Full Year 2020 Amcor PLC Earnings Call
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Hi, I'm core.
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Rachel Smith.
Our H.C.H. Oh, sorry.
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Okay. Thank you very much Ms. Smith, you have a lovely bad joining it now.
Some investor briefing with.
Number of our management team members for the end of September where we'll expand more and our strategy and long term opportunities go further information on that event, which would be virtual I will be made available shortly so stay tuned.
So for now back to slide 15, despite the macro challenges and uncertainty around us. We're confident amcor will continue to deliver shareholder value in the near term given the range of controlled the drivers we have visibility too.
Starting with continued defensive organic growth for our food and health care packaging.
Additional cost synergies from the Bemis acquisition over the next two years.
Continued payment of a strong dividend, which should be even more compelling in this low interest rate environment.
And the benefit TPS from having repurchased approximately 3.5% of our shares this past year.
And longer term, our shareholder value creation model or you could call. It our capital allocation framework has not changed we'll continue to generate organic growth hey, competitive dividends pursue acquisitions at attractive returns or else return residual cash cash to shareholders.
Slide 16 shows the outcome of that model over the last several years since 2014, Amkors delivered an average of 12% per year of combined EPS growth and dividend yield.
And as we saw earlier that number and F. Why 20 was much higher at 17%.
As Michael mentioned, we continue to maintain a strong balance sheet with lots of capacity and flexibility.
And we continue to offer compelling dividend relative to alternatives that investors might consider for yield.
Before we conclude our opening remarks today I want to touch on the topic of sustainability on slide 17.
And many of you will notice is not a new topic for us and we've developed some.
Well informed perspectives over many years.
But to key messages here today first sustainability is just as important now as ever.
And second sustainable packaging represents Emcores, most significant long term growth opportunity.
Of course cobot has dominated the headlines for much of the calendar 2020 year, but consumers around the world remain concerned about climate change and ways and we believe when it comes to addressing both of those consumer needs and sustainability concerns responsible packaging is the answer and requires a system solution across three elements first.
Packaging design to take into account environmental impact through the full lifecycle, which includes recyclable reusable or compostable structures packaging made from recycled materials and packaging that uses less material in the first place.
Second the rate waste management infrastructure, whether that's recycling or composting facilities or returnable systems and third consumer participation to properly dispose of packaging after its use.
And amcor is uniquely positioned to make a difference and contribute across across each of these areas innovating and developing new packaging collaborating with other stakeholders on the waste management challenge and informing and educating consumers in order to increase their participation.
And we've continued to make meaningful progress during last 12 months as you can see here on slide 18.
Through continuous innovation and product development, we've made good progress increasing the amount of amcor packaging that is designed to be recycled and in the past year. We increased our use of post consumer recycled resin by over 40% and up to almost 2 million pounds in total as we supported many customers launching new products several made from.
100% Pcr.
We continue to collaborate with a range of stakeholders to increase available infrastructure for waste collection sorting and recycling.
And two examples to note from the last few months in the US a pilot organized by the MRF partnership was successful in demonstrating the potential for collection in sorting of flexible plastic packaging.
And in China, Amcor initiated the first packaging sustainability statement, bringing together the China packaging Federation, the Green River angio customers and suppliers to jointly develop and promote recycling systems and to work with regulators to establish sustainability standards.
And finally, we are using our experience in and insights to educate and inform consumers and customers about the environmental implications of their packaging during the year, we launched campaigns through social media and industry channels and conducted proprietary research on consumer perceptions and behavior related to packaging.
So the close off in summarized on Slide 19, 2020 has been a milestone year for EMCOR.
We delivered outstanding financial results and demonstrated resilience through uncertain times.
Outperformed on the things that we can control.
The Bemis integration is progressing ahead of expectations.
Leading our synergy targets for the first first year and enhancing the overall financial performance of the business.
We have clear line of sight to continued growth in fiscal 2001.
And we're committed and we remain committed to leading the industry toward a more sustainable future and with that operator, we'll open the line for Q1 I.
As a reminder to ask a question you any depressed star one on your telephone to withdraw your question. Please press the pound or hash key.
And the interest of time, we would like to remind participants to limit questions to achieve.
To rejoin the queue for any follow up.
Your first question comes from Anthony Pettinari with Citi.
Good morning.
Hi, Anthony Ron Hey, It seems like the Bemis integration has gone better than expected from a synergy and cost reduction perspective Im just wondering if you could talk about how it's gone from an organic growth perspective, how the business performed relative to maybe expectations at the beginning of the year.
And then you referenced gains in protein in health care, just wondering if there's any kind of finer point you can put on that.
Yes look it's a good question I think we will inevitably get focused on the synergies, but the organic performance of the businesses the business that we acquired.
Has performed very well.
I think it's important to point out it's a it's a high quality business and it's well invested.
Clearly the North American position is well known but the businesses around the world as well.
And we got really strong performance in the first 12 months I think there was momentum building into the close of the acquisition, which was in June of of 19 and that carried through.
Into the fiscal year.
Generally speaking the organic growth was was was was positive in North America low single digits.
We had really good growth in the European business that we acquired in Asia.
Think the one soft spot that we've highlighted several times was Latin America, though I think it's pretty clear to us that that business was absolutely on the right track by the end of the year in fact, the profit in that business doubled.
Over the previous 12 months.
With regard to the segments that I mentioned, which are a big part of the organic story.
We had low single digit growth almost mid single digit growth I should say in protein and healthcare globally.
I don't know if I would call those revenue synergies, but there clearly benefits of being exposed more broadly to those two segments, which clearly are higher value add relative to the the flexible segment flexibles business at large.
Okay.
Okay that that's very helpful and with regards to the 21 guidance EPS has guided to be up a free cash flow down is that just the non repeat of the working capital benefits and then from or is there any kind of resin benefit that you saw in 20 that could reverse in 21.
Given some of the hikes that have been announced or just any kind of color there.
Yeah, I'll talk about I'll talk on the raw material point, Michael can answer the question on cash flow.
Look the raw material environment was relatively benign throughout the year I think we flagged through the first three quarters now we had some modest benefits through.
Nine months of about 5 million a quarter, maybe 15 million for the year in the fourth quarter, the raw material impact on our business was neutral.
We had a lot of volatility think about just oil where oil was in March and April versus where it finished the quarter.
But all up the the impact was was was neutral in the fourth quarter Theres nothing material 2.2, Anthony to that we'd be cycling and if I 21.
And yes, when they come the cashless side Anthony look the key difference is really the 50 million tax payment, which beat the third in Q4.
I'll fly 20.
And that's kind of get painting in Q1, they basically have a double up there and that's 100 million movement.
When you when you consider year over year, So thats really the key difference on the pulling out.
Okay. That's helpful I'll turn it over.
Your next question comes from Larry again like Credit Suisse.
Okay.
Thanks, guys can you hear me.
Yep.
Thanks.
Tom front, I'd say only a difficult question to ask about acquisitions, because it's pretty much generally a vague answer but I'll see if I can take your policy note it might be that.
The pandemic has resulted in acquisition opportunity so.
Perhaps or are you seeing more opportunities and.
Im now that being this might be very much.
I'm quite confident of integrating it.
You might be turning your attention to deals.
Now as well.
Well look your ears.
You are familiar with our business model in our history right. We've always been quite acquisitive, we've been a consolidate or.
In the industry for a long time, so that's part of the Formula going forward as while there's no question, we want to be growing the business. We've got great market positions that can be bolted onto we've got strong cash flow in a healthy balance sheet. So thats clearly part of the the plan going forward.
At the moment I Wouldnt overstated, the Bemis integration is off to a great start, but if if we're talking about our flexibles perimeter.
Priority one two and three is to close off that immigration and really nail the synergies.
As we turn our minds towards what could come next.
Rigids no question would be opportunities, particularly in the specialty space as we continue to diversify that business.
As it relates to opportunities emanating from the pandemic, we haven't really seen much in terms of distressed in our sector, which probably makes sense given most of what we'd be interested in is exposed to the same consumer staples that we are food and beverages and health care. So those end markets and the demand is has held up.
But no question going forward, you can expect us to be acquisitive.
Okay Fantastic. My second question, just again somewhat big picture in terms of raising tax and sustainability I know, it's been talked about now in Europe.
Im just wondering is Scott.
You can talk to where you think the plastic tax of resin tax risk might be most acute.
Well look there is there's a there's a number of moving parts on that one or I should say a number of developments on that front.
I think particularly as government struggled through raise revenue to offset the costs of of.
Dealing with the pandemic I think this this is a place. They may look I think we're seeing that a little bit in Europe.
Look ultimately if.
If consumers around the world value waste reduction in value greenhouse gas reduction.
Just as they value convenience and functionality.
Then then they'll pay the cost that are associated with that so no thats not something that.
We can completely control I think we have.
Voice in a perspective to add to the debate.
And should governments go down that route our hope would be that it's it's well structured and focused and targeted at actually funding the waste management infrastructure, that's required as opposed to a general revenue raise.
But ultimately.
The cost of the product will represent the full value that its offering consumers in society at large including any taxes that are that are levied against that.
In any particular markets, where you see at risk at the moment.
No look you highlighted in Europe, there is a theres a levy on on the member states of the EU, it's not quite a tax I guess they call. It does something else it sounds like attacks to me, but.
Where where member states have to contribute back to the EU.
On the basis of on recycled waste that's going to go into effect in the next 12 months.
It remains to be seen what how that transpires how it eventually it's so you could say Europe is a place where there is more activity on that front, but I think even in the U.S., we see signs of of extended producer responsibility.
Type mechanisms being discussed so look it could come anywhere Larry Im not sure there is one region leading.
Okay, great. Thanks, Ron.
Our next question comes from John Protocol with Macquarie.
All good morning, Ron how are you in legal.
Hey, John are you.
Not too bad thank you.
Look just had a couple of questions.
Look in terms of mostly benefited to bite about Tom trends, such as at home consumption and to what extent, we've seen sort of demand pull forward in certain areas distribution, how you sort of see maybe how that sort of conceptually sort of developed through that fourth quarter and how you think about that as sort of fully potty fuel you'd go growth guidance.
For the year ahead.
Yeah that is that topic I think for US. This is almost like a second half topic, because we have a substantial business in Asia and China.
Where where this this whole pandemic started and so we've been bin monitoring is pretty closely sense I think we're kind of coming out the other end of the of the.
Of the let's say outside the norm volume movements, if we think back over the last let's say four months March and April were March was a strong month volume wise generally I'm generalizing here, but March was generally strong April was softer may was very weak.
In most parts of our business June then started to normalize again in July feels more normal so maybe sequentially that's.
The way to think about it.
Honestly, there's puts and takes by region and by segment.
But for the most part I think that we're seeing more normal demand patterns.
Probably have for the last six to eight weeks certainly through the last month and into the start of this quarter.
Thank you and second question specifically on on Latin America, You mentioned, obviously, we've we've seen set a weaker fully volumes, but has been some sequential improvement John can you provide any color on us to us at a weighted volumes sort of end up through that fourth quarter, and we go back to a flat level yet.
Yes. So this is about the Flexibles Latin America business, we have a number of businesses in Latin America, but the one that I was referring to is the Flexibles Latin America, which.
If you were to trace its legacy is kind of half legacy Bemis half legacy amcor.
And spans the whole of of Latin America.
It's a business that we've discussed throughout the last 12 months when we acquired BMS.
Part of the business was not performing well in fact had lost money in that in the fourth quarter of what would have been our fiscal 19.
And it's been.
Great turnaround success story for the last 12 months, we've taken an enormous amount of cost out of the business.
We've simplified it we sold two two plants, we sold a joint venture in Brazil, we sold a.
Disposable.
Cups and plates business that was in Argentina. So we're trying to simplify the business.
And overall the profit is up was up as I said earlier, almost two X what it was the year before.
As far as the cells that takes longer to stabilize for the reasons its struggled.
Leading into the closed was the topline had had been eroding.
That's well and truly stabilized I think when we look through what the cobot impact was to the best we could surmise versus what the business was doing.
We were we were certainly back to two to steady steady sees.
And then had some covert impacts in may in particular, but I think we can feel pretty good that.
We have stabilized the business and now can see expect to see growth of the topline going forward.
Thanks, Ron.
Your next question comes from Keith Chow with MSP marquee.
On a Michael.
And to pull up on adjusted free cash flow Tiger, one to 1.1 billion.
If 121.
Michael you mentioned earlier that.
The tax all of this will brown for that it's going to be part of.
The contributing factor of its stepping back a bit just wondering if you can give us some guidance on.
Any I guess working capital on one that you can still generate into next year, particularly given the strong performance that we saw in your slide 20 and with it.
You can keep improving net working capital position.
And in addition to that the Capex outlook as Steve 121.
Yes, Okay look on the working capital side, obviously this year.
We had an exceptional performance I mean on a on a pro forma basis, we started the year.
Right around 10.7% to sales.
Really strong focus throughout the year and particularly in the us three to six months.
And the business got down to nine in hospice NSL. So so as I mentioned in my speaking option that we had 1.2% reduction there.
Which is which is exceptional in anyone's terms and thats about 150 million as as I touched on in effect.
Supports the the cash integration costs of the as the Bemis acquisition, so really important to get to get ahead of the game on niche which was great.
As we moved forward I mean, I wouldn't expect to see those exceptional gains again in the coming year.
We still will expect.
Some continuous improvement in working cap.
And you May recall amcor typically was around that 9% to sales level and we have to get back to Tom.
But certainly in the cash late Wednesday that benefit.
In fact 21.
But as I touched on earlier the mine. The main difference is really that tax reversal from a capex standpoint.
We spent around 400 million.
This year.
We'd expect Thats, probably going to me a little high next year, maybe I mean other.
5% to 10%.
But that's that.
Thats kind of way we savings.
Okay, Great and then just the second question.
Throughout the course of Dupont 20, there was a coming made on the Flexibles business that strong cost and operating performance.
It was a key driver of margin expansion within the division notwithstanding some the bemis synergies as well so.
Obviously, that's that's paid dividends and they have on 20, but there.
I guess runway.
Cost and operating performance to continue to improve and if 121 or would you do we think we're at a steady.
Its cost structure.
Operational performance structure going forward.
Keith It's Ron look I think if you look back over the last 10 10 years or so there's been a pretty consistent.
Track record of margin expansion in that flexible space and it's driven by cost and operational performance as you alluded to but it's also driven by continuous.
Improvement in the product mix.
Sometimes at the expense of the topline and I think you see a bit of that coming through enough. Why 20, we had 80, Mark 80 basis points of.
Organic margin expansion through the year and was combination of factors, including.
Good good product and end market mix.
That's an abnormally strong year for us I think normally our we've seen 10 2030 basis points for full year.
Sort of what we'd expect going forward and it will be a combination of commercial and and cost productivity.
Okay fantastic thanks very much.
Your next question comes from George Staphos with Bank of America.
Hi, everyone. Good day.
Regulations on the progress in fiscal 2000, thanks for taking my question Hey, Ron.
Couple of questions back to sustainability I know, it's kind of a tall order, but if sustainability is your your biggest opportunity in terms of long term growth.
Is there a way to somehow measure or quantify what that actually added to your core growth in fiscal 20, or what you would expect.
In terms of the trading and trading out of product what it might mean for fiscal 21 and related Lee from the survey work you do have consumers and your customers.
What if anything are you seeing in terms of changes in terms of how plastic packaging is perceived.
In the Mark and then how to follow on on growth rates.
Well look the second one I might deal with first I think the pandemic has been a bit of a level center on the importance first of all packaging right I mean, I think we've.
We've seen this whole topic go in cycles over or or or peak and peaks and troughs over the last several years.
From from a from a debate in different parts of the world, maybe three or four years ago about whether packaging was needed.
Two I think you know a general view that packaged food and packaged healthcare products.
Have a real purpose I think we see that again reinforced with.
Some of that some of the issues around what markets and things like that so I think thats thats. The starting point and then secondly, obviously the focus on hygiene and sanitation and.
Those sorts of things have become more prominent now than ever so if anything.
The base the fundamental.
Attributes of packaging in general and plastic packaging, specifically have been strengthened through this through this through this pandemic.
And as it relates to the growth look it's you sort of you said I mean, it's very difficult to measure.
How much of our book of business with Big Global key accounts is driven by there.
Comfort or or interest in working with us on longer term sustainability developments really hard to say.
We have a really strong stable of products that are designed to be recycled now and always have him how much of that growth is because of that attribute versus others really hard to say, so im not really sure Georgia, we can even venture a guess at this stage. Okay look I appreciate the answer and the candor.
Switching gears.
And recognizing amcor, obviously runs that business on a on a longer term basis and not month to month quarter to quarter.
Could you comment at all in terms of what types of growth rates, you're seeing right now across any of your more important product lines or geographies within the business and particularly I'm interested in what you're seeing you mentioned, India and China had improved.
Fiscal Fourq Q, what are you seeing their into fiscal one Q for 21. Thank you very much.
Look I think that the headline to answer the question would be that the growth that we're seeing now knowing that we expect to see let's say in the next few months.
And threw up by 21 is generally consistent with what we've seen long term.
And what we expect long term so what does that mean across the whole of amcor. It means 1% to 2% volume growth that's exactly what we've seen for the last six years, it's actually what we saw in the second half and that's what we see going forward now when you double click in a portfolio as broad as ours is differences by region in North America in Europe, It we're going to see.
No single digit growth, particularly also as we optimize the mix for the question that was asked earlier about margins.
In the emerging markets, especially Asia, we should see mid mid to high single digits and in China and India.
India, even more so because it's a smaller base that's what we see in China certainly in the mid single digit range, so and that would be the expectation over time over the long haul as well.
So thats kind of the modeling and you put all that together and we have some strong growth businesses like healthcare, which has been a really strong grower for many years above those those overall averages.
And you have some other parts of the business that grow it at lower rates, but all up assume it's a 1% to 2% volume growth business.
Which generates organic profit growth of three or 4%.
Thank you Ron I'll turn it over.
Your next question comes from Brian Maguire with Goldman Sachs.
Hey, good day to you all.
Just wanted to.
As a little bit about volume trends in the quarter. If I look at I think creature you talked about rig is being up something close to 5% I think for the half year was only up a percent. Some plasma is down a couple of percent in in Fourq can you just hoping to get a little bit more color on trend innovative business through the quarter and then just within the Flexibles business seems like.
This is asked a little bit earlier, but maybe not as much.
The other benefit from at home eating as as we made as expected or seen where there were some offsets in the food service part of the business or was the portion that you would consider at home truly kind of on the other percent or so.
Yes look it's a good question I think in.
In the case of Rigids I referred to month to month volatility and variability and Richards would be the business that had the biggest swings.
You're right in the third quarter, we flagged 5% in the ex Im talking about North America rates, specifically, so in the third quarter, we had 5% volume growth in the North American beverage business.
In the fourth quarter, there was a mid single digit decline in volumes in that business. That's a business. That's it's a big fourth quarter business anyway from a seasonal perspective and it's.
It's heavily levered towards away from home consumption. The C store channel in particular.
And so that business.
At a mid single digit volume declined in the fourth quarter, but even within that quite a bit of variability from month to month.
Yeah.
Again, a pretty good March at the end of Q3 weaker April really weak may.
And good.
Good June and good start in July so really up and down we also have a specialty business in North America, and Rigids, which is a big business.
As well in that business pickups.
Momentum in the fourth quarter, so with sort of puts and takes.
In Flexibles I think the thing to think about in terms of the volumes is just how broad and diversified the businesses geographically.
It's about a third North America third Europe.
And a third everywhere else.
And then in Europe, and North America for the quarter generally with our end markets. We had low single digit growth, which is nothing extraordinary but it's the all other where.
You had a lot of variability so Latin America was it was was softer and Asia was was with stronger.
It really was a mixed bag by region.
Okay. Thanks.
One follow on I Wonder if you could just comment on pricing trends in the industry in general just as contracts are coming up for renewal are you seeing any.
Increased competition or people more aggressively trying to pass due lower resin prices or maybe given a stable and markets.
Not much change, but just interested in kind of hearing that you're seeing any change in competitive behavior as contracts come up for renewal.
Look it's a good question no change would be the headline right. That's the short answer is no change in competitive dynamics, it's an industry. If you stand by permit and compare it to other industries. It's got sort of the same pricing dynamics, it's very difficult to have price appreciation for like like for like product I don't think that exists in many industries when.
You have something different thats, where the pricing opportunities come in.
But generally speaking the competitive environment is is is stable.
Okay, just last one if I could sneak it in and just any color on the trends in folding cartons in health care wouldn't would imagine there may be kind as opposite ends of the spectrum, but.
If you could just going to provide a little bit of color on trends in those markets.
Well healthcare is been a big part of Amkor for long time, it's about 15% of the business it's roughly.
Half pharmaceutical packaging and half medical device packaging.
We participate globally in both we have big market positions in both and lots of differentiation and product technology in bulk.
And those businesses over time have grown.
Yeah at at higher rates than than the whole of amcor at higher margins and we expect that to continue going forward.
On health gotten on folding cartons.
With that business actually rebound rebounded quite well had a tough first half volume wise second half volumes were more or less flat with the prior year.
And that's a business thats not going to grow at the rate of health care, but it's it's attractive further reasons.
Great I'll turn it over thanks.
Your next question comes from good job Punjabi with Baird.
Hi, everyone. Good day.
Against them.
Hey, so Ron just from a high level standpoint.
On the initial stages or the pandemic I think it's pretty clear that consumers will pantry loading in the western world. Some of your customers, where rationalizing sq use and so wanted to ensure product availability.
Well just comment on what you're seeing at this point are we sort of an a normalization phase current I'm just trying to get a sense as to how to think about the waiting for that for EPS from the first half of this year for fiscal year 21 versus the back half.
Well look I think generally speaking the environment is normalizing in as it relates to our markets Youre right. There was a bit of wealth. It to different degrees I would say was there pantry loading I think in different regions that is less of a factor than it might be in the U.S.
Thats really behind US now that was more of a March April phenomenon.
And you're also right that customers.
I don't know retreat is the right word, but certainly consolidated into fewer sq use that could be run at higher volumes I think primarily to ensure continuity of supply.
And we certainly saw that now whether that reverses.
Let's see.
We're still in a in a in an environment with with I would say few rescue use generally but but.
Let's see where that evolves as far as looking forward I mean, we haven't given guidance by quarter. You just have to remember that we're building synergy benefits, which is probably the biggest driver of of.
Of benefits in the first half and those benefits continue to approve with each month.
Got it and in terms of going back to nearly question on you know EBIT our year over year specific to Flexibles.
So it looks like about a 96 million EBIT benefit 20 versus 19, I think synergies were $57 million up that you mentioned resin 15 for the total year I assume let's say 10 million for for that specific segment can you just breakout on the other drivers of that 30, some odd million dollars on EBIT Delta one of the conference.
As volumes were basically flat you mentioned mix, but that just seems like a very large number relative to just mix.
Well I mean mix as part of it we would call that commercial productivity. So thats the healthcare growth. That's the protein growth that's growth in some of the higher.
Higher.
Performance materials for things like coffee and pet food. So that's that's meaningful.
Cost productivity.
It.
It is absolutely a part of it ongoing cost productivity is big.
It was particularly big in the last fiscal year.
Those are two things that we manage all the time and sometimes we have a bigger bigger bump, but then others as I mentioned in response to similar question earlier that traditionally we would expect to see tend to 30 basis points of margin expansion in that space collectively and that's on the back of fairly low volume growth.
As I alluded to in response to Georges.
Question. So it was it was a strong year from an organic margin expansion perspective.
But no mystery as to where it's just a better better year than than the average on both commercial and cost productivity.
Okay, and then just final one in terms of sequential increase in resin and also freight costs in the U.S. and I assume a any other petrochemical chemical related costs is that a dynamic that you're baking. It I mean should we just kind of how should we think about that delta relative to the synergies for flexible.
On a full year basis, our margins going to be up year over year, just given the tough comp you have from this year obviously.
Well look I think we've given a range in the range takes all those things said you mentioned than others into consideration I mean, the synergies still it's a big year of expert did synergies going forward right. We said 50 to 70 million of EBIT. The vast majority of that will be in the flexible segment.
That's clearly going to be a big driver of margins.
Raw materials it for us historically I mean, it's it's a pass through as you know as it is for everybody.
And it any impact positive or negative tends to just be a timing issue that tends to wash out.
Through the course of a 12 month year. So all of that's factored into the guidance that we gave at EPS level.
Very good thanks, so much.
Thanks.
Your next question comes from Richard Johnson with Jefferies.
Thanks, very much run sorry to fluctuate whole sort of like it distorts it quickly to the issue of organic growth and your comments you made it on margins.
I recall one of your previous hits, the saying to me more than once that it wasn't reasonable to assume you could have ever rising margins on flat revenues.
And not was and notwithstanding what you're saying about makes that really my question is how much opportunity do you think you've got.
For bought in slicing Sutron increase your mix from yeah, particularly when we think about the margin improvement you shut this yet of which a great chunk of which was obviously related to the lower revenue number.
Look the margin expansion. This year was not really related to the lower revenue number I think the raw material impact came up on a previous question that was maybe 10 basis points of out of 140, so that that was a factor, but not a big when.
The problem facing is it's an ongoing activity I mean, it's really important in flexibles, especially because the fragmentation of the customer mix of the customer mix the product mix.
Is enormous as you know I mean, there's thousands of SK use and thousands of customers. So that the ongoing optimization of that mix is critical.
That being said the business will grow 1% to 2% it has historically in it.
Will going forward.
So that gives us the lift as well from a margin perspective.
Great. Thanks, and then just a question for Michael on the cash flow.
And the adjustment the 163 adjustment United with cheap you healthy breakout in treats 80 million of integration costs would be.
The theme lists the other 83 I just wonder if you could help me understand what that was.
Oh look it's a combination of things Richard Palmer, the timing of the transaction costs.
You know obviously this deal we have we have transaction cost, which combination of an advisor fees and employee fees, which spanned over but he is.
There's some cost related to the remedy and splitting out the business there and then see some general cleanup costs.
As a negative.
Okay. So the rigid plastics restructuring is not in there.
Excellent.
Thats separate we just treat that as normal.
Gotcha.
Okay perfect great. Thanks, and then just quickly if I can I noticed that you've started to hedge weve Watson hedges in place, the P.T., which I've never seen before.
I was just curious to China, saying, what that was and what the accounting for that is.
Yeah look weve nothing on the back of customer customer requests, we do back to back hedging.
You know what their account so it's similar to what we've done on the aluminum side.
Which we've been doing for many years. So that's it's a straightforward as that Richard.
Okay, so they're not hedging gains or losses.
No.
Okay, great. Thanks, very much appreciate it.
Your next question comes from NRG Shah with BMO capital markets.
Hi, good morning, everyone.
I just wanted to ask about that cost reduction program in rigid packaging you made good progress and 2020 and I believe you were targeting another five to 10 million benefit and tiny tiny one can you just a lot gives them on details is that still the cool and I'm just what we can expect next year.
Yeah. It's a good question, it's an important part of a of resetting that business and setting it up for growth in Rigids Theres some more benefits to come we there's there's some more footprint work in some more plant closures that are in front of us there's a couple of plants that.
We have remaining to close and so we'll see benefits coming enough why 21, as we complete that restructuring program.
And it's five to 10 silicon number that's a 10 million.
Yeah, I would say that's that's a reasonable number we got a little bit of benefit this year, but we'll get the residual benefits and fight 21, and depending on the time of the year. When we close the plants, we would see some potential benefit some of that carryover indefinitely 22.
Got it and then my other question in your slide deck, you see you talked about a 41% increase in PCR usage and in fiscal 20, what does that translate to in terms of what percentage of your proxies PCR now and how much higher can can you go given the available.
Let me have PCR.
Well almost all of that is in our rigid packaging segment and that business exited fiscal 20 running at about 10% Pcr.
There is no technical reason why the number can't be much higher there from time to time, some supply constraints, but over the long term, we expect those two to abate and that number will continue to grow.
Substantially I think.
In flexible packaging, it's a little bit more of a challenge because polyethylene and polypropylene and general polyolefins or are less avail mobile.
But even that will.
That supply chain will start to.
Well to expand as well so that's that's where we finished we finished at the exit rate of 10%.
All right great. Thank you.
Your next question comes from Nathan Raleigh <unk>.
Hi, guys quick question in relation to dividends just in terms the outlook. There just wondering should we expect those dividends on a on a like I said dividends per share Bicester fully EPS growth rates going forward.
Yeah, Nathan I know, it's a good question the dividends Super important for us and for our shareholders. It's a based returned.
It's a quite.
We believe quite compelling return relative to alternatives, whether it's the dividend yield of others or interest rates.
And we continue to grow it and we will continue to grow it over time, particularly to keep pace at least with inflation Im not sure that it will grow in line with EPS.
Because I think we've got a pretty attractive dividend yield as it is but it will continue to grow.
Okay. Thanks, and just to follow question just in relation to Bemis revenue synergies I think you previously flagged that would be sort about a longer term to sort of go after a few of those as potential revenue synergies. Just wondering now that were a little bit more advanced on the integration of payment. So we just getting a little bit closer to guide.
Absent some of those as revenue synergy opportunities there.
Well weve focused on on a few key areas. So we over the past 12 months, even we've we've had.
Little extra focus on healthcare, a little extra focus on protein.
And the third area would be our our global key accounts.
Where we now have a more complete global footprint.
To supply them from so.
The efforts are underway I think.
Generating a dollar of sales in this business tends to take.
Tends to take awhile, so as we think about revenue synergies per se and any acceleration in the topline. That's that's still a couple of years off.
Although you can point to some of those segments on the growth we've had even even more recently and you'd be hard to pull apart, what's a synergy versus what's just.
Good base performance in the segment like protein.
Okay. Thanks, Rob.
Thank you.
Your next question comes from brick Campbell Crawford with JP Morgan.
Yes, hi, Thanks for taking my question just a follow up you talked earlier on about the improvement in the nice and Flexibles Lasan business. I think you mentioned to tell on improvement in profit is provide.
And some dollar numbers right so what was that.
Swinging eat it basically from that's why 19th Fytwenty by culture, calling correctly.
Yes look Brook I mean, we haven't broken the business out it's not it's not material enough business for us to break out the numbers, but and what I'm, referring to is the bemis business that we acquired which was in Brazil, Argentina, and Mexico, and so that legacy perimeter as we've talked about was was losing money.
In Q4 is modest amount in the Grand scheme of the whole group, where even the flexible segment.
But we turned it around by taking out several hundred people.
And driving the plants in a much more I guess effective way.
And then as I alluded to.
I have taken steps to simplify that business is quite a complicated business in a lot of different product segments.
And we've exited two of them.
It already in the first 12 months.
We'll continue to look at ways to further simplify the business.
Okay. That's great. Thanks, and then just two and simple ones add from Michael just and any guidance you come to water and interest for next year and I know you House recently refinancing debt, but I guess as a base case should we expect interest costs to be high next year and then also.
As well just around cash costs below the line for next year is it just that remaining.
And 70, or so million ounce of integration cost would be misses or any other.
Cash costs that we should expect to see that has a significant automatically 21.
Yes.
Prototype questionnaire. Thanks look on the on the interest side, we haven't given specific guidance, obviously, we've given a range in the the EPS guidance range Ami. We did we did Tim out some did in June.
Two bonds, one in the U.S. and one in Europe.
But around 500 million.
As we look forward look we don't expect the material difference in interest moving forward the the bonds with a high cost, but then we have lower interest rate you on your side.
We're not expecting anything material there.
And in terms of cash costs, yeah that see adjustments there around with gold at around 50 to 70 million in cash costs.
That's included in that.
One to 1.1 billion adjusted cash.
Okay, that's great. Thanks.
Ladies and gentlemen, this concludes our question and answer session I will now turn the call back to management for closing remarks.
Thanks, Operator, just to close off a quick recap. Your 2020 was it was a milestone year for for Amkor an outstanding.
Here from a financial perspective off to a really good started on our on our biggest acquisition.
And the integration of Bemis and we've got visibility to continued growth in 2021 and beyond.
So thanks again for joining and we'll be in touch.
Surely.
That will end the call operator.
That concludes today's conference. Thank you for your participation you may now disconnect.