packaging a reality EMCORE is uniquely positioned starting with package design through our innovation capabilities on slide 17, I think it's evident amkor is already offering customers a broad range of responsible packaging options to help them accelerate their own sustainability agendas, including packaging made from.
Recycled or bio based materials.
Joining us recyclable reusable, our compostable and of course lighter weight packaging that results in a lower carbon footprint.
We are making these products available we're addressing the materials that go into the package the environmental effects of manufacturing and distributing the product as well as how the package will flow back into a circular economy, rather than becoming waste.
And these options are available today in both flexible and rigid formats and there's a continuous flow of new product introductions and flexible packaging. Recent examples include the first recyclable standup pouch for liquid products in Thailand, which is also multilayer material multilayer structure.
In a lighter weight recyclable trade with the recyclable barrier for protein applications, both of which you can see here on slide 17.
In slide 18 includes examples in the rigid packaging business, which includes converting existing products to 100% recycle PD.
Converting from other package formats, TPG and Relaunches of iconic brands in the PT format.
And by evolving to these more responsible packaging options amcor will have reduced our annual consumption of Virgin resins by more than 200000 tons by 2025 and in that process of doing so we will have supported the development of an effective and more sustainable market for recycled resin by creating cumulative demand of more than a million tons over that time period.
Good.
And finally as the industry leader, we're actively sharing our expertise and perspectives directly with consumers through our podcasts and social media channels with customers through bilateral sustainability summits and with participants across the entire supply chain through our partnership network.
We've had a number of strong long term partnerships for sometime now and we'll add others to maximize our reach an impact.
As a recent example, amcor joined the World Economic Forum this year and had exceeded the payable with leaders from the world's largest companies many of whom our amcor customers and suppliers and by contributing in a number of the sessions, which were focused on redesign of the plastics value chain and the new plastics economy global commitment to things became even.
More clear one we're fully aligned with our customers in our suppliers in our perspectives in our goals and too Theres a share determination to develop a waste tree future and to do that with pace.
When we announced our 2025 pledge, we knew amcor had the opportunity to make a positive impact on the world and to lead the industry through better packaging and we're more confident today than ever that amkor is uniquely positioned to capture that opportunity and to deliver on our commitments.
Summarized on slide 20 were pleased with our first half results and confident of delivering against the increased financial outlook. We have for this year.
Capitalizing on the value in the potential of Bemis acquisition is one of our top priorities and that integration is going very well with momentum building every day.
We're acting with confidence in conviction to drive change as we progress towards our 2025 sustainability goals and we're excited about the many other opportunities we have to drive long term growth and maximize shareholder value.
With that we'll be happy to take questions.
At this time I would like to remind everyone in order to ask the question. Please press Star then the number one on your telephone.
Question Thomson Anthony Pettinari with Citi. Please go ahead your line is open.
Hi, good morning, and good afternoon.
Keith you raised the full year guidance I think by about a half a cent at the middle of the range and I think the benefit from the higher synergies and lower interest costs expenses, maybe a bit more than that if my math is right. Im just wondering when you think about organic EPS growth.
Has anything changed versus three months ago, and how do you think just generally about.
Upside or downside to the full year guidance for the remainder of the year.
Yes, Thanks, Anthony look it's.
We feel really good about the first half I think thats points been clear and so we increased our guidance for the year as you pointed out I think what I, what I would remind you is it is a range.
We've given a range again today of 7% to 10% in constant currency terms up from five to 10 and and what that suggests is that we feel pretty good about about the full year I don't think.
We see anything markedly changing about the business organically or otherwise in the second half.
If we think about where the opportunities may come from.
To to hit the high end of that range, obviously, better topline growth would help maybe a more favorable raw material environment and certainly continued acceleration of synergy benefits would help us get there and obviously on the inverse will be inversely be true as we think about the bottom of the range. Although I think what you can take away from today is that.
Weve minimized the downside risk on the finance year, which is why we've raised the bottom end of.
EPS growth ranch.
Okay.
Got it got it and then just switching gears are you seeing or do you anticipate any impact from the current virus disruptions and can you just maybe remind us of course footprint in China in.
Any regions that are impacted.
Yes, I look at its evolving topic, obviously changes by the day, but just to contextualize. It amcor, it's got a big flexible packaging business in China, we have about 12 platts spread across the country, although none in the who Bay province, which was the epicenter of of the virus.
We've got about 3000 people and it represents roughly 4% of sales. So it's a big important business for us Firstly and most importantly, as far as we know as of today, none of our employees have been stricken by the virus.
Our plants are actually all operating.
Which is great. Many operated right through the new year period, because we're supplying healthcare products others came back online last week in this week.
They're not all running at full full tilt because we don't have all the employees back.
And our customers are not all operating but our businesses are functioning now the impact on the business in the second half will remain to be seen obviously, we didn't have any impact in the first half.
The impact on the business would be in front of us and while it's an important business for us and it's going to be a real big part of our story going forward not overly material in the Grand scheme of of Amcor, It's about 4% of sales as right as I said.
Great Thats very helpful I'll turn it over.
Your next question comes from Grand Tom Panjabi with Baird. Please go ahead. Your line is open.
Hey, guys the debt to you all.
I guess first off on the on the comments at the long term commitment secured in North American Flexibles can you just give us more color on this dynamic.
You know is this incremental business or is that purely just extending contract terms and if it's incremental how should we think about later in this and as it relates to.
The next.
[music] quarters.
Yes, Oh look it's it's a good pickup because we feel really good about that remains one of the highlights of the integration so far it's in the customer reaction.
As we've talked about this is a deal that should be exciting for customers. It should not be threatening in any way because there is not great not a great degree of overlap in similar regions with similar products around the world. So the customers are rightly seeing it as a complimentary.
A combination of two companies and that's manifesting itself in a number of commitments, which we highlighted today I think.
What I would say is it's it's a combination of business, that's being locked down and secured with a little bit of incremental share of wallet gain at some of these customers I Wouldnt think that there is a material impact that needs to be Leonard and because we're talking about.
Four or five deals with customers all of whom are important but out of hundreds and in fact thousands of customers in this business. So.
I think when it says to US is that we're avoiding any substantial negative synergies and if anything we're getting some let's say positive revenue benefits in the form of locking up business and maybe picking up a little incremental share overtime.
Okay. That's helpful run and just in terms of EBIT for flexible it looks like it was up about 38 million.
The first half versus the previous first half 20 of which was from synergies and tough there are many 80 million how much of it came from the timing lag you referenced of raw material cost recovery.
Well, we had about 5 million in the first quarter, we had a similar type number in the second quarter.
So all up we had about 5% organic growth part of that would have been from from the raw material lack.
Or the Reordered recovery I guess, you could say of the raw materials, but we're pretty happy with the organic growth and 5% general.
And will that continue into the second half the way you see it right now.
Look it remains to be seen I think.
The.
Case of raw material movements is relatively benign overall through look across the global portfolio of spend.
You might have a little bit of a benefit in the quarter that were in but beyond that it's difficult for us to see.
It looks more benign than anything.
Thanks, so much.
Next question comes from Lamy can live with quite a credit Suisse. Please go ahead. Your line is open.
Hi, Ron just a question on North America falling onto that.
The statement here says North America volumes grew in high value protein.
First question is.
Did volumes in North America overall growth.
And.
One of the things that challenges I think us analysts is the external data is showing some pretty weak food and personal care.
The volume performance in North America, just wondering if you could talk about.
Where do you guys maybe.
Picking up pockets of growth you mentioned a few here.
So first question is did overall volumes grow and.
Two can you talk about.
Where you're capturing that growth.
Yes look I like the first from the simple answer to your first question. Yes volumes grew overall, both in North America and in Europe, which is really pleasing because those are our two engines in flexibles right. Those are two big businesses.
Neither of which are in dynamic growth markets. As you pointed out so we can get a little bit of growth through volume in those businesses. It's it's good to see so absolute volume grew in both North America and Europe.
In fact in similar end markets in both regions protein healthcare liquid products, which are coming out of cans and into.
Big pouches, particularly in the back of foodservice outlets coffee pet care. So a number of the higher value add segments, we're seeing good growth.
Generally if you were to aggregate the whole FMCG space.
I think it's no surprise that volumes grow generally with population, maybe one or 2% and then you have all kinds of mix impacts in there between different types of customers and different types of segments. I don't think thats going to change much from period to period, and then it's up to us to migrate our mix towards the higher value add part of that overall space.
With regards to your customer makes you picking up volumes at the small into town or other large customers also contributing to your volume growth.
It's a little bit of both it's it's a little bit involved in some of the segments. I. Just mentioned those are driven at some of that growth is driven more by the larger customers. We also see some of the larger customers insert certain discrete segments I can think of theory or cheeses, one where some of the larger customers are losing share, but we know that were 15.
The share that they're losing at retail with some of their smaller competitors. So it's a combination.
Obviously, the big engine in these businesses as the amounts is with the incremental growth is disproportionately coming from the smaller companies that were also serving.
Okay excellent and last question for me, perhaps for Mike on the finance side looking at the cash flow target.
A billion dollar is.
Here. It is a billion dollars. They just free Cashel, maybe last 100 million for one off so call it 900 million.
That's a big jump into second half and same thing with the free cash flow after dividends going from minus 81 to three to 400 million.
When you look at the line items above that slide nine.
Are you anticipating significant reductions in some of those items like interest and taxing.
Capex.
And maybe even comment on working capital, how that's going to evolve into the second half.
Yes.
Good question typically our cash flow lease is much stronger in the second half and we will we do that high ratings in the second houses and seasonality there.
We expect that lease in late in capital improvements as we as we've seen in the first half that we'll continue to slow in the second sight. So generally speaking that's normal trend, we see and.
That's what we expected.
All around the seasonality.
Okay. So simply seasonality in earnings in working capital will get you to that.
That 900 million.
Yes, okay.
Okay. Thanks.
Your next question comes from John Patel with Macquarie. Please go ahead. Your line is open.
Good morning, guys how are you.
Hi, John.
Just had a couple of questions just in terms of region solvency flagging second half improve improvement there.
Appreciate the sort of comps movement.
You sort of in terms of what's driving that you're getting some restructuring cost benefits flowing through and on the likes of Pepsi recapturing share is that is that part of this too.
Yes, it's a good question John I mean, we did flag we had growth in the first quarter first of all we're pretty pleased with first quarter. We did flagged that the second quarter would be tough, which has a lot more to do with last year than this year.
We're okay with this year's performance is really cycling a pretty difficult 90 day period. When you look at it on that sort of basis versus last year.
It's a combination of things last year in North America, we had particularly strong mix not just in product segments. Because we obviously had had had hospital growth again, this year, but with our customer mix and to some extent.
Our end markets in specialty containers and in Latin America, we had a better mix outcome last year. We also had an early recovery of inflation in Argentina last year, which benefited so those two things really made it difficult 90 day comparative period in them.
In Q2 for Rigids, where we do expect the business to get back to growth in the second half from a profit perspective.
Good thing is the volumes have continued to be robust. So overall volumes were pretty much flat with possible going going up 4% and a half Latin America. We had couple percentage points of growth too. So now it's just about profit conversion and cycling a better comparative period in second half, which we expect will lead to profit growth.
Got it thank you and just second question.
We'll continue to sustainability impacts in this resulted either pays relatively steady state but.
In terms of what are you seeing the benefits.
In this result.
Also ways, saying the negative impacts I know you've called out continue to coal at North American water, but where are you, saying the positives and negatives on I think pipes in this result, and looking forward.
Yes look John I think it's becoming more and more of an opportunity for us as we get into it further so I would say that.
We don't see any negatives in the result that all in fact, the positives that you can you can take out of the result related to our sustainability agenda would come from some of the comments we made about the customer commitments. You know the reason that we've re upped with most of these customers that we referred to in someone asked about earlier is largely because of our.
Shared sustainability agendas and our innovation.
Developments the customers are more inclined to want to work with us now than ever before not just because of the bemis acquisition in the bigger footprint, but also because we're completely aligned on the innovation required for sustainability I think the other thing that we highlighted today is has been a number of new product launches in PJM and plastic.
Which suggests to us that the formats alive, and well and customers are doubling down on that format.
More than anything and I guess, the third thing, which I don't know if it's in our materials, but over the last six months there has been an increasingly balance.
Dialogue externally, including some very supportive comments from our customers, who had been very supportive of plastic packaging generally and its role in reducing greenhouse gases and reducing food waste and and then in PT in particular, we've had basically the two major brand owners come on in very.
Yes, clearly vocally fairly strong language support the PT format. So I'd say, John if you took a six month view no negative impacts at all but two or three real positive indicators, maybe not financial but generally about the environment. We're in.
Terrific. Thanks, Ron.
Thanks.
Next question comes from Debbie Jones with Deutsche Bank. Please go ahead. Your line is open.
Hi, Thanks for taking my question.
At first I wanted to get some more detail about.
The comment you made that seem to cost base in Latin America.
What do you still need to do there and then is that the really the only thing that you're focused bank.
You want to be at ski are there other deals.
Debbie the last part of your question I missed the first part was about the cost base in Latin America, and whether there's anything else, we need to do there and I detailed off at the end there can you repeat the end of the question. Please.
Hey, we basically what you just said is that it's alright.
You might need to address the regions while.
Yes, it's piece gets this relates to the Flexibles business in Latin America, and in particular, the legacy Bemis business, which we flagged a few times now.
[music].
First of all what we are doing well, let's set the context first so before before the acquisition closed the business was are performing at a very high level in that quarter or two before close it had deteriorated a bit lost some sales and ended up in the fiscal fourth quarter last year, losing money, which we flex so.
And we get hold of the business in mid June last year and the first thing that happened was we took a lot of cost out and we've taken head count way down.
We're looking at the footprint.
As well so those actions were taken very early on and the businesses improving from a profit perspective with each month. So it's absolutely improved quarter over quarter, it's actually improving month over month.
From a profit perspective.
Despite the fact that the sales take longer to regenerate and always takes longer to regain sales in the does to lose them and so in addition to the cost actions. We've taken were working hard on getting the topline back to where it can and should be and has been in the past so that would be the other thing and then the third thing I would point out is we probably flagged this before but it's a fairly complicated.
Portfolio as we see it we try to keep things, even more focused and more simple and that business functions. When I said the business the legacy Bemis business in particular in a number of segments that we haven't historically been.
And so we're taking the close look at that as well we took one staff in the first half we sold out of a joint venture we had to produce two prominent in Brazil to small business.
Good business very good business, which is not one that we're in anywhere else in the world and so we sold out of that JV as a step towards simplifying that portfolio a little bit further.
Combination cost and getting the topline going again, and making sure we're focused from a portfolio perspective.
Okay. Thanks, that's helpful. And then my second question questions not really Sharon.
To answer, but im curious on the did the target for less merging the resin Min 200000 times.
2025 wedding implication for you in terms of volume and mix 15 ships that this shift people cycling in Q.
Hi, guys.
Michael doesn't versus Virgin are you.
Acquiring new customers and then on that just following on.
On slide 18.
Second market of 1 million tons out of curiosity, where does that come from and how do you identify what that market is on kind of regionally or by end market.
Well Mark.
Yeah Im glad you asked about it because it's an important topics we should spend a little more time on it. So this is all about the rigid plastic space in North America in particular, and Latin America. So in the Americas, where we make rigid containers at a PT primarily that's that's what we're referring to.
There and as far as the reduction of Virgin resin 200000 tons a year.
Yes.
Yes, that's the house number based on the current glide path, we are actually kind of hitting an inflection point now where we're seeing that.
Percentage of.
Recycled material that we're processing pretty much double this year and assuming we kind of continue at that new level, we'd be reducing our virgin resin by about 200000 tons a year now I think it's fairly conservative there's no reason for us to to be.
Anything other than conservative and a number but I would I think it's more likely that one abusing more over time, rather than less but nevertheless were on a glide path to see us.
Replaced 200000 tons of Virgin resin with recycled PT over the next five or six years.
And in so doing and that's with existing customers as well as just the normal mix of business that we have today and that's that's just where we're at.
As we do that over that five or six year period, we will have been out in the market sourcing that 200000 tons plus of recycled material over five or six years that silver million tons of cumulative demand and we think thats going to be important because it helps underwrite the much needed investment that's required due.
Do not only fund waste management infrastructure, but also to fund the processing capacity that will be required to actually convert recovery bottles into post consumer recycled resin and so we're just flagging that one role we can play here is as the demand creator.
And we'll be active in that market for those who are seeking to invest in deploying capital in that space.
Yes.
Your next question comes from Brian Maguire with Goldman Sachs. Please go ahead. Your line is open.
Hey, good good morning, or good afternoon, depending how are you guys are.
Just wanted to payback on that last question and Dan Your response there Ron.
Just interested in seeing over the last couple of months, what progress you've seen in the supply chain.
Ill on the waste collection and processing side.
Thats going to lead to an increase in RPT supply.
And a lot of others have targets to use a lot more recycle the tea in the next couple of years and ought to companies that make commitments to buy it.
Just wondering if you've seen the infrastructure already start to be put into place to actually make that supply available for you.
Yes, Brian it's a good question and that is the challenge right I mean, everyone's got great aspirations and expectations, but now that capital in the and the infrastructure has to follow I think it's hard to assess over a short period of time I think generally the momentum is there I think you see that momentum in the form of.
Increased commitments you see companies like Amkar talking about in our willingness and.
Readiness to buy every pound of recycled material, we can get our hands on you can see the big brand owners, making similar comments.
You can see coke and Pepsi teaming up to launch and initiative called every model back which is helping on the front end to drive collection.
See nestle, making public commitments about there.
Putting money behind buying recycle materials. So I think it's coming I don't know that we could point too specific investments over the last 90 days that.
Would meaningfully move the needle on supply, but I think all the momentum is headed into right direction and all the components of.
But what is going to be required are falling into place.
Okay, and just a question on the outlook I.
I think previously you talked about DNA being similar to Capex and the kind of for 15 million range.
It looks like after skip it out the.
Act amortization from deals it was only 96 million in into Q and kind of ran just a little bit north of 200 million in the first half just wondering if that fourfifty until a good number for the year or give us maybe you got to be coming in a little bit lower than what you thought initially.
Yeah and on the front I'll take that one look yeah, typically we would spend capex to be honest depreciation set around that full 50 Mark.
We are little behind that in the first half just slightly behind I think that's pretty typical when you're doing in any integration of the size of identity famous.
Yeah, we'd expect it.
To be nail or thereabouts by the full yet.
At this stage Monday slide it all that.
That's what you should expect to see.
Okay and then just last one for me just trying to kind of break from the first half EBITDA to the second half outlook I.
Thank you, but that was 911 in the first half it sounds like maybe 10 million of that was.
Some timing benefits that may not recover recur in the second half so maybe 900 million in the starting point, it's like you pick up 20 million for increased synergy capture and then seasonality.
Seems like it may be at 50 million or so so is that.
Directionally about right on the kind of nine hi, 900, an EBITDA for the back half the year.
Yeah, Brian look were given our guidance on an EPS basis. I mean, you can you can get there a lot different whereas I think that key for us is that we're going to get to 7% to 10% constant currency EPS for the year.
Okay got it I appreciate it thanks guys.
Thanks.
A question comes from Richard Johnson with Jefferies. Please go ahead. Your line is open.
Thanks, very much run just for turning to on the commentary you made around the long term contracts you've signed in Flexibles in North America I was just trying to put that in the context of all the longest send arrangements with bemis themselves had put in place prior to you acquiring the business.
Which I seem to remain.
Involves pretty significant price incentives. So I'm, just sort of trying to understand how I should think about what you've done relative to what they've done is a completely separate so it was sort of one in the same thing as part of the same process.
No its separate I mean look good business has thousands of customers and dozens of large FMCG customers to go with the thousands of small customers. It has.
Any contracts it replaced when we bought the business are still in place. We're just referring to positive momentum that we've had with customers where there is a contract but says it's up for that matures.
Where we made really good progress in terms of just re upping that business, none of which are material on an individual basis infected probably not material in aggregate other than to suggest that the momentum is very positive on the commercial side of the business.
Got it that's helpful. Thank you and interest on raw material I was hoping you might be able to give me a feel for what the I'll begin on rigids, what the contribution in the first half was from your restructuring program.
Yeah.
Not a whole lot in the first half as we flagged we've got 20 to 25 million of total benefits going to come through that program. We had about 10 so far.
We didn't do much at the end of the last fiscal year that would have benefited the first six months of this fiscal year, we're going to get back on with several plant closures later this calendar year, which will deliver the remaining 10 to 15.
Benefits so we expect.
Okay, and then just to just to confirm that Youll plant closures niton. It Doesnt result in any overall capacity reduction in the in the system that you've got in North America is that right.
Not in any meaningful way I mean, there might be on the margin in certain certain types of products, but that's not really the intention attention is the lower the fixed cost base, the structural cost base and to consolidate.
Essentially similar and in fact growing volumes in small and fewer number of facilities.
Right got it okay. Thank you. So I'm just trying to reconcile what youre doing with he'll business, which obviously makes perfect sense with a commentary you get out of the beverage can produces who enroll in full expansion mode.
And adding gasunie.
As seen in any way, but I can't I stuck in fact, they sold out.
So I'm just trying to sort of on that and you know the business sort of saying to you or or the Kelly you put to your growth opportunities in that business when youre effectively taking out capacity and they growing very aggressively.
Now Richard just to clarify I think I, just said that we're not taking up capacity.
We are reducing the number of Atlanta.
No.
We're retiring older assets and putting me assets in the capacity in a smaller number of factories, but look we're our business is expected to grow it has been growing if you take if we take a step back around that the package formats and the mix and what's happening there, particularly intense we see an overall liquid beverage market non alcoholic beverage mark.
At growing about 2% and this is just based on scanner data. So us typing proprietary we see the market growing about 2% in the back half of the calendar year, which lines up with our fiscal year, we see the PT portion of that market also growing at 2% and we would see canned volume growing at about 3%.
So what it says to US is that pocket format continues to grow at least with market cans of have grown well as well and there's enough growth for both I think where they can growth has been extraordinary has been in the alcoholic space.
I think that industry data would suggest as much in beer in particular and hard selzer's and things like that there has been outstanding growth, but thats not a part of the market that we've been participating in or are interested in.
Yeah, absolutely accompanying agree and then just finally on sustainability, which seems to get your view on on on if you look at the the consumer packaging industry and across the entire value chain I mean, what part of that China actually holes the key to solving this issue.
Right from raw material purchases through to the convert at two to the customer and particularly the signal markets as well and the reason I. Also question is if you think about the numbers. It may SLAD talking about there, obviously very significantly higher than the numbers or investment they making this price then the convert as a doing so I'm just trying to understand.
When you when you stand back and then look at the problem in its entirety only issue in the or the solution in its entirety you ready holds the key is the customer or was it actually the raw material producer.
Yeah.
I actually think it's equal parts converter.
Brand owner.
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Waste management provider be is at a regulator or private enterprise and consumer I actually think its.
I actually think it's an equal parts those three I think it's less about the retailers and probably a little less about the raw material suppliers I think it's more about those other actors and I think.
That's why we feel really good about our position because ultimately you need a combination of materials and you need other functionality designed into packaging, which no raw material supplier provides today and we don't envision in the future will provide so the converter as a critical critical role there I think the brand owner has a role in and.
Making sure things move quickly and and with the right. So the trade offs in mind I mean, these products are not going to be cheaper initially in the brand owners are going after kind of live with that as in the early days.
Waste management infrastructure is mission critical because it's not not in place everywhere and it's a fragmented landscape depending on the jurisdiction. We we we were to focus on and then I don't think we can't underestimate the roll the consumer because whether the answer here is recycling or even reusing or composting to consumers and after that.
You something different than what they've been doing what they do today you know, they're gonna have to use make use of their compost facility or their reuse system or their recycling and that's not an insignificant shift so I genuinely believe it's equal parts dose for parts the equal equal contribution from now.
For parts of the valuation.
I think that's very how bad, but sorry, excuse my ignorance, but kind of just kind of how do you have any formal I'm sort of corporate of agreements with any of your key customers to develop particular products. The reason I asked the question is an end to end you might well do that it is sensitive I just didn't know what they all whereas I do know and you can still very loudly about the arrangements.
And development projects I thought was raw material purchases and re usable packaging systems and sell and so forth say very easy to find those outside outside of NGL does is anything particular, you can point to that will help us sort of understand what the consider is doing in conjunction with a customers.
Well look to clearance manifestation is a new products, we launched in those outcome.
Our own.
Activity in isolation or we do have several what are called joint development agreements or joint product development agreements with customers that are typically separate from commercial contracts, where you've got almost like a product development contract. If you will.
In a number of segments in Korea in fact across our entire business, we don't have goals and customer names associated with those.
But that's where the innovation in the new product development comes from that leads to the examples that we've highlighted today and have highlighted before.
Okay wonderful thanks, what I really appreciate all the time, thank you very much.
Thanks Richard.
Your next question comes of stuff would be more equity research. Please go ahead. Your line is open.
Hi, Thank you very much house had been tough some specific questions around the sustainability slides Ron.
On slide seven entertain.
Do you have shine a recyclable stand up pouch.
In the context that that pouch being multi layer and.
And all of that had to fund Recyclability disrespect place.
Yeah, it's a good point that it's a good pickup that it's a multi layer materials, because recyclable doesn't have to mean single layer or model there.
And in this particular case, it's a combination of different polyolefin materials that are brought together to provide the functionality. That's required for this homecare product line, which is seventh generation, it's I think a laundry.
So laundry detergent that's pictured here.
As far as the definition of Recyclability Derrick.
Industry standards out there that are facilitated in being developed by Ngls in particular, the yellow Mcarthur Foundation, which is the leaving authority on the space.
And has gotten signatures from 450 companies behind what's called the new plastics economy global commitment.
Around certain definitions and so there is a specific definition of what means recycle what has to be recycled today some place at scale.
And this particular product would meet that definition.
Okay. So you did that was whereas we are they getting say with the the recyclability at Sky I had thought that talk to that both site at scale in the market are you comfortable in I think you said, Thailand is that recyclable intolerance.
I don't know that it is recycle on time, but the definition at this stage is recyclable at scale and in an industrial scale because the infrastructure has to be developed in different parts of the world and so it's also a guide to whats the infrastructure agenda should be in different markets around the world.
Yep Yep Okay.
And then a quick question on your next slide we achieved on the iPhone, which you clarified the.
The less the gym regimen.
What you want to signal as demand creation.
Yes can you just consent for me how much of your Virgin resin in North American.
Reagents that that would represent play.
Yes look I don't think we break it out publicly.
Whereas what were the one of the larger Barnavi comparison.
Okay, Thats why they may not either.
But are you getting up to a material proportion I guess, that's like you say material.
I think.
Yes, let me, let me help a little bit there.
This year, we're going to exit the financial year converting more than 10% of the resident in our rigid packaging.
T resin in a rigid packaging business will be recycled resin.
So that's why I referred earlier to an inflection point, we are accelerating at a very rapid pace. The proportion of the resin we convert as recycled and this year, we're going to exit at over 10%.
Okay, great. Thank you Thats all I had.
Yeah, no further questions that I will turn the call that can management for closing remarks.
Okay. Thanks, everyone for joining us today.
And on the call there operator, thank you.
This concludes today's conference call. Thank you Ma'am you may now disconnect.
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