Q1 2021 Amcor PLC Earnings Call
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2021 results conference call at this time, all participant lines are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
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Followed us before safety evaluate amcor so.
The priorities in the business may shift from times.
The time, but our values remain consistent and safety would be the most important of those values and this year given the context around kobin.
19, we're also clearly focused on keeping everyone on our team healthy as well.
Vince.
Second the outperformance in the first quarter gives us the confidence to raise our outlook for fiscal 2001.
We now expect adjusted EPS growth of 7% to 12% in constant currency terms and today, we've also announced the dividend increase.
And the share buyback.
We continue to offer an attractive dividend currently yielding more than 4%.
And longer term, we're very well positioned.
Momentum is building around innovations to deliver more sustainable packaging.
Hi.
The strength in the underlying business and financial position means we've also been able to increase cash returns to shareholders during the quarter.
Today, the board declared a quarterly dividend.
For his amcor had a strong start to the day.
Before moving to the rigid packaging statement I'll provide a brief update on famous cost synergies on slide seven.
As Ron mentioned, we delivered an incremental $20 million of synergies during the quarter.
Which was in line with our expectations through from flexible GE and I procurement and from the initial work was undertaken on plant closures.
The business outperformed against our initial synergy expectations last year and we are on track to meet our objective of $50 million to $70 million in cost synergies for fiscal year 2001.
Moving to cash.
Balance sheet and currency on slide nine.
Adjusted free cash outflow of $119 million was book.
Fully in line with the prior year and without it within our expectations for the period.
As a reminder, our cash flow is seasonally weaker in the first half of the fiscal year and this quarter also included approximately $50 million of us cash tax payments that were deferred from Q4 in 2020.
We remained focused on improving working capital management and as you can see momentum continued this quarter with our rolling 12 month average working capital to sales ratio at 8.8%.
Which is appropriate given the ongoing uncertainty and complexity related to the COVID-19 pending.
So in summary for me today, the business is performing well.
And we believe that our questions the sustainability will be the biggest organic growth opportunity in the business over time.
And we're continuing to make meaningful progress leading the way in defining and developing the innovative more sustainable solutions, our customers want and their consumers expect a great example of a differentiated breakthrough innovation for amcor is the enlite each flex product for retort, which we launched a few weeks ago as is the world's first fully reach.
Cycle, both retort pouch, which nestle is introduced into the market for wet pet food.
And there is a wide range of end market applications for this multilayer structure and we're really excited about the demand potential for this product over time.
In summary on slide 16, Amcor has delivered an outstanding first quarter results with both the Flexibles and rigid packaging segments, delivering strong organic growth and building momentum.
Goodbye and go up to the North American flexible do you feel like you're growing faster than the market was there any kind of comp issues that you'd flag you know to the extent that you're saying maybe higher level of demand and C. P. G categories.
D give you that is me sustainable and I'm just wondering if you kind of frame the relative strength in north American flexible is because it's a bit better than what the business is done historically and I think with some of your peers are doing.
Yeah, I'll take that one Anthony but first of all where was the strength in North America and flexible it was in some of the some of the real important segments for us going forward some neat.
Cheese.
Food these.
These are all high value added segments back to your question on mix, we also had growth and home and personal care, which.
Which is important as well.
I would say that.
Our growth generally speaking is relatively consistent with with some of the peers and customers that we track.
But I do think that were performing very well not missing any opportunities to pick up.
Business, along the way so, but we would expect the business over time to grow.
Roughly with the market, we as we try to manage mix and optimize mix overtime.
And that's low single digit growth, that's what the expectation would be.
Okay. That's helpful I will turn it over.
Alright, and any parts of our business raw materials and is obviously a big part of.
The cost of sales, it's 50% to 60% depending on the business of the sales of the sales line and no <unk>.
Question, we've seen relatively strong increases in several categories, particularly in North America.
The outlook is for moderation of those increases.
And more stability going forward. So we could have a little bit of a lag impact in the quarter coming the second.
Second quarter, but nothing that we would project to be material for the full year and we factored in our outlook on roars around the world into the upgraded guidance today.
Thanks, so much fun.
Thanks.
Your next question is from John per childless Macquarie.
I'll get a runner Michael.
Hey, John.
Just had had a couple of questions. Thank you just in terms of emerging markets.
Looks like sort of things are starting to is particularly in Asia, starting to get back to traditional growth rates their office and challenges. Obviously, you said a solicitation growth in in Asia and animals, having left hand, just in terms of the drivers event wrong.
Yes, it's a good pickup we're pretty excited about the growth, particularly in Asia, China is it seems to be traveling along it kind of mid mid single digits in India, which is a smaller base is up in the double digits. I think it's I think we are performing well in the market.
I certainly don't think we're getting any help from the market those those businesses, especially India still those economies are still somewhat constrained.
By Covid and in Southeast Asia in particular, some of the smaller businesses for us.
Or continue to be constrained from from Covid impacts, but generally speaking I think we're executing well I think the value proposition in those markets.
Before amcor as of Blue Chip global supplier with good technology.
Good business practices.
Product safety and all the things that have helped us grow over the last several decades I think are too as much today as ever and I think we're executing law.
Thank you in just a year, if obviously, so marginally lower volumes. They just to sort of understand that drives a that was health care also affected they also talk to to lower closure volumes.
Yeah look.
Again pretty consistent with peers and the customers that we track in that part of the world.
Healthcare bit soft for the reasons that I referred to in North America same came applies in in Europe.
Closure businesses or the capsules business, there is really lever to the champagne and spirits and wine.
Segments, which had been a.
A bit soft.
Nothing, particularly out of the ordinary but just for the 90 day period softer volumes and some of those some of those segments.
Okay. So you have an expectation that some additional stops to sort of normalize out to the to the course of the he's probably have to call that D. C. Some of these instead of there's a little bit of cyclicality day.
Look I think it's a short period of time and part of it is the summer months, which are hard to read what's very encouraging about our European business is the offset of.
Of mix because of the growth and the higher margin segments. So we had really strong growth and cheese.
Snacks pet food ready meals and so those those segments offer accretive mixed benefits to us and we did a positive mix in Europe.
Benefit and the bottom line and the quarter.
Got it this last one if I can in terms of the buyback M and is there anything to right into that as far as lifts and and I opportunities in any term because you may not a is still pretty full.
No definitely not I mean multiples are certainly fault. That's the separate topic was expect us to be acquisitive, but.
We monetize investment we had and realized some proceeds and we simply redeployed, thus proceeds or simply announced an intention to redeploy those proceeds and to share repurchases.
Got it thank you.
Thanks again.
Your next question is from <unk>, let's see part global.
Yeah higher on Michael Tracy.
So.
First thing I wanted to clarify so if you can provide a little bit more color beverage strengths and.
That you are looking at to be able to see your leverage allows that than.
Your.
Over one year into the beans acquisition I was wondering.
Who do you consider expanding into areas beyond the traditional plastics and I know till the unusual given that you did spam out everything for Aurora, but you did talk a lot about paper for example, so that's something of the folding carton space makes sense to you at this point.
Well first of all yes, we are on the lookout for acquisitions and we have been Aquas acquisitive over the journey I think we've done 25 or 30 deals in the last 10 years.
The first priority just to be Crystal clear is to complete the integration of the Miss in the in the Flexibles businesses, which is a substantial part of EMCOR.
We're about 16 17 months into that and you know, we're not declaring victory yet so thats the first priority, but we will keep our eyes out for for deals.
I wouldn't expect us to go outside of our our current segment participation our segment mix.
To the extent that we.
It can build out the flexibles portfolio in Asia.
And bolt on in some of the bigger markets the rigid business in North America outside of beverage.
Is a place that we find pretty attractive we've been on the diversification path of our rigid business for the last.
Fact, five seven years, so I'd I'd like to be more active there, but I think the big constraint is likely to be valuations valuations are quite high.
And that's.
That doesn't seem to be abating. So we will continue to be on the lookout will be active we have the balance sheet. As you. As you suggested we'll we'll have the management bandwidth in Flexibles I would say, we have it already and regions.
And we hope to be active.
Thank you very much.
Thank you.
Your next question is from Don Campbell with JP Morgan.
Hey, good morning, Thanks for taking my question.
One on the targeted synergies after dispatching year the rain, Dan just Tom just on the pockets of costs to sort of explain that patent rank and file just on maybe what needs to happen at the top end back for profit 21.
Yes look it's Ron let me try and I think I'm not sure I heard the question completely but let me let me see if I could if I if I've got let so question was about synergies this year the composition of the synergy benefits and the and what would it take to get to the upper end of the range at bank.
Right yes.
Yep, Okay. Good so the range for the year is $50 million to $70 million of EBIT benefit.
We hit 20 in the first quarter sales.
Little bit ahead, I guess at a pace.
So you would expect on an absolute basis.
Spend an interest in Texas is going to be similar perhaps slightly higher than prior year, but.
I guess overall, that's all affected into our EPS guidance range.
Thank you.
Your next question is from Joy George status with Bank of America.
Hi, everyone. Good day, thanks for all the details.
I want her to drill into rigid packaging all but if we can go back to slide eight guys and so you mentioned.
Very strong volumes in North American pet of heart fill up 12% specialty you mentioned you know good mix.
The volume growth in the mix consideration that you mentioned Ah would've normally led me to believe you'd see a bit more incremental volume excuse me incremental margin.
Once you versus once you I think you said there was some absorption issue as well can you help me go from what was real good volume and good mix two 4% EBIT growth at the reported level and then I had a follow on.
Yeah, well first of all the EBIT growth as we were looking at it with 7% of the 4% volume and I mean really fairly really simply stated.
You're pretty much going about the drivers we had good mix in North America and good volume growth.
Although the profit impact of that was tempered a bit by drawing a inventories given the strength of those mountains. So you know that when you pull out of inventory you've got a bit of a negative impact there. So.
I would say that that normalizes overtime.
How much was that.
Inventory factor, if you could comment to that.
George I mean in the Grand scheme of the whole financial year, not not material. It's just it would have held back.
A couple of percentage points potentially.
And then you have to remember we also had negative volume growth in Latin America were down 3%. So those are the building blocks.
The headline here, though is this is a business businesses performing really well, it's very healthy and it's growing in the right segment.
Okay.
Create that my other question is on sustainability in kind of a two parter if I couldn't I'll turn it over first of all from the work that you've done.
What do you think or what are your customers telling you is most resonating with the consumer in terms of sustainability is it footprint is it recyclability is lightweight and I know, it's gonna be all the above but if you had to pick one thing that right now is most resonating with the consumer what is on sustainability and.
On the the M like when that you know.
Comes back won at the end of life story, what is that.
Ah what's occurring is that going back no polypropylene recycling structure.
How is that ultimately recycled on a positive thanks, guys and good luck and a quarter yeah. Thanks.
The two really good question. The first one is an excellent question because I think we've got to remember that the consumer ultimately as a massive role to play in this they've got to participate at the end, whether it's we're using something or composing at a recycling it and there's there's a lot of.
There is an expansive narrative in the space that covers a lot of different things, what seems pretty clear to us into our customers and we have good insights here through a number of the organizations and associations that we sit sit.
Side by side with the Big Brown earners on the consumer resident gravitates more towards recycling and I think it's because it's the easiest thing for the consumer to get their head around.
The idea to recycle something if the infrastructure exists is the easiest thing for the consumer to embrace.
Composting can have a place.
But that also requires infrastructure, which is just less less.
<unk>.
Around the World and is a little complicated if you think about the science of it and the reuse systems, while they have a place in on a roll and there's a lot of.
Buzz about some of those reusable systems, we have not seen and we've done a bit of research primary research on this ourselves we've not seen lots of consumer take up at scale on your usable systems.
And I know, that's not doesn't make us popular necessarily with some of the rhetoric from the Ngos, but I think it's the reality and if we want a better outcome here, we need to embrace with the consumers interested in adopting so that would be the long answer to a short question. We would say it's recyclability is is the.
Is the is the outcome that resonates most with the consumer on Anolyte keep flex really quickly.
Ah multi layered a structure, which is constructed with basically the same based polymers.
Which allow it to be consistent which are consistent and allow it to be compatible with the polyolefin recycling stream.
That exists in places in Europe, where that patches is hit the market.
So hopefully that answers the question on Amazon.
And your next question is from my kitchen from the Jeffrey.
Thank you very much just a quick one to start with Michael could you clarify with any of the 20 million incremental synergy was in the corporate lined.
Please.
No I was little and it was only flexible.
Fantastic and then just on the topic of restructuring if I look at your adjusted reconciliation table for adjusted EBIT and I look at the material restructuring and related costs. I was just wondering if you could just clarify whether the number and flexible this will be Mr related and then talk a little bit.
Around what's going on.
Richard packaging, because that numbers only gone up a lot.
Year on year, and I am just interested to know as well, where there's any footprint reduction across the group that's outside of the too active restructuring programs, we know about which is obviously being the synergies and Dave from reaches restructuring. Thank you.
Yeah, So I can take that 100%.
So under flexible is yes that too famous.
Famous related.
On the rigid packaging, yeah, I mean, it's just the timing a tiny point around some.
Some of the actions we've taken.
Relating to some of the Jna in the plant work that we've been doing so well finished that program this year.
I don't really want to cite lexicalize on that front.
Will be finished this year with full run right by the end of the year as we exit the year.
So so that's covered off.
And then.
Yeah, We just had one we had one bond pleasure during the period, which we took in the behind.
It was about $9 million of costs, which had been the result.
And what was that.
As a plant in Switzerland.
Fantastic great. Thanks very much.
Your next question is from Mark Wild with bank of Montreal.
Hi, Mike.
Is there a market.
First question I wondered if you could just give us a little color on the strength that you had called out and the and the specialty carbon business.
This quarter and kind of related to that.
Tobacco packaging as an issue at all for any of the <unk> investors.
Yes, the business, and especially curtains et cetera, really good first quarter volumes essentially flat, we had some strengthening America's as we highlighted.
Some softness in Asia Southeast Asia in particular pretty pretty flat in Europe. So all up we had a we had a.
Pretty good topline in the business is executed really really well continue.
Continues to drive cost out and optimize.
Its operation. So we're pleased with that business. It's it's a good margin business big cash generator and it's got a leadership position.
The markets around the world.
The second part of the question. The short answer is no I think.
Investors realize we're not actually a net and market, we're printing carton board and shaping it and then it gets filled with a product that sometimes creates issues for many is shoe perspective, but we're not an active participant in that and market any more than the bank to finance of those companies and those customers as an active participant so short answer on the ESG related.
No no no issue.
Okay, and then I wanted to just toggle over to Brazil, I was a big business for demos historically, we've seen in a number of other packaging products are pretty marked pick up over the last two or three months.
It sounds like you didn't get any of that in the first quarter, but I wonder if you are seeing any pick up right now in Brazil.
Yeah look we actually had a good quarter in Brazil.
We have higher volumes in rigid packaging in Brazil, and are flexible business, our core flexible business in Brazil, and flexible grew as well now the offset somewhat was we have a disposable business there, which is one of the old Dixie toga businesses.
And that's really impaired because there's no food service and there's not much action happening from from from those disposables perspective. These are paper plates paper plates and cups and things. So there was some softness there is softness continuing in that segment in Brazil, but the core of what we're going to do their long term rigid path.
<unk> and flexible.
And thermo forming has grown and did grow in the quarter.
Okay, and then if I could just slipped one other thing in here.
Raised guidance I think you held the free cash flow number.
For the year any thought to.
Being able to bump that up at all.
Hello. This is Michael here on the free cash flow and number has a reasonable range in it.
It's a 1.1.
The guidance increase.
Really fits within that range.
It was kind of left it for there to the moment.
If we think that that's going to change over the year, we'll we'll update you enjoy the rest are all right, we'll stay too and thanks Michael.
Six months.
Our next question is from Larry Gambler with credit space.
Thanks, guys for taking my question.
From my question is about synergy first one.
<unk>.
Angkor being is constructed and proactive company as it is.
Is it possible to think that as you guys caused the being a steel after you went to your largest customers.
In North America.
Of course, it happens hang on a second.
Can you hear me Ron no problem, so sorry about that.
Hum.
So.
You would've gone to the largest customers North American said look we have.
Some gross synergy that will develop out of the merger.
Can we work an arrangement, where we share some this synergy but it's a win win we get a larger part of your business.
And you still sort of conversations have with your larger customers.
Very persistent.
Can you call it kind of maybe describe some of that and how that's influencing.
You had a recent results I'm going to turn on my phone out the window in the second yeah no.
Alright.
Yes look I don't.
No that we're seeing material impact on our top line yet from those discussions, but there's no question that there's good things happening from a commercial perspective that are coming from this acquisition the.
Most obvious is the ability to engage with some of these big brand owners.
To help satisfy their needs around the world not just from a slide perspective, but.
To the sustainability agenda, the joint development programs, we have on R&D and.
Development, So that started really from the beginning.
There's other examples where we've been able to secure business in certain parts of the world because of strengthened and our value proposition in other parts of the world. So I think that will continue and the benefits will accrue over time. The other part of the commercial storage for US is just leveraging the commercial capabilities that enquiries refined over the years around margin management.
Minton and.
And mixed management and layering those onto the legacy Bemis.
Portfolio.
And and then taking some of the segments that we've acquired here, particularly around meat.
And cheese and protein packaging, it's film base, and and levering that across our our structure lettering across our structure around the world. We're getting more active in that regard, but that will take some time to see topline benefits. So I'm not sure you are seeing it in this result.
But I'm not sure you'll see it this financial year, but I think over time, we expect to have commercial benefits.
It was neat, particularly piqued my curiosity because.
Do seem to be bucking.
The performance of many companies participating in that space, even craft time, he largest customer in the first quarter called out.
I think we can meet volumes and.
Covid impacting that sector with difficult to get people to advertise labor to advertise. So you do think about asking the farms look I think in that segment. You are right. There is some disruption in the supply chain there and some some of the new packing plants have been constrained a little bit, but despite that I think will perform a pretty well.
Probably be taken some share.
And probably outgrow in the market in that space as we believe we should do move decorate products.
And that's not related to sort of.
Constructive conversations with customers around all.
Sure and Larry and year, all of our conversations are constructive but.
From the back of the value proposition that starts with the product.
Okay great.
And financial question for Michael just on AMV.
Some associate income.
For equity accounted income reported is that Andy and zero out for the rest of the financial year.
That's exactly right Larry up so we had to $3 million for the first quarter unknown from now on it will be zero.
This is the price.
Have a million dollars for the full yeah, I think I think the equity counted on was 19 million in the quarter.
That includes.
Gain on sale.
Okay.
The underlying which which we aside out if you look at the table with the adjustments that guy in on sale was taken out of the results. So it was just the base for a million dollars that was in the base result.
Okay fantastic. Thanks.
The next question is from Keith Chadwick M. S. T. Martini. Please go ahead.
Good morning, Ron Ammonic, just Ah just going back to interest cost model for the full year I think at the full year result, you caught out interest expenses been going to change materially for the year.
At the time, you made mention of a 500 million dollar bond rolanda and high constantly and low interest rates.
Balancing out to a niche kind of some of the outcome for this year.
Seemingly the first quarter net interest expense was significantly acknowledging this in this corner of last year and also the fourth quarter of last year as well.
Standing behind it developed.
So I'm just wondering.
Gone is this year, though you spoke early Tonight, but I just wanted to dig into that a little bit further just trying to work out what the order of magnitude and change could be at the interests line going forward. Please.
As I said I mean, we don't have to call at numbness, specifically I clearly an interest we've had.
Some benefit.
During the period.
Continued low interest rates I left this quarter versus this time last year I managed to 200 basis point reduction in LIBOR and we're still getting really good access to commercial type of both in the us and Europe. So we've had quite a strong.
Benefit there in the period.
More pronounced than it will be for the rest of the year because interest rates started to come down.
This time last year in progress through the.
That said look we will have a lot of interest number that you've got to look at that interest number in line with tax as well and they offset clearly we sure enough statically explain increased texts in absolute terms and <unk>.
So as I said earlier.
You will equal say some lawler interest now at.
At the full year.
But the offset will be tax lately and have high tech.
Bill just based on higher earnings and perhaps a slightly higher <unk> as well. So when you put all that together net.
Net net you add those two together in absolute terms.
They are going to be pretty similar to the nonetheless.
Okay. Okay fantastic. That's maybe if you look at it first quarter to fourthquarter lawsuit because rates.
I have gone down.
But not as much as kind of the physical distance first called last year 45 billion Anita interest in the fourth quarter last year.
Playing the 37 quarters at any kind of timing issues, there that we should be thinking about from a quarter on quarter bicycles.
And it was there were some additional costs, we had just on some of the bonds and the lock in that period.
But.
I think overall.
The interest Bill will converge as we had through the year.
Okay excellent and then the second one is it's very quick one.
On Bemis synergies can you give us some guidance as to whether there will be some synergies allocated to corporate for the for Ya.
Keith is Ron it's unlikely.
Most of the synergies incorporated were executed very very early on post clothes.
And so for all intents and purposes, all the synergies this year will be in the flexible segment.
Okay, great. Thanks very much.
Thank you.
Ladies and gentlemen, this concludes our question and answer session I will have to turn the call back over to Iraq to closing remarks.
Okay. Thanks, operator, and thanks, everyone for joining the call and I think we'll close with their thank you.
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