Half Year 2021 Amcor PLC Earnings Call

[music].

Good day and thank you for standing by at this time I would like to welcome everyone to the amcor half year 'twenty 'twenty. One results conference call. All lines have been placed on mute to prevent any back to nice after the Speakers' remarks, there will be a question and answer session. If you would like to add.

Ask a question during that time simply press Star then the number one on your telephone keypad. If you would like to draw your question press the pound key.

It is now my pleasure to turn the conference over to Tracey Whitehead Global head of Investor Relations Ma'am. Please go ahead.

Thank you operator, and welcome everyone to <unk> first half earnings call for fiscal 'twenty 'twenty, one joining the call today from one to Lea and Chief Executive Officer, and Michael Casamento, Chief Financial Officer at this time directing your attention to our website amcor com under the investors section where you'll find it.

Our press release and presentation, which will be discussed on the call today.

They discuss non-GAAP financial measures and related reconciliations can be found in the press release and the presentation.

Also a reminder that statements regarding future performance of the company made during this call are forward looking and is subject to certain risks and uncertainties.

Actual results may differ from historical expected or predicted results due to a number of factors. Please refer to our SEC filings, including our statements on 10-K and 10-Q for him to review these factors with that I'll hand over to Ron.

Thanks Tracy.

Thanks, everyone for being with US today to discuss Amcor is first half results for the 2021 fiscal year I. Appreciate you, taking the time and making the effort to join the call as Tracy mentioned joining me on the line of day, It's Michael Casamento Amcor CFO and.

We will start with some brief prepared comments before we take your questions.

But the first place we will start on slide three as with safety in everything we do at Amcor starts with safety.

And this year of course, we're also focused on keeping all of our coworkers healthy as well and over the last 12 months. Our COVID-19 protocols have enabled us to do just that while also keeping our plants running to supply our food and health care customers around the world.

And despite the added challenges of operating during the pandemic. Our safety performance has continued to be a real highlight across the company. We reduced the number of injuries by almost 30% during the first half and all of our business groups had fewer injuries compared to the first half last year and we're also pleased to report that over half of our sites around the world were injury free.

For at least 12 months.

So we still have not reached our goal of no injuries, but we need to acknowledge the commitment and focus of all of our coworkers to keeping each other healthy and also safe, especially in the current environment.

Our key messages for today are set out on slide for <unk>.

First amcor had a strong first half for fiscal 'twenty, one ahead of our expectations.

<unk> across all businesses and regions.

And that strong first half translates into higher expectations for the full year on the back of strong momentum in the base business and so the second key message today is that we've raised our outlook for EPS growth.

For full year fiscal 'twenty, one to 10% to 14% on a constant currency basis.

Third we're also increasing cash returns to shareholders through a higher dividend.

$200 million of additional share repurchases and.

In the fourth point is that we continue to believe amcor.

It has never been better positioned from an investment case perspective, and I'll spend a few minutes explaining why we believe that before I turn it over to Michael who will describe the recent results in more detail.

Slide five is a simple snapshot of amcor today and understanding who we are and what we do has to be the basis for understanding that investment case.

Company has been around a long time over 160 years and is now the global leader in consumer packaging Amcor is a truly global company with scale positions in every major region, including over $3 billion of annual sales in faster growing emerging markets, where we also have leadership and scale positions.

Essentially all of our sales are to fast moving consumer health care segments.

And the health care business now generates around $2 billion of sales each year to the medical device and pharmaceutical markets, which are among the most attractive places to play in the packaging industry and.

And finally, regardless of.

Whether they are operating in developed or emerging markets or in consumer or health care segments. All of our businesses go to market with differentiated innovation capabilities, which are increasingly value by our customers as they look for packaging to meet shifting consumer needs around the world.

Slide six is another quick snapshot this one to highlight <unk> performance and track record over the last 10 years and.

And we've maintained as a starting point, our consistent investment grade capital structure. Despite several transformational transactions and we've driven consistent sales and earnings growth and always had high cash conversion and.

Net cash flow has funded capital investment in the business.

And close to 30 acquisitions over this time period, along with share repurchases and a growing dividend with an attractive yield and added together and shareholders have been rewarded as well as the company has delivered consistent operating performance.

Going forward, we expect our operating performance and cash flow to remain at least as strong and our approach to allocating that cash is set out on slide seven this is not new it's no changes here to this framework.

But it's worth just reviewing we consistently generate significant free cash flow every year and this year, our free cash flow will be nearly $1 1 billion and that number will grow over time.

Net cash flow will comfortably support reinvestment in the business as well as M&A or share repurchases.

And in addition, we will continue to pay an attractive and growing dividend, which has historically yielded between four and 5%.

Taken together, the EPS growth and dividend yield should result in 10% to 15% of shareholder value each year.

And so while we've been delivering returns to shareholders at this level for a long time now momentum is building in the business and we believe this is a special time for the company and our investors.

Slide eight is a slide we shared last year at our investor briefing in it remains relevant today and we believe that the Emperor investment case is as strong now as it's ever been and we set out the reasons why on this slide and several other points I've made already global leadership positions consistent growth from attractive markets strong Bal.

Non sheet and cash flow to fund growth and dividend.

It ends in a consistent track record and Theyre. All important features of our investment case, but we also believe that momentum matters in business and then that last respect.

In that respect the last point on the slide might just be the most important.

Momentum is building across amcor over the last couple of years and we expect it to continue and that should be clear from our recent performance, including the first half results and the increased full year guidance that we're announcing today.

At the core of our investment case is the consistent organic growth amcor generates in several ways as set out on slide nine the starting point for the organic growth as the mix of growing end markets, we play in and Thats, especially true in emerging markets. We've had a long history of profitable participation in profitable growth and emerge.

Free markets and high impact locations like China, and India continue to grow sales and profit at impressive rates, including in the most recent half.

Managing our sales mix across higher value more packaging intensive consumer end markets like protein in premium coffee and more differentiated product types like hot fill containers or barrier films drives consistent margin expansion and volume growth over time.

And we have a global health health care business approaching $2 billion in sales from every region of the world and across the pharmaceutical and medical device segments.

Innovation is also an important growth driver for amcor and probably the area, where we are the most differentiated from our competition.

Our customers are launching new products and amcor packaging regularly we've highlighted a few examples here of new and actually more sustainable products commercialized in recent months, including an extension of our heat flex family of products with a world's first microwavable recycle ready pouch for food and some premium coffee package.

Using a bio based polymer.

And finally, a common thread that cuts across all of what we do is sustainability, which we believe is amcor is greatest opportunity for growth and differentiation.

A few more comments on slide 10 to describe our comprehensive sustainability agenda, which includes our products, but also our factories.

Of course, we're deeply committed to the idea of responsible packaging and we're working with our partners upstream and downstream to address concerns about packaging waste in the environment.

We've stepped up to take a leadership role in the development of responsible responsible packaging, which we believe requires three things.

The first is package design, which accounts for the full product lifecycle. In addition to the end of life for waste profile and Amcor is uniquely positioned here with leading R&D and innovation capabilities to handle the package design requirements and we pointed out some examples already in this presentation.

Other two requirements for responsible packaging required collaborations with others across our value chain and amcor has been active in that way as well to help drive improvements in waste management and consumer participation.

A couple of examples over the last six months help highlight that work in one case Amcor has joined with 35, leading brands and retailers and the consumer goods for them in a CEO led initiatives to develop package design rules to deliver packaging thats easier and more cost effective to recycle and.

And in other example, we've extended our work with the carbon trust to launch a label that can be printed on pack to indicate reduced cotwo density and provide greater transparency to the carbon footprint reductions enabled by our packaging.

And the value created through our work on these initiatives and the progress we've made across a range of other ESG areas, including our <unk> program in all of our plants to drive greenhouse gas reduction waste and water reduction continues to be recognized by meeting independent organizations. Most REIT, most recently MSCI and Dow Jones.

Turning now to a summary of our first half results on slide 11, we had strong earnings growth with EPS up 16% in constant currency terms, including 7% organic growth and strength in both the rigid packaging and flexible segments.

Demand for our products remained balanced across regions and businesses, resulting in volume and sales growth in every region and 3% for amcor overall.

And the execution discipline and operating performance of the businesses drove cost performance, which also contributed to the organic profit growth.

Roughly 6% of the EPS growth came from synergies from the Bemis acquisition, which was ahead of expectations and cost synergies totaled an incremental $35 million pre tax during the half.

And lastly benefits from share repurchases accounted for the remaining EPS growth.

Free cash flow was in line with expectations and our balance sheet remains strong and the company returned $450 million of cash to shareholders through dividends and share repurchases during the first six months.

Strength in the underlying business also enables us to increase cash returns to shareholders for the balance of the year.

The board declared a quarterly dividend of $11 75 per share, which is higher than the prior year, and we announced today, an additional $200 million of share repurchases, bringing the total announced this year to $350 million, which we expect to complete during the remainder of FY 'twenty one.

The key theme, enabling the strong performance in the half across the company has been the ability of every one of our businesses to execute and outperform against the things that are within our control despite an incredibly challenging and volatile external environment.

Safety working capital cost synergies cost performance innovation and all of those areas. The execution has been outstanding and we could not be more pleased with the performance of our teams through the first six months of the year.

The key message here is that amcor had a strong first half with results ahead of expectations and we have an improved outlook for the full year and increased dividends and share repurchases to go along with it with that I'll hand over to Michael to provide some additional color on the financial performance for the half year and the outlook for the rest of 2021.

Thanks, Ron and Hello, everyone.

I'll start with some comments on the flexible segment on slide 12 other.

Segment volumes were 2% higher than the prior year.

As Ron mentioned demand has been broad based with growth across all regions in the low to mid single digit range.

From an end market perspective, we've seen solid growth in food pet food and beverage categories and.

This was partly offset by lower volumes in certain health care end markets driven by reduced elective surgery rights in non prescription trends.

Higher volumes were partially offset by unfavorable price mix, resulting in net sales being 1% higher than the first half of last year, excluding the unfavorable impact of currency and the pass through of lower raw material costs.

Adjusted EBIT for the period grew 9% in constant currency terms.

And margins expanded by 110 basis points, driven by the high volumes strong operating cost performance and $30 million of cost synergy benefits, which I'll come back to in a moment.

Particularly pleasing to see the performance of the flexible space has continued to improve as we extract benefits from the Bemis acquisition.

Other innovative new products to support customer growth and operate our plants efficiently.

Now turning to slide to attain synergies so in terms of cost synergies related to the Bemis acquisition the ability to continue delivering benefits from overhead reduction procurement and adjustments to our operating footprint has been exceptional.

Despite the day to address some additional challenges prevented in a COVID-19 environment.

As Ron mentioned, we are tracking ahead of expectations with $35 million of benefits included in our first half results.

And given the strong progress we have made across a range of synergy projects in the last six months.

We now expect to deliver approximately $70 million in fiscal 'twenty, one which is at the top end of our previous guidance range.

This means at the end of this fiscal year, we will have reached $150 million of accumulative benefits. We also have good visibility to remaining initiatives, which leaves us very confident with regard to our original expectation of $190 million in cumulative benefits by the end of fiscal 'twenty two.

Turning to rigid packaging on slide 14.

In summary, the business delivered another outstanding result, with organic growth driving year to date earnings 10% higher than the same period last year.

Sales growth included a 6% increase in volume as well as a 4% price mix benefit, including higher price to recover cost inflation in Latin America.

Volume performance continues to be strong in North America and mix was positive.

Beverage volumes were up 9% compared with last year in hot fill container volumes were up 19%.

There has been strong consumer demand across all beverage segments, particularly in hartsville categories, including juice and sports strength, where amcor also benefit from favorable customer mix.

This strong demand reflects higher at home consumption of packaged bedroom products and this has been supported by the Webb brand diners have done to increase the availability of multi packs across a wider range of product categories and through the launch of innovative brand extension of new health and wellness oriented products in paycheck and timing.

Specialty container volumes were also higher as a result of continued growth in spirits personal care and home cleaning categories.

As a partial offset volumes were marginally lower in Latin America.

This represents a sequential improvement in trends generally improved through the current half while we saw higher volumes in Brazil Central America, and Argentina month to month variability continues and performance remains mixed by country and the radio.

Strong overall EBIT growth of 10%, 10% reflects good leverage from the 6% volume growth and favorable mix across the business.

Partly offset by higher labor and transportation costs in North America, which were incurred in order to service for high demand.

So overall, we're happy with the performance for this business during the half year and believe we are well positioned to support customer needs and deliver continued growth.

Moving to cash flow and shareholder returns on slide 15.

Adjusted free cash flow of $276 million was higher than the prior year, excluding approximately $50 million of U S cash tax payments that were deferred under the case ex from Q4 2020.

And as a reminder, our cash flow is seasonally.

Weaker in the first half for the fiscal year. This outcome was in line with expectations, which leaves us on track to deliver more than $1 billion in this financial year.

We remain focused on improved working capital management and execution has been strong across all businesses without rolling 12 month average working capital sale ratio continuing to improve closing at eight 2%.

Sales at the end of December.

This represents more than $300 million reduction in average working capital over the last 18 months since the Bemis acquisition.

Our financial profile remains strong and Leverages two nine times on a trailing 12 month EBITDA basis, which is in line with where we would expect to be at this time in the fiscal year.

As Ron mentioned with strong annual cash flow and an investment grade credit writing the business has significant capacity and flexibility to invest in the many growth opportunities available to us as well as increased returns today through a growing dividend and further share repurchases.

In terms of the outlook for fiscal 2021 full year on slide 16.

The strong start to the year free solid volume driven organic growth and synergy outperformance as well as the momentum we've seen the business other two factors, which have given us the confidence to raise our 2021 full year guidance for the second consecutive quarter.

We expect the business will continue to execute deliver further synergy benefits and grow organically is a global supply for essential can share and health care products.

However, we are also maintaining a reasonably wide range of outcomes for the remaining six months of our fiscal year, which is appropriate given the ongoing uncertainty and complexity related to the COVID-19 pandemic.

We now expect constant currency EPS growth range of 10% to 14% and while we continue to expect adjusted free cash flow between one to $1 1 billion, we see more opportunities to deliver cash flow towards the top half of that range.

To recap the business is performing very well growth from organic sources in synergies is strong our financial profile remains solid and we are positioned to deliver another year of EPS growth in 2021, which will be ahead of our original expectations.

So with that I'll hand, it back to Ron.

Thanks, Michael just in closing our opening remarks today and come back to where we started.

<unk> had a strong first half to the 2021 fiscal year with results ahead of our expectations and growth balanced across the businesses and regions and the strong start and momentum in the business has translated into higher expectations for the full year and we've raised our outlook for fiscal 'twenty. One. We've also increased cash returns to shareholders through a higher dividend and an additional 200 million.

Share repurchases and we continue to believe that the amcor investment case has never been stronger with consistent organic growth and momentum building substantial capacity to invest.

To grow and also to maintain an attractive dividend with that operator, we'll open the line up for Q&A.

Thank you, Sir and the interest of time, you would like to remind participants to limit their questions to queue and to rejoin the queue for any follow ups.

Your first question comes from Keith Chau from MST Marquee. Your line is now open.

Good morning, Good evening gentlemen, thanks for taking my question one for Michael.

First one is just on that.

So.

On a category the numbers seem to be a belief in the second quarter.

Volume is up 19% in first half 'twenty one.

12 in the first quarter, so the implied numbers going into the second quarter with north of 20% close to the mid twenties.

Just wondering if you can give us a sense of as they've been anything in particular that's.

Net whether they've been improved for the volumes how sustainable you think that is going into the balance of the year. Please.

Yeah, no. It's a good question, it's a real highlight it look I think.

As we look across the business.

That is a standout in terms of volume I think theres, a couple of things going on there firstly.

Retail sales are very strong and our volumes track pretty closely to what we're seeing at retail for some of the main categories that we supply heartfelt containers for so hot fill juices iced.

Isps isotonic.

Those categories have been very strong throughout the whole first half and especially in the second quarter.

I think it's.

A combination of things Keith.

Some.

Additional sales going through multi packs and big box retailers, which.

Which are certainly helping there is an introduction of some new products are.

Our customer mix has been quite favorable and.

And I think all of those things are contributing I mean, clearly these are higher growth rates than we would normally see this is a segment that should grow kind of low to mid single digits.

So this is a particularly strong period.

Thank you.

And Ron do you think.

Particular strength 10 carried through into the third and fourth quarters or at least the third quarter.

Pretty hard to.

To get a handle on.

Under the consumer backdrop at the moment.

Is this something that you think persisting into the third quarter already look I think some of the some of the things that I mentioned will persist for a while but not at this level Keith I think as we look around demand patterns.

Patterns Theres, a couple of anomalies that standout for us on the negative side, we had soft healthcare volumes across the business.

On the positive side, we've had strong beverage volumes both of those have to be influenced to some extent by.

At home consumption and other Covid related factors, so it's very difficult to predict that aspect of it but I think some of the underlying trends around new product launches multi pack sales.

Some of our particular customers gaining share.

Those things.

We would expect to continue but all of that is incorporated into our overall guidance for the full fiscal year.

Okay. Thank you and then my second question is just on Bema synergies net.

Continued to track ahead of expectations or at least up to the top end.

Momentum in Bosnia for 'twenty, and then in the first half of one inch sorry first half for people at 21.

It remains pretty strong so it seems like almost a foregone conclusion that the total target could be upgraded at some point in time.

It hasn't been done at this juncture, but can you give us I guess, a sense Ron or module on.

I guess that synergies other.

Achieving relative to expectations.

Yeah look for the first part of your question I might just address first I think it's we feel increasingly confident about the $180 million net we committed to so I think we.

We would expect to exit.

At the end of this fiscal year, we would be exiting at a run rate that would be at that level.

Now, it's also getting increasingly difficult to pull apart, what's a synergy versus what's the base business driver I mean as you can imagine the businesses are completely integrated now.

As far as what's driving the performance generally speaking I think we probably exceeded our expectations across the three big cost synergy buckets. So overheads.

Which came out faster than probably yielded a bit more benefit than we would've thought the procurement savings have been.

Higher than we would've expected and.

Footprint, which is building momentum.

As also positively contributing it I guess if were.

If we're thinking about this year in particular, we've gotten some more footprint benefits than we thought we might be able to given the COVID-19 backdrop, which makes those projects difficult to execute.

Great. Thanks, very much later day.

Your next question comes from Mike Mark Wilde from Bank of Montreal. Your line is now open.

Yeah, Congratulations Ron and Mike Tracy very nice start to the year, Mike I wondered if per sorry, Ron I Wonder if theres any way.

You could help us think about sort of how much of this strength you think is tied to more food at home kind of Covid related issue. Because we are seeing most consumer packaging companies report very good volumes over the last couple of quarters. So when you just when you think about your portfolio. How do you think about what kind of being driven by.

Covid versus just the underlying business.

Yes look that's the question Mark and we like everyone else, we spend a lot of time trying to.

Unpack that and the conclusion, we've come to is that we really had no net impact one way or the other and the way we get there. If you just take the big chunks of of drivers we've had a lot of extra cost in the business and increasingly so as we've continued to operate.

And we've had lots of folks out on quarantine we've had.

Lots of overtime to backfill those people, we have lots of extra shipping going around in the rigid business. So theres a lot of cost to be born in this environment.

First of all and then the offset to that is obviously some stronger volumes in certain segments like the beverage segment that we talked about a minute or two ago. The offset is commercially.

Is health care.

Which is a really high margin attractive profitable segment for us.

It's been really soft medical device <unk>.

Consumption generally has been very low with less elective procedures surgeries and otherwise prescriptions have been way down and so the sales in that healthcare business have been way off.

So higher cost in many parts of the business.

Strong sales in some segments like beverage offsetting some weak sales in medical and pharmaceutical the net net of all of those puts and takes as we look at the business is really not much and 3% sales growth is not too far off where we've been historically, we've been at about 2% over the last five or six years.

And the profit growth is flowing from that plus the cost per cent performance and synergies in the business. So I mean, we do a lot of work on this and there's a lot of interest in it but our conclusion is theres really no net impact.

Okay, and then for my follow up I wondered if you could just give us a kind of a quick lay of the land for plastic packaging in your key markets from a political and regulatory environment.

Like in the short term you benefited because people have kind of moved to kind of more single use products I mean, we aren't seeing people here in the states.

Go to the grocery store with kind of returnable bags anymore.

But at the same time it seems like from a medium term perspective, we are seeing kind of more discussion in Europe and even here in the U S to some degree of producers having to fund sort of end of life solutions to to packaging and that winds up getting embedded into cost. So maybe if you could just give us a sense of kind of what.

You are seeing.

From a political and regulatory standpoint, and just your main markets well, yes, I mean, let's start with that part of your question you asked about the political environment I would maybe broaden that did you say the general environment political consumer customer and otherwise I mean, the short answer I would give you is you asked how we see that.

<unk> evolving and the short answer I would say it's improving.

And it is improving for a couple of reasons. One that you highlighted already which is that I think the value of packaging and the role. It plays in food and health care has become even more evident over the last 12 months I don't know that we need to spend a lot of time, explaining that but I think the idea of packaged food.

Yeah.

It is clear I think the distribution of medicines and now we see vaccines and how important packaging is and the delivery devices are in that process. So I think the value of packaging.

Has increased in the eyes of pretty much any observer full stop as it relates to plastic I think the other thing that's happening which is quite helpful.

Is an increasing focus on greenhouse gases and climate and I think.

As people and stakeholders get more and more educated holistically on the environmental impacts of different types of packaging I think increasingly plastic scores pretty well and that's why we continue to see our customers very focused on finding better alternatives for the end of life of their packaging.

But increasingly focused on.

Doing what they're doing today with lighter weight.

And better functionality.

I think the point you made about.

Funding waste collection extended producer responsibility things like that.

That is a role because clearly we need the waste management infrastructure in place around the world to address the waste.

Problem that we have and that needs to be funded and there are good successful models, where funding that's generated through EPS.

It goes directly to waste infrastructure and can certainly help alleviate the problem. There is nothing wrong with that we are in favor of well designed EPS.

As long as they're focused and targeted at the rate.

Our level of infrastructure. So generally speaking the environment has improved we expect it to continue to improve as people get more educated on the total topic.

Okay. That's really helpful. Ron Thanks, very much I'll turn it over.

Your next question comes from Ghansham Panjabi from Baird. Your line is now open.

Yes. Thank you good day everybody.

I guess going back to Richard's Ron I mean, 10% sales growth, 6% of which was volume 4% price mix.

Why didnt that translate into a higher realization in terms of EBIT growth I know, it's very respectable at 10%, but just curious if something in terms of income all cost held that number back.

Hi, there Jon Michael here I can probably take that one look the.

We're really pleased with the overall performance of <unk> for the half as you said the volume growth of 6%.

We had some price mix benefit.

Largely that was at least recovery of inflation in Latin America.

So when you when you.

See that day and the leverage through the P&L, we grew 10%.

For the half so we're pretty pleased with that some of the <unk>.

Positive mix as well in the in the hot fill container business. The Allstate really which is known as touch on this before is we did have some higher.

Operating costs during the period just to deal with that that really strong demand both in labor.

And then shuttling and freight costs around the network just to be able to meet the demand for our customers. So so putting putting that altogether. We were really pleased with where the growth ended up for the hop in the rigid business.

Got it thanks for clarifying and then if we switch to a flexible and it looks like volumes are relatively even for your first two quarters.

I think you mentioned Europe picked up as a quick second quarter unfolded was the increase in Europe due to the expanded lockdowns as the quarter unfolded and was it the same case in North America as well.

Just more broadly how do you expect volume to play it for the segment during the back half of your of your fiscal year. Thanks.

Yes.

Volumes were.

Very comparable from Q1 to Q2, there was a bit of momentum picking up into Q2, particularly in Europe, where we had more of a sluggish.

Q1, I would say rather than an extraordinary Q2.

We're in the low single digits across both quarters, and we would expect that to continue into the second half again I think.

When you net it all out the healthcare softness.

More than offset any extra extra volumes in some of the food segments.

So the low single digit performance that we had in the first half is more or less what we would expect to see in both of those big businesses.

Got it thank you.

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

Oh, Good evening, you will Tom George how are you.

Hey, John.

Sure.

Just a couple of questions day.

Yeah, just in terms of raw materials.

Obviously, you've seen some decent appalachian or related costs coming through at least on a spot basis I mean, what was the impact.

On raw mats from rule match in the second quarter and how you.

Expecting that to play out through Q3 and Q4.

Yes, John it's a good question. It was it was definitely a modest headwind in the flexible segment, we have no impact really in regions because of the pass through mechanisms are.

Are quite frequent but in flexible or raw material pass throughs go into effect.

Three to six months and so we did have a bit of a lag in the first half really in the second quarter relatively.

Relatively modest.

And.

We would expect from continued headwinds into this quarter, but again, that's factored into our guidance and that you know from looking at us over time that the pass through and recovery mechanisms are well refine dynamic corn.

Any impacts we have positive or negative or just timing.

Thank you and just a second question coming back to rigid and the higher transport or labor cost for your Shane.

Generally those will normalize as demand comes back to some some level of a train but.

If demand does stay high in April cost stay high.

But to recover all of it because it does appear there was limited posture in this period.

Yeah look John I think it would.

Depend on what the costs were in.

What the reason was I mean typically.

Demand at the level that we had this period there is some some shoveling and moving around the network that we have to do to meet the customer demand.

And from a line standpoint, it was run for.

As Ron touched on part of that was due.

Due to.

Higher <unk> levels, particularly in Q2.

Due to Covid.

Yes, you would expect perhaps some of that normalizes over time and would have less and less of an impact, but regardless you know when you have strong demand like that you are going to see some cutting credit.

Okay. Thank you.

And your next question comes from the line of Bruce Campbell from Crawford Jpmorgan. Your line is now open.

Yes. Thanks for taking my question, Ron just one on sustainability continue to talk about.

Anecdotally the greatest growth opportunity for the day.

I'm just trying to understand do you think sustainability will allow you to take share and improve Nixon and basic growth stronger than and it wasn't.

This area will be thank you.

And necessary thing, we could do just to hold share and keep it where.

Where it is I guess over the next five years Rudi's line.

When you when you are looking to reach that target.

I'll look book, we would think for the foreseeable future, it's a share opportunity in our margin opportunity.

And thats because of the differentiation that we're going to bring to the more complicated aspects of of the whole equation. So when we look at.

Some of the products, we've launched in the last 345 months that are more sustainable.

If we look at the reportable pouch for pet food and then the human food version that we launched with Mars for Microwavable Rice I mean, that's just a different better mouse trap and.

We've got the only product in the market that's got that.

Sustainability profile. So clearly there is an opportunity there too.

Take share there is also obviously a higher level of value.

And delivered to the customer in those two instances.

We've got a.

Our PVC free shrink film called Echo tight which is another example for protein.

Again, all of these to more differentiated they are the more opportunity for share.

And ultimately margin.

For the foreseeable future there'll be a point in the.

Down the road well down the road, where some of those types of products will be expected.

But certainly in the short medium term and for as long as we can see we're going to have a big advantage.

That should turn into some commercial benefits.

Yes.

So then I guess.

Just wondering.

Do you think at some point, you'll be able to frame up that opportunity.

Provide some sort of targets or pull apart.

In your financials, where the benefits coming true will be though just trying to get washed out.

And then we can just talk about it qualitatively.

I think youre going to see it continue to flow through the sales line and I think youre going to continue to see margin expansion and that will be a more meaningful part the sustainability dimension of our products will be a more meaningful part of the top line as.

As well as the margin line.

At the same time will be <unk>.

Managing the mix and we will be exiting certain products as well and so I think it will come out in the wash, but it clearly sets us apart from our competition and Thats got to be nothing but positive from a commercial perspective.

Understood Yes.

Maybe just for from.

Michael just having a look at and corporate costs look like and have stepped up from.

For the 35 nails net prior period of <unk> 48, and despite some some synergies there in the current quarter. So at an underlying increase there on corporate.

Just wondering if you could provide some examples radio.

What's driving that increase.

Yes look it's largely fighting broke we had.

In Q1, we had some higher costs from a sizing standpoint around kind of insurance claims and just timing of management incentives and the like.

As we look forward, we would expect that to more normalize in the full year that we are not providing guidance, we would expect corporate cost to be.

There or thereabouts, perhaps slightly higher than last year on the back of inflation and other things, but generally speaking we would expect.

Yes.

For normalized view about the timing at the year end.

Okay. Thank you.

Your next question comes from Kyle White from Deutsche Bank. Your line is now open.

Hey, I hope everyone's doing well thanks for taking the questions just focus on the EPS guidance range.

Two consecutive quarters, where you've raised the guidance here yet your free cash flow has remained unchanged. Both times just curious what the offset is is it working capital with kind of the increases we have in resident or is it something else there.

Yes, I can take that one to your question I think look we've given a relatively wide range on the on the cash flow of one to $1 1 billion.

I would say with the guidance upgrade what we're seeing is that.

Now probably more to be at the upper end of that $1, one one to $1 $1 billion range. So while we havent raised the guidance.

We'd say, we're going to be at the upper end of that range.

And if that changes we'll come back to you in the next quarter.

Sounds good and I want to focus on our recycled resin I think you were pushing towards 10% of your resin per.

Our consumables being post consumer recycled resin by 2025 are there any limitations on how high this can be as a proportion of your overall resin buy in terms of maintaining the integrity and characteristics are certain packages, it's probably the most out of the call to Richard here and then I hear from recyclers that there really just isn't the end mark.

Demand for PCR necessarily but on the other hand, it seems consumers want more sustainable products. So I'm just kind of curious what's the disconnect here.

That would be a good question I think there's incredible demand for PCR. In fact, you asked about limitations and you went to the technical.

Thresholds and the answer to that one is really there are no technical thresholds.

We're making containers pretty much for every segment now at 100% PCR in the rigid business.

The consumption of recycled resin in our rigid business has.

Dramatically increased in the last 18 months, even despite the COVID-19 backdrop. So we.

We've gone from about 45% of the resin that we process to exiting December at about 10%.

Of the total resin that we process in that business and that number will go up again by June.

So there really is no limit there is no technical limit.

The amount of recycled content, we can use in a container, we're making plenty with all Pcr.

Constraint, maybe at a point in time, not too far into the future <unk>.

The limitation on supply.

And so we along with our customers and consumers in fact, obviously are sending every demand signal possible debt.

That there is going to be an appetite to to source PCR so im not sure where the.

For the disconnect is.

Is there maybe is it from.

From a cost standpoint, what's the differential from using Virgin over PCR.

Well Theres a premium at the moment.

Typically has been but there's also a value premium as well and so I think there is.

The cost plus us back to the pricing mechanism, but more importantly, this is going to be an expected input to the end products that we're making and that our customers are packaging there for their products and so I think it is.

I wouldn't want to say it doesn't matter what the cost is clearly it will but there is a premium I think theres a demonstration.

In practice that there's a willingness to pay that premium.

Doug I'll turn it over good luck in the next in the balance of the year. Thank.

Thank you.

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

Thanks, Hi, everyone. Thanks for the details.

Graduation on the progress so far.

I wanted to pay.

I had a little bit on the new products to the extent that you can recognizing that they are by definition smaller and perhaps the growth that youre seeing in them is not meaningful can you talk maybe qualitatively or as much as you want to quantitatively about.

What youre seeing in terms of am line and some of the other products the growth that youre seeing and I was particularly interested in what youre seeing out of the eco type product and whether you're getting any measurable market share in the protein market with that film.

Yes, those are really good examples of having a differentiated product and a differentiated offering that even the customers now are trying to reconcile and get their heads around in terms of.

What they can and can't do the amyloid structure. The basic chemistry behind it is got wide applications. So we've launched the product for pet food first.

And then we've also more recently announced.

Rice package that essentially uses similar technology.

The demand has been.

Really.

Far exceeded our expectations and now we're going to have to scale up the capacity, which is a good thing.

To deliver against that demand.

But it's a good example of solving a problem that didn't seem to have a really easy answer maybe 12 months ago for these big brand owners and also there are smaller competitors. So I'd say watch this space on M life there is.

Incredible appetite not only from the European customer base, where the product was first launched but also around the world.

India, Brazil, obviously, North America, China, there are kind of advanced orders.

A book built if you will taking place globally for that structure, an eco type. This is a recycle ready structure, but maybe even more importantly, right now it's a <unk> structure.

PBGC free structure sorry.

For protein, which is also.

A major concern for many brand owners to get PVC and chlorides out of their packaging and so this one has been targeted at the European protein market in the first instance, theres a lot of take up there where that material is of.

Particularly high concern.

Pretty early days, but I would expect that demand to start to also come from the other regions of the world as well so.

You alluded to it neither of these products are going to change the overall revenue profile of the company in a given quarter, but over time the cumulative momentum of products. Like these is going to help generate good topline growth and good margin.

Thanks, Ron.

My second question.

Look at the performance over the first six months again as you mentioned, it's in line or ahead of your expectations.

And you are performing well on any number of <unk>.

<unk>.

0.2, when I look, though at flexible so there was a little bit of deceleration in EBIT for.

The three months to the six month period. There was also a little bit of deceleration, even though I know you are raising your target for synergies in the synergy momentum it was $20 million and <unk> was $35 million through the six months. So if you can give us maybe a look underneath the hood with all the things that are going well for you and flexible.

What's causing the minor deceleration that we've seen from three months to six months period. Thank you very much yeah look George the organic performance of the business is pretty similar from period to period. In fact, we had a modest pickup in the base business.

Organic growth, let's say from Q1 into Q2 Q2 was modestly higher than Q1 from an organic growth perspective, I think what youre seeing is just the comp just a year on year impact of the synergy capture which in.

In the prior year.

Three to six to nine months into the acquisition.

And a lot of low hanging fruit drove higher synergy benefits in those first couple of periods. So we're just cycling higher levels of synergy in the prior year and over time, that's going to continue to.

To dissipate as a comp, but the organic performance of the business has actually picked up a bit and.

And we expect it to sort of stay at that level and build momentum through the second half as well.

Thanks, Ron I'll turn it over.

And your next question comes from Laurence Gambler from Credit Suisse. Your line is now open.

Thanks Scott.

Yeah, a lot of progress in our business thing Ron you made such good progress as Bemis I'm wondering why you guys are buying back shares.

It seems.

For anybody born in the last century, the worlds expenses, except for the packaging sector.

So I'm just wondering.

How you're feeling about valuations in the packaging sector and it seems in Congress that you're buying back shares when it seems like it's relatively inexpensive.

That's a great observation Larry.

First of all you've watched us for a long time, we're active acquirers and we would expect to continue to acquire.

That's the first priority is to reinvest in the business grow the business continue to consolidate.

And acquire and we're certainly going to get increasingly active as the bemis integration and synergy capture comes to a close.

And we will be actively looking at now as you'd imagine.

And the benefit of doing an on market buyback is flexibility. So if we were to come across an opportunity.

Required more capital we can always.

Suspend the share repurchases, although as you also know most of the deals in our space for a pretty small so in all likelihood we could.

We could fund acquisitions.

And continue the share repurchases I think the last point I would make it comes to the way you asked you asked the question which is around value.

And.

I think.

We would say as we look across the industry, yes asset values are relatively high but the best.

Value in the industry right now is amcor and so what better time to buy shares in the company than right now where we have clear line of sight.

Into where the business is traveling and the momentum that the business has so.

We would never.

Try to be stock pickers here, but from a value perspective, we think amcor is probably the best value in the sector at the moment.

Okay. Just a clarification on this first question because I want to ask the second one.

Public company, a private company or are you seeing any disparity in valuations there to me it seems like actually public company valuations.

Might be more attractive than private company at the moment.

Look theres not a whole lot of deals getting done right. So you have the mark to markets. If you will on the private assets only happen when there's a transaction there has been a lot of.

Ross I would say on the deals that have been done. So there are certainly asset prices that are that.

<unk> been pretty high in.

And the market will pay what the market will pay for a public equity and I think it becomes more of a relative game in the public markets.

Relative attractiveness of the sector and the players in it to all the other alternatives in the public markets.

Theres just a lot of.

The excitement around certain growth segments that maybe see more appealing to people at this point in time.

Okay.

Thanks, Ron just my second question relates to.

Some research I did back a couple of months ago regarding small customers in the U S.

And.

It seems to me that Thats a.

$5 billion market.

Frame. The question you guys had as you disclosed in your Investor presentation. Some 6000 small customers in Europe, but only 850 small customers in North America.

So it seems like a big opportunity any progress there in terms of income.

Addressing the small customer market more broadly and deeply in the U S.

Really good progress and it is a great opportunity.

You flagged it.

We've also flagged it in different forums.

We've been after it and Richards for a long time in the regional beverage space, we continue to see double digit growth from those customers flexible as the legacy Bemis business had identified this as a.

Our market.

Segment, if you will that offers some really attractive characteristics.

They also continue that business also continues to generate higher than average growth higher than the rest of the portfolio.

I think as far as the impact on the overall result.

Maybe.

The challenge of small numbers, but very high growth rates. So I would say watch this space over time.

Continues to be a part of the market that we're excited about.

Okay excellent thanks, Ron.

And your next question comes from Richard Johnson from Jefferies. Your line is now open.

Thank you very much Ron My first question is just on R&D and I know you're spending I think you referred to it as roughly $100 million a year.

I was wondering if you could if you could sort of talk around where that's going and what I mean by that is if you would sort of put it into various categories.

The sandwiches that goes to film development on material science, all product development and design and that sort of thing.

Yes look it's a good question if.

If you break it down I mean, I wouldn't give you a number but what I would say it's dramatically a lot of the design work that we do is is.

With customers in many cases, we actually get reimbursed for that work.

And.

There's a lot of activity in both Manchester, Michigan in the rigid business in Wisconsin in the flexible business in North America doing design work that.

As also at times have been done by advertising agencies. So that's an increasing.

Part of the activity, but also one that quite often we get compensated for.

We also on the other end of the spectrum do advanced technology development.

<unk> materials science films barriers.

And things that will benefit the business in the medium term.

And in the Middle is where most of the spend is which is application development product development and product commercialization.

If I were to use the 80 20 rule I would say probably 70% 80% of it is in that middle that middle area.

Great.

Helpful. Thanks, and then just one.

Wanted to ask around trying to get a sense of what your view is on the broader competitive environment.

And the reason I asked that and that's in flexible as the reason I ask that is you made reference to your recycle retort pouch that you're doing for Mars, but my understanding is theyre all competing products that have been launched as well. So I'm just trying to get an understanding of one watt wages. When you feel you are competitively whether there's been any significant changes.

Has anything changed in the industry, which has always been the case that technology hasn't always been a barrier of entry.

Well, we think it's becoming more of an increasing barriers to entry theres, a lot of announcements, particularly around sustainability and product attributes.

Theres announcements every week.

You can imagine that would be across all of those and also across what we believe to be the.

The make up of some of those products.

And we maintain that on the products that we've highlighted here today that we have the only solutions in the marketplace.

That had the attributes that we described so.

In terms of the broader competitive environment nothing is changed of any substance.

I think.

It's never been and never been a place where you see really rapid changes in the competitive set and we're not necessarily seeing that today.

Okay, and then so to speak of.

It really quick one in just from the shareholder value creation model, which has obviously been in price for quite a number of years now in the first two years of its existence.

Quite a good correlation between the TSA.

Shareholder return and shareholder value accretion that hasnt really been the case from the last few years.

Just wondering from your perspective, what you think is missing.

Yes, I think thats the kind of thing that plays itself out over time I mean, if you take a 10 year view it lines up actually pretty well and we would expect over the following 10 years It will line up pretty well again.

From time to time again, there's relative valuations in the public market that make certain sectors and certain.

Industry is more or less attractive I think theres a bit of that over the last few years as well as segments sectors like tech and others have really had incredible returns. So I would expect over time, the two converge as they have historically.

Fantastic, Thanks, and well done on the results.

Thanks.

Your next question.

Comes from Nathan Reilly from UBS. Your line is now open.

Alright, Ron just a question just around manufacturing actually just in the context of some of the comments you made around the <unk> mentioned that youre seeing in the business and picking up some of the volume growth, which we've seen this quarter as well can you use a quick update on where you are at from a manufacturing capacity and utilization point of.

Around the network at the moment.

And just what you're thinking about sort of reinvesting in net and that network for growth and the nature.

Well, let me start with.

The first part and then Michael can talk about the second part which is around the reinvestment profile of the business going forward I mean look at.

At the moment.

<unk>.

We are at a comfortable utilization level.

And an efficient utilization level, probably with the exception of Richards more recently as Michael alluded to so when we talk about extraordinary cost to service extraordinary demand that is one of the outcomes of running at very very high capacity utilization, probably too high overtime that we don't expect that to continue as we've.

About.

But other than that segment.

And then the inverse would be true in health care, where the demand has been soft generally speaking, we're running at a more normal level of utilization.

And then as far as what does that mean for capital going forward, maybe Michael can talk to that point.

Yeah sure Yeah. So look on any capital expenditure I think we last year, we spent around $400 million, probably that was a year after the acquisition, which.

It was a little lighter than we would normally have.

Typically we would invest around depreciation a little bit more depending on what the requirements were in any given period, but this year look we are expecting that that will probably be.

Around 10% above where we were last GSO around that $450 million range and that's really taking into account.

Some of those additional need for.

Growth Capex.

Across the network.

And new technologies as well, so I think as we look forward.

That's kind of way, we see it see the capex spending in that $4 million to $500 million range, which we which we think is.

Sufficient more than sufficient to cover the expanding growth requirements and the technological advancement.

Okay. Thanks for that.

Thanks.

Ladies and gentlemen that concludes our call for today I'll hand, it back to Ron <unk> for any closing remarks.

Thanks, operator, and thanks to the participants on the line for all the questions.

To close off where we started we had a strong first half to fiscal 2021.

Results ahead of our expectations and performance balanced across the businesses that start has translated into higher expectations for the full year and so we've raised our outlook for fiscal 'twenty one we.

We've also increased cash returns.

To shareholders through a higher dividend and $200 million of additional repurchases.

And then we conclude with probably the most important point, which is that we continue to believe that the amcor investment case has never been stronger thanks, very much operator, and with that we'll close the call.

This concludes today's conference call. Thank you everyone for your participation you may now disconnect.

Okay.

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