Q3 2021 Amcor PLC Earnings Call

[music].

Ladies and gentlemen, thank you for standing by and welcome to the Amcor third quarter 2021 results conference call.

At this time all participants are in listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone keypad. Please be advised on today's conference is being recorded if you require any further assistance. Please press star zero.

Now I would like to hand, the conference over to your speaker today Tracey Whitehead. Please go ahead.

Thank you operator, and I'd like to welcome everyone to Amcor Stuart Florida.

For the earnings call for fiscal 'twenty, one joining the call today from Amcor.

Net chief Executive Officer and.

On Chief Financial Officer, Michael Casamento.

This time I'll direct your attention to our website <unk> com under the investors section, where you'll find our press release and presentation, which we will discuss today, we'll also discuss non-GAAP financial measures and related reconciliations can be found in those documents on our website.

As a reminder, the call today include some forward looking comments, which remains subject to certain risks and uncertainties. Please refer to our SEC filings to review factors that could cause actual results to differ materially from what we are discussing today with that I'll hand over to Ron.

Yeah.

Thanks, Tracey and thanks, everyone for joining us today to discuss amcor is year to date results. Joining me on the line as Tracy indicated is Michael Casamento, <unk> Chief Financial Officer.

We will begin with some prepared remarks, and then open the line for Q&A.

Starting on slide three we begin every meeting at Amcor with safety. So we'll start today with safety as well.

This year, our safety performance has been a real highlight across amcor, we've reduced the number of injuries by almost 30% in the first nine months of the year and all of our business groups reported fewer injuries.

With over half of our sites remaining injury free for the last 12 months or more.

And of course over the last year. We've also been equally focused on keeping our coworkers healthy as well as safe.

And as the COVID-19 pandemic continues to present challenges in many countries maintaining our protocols in our vigilance remains a top priority for our teams around the world who also understand the critical role we play in helping maintain availability of essential health care and food products.

Given the continued challenges of navigating the pandemic.

We're particularly pleased with our safety performance. So far this year and we remain confident that our objective of no injuries is in fact possible.

Our key messages for today are set out on slide four.

First our year to date financial results have been strong and ahead of expectations with organic momentum continuing through the year such that the March quarter has been our strongest.

Thus far this year, despite the operating environment remains dynamic and volatile maybe even more so over the last few months.

Our teams have navigated that volatility by demonstrating an exceptional ability to stay focused on the key business drivers within our control to respond quickly as conditions change and to execute to deliver results. Despite the circumstances.

The second message here is that this strong performance translates into higher expectations for the 2021 fiscal year and we've raised our outlook for full year EPS growth of 14% to 15% on a constant currency basis.

And third we're actively investing in several growth initiatives, which illustrate the range of opportunities we have over the medium term to maintain our momentum the.

The strong result increased guidance and growth investment examples demonstrate the strength of our investment case, which I'll touch on briefly on slide five before turning to the results in more detail.

The Amcor investment case is set out on slide five and it's one we've shared a few times this year.

We believe the investment case is as strong as ever and this slide sets out the reasons why including our global leadership positions consistent growth from attractive end markets strong balance sheet and significant annual cash flow of more than $1 billion on growing to fund growth investments and dividends.

And lastly momentum has been building, which you can see in our upgraded guidance and we believe that will continue.

Looking ahead into fiscal 'twenty, two we would expect EPS growth to benefit from continued organic growth additional synergies from the Bemis acquisition, a lower share count after the repurchases during FY 2020, one and the value of that debt will be created from the $3 to $400 million of free cash flow debt will remain after capex and.

<unk>.

So the EMCORE investment case has not changed and Thats part of the message here today, despite volatility in our operating environment and maybe even more so because of that volatility. The EMCORE investment fundamentals remain very attractive and we will continue to generate a total value of 10% to 15% each year across EPS growth and dividends.

Slide six includes the actual outcomes of that investment case over the last decade.

Over this period, we've always maintained an investment grade capital structure, we've delivered consistent sales and profit growth.

Including margin expansion organically through multiple economic and commodity cycles, and we have consistently paid out a compelling dividend.

And that growth in yield has been supported by best in class free cash flow conversion and return on invested capital, which have also contributed to strong total returns to shareholders as well.

Organic growth has always been a key driver of our overall financial performance and that will become increasingly evident going forward slide.

Slide seven highlights three of the key organic growth drivers for amcor.

The starting point on the left is the set of growing end markets. We serve around the world now amcor has substantial positions in several higher growth higher value higher value add more packaging intensive segments like healthcare protein and premium coffee or hot fill beverage containers and barrier films.

And each of these segments market growth tends to track higher than average and in each one we have differentiated positions.

Scale scale position differentiated products and global leverage opportunities.

Second emerging markets will also continue to be a key source of organic growth for amcor, we've got the scale emerging markets portfolio with over $3 billion in annual sales from 27 profitable emerging market businesses, where we benefit from leadership positions and differentiated capabilities and where we have a long history of profitable growth.

And third growth enabled by innovation, which is an area, where we continue to differentiate ourselves.

From competition, and we're investing to extend that lead.

All of our businesses go to market with World class innovation, and R&D capabilities, which are increasingly valued by our customers as they look for packaging to meet shifting consumer needs around the world, particularly around sustainability, which I'll come back to in a minute.

We're also allocating capital and actively investing for growth in a number of areas and slide eight shows two examples.

First the example on the left within a few weeks, we will expect to begin commissioning of major capacity expansion for one of our aluminum based product segments at our flexible packaging plant in Switzerland.

This investment will support the continued high growth of the premium coffee segment and is underwritten by a long term supply agreement with a key customer.

We've made a number of similar investments over the years and several recently, where we have real long term partnerships with higher growth customers, who value the various ways amcor can help them growth.

And the other example on the right hand side of the slide.

In the last quarter, we began construction of a new Greenfield plant in China to add capacity to our business in that high growth market, where we already maintain a leadership position and healthy financial profile.

The new state of the art plant will be the largest and amcor is China network and will start up by the end of calendar 2022 to support a range of global and local customers, primarily in the food and personal care segments.

And turning to slide nine last week, we announced a corporate venture type investment in APAC are relatively new startup in the flexible packaging space, who has leveraged technology and a unique business model to grow to $100 million on sales and just over four years.

As excited as we are to work with APAC. The key point of this slide is to make clear our intention is to do more with regard to open innovation and corporate venturing generally so.

With that we can complement our internal innovation capabilities with great external ideas from all around the world.

We're looking forward to exploring opportunities across new packaging products processes and business models, and we'll be much more systematic and purposeful in this area.

And moving to slide 10, it remains very clear to us that our best and most exciting opportunity for growth and differentiation will come from the development of more sustainable packaging.

More sustainable packaging means responsible packaging, starting with better package design and on that dimension, which needs to take into account. The full product lifecycle. There is no one better positioned in the industry that amcor, and we're demonstrating that with a steady stream of new product platforms and launches around the world.

Waste management and consumer participation will be equally important and both require close collaboration with others across our value chain.

And amcor has been actively partnering with others in both areas to drive scalable solutions and real impact and I'll describe some of the progress we're making on the next slide.

The Kid kind of example on the left is a great one because it demonstrates the potential for amcor to use chemically recycled resin in food grade flexible packaging and it also highlights the level of collaboration that's possible across the full value chain to make it happen in this case in Australia.

In the middle of <unk> Sky, which is a breakthrough innovation launched by Amcor just last week.

<unk> created the worlds first recycle ready thermal form blister packaging by eliminating PVC without compromising functionality or the consumer experience.

And <unk> is an exciting development, which has the potential to transform the sustainability profile of healthcare packaging, particularly for solid dose pharmaceuticals, but it also highlights the potential to eliminate PVC and other packaging segments as well.

And the example on the right hand side of the slide is another one that brings to life. The concept of responsible packaging with a real example in practice in this case in the U K.

The supermarket rollout of this rice product in a recycle already microwavable pouch made with Amcor is heat flex technology coincided with a number of U K retailers announcing in store trials to collect and recycle a flexible packaging.

And this one demonstrates that responsible packaging design enabled by amcor and catalyze change and motivate progress on the waste management and consumer participation requirements as well.

And finally in March Amcor also took an executive committee role in the alliance to end plastic waste a group, whose mission is fully aligned with our vision for responsible packaging through design infrastructure innovation in consumer participation.

Turning now to a summary of our results on slide 12.

The business has delivered strong year to date earnings growth with EPS up 16% on a comparable constant currency basis.

Of that EPS growth, 7% was organic.

Overall demand for our products has remained healthy and combined with outstanding execution has resulted in organic growth continuing to build each quarter.

6% of the EPS growth comes from incremental Bemis acquisition synergies, which have reached $55 million. So far this fiscal year. We continue to progress ahead of initial expectations and we are well positioned to deliver at least $180 million of synergies by the end of fiscal 'twenty two.

And the remaining 3% EPS growth reflects benefits from share repurchases in fiscal 2020 one.

Free cash flow on the balance sheet continue to be strong and in line with our expectations and we've returned more than $850 million. So far this year of cash to shareholders through higher dividends and share buybacks.

So the key message here is that we're executing very well building momentum delivering strong growth and cash returns to shareholders with that I'll hand over to Michael to provide some further detail.

Thanks, Ron and hi, everyone.

So starting with the flexible segment on slide 13.

Overall sales were 1% higher than the prior year on this was all driven by higher volumes.

Demand has remained relatively broad based with growth in North America, Latin America, and the Asia Pacific regions.

While Europe was inline with last year.

Through the last nine months, we've consistently seen solid growth across a broad range of end markets, including in high value end markets like protein coffee cheese and pet food.

And this has been partly offset by lower health care volumes, driven by fewer elective surgeries and non prescription trends, which began back in the June quarter of 2020.

Adjusted EBIT is growing 9% in constant currency terms and margins expanded by 110 basis points, reflecting volume growth of $45 million of cost synergy benefits and strong cost performance and management.

It's worth noting here that increases in raw materials have remained manageable given the diversity of the materials, we buy in multiple regions in which we consume those materials combined with a strong commercial capabilities that we've built for over a decade as part of the Amcor way.

The business also continues to extract the financial and strategic benefits from the Bemis acquisition, which.

Which is covered on slide 14.

We acquired a high quality well investing business.

Which has delivered consistent earnings growth since the date of the acquisition.

In terms of cost synergies our teams have done a great job on delivering benefits from overhead reduction procurement and by optimizing our footprint.

Year to date, we've delivered $55 million of benefits and we continue to expect this will increase to approximately $70 million for the full year.

At the end of fiscal 2021 cumulative benefits will have reached $150 million and we expect to deliver at least $190 million on total cost synergies by the end of fiscal 2010.

It's also exciting to see examples of collaboration across right across the regions as we leverage our capabilities and differentiated product offering to support customer growth.

For instance, how business in China, Australia, and Brazil have all secured differentiated packaging from propane in pet food applications from other amcor regions across the globe.

There are many examples like these and more on the pipeline to come through.

Turning to rigid packaging on slide 15 in summary, the business has continued to deliver outstanding results driven by strong consumer demand.

Sales growth included a 4% increase in volume as well as a 3% price mix benefit, including higher pricing to recover cost inflation in Latin America.

In North America year to date beverage volumes of 7% higher than last year and hot fill container volumes are up 13%.

We have seen another quarter of strong consumer demand for PT packaged beverages, particularly in hartsville categories, including juice ready to drink tea and sports drinks.

This strong demand is fill capacity across our network and from and reflects higher consumer demand.

<unk> brand extensions and new product launches and formats.

Year to date, especially container volumes were higher than the prior period with growth in certain categories, including experienced personal care and home planning and.

And volumes in Latin America were also 2% higher than last year with growth delivered in Brazil Central America on Argentina.

The EBIT growth of 9%, 9% reflects higher volumes and favorable mix across the business.

Alrighty interruption, Mr. Mendoza line disconnected.

I don't know if its disconnected operator, just give us a second <unk>, if we can get him back on.

Okay.

Okay.

Okay.

Yeah.

Operator, I'll pick it up from here its Ron I'll, just pick up from where Michael left off Michael was just summarizing the rigid container storage rigid packaging segment, sorry about that for those on the line.

He was just updating on the specialty container volumes, which were higher than the prior period.

With growth in a number of categories.

And then volumes in Latin America, 2% higher than last year with growth, particularly in Brazil, Central America, and Argentina EBIT growth in the segment of 9% reflects that higher volume and favorable mix across the business, partially offset by higher labor costs and.

On transportation costs as well.

Rigid containers has rapidly become.

It's rapidly become evident the preference for rigid containers, given their recyclability lightweight receive ability and hygiene profile as well as having the lowest carbon footprint and the business has continued to benefit from these trends we've doubled the use of PCR post consumer recycled resin over to over the last two years, even while navigating.

The pandemic and we continue to launch new products made up a 100% PCR in fact today almost all of our sites in North America are converting PCR along with Virgin resin.

We move on to slide 16.

Adjusted free cash flow of $360 million was in line with prior year. However, this includes approximately $50 million of U S cash tax payments deferred under the cares Act and the Q4 of FY 'twenty, excluding that timing variance adjusted free cash flow was approximately 10% higher than last year and is in line with our expectations.

Our financial profile solid Leverages at three times on a trailing 12 month EBITDA basis, and this is lower than last year and in line with what we'd expect at the end of the March quarter, given the seasonality of the cash flows on the business.

So with strong annual cash flow on a strong balance sheet as.

The business has significant capacity to invest as well as to return a substantial amount of cash to shareholders. As we have this year already.

Through a growing dividend and further share repurchases and in fact, the nine months. So far this year, we've returned over $850 million to shareholders.

Turning to slide 17, which is the outlook slide.

Youll find the latest view here, which is a revised or an increased outlook for the year. The continued strong performance of the business and the organic momentum has been building that has been building gives us the confidence to raise our 2021 full year guidance when.

And we expect constant currency EPS growth of 14% to 15% for the full year, which is comparable comparable two on higher than the 10% to 14% guidance provided in February and includes an unfavorable EPS impact from business businesses. We've disposed of over the last 12 months of approximately 1% so to be clear.

Constant currency EPS growth for this year would have been 15% to 16% had the disposals not occurred in terms of cash flow. We continue to expect adjusted free cash flow between 1 billion on $1 1 billion U S dollars.

In closing today on slide 18, Amcor has delivered a strong result ahead of expectations and organic momentum has continued this has translated into higher expectations for the full year and we've raised our outlook for fiscal 'twenty one.

We're actively investing in the future on these investments along with strong execution will enable continued momentum and reinforce our belief that the amcor investment case has never been stronger.

Operator with that we will finish our we finish our opening remarks, and we're happy to open the line for questions.

Thank you.

So just as a reminder, in order to ask a question on each press star one on your telephone keypad. If you wish to withdraw your question Pankey and in the interest of time, we'd like to remind participants to limit their questions to two and then rejoin the queue for any follow ups.

Our first question will come from George Staphos of Bank of America. Please go ahead.

Hi, Thanks for taking my question how are you on.

George on all the details.

Two questions both really around volume I guess first off it seems like every week, we get another press release from Amcor. This is a high class problem in terms of another new product is there a way you could give us some form of a vitality index for some <unk>.

Approximation, how much of your sales right now where volumes are coming from product set you hadn't.

Created produced two years ago, three years ago, whatever timeframe you want to you. That's question number one on question number two recognizing you prefer to look at things on a year to date based on yearly basis. When we do some reverse engineering of the press releases it looks this quarter versus last quarter it looks like flexible.

Saw a little bit of a slowdown volume would have been flat to slightly down can you give us some perspective in terms of what was happening in the third quarter.

Yes.

By market and some key products. Thank you.

Yes, good questions George look on the volatility index. It is not a measure that we use pervasive we inside the company I mean, I think what we're really focused on is launching products that are commercialized commercialize a bowl and won't have take up in the market and then tracking the sales of each of those none of which are immaterial.

The material to the group.

Per day, but we think it's important to continue to demonstrate the vitality of our innovation pipeline.

Because ultimately that will contribute to the positive mix and the positive margin.

That we want to drive in the business and so the ultimate vitality index for US is the margin expansion that we've generated period after period after period for well over 10 years now thats the vitality index because what it says is that each new product that we sell today is a higher margin.

Product than the unit, it's replacing from from from prior periods. So that's maybe the round.

Roundabout way of answering your first question.

On Q3, we'll talk about.

Talk about Q3, I mean, we do tend to focus on the full year to try to Orient to the conversations in the longer term.

But that being said the third quarter was our strongest quarter of the year.

On a number of dimensions, we had.

Increasing organic momentum.

Profit momentum across both rigid and flexible.

And we're really pleased with the execution because the environment in the third quarter fiscal third quarter for us from an operating perspective was.

Probably as difficult as its been so far this year.

As it relates to the sales side of things.

Yes, I mean look I think these businesses, both rigid and flexible will generate low single digit growth over the long term I think that's roughly where we've been where we went through six months, that's likely where we'll be at the end.

Of the fiscal year. The 90 day period that was Q3 was a little bit softer and flexible as particularly because of the weakness the ongoing weakness in the medical device packaging and pharmaceutical packaging.

But.

More or less consistent with our long term trends in both businesses for this fiscal year at sort of low single digits.

Okay. Thank you.

Our next question will come from Ghansham Panjabi of Baird. Please go ahead.

Thank you Hi, Ron Hi, everybody.

I guess, Ron just kind of following up on George's question in terms of.

The cadence of volumes as we look ahead.

Yes, so on CPG companies as they reported have talked about an abrupt sort of shift in terms of volumes as you cycled through a tougher comps from a year ago.

Mobility in certain parts of the World is starting to increase in North America. For example, so can you just sort of give us a real time pulse as to what Youre seeing so far in your <unk> and then how exactly you expect volume to sort of evolve over the next two to three quarters.

Yeah. Good question I mean last year at this time, we would have been describing pretty much a neutral impact from COVID-19 and that carried through then for the fourth quarter of FY 'twenty and that's pretty much been our experience and thats because of the geographic diversity of the business last year. Our Q3 would have seen a real strong negative impact in Asia, particularly in.

Which is a business that generates a lot of growth for us.

And we would have seen softness in other parts of the business compensating for some of the better sales.

In North America in the month of March last year as an example, the net.

Net of all that last year wasn't really much and so as we think about cycling comps this year, including the results that we're reporting today, there's really not much in it in terms of variation period to period related to COVID-19.

Debt perspective, I would offer looking forward as well our Q4 as I said to respond to George's question. It will be back at the end of this fiscal year and will be in the low single digits, which is where we would expect to be on any given year.

So there's not it's not the.

On the Sexiest answer I could give you, but it's the reality of the diversified portfolio that we're operating on.

Understood and then from my second question on on Raw materials. Your favorite question I'm sure.

Yes.

The reflation dynamics that we saw on the U S coming into this year and then winter storm Youri, just give us a sense as to how you're navigating.

Pricing in context of just significant cost inflation on the resin side, plus logistics et cetera, and what's different if anything post BMS in terms of how your how your commercial guys are.

Tackling higher cost inflation, yes, it's a good question.

<unk>, it's obviously a topic.

Topic this period.

First thing I would say as debt.

This isn't new.

Commodity cycles that we experience every few years.

We look back over the last 10 years or so it's probably the maybe the third or fourth real pronounced spike that we've seen in our input costs.

And so it's not new it's something you deal with periodically.

And the way, we navigated with lots of rigor and lots of precision and I would say that that rigor in that precision improves every time, we go through one of these cycles.

And I think whether it's the shortening the pass through lags on contracts, whether it's expanding the coverage of the materials that are subject to rise and fall mechanisms.

And like I, just think we get better at it with each year.

And I can go back to each of those cyclical peaks over the last decade, and kind of point to things that we've learned in that we've added to the toolkit. So that the next time the <unk>.

Appearance is less impactful on I think that's what we're seeing now we're not really obviously, we're wearing a headwind like everyone else, but it's not material enough to.

On to distort the results and it's certainly not holding back our expectations for the fiscal year.

With Bemis.

On may be bemis as a segue into another dimension to this question, which is the diversification of our spend.

Which only got further enhanced our further diversified with the Bemis acquisition. So.

Obviously, if we take the two business segments, you've got rigid packaging, which is largely <unk> base.

Which operates on a much tighter lag it's an easier administrative process. If you will because it's really primarily one material. So when we talk about lags amcor is businesses primarily in flexible.

And in flexible it is also important to remember that about.

60% or maybe I'll say it the other way about 40% of what we buy in the flexible segment is not polymer base. It's.

It's aluminum it's fiber and it's other things so the spend from a commodity perspective is pretty well diversified.

And then particularly in polymers. This is the other 60% that's really split it's split across four geographic regions and it's split across grades.

And so the netting of that the portfolio effect of that.

Again with the addition of Bemis, which is 4 billion out of the $9 billion of sales in that segment just creates more of a portfolio of factor a day.

<unk> are leveling effect where more.

So to summarize it we're better at this and we are on our portfolio.

<unk> is better positioned to win.

Withstand these kind of cyclical spikes.

Perfect. Thanks, Ron.

Yes. Your next question will come from Richard Johnson with Jefferies. Please go ahead.

Thank you very much Ron sorry, just to continue on with the Youll common share on raw material price lags I'm just trying to understand.

Properly what the impact of what the lag is when you think about what the impact on your revenue line as being of lateral material prices and it's the same for the group as it is with flexible I mean, that's.

The negative for any rights through 'twenty and into 'twenty one.

If you assume that mainly old raw materials ready 10, solid 10 backup midway through last year. It looks like the impact on your revenue line continued to be negative for non says a months.

On the needs of that simple low how should we think about the lag.

Look I think the way to think about the lag is that in flexible it's roughly a quarter.

Theres, probably an average in there thats somewhere between three and four months, but it's close to close enough.

And that Hasnt really changed over time, I think with the addition of the Bemis portfolio.

That part of the equation Hasnt really changed much I think we have to remember there were times over the last.

912 months I think it was a period you referenced where raw materials also went down in some parts of the world.

And so I wouldn't read too much into the I would think it would be very difficult to bridge back.

Commodity charts with the raw material impact on the revenue line.

Which is why we should've, we just break it out for you on our measure of organic sales growth excludes the impact positive or negative.

Commodity prices.

Yes, absolutely, thank Amit, but thats, obviously being negative for quite some time now anyway. So thats helpful. Thank you and then just secondly.

On sustainability incident in your view on what's going on in France at the moment on obviously day.

Single use plastic legislation passed to be total other nights.

And I'm, particularly interested around what they are thinking about doing and see the market is compulsory refill stations in that line company is that something we should be worried about longer term.

No look I mean, I think consumer consciousness is rising everywhere and that's a good thing because ultimately we need the consumer to participate and.

In countries like France, and others in Europe debt have various forms of legislation.

In place.

All of that is supportive to the infrastructure funding that is required whether it's comp posting infrastructure recycling infrastructure et cetera. So.

None of that is necessarily a bad thing I think on the reusable side of things.

I'm not sure that's an amcor issue per se is particularly in France, but the consumer behavioral shift required for reuse at scale.

It's just not something we've seen anywhere in the world yet it doesn't mean it won't happen, but I think that's a big ask of the consumer at this stage.

Quite frankly, when we're trying to get them to recycle or compost.

Okay. That's very helpful. Thanks, I appreciate it.

Thanks.

Your next question will come from Anthony Pettinari of Citi. Please go ahead.

Good afternoon.

Ron when you first gave fiscal 'twenty, one guidance last year, I think you guided to 5% to 10% EPS growth in the 1% to $1 $1 billion on free cash flow and you've now raised EPS guide a couple of times I think youre basically double the original guide at the midpoint in terms of EPS growth.

On the free cash flow is still that sort of one to $1 1 billion and.

I understand it's not a huge delta, but is there any kind of like working capital impact from resin that maybe you get back in fiscal 'twenty, two or is there something on the Capex side. Just wondering how we should think about you being maybe at the low end or the high end of that free cash flow guidance, yes, and Thats a good. It's a good question Michael is actually back so we'll let him talk.

On that one.

Yes, Hi can you hear me day Yep.

Yes.

Yes perfect.

Yes.

Quite right. The guidance has increased during the year and we still talking about a cash flow range of one to $1 1 billion.

We think we will be at the upper end of that range, but that said clearly from the raw material escalation will have some impact on.

On working capital as we as we just cycle through those price increases and get the matching to the marketplace.

So really thats. The reason why we're sticking with the one one.

One to one one.

It's basically that.

At point in time as I said, we think we can get to the upper end debt.

Let's wait and see what happens with any further raw material movements, but that's really the debt are.

The simple answer.

Okay. Okay. That's helpful.

And then you saw strong rigid volumes in the quarter I think got sold volumes were up double digits and I think you indicated on the flexible side for next quarter, there wasn't necessarily much in the way of a big COVID-19 benefit when we look at the year over year comp if I got that right does that also apply to <unk>.

Just as.

As the U S economy reopens, how should we think about the positives and negatives for rigid on kind of a.

Year over year comp basis.

Yes look I think you are.

Youre right to call it the trends.

Business Hasnt had much of an impact I mean, I know we've sort of.

Sounded like a bit like a broken record on that point, because we don't have a whole lot of exposure to the foodservice side the place where we have a little bit of exposure is the convenience channel in regions, where you saw some softer sales at times last year.

The offset to that has been the health care segment.

The two just about net and so.

Again, I think somebody else asked the question earlier and I made the comment on as far as trying to find a comp on whether it's a negative or a positive there's just not a whole lot in it.

For us so I think youre going to see.

Volume growth at the end of the year, that's consistent with our long term averages revenue, obviously, a pretty good year on Richards with positive mix on the hospital side.

But that's really driven by just the consumer demand in some other heartfelt sport drink juice and tea segments more than anything else.

Okay. That's helpful I'll turn it over.

Thanks.

Our next question will come from Salvator Tiano.

Seaports. Please go ahead.

Yes, hi.

Thanks for taking my questions.

Firstly I wanted to see a little bit.

Fiscal 2022, starting in less than two months from now.

How should we think about the earnings grades some big key items key baskets for EBITDA and I know you have additional <unk> synergies, there's going to be accretion from buybacks, but any other things we should consider as we look into next fiscal year.

Look actually I think you've described the main elements in the bridge I think.

There's no secret here, we pretty much laid out there each quarter the business will generate organic growth kind of mid single digits, 3% to 4% I think as you've heard us say a few times the momentum organically in the business has accelerated actually this year. So.

You can make your own assumption around that piece the bemis synergies, we're saying we're going to end up this year.

At about $70 million, we got last we had $8 million last year.

And we're on track to get at least 180. So you can make your on assumption about what the increment might be next year.

And then we repurchase shares this year, which will which will add to.

The base for next year and then the other thing that.

We don't want we want to make sure people don't lose sight of is this business will generate a lot of cash and will generate well over $1 billion of cash again next year.

Which will result in $3 million to $400 million left.

Leftover after capex and after dividends.

And we will do something with that and that's been our track record we've been active acquirers over the years and we've also been active share repurchases over the years and so you should assume that.

Some productive use for the benefit of shareholders.

We'll come out of that extra cash.

Perfect.

Touching base exactly on pork.

Thanks from opportunities for admin may what are you seeing on the pipeline what's your view on.

On the multiples out there any specific areas that youre targeting and I guess on the reverse side.

I think we after beams, especially people are spending less and less time, focusing on your folding carton business.

Does this continue to seats into your strategy going forward.

Yeah, well, let me answer the first part and then I'll come back to folding cartons.

We're going to be active acquirers, there's no question about it and we've done about 30 deals over the last 10 years and I hope, we do at least that number.

Number over the next 10 years.

That'll be part of our playbook. This is an industry, where even despite leadership positions across our portfolio, there's still lots of bolt on opportunities across flexible oleds.

And and in rigid and then there are some areas that we'd like to double down on or that represent bigger opportunities for us I mean, obviously flexible is in Asia.

We have a business thats.

Well over $1 billion on sales, but the market opportunity is enormous so hopefully we can supplement our growth there with M&A.

As one example, probably another one would be.

On the rigid packaging space outside of beverage.

We've got a big business growing.

Well organically, but can we can we supplement that with further M&A. We certainly hope so so those would be a couple of examples but there's there's bolt on opportunities across the board and.

And we really hope to be active.

Look on folding cartons.

It's a business that's about 8% of sales and amcor.

The industry leader in what it does because it's a very specialized.

Type of folding carton.

Hi, graphic intensity.

And.

Shapes and tactile features as well so it's sort of at the high end, it's not cereal boxes per se.

It's a high margin business that generates a lot of cash.

And it's pretty core to our flexible parameter because it's essentially a printing and converting business.

Industrially it looks exactly like our flexible businesses in fact, some of the equipment is actually the same.

It's every bit as quarters everything else and it's got a great financial profile, It's obviously got a.

Different top line.

Profile than the rest of the company, but from from a return on capital on cash perspective its.

It's about as good as it gets.

Perfect. Thank you very much.

And your next question will come from Adam Samuelson of Goldman Sachs. Please go ahead.

Yes. Thanks.

Good afternoon, and good morning, everyone.

Hi, there on them.

Hi, so.

I guess first question just thinking about.

Kind of business trajectory.

So hoping you can maybe give us a bit of a split.

By geography in terms of what regions, especially EM versus developed markets.

Especially you talked about some of the volume kind of weakness in healthcare.

Any sense on kind of as we.

When comps when do comps use their visibility to business activity kind of picking up especially in the U S. We're getting past the worst of covenant schemes.

Well look healthcare is a good long term grower I mean, thats a business that would have been disproportionately accretive to growth for a long period of time and its a medical device business and it's a pharmaceutical business in both of those have fantastic financial characteristics, including growth in excess of more traditional FMC G growth.

That will come back there is no question about that and I think we're seeing signs of life.

In the developed markets in particular, which are the hardest hit through COVID-19. So we operate that business globally.

And in particular, it's big in Europe, and North America, as you'd expect and those are the areas where the.

COVID-19 impacts the reduced elective surgeries to lower prescription rates at a particular bite. So thats, obviously I think we're coming out the other end of that.

And hopefully over the next couple of quarters, we start to see that normalized our normalized in that sense means it's accretive to growth.

That's been the big impact really the rest of it as is.

The rest of the portfolio will continue to grow low single digits.

On the comp issue is sort of less meaningful.

Everywhere else in the company, except for the negative impacts from.

From the health care dynamics vintages, just referred to.

Okay. That's helpful and then just to follow up on.

On the <unk> acquisition.

We got the framing of it was different than you called it a corporate venture investment but.

But can you talk about kind of what your plans are.

For that business and is it is there a real opportunity to gain some penetration with faster growing small and medium sized customers that you struggle to reach today.

Yes, well look I think.

The framing is intentional so I'll talk about <unk> in a second but the key point to take away here is that we're going to be much more purposeful on systematic and tapping into external ideas.

Of all types, we believe and we have.

Fiction that we have differentiated R&D capabilities in the company.

But we're not naive enough to think we've got all the great ideas out there so.

That's really the headline messages that we're open for business. If there is a great idea that somebody wants to help.

<unk> <unk>.

Developing on want to come talk to us about.

APAC is a corporate venturing type investments on minority stake in a business that is essentially a start up it's about a four year old business.

Fantastic business really exciting it's.

It's a flexible packaging business in essence.

And it's gone really from zero to about $100 million on sales in four years.

It's got about.

About 15 sites most of them are in the U S. I think there's a couple of outside the U S.

And we're really excited to learn from it quite frankly, so the first objective is to learn.

On.

And kind of leave it alone.

And what we hope to learn is in a few areas. One is the commercial approach, which.

As you point out is geared towards smaller enterprises in it and it Leverages short runs quick turnarounds.

And also high quality.

So there is a commercial learning opportunity for Amcor, I think industrially the businesses enabled by digital printing and some other.

Kind of neat industrial.

Aspects inside the four walls of our plants, which which are also.

Interesting to us.

And then the third thing honestly is how does the business grow.

From zero to $100 million in four years.

And I think there is a hell of a lot we can learn like any big company.

From a startup and how that happens from a managerial and organizational perspective as well. So we're going to leave it alone a little bit Adam in the first instance, not a little bit we're going to leave it alone and we're going to watch and listen and learn.

And then watch this space I think youll see.

<unk>.

Manifestations of those learnings benefit amcor for many years to come.

Okay I appreciate that color I'll pass it on thank you.

Thanks.

Your next question will come from Larry Larry.

<unk> of credit Suisse. Please go ahead.

Sure.

Hey, Brian Hey, Michael.

I also had a question on about APAC in raw materials somebody's will continue to APAC conversation.

If you were to $100 million in sales in four years.

As you say incredible.

Or does it say about the size of that market can you give us some color about how big that small customer market is.

And.

Really what the opportunity is.

Well look I think it says that it's pretty damn big I don't know that wed even size. It I think it's.

That's primarily a U S figure that I gave you.

So you can compound that when you think about the other parts of the world. So look I think it's really big.

What I don't know at this stage is just.

Of that of that bridge from zero to 100, how much of that is.

New business with new customers of that type versus how much of it is the growth of those customers as they continue to outgrow that.

Big multinational FMC G players, but both are important.

But direct answer to your question, Larry I'm not sure we could really size it per se.

Okay, Let me ask a different way when you look at APAC.

And do you have any similar customers or is it a completely different market than where bemis and amcor is hitting in the U S.

Well, we certainly have customers like that in the rigid space.

In some respects you've heard us talk about our original regional business unit in some respects we yes.

Our own version of APAC about five or six years ago on Richards.

For exactly that purpose.

Look in flexible I would say I'm sure we have customers of that type, but I'm not sure we've been I'll, let purposeful and systematic about attacking that part of the market and Thats, where the real opportunity comes from.

Yeah.

Okay.

And then on raw materials Ron.

You described the situation is manageable.

As I talk to investors and characterize amcor talk about it is safety quality the amcor way.

When it comes to managing raw materials.

I know pass through is one of your mechanisms and that also characterizes amcor, but.

Can you.

Give us some anecdotes about amcor is raw material procurement I remember, perhaps in the last or two resin spikes ago.

Thank amcor was bringing raising into the U S from Asia, and a unique fashion, which others. We're not doing so maybe you can call out some anecdotes on how you are beating the high raw material costs through procurement.

Raw material management.

Yeah.

I will but let me just make one thing really clear like the convention and the industry is that the raw material fluctuations are pass through to the marketplace.

And so this is really the conversation about the lag or the P&L impact of changes in raw material prices is really about the commercial side of the business and the commercial capabilities of first of all measuring what those changes are and then executing price increases.

To recover those costs so thats.

<unk>.

It's the absolute key key point here and.

And I think we have I think a pretty special approach to doing that.

Which goes all the way back firstly to understanding the profit of each order and each customer in each product.

Can talk more about that but that is the commercial side on the procurement side.

Which treat as a slightly different different dimension.

I think our procurement capabilities have evolved over the years I think as we've gotten bigger we've added we've added people. We've added expertise we've added it systems.

Our buy is broad I think the fact that we're now a bigger buyer in the U S gives us visibility into the dynamics in this market that may be we always had in Europe.

It didn't have as well in the U S.

As regional is.

The market can be at times it absolutely has elements of <unk>.

Global market as well.

So I think all those things contribute.

Okay.

Thanks, Ron.

Thanks, Larry.

Your next question will come from Mark Wilde of Bank of Montreal. Please go ahead.

Good afternoon.

More on Ron.

Sure.

Okay.

I wonder.

Are you moving drawn and growth more conversations with your customers about automation and automation of our debt.

Marking process as part of for profit.

Yeah, I mean look there's automation has always been important and it's always been important from a productivity perspective, I think for obvious reasons in terms of labor cost reductions.

So thats always been there I think what's what's added.

What's been accretive to that discussion now is the hygiene factor right and obviously meat meat packing gets a lot of attention. There are other segments as well, where you've got a lot of people on a confined space.

And that creates a health risk because none of us depreciated 12 months ago. So the short answer is absolutely.

And we think we have some unique product offerings that will help support that over over over the journey.

Yes, just remember about four five years ago Bemis growth.

And with a flat film technology, we use them on.

Impressed me would replace on a crew followed bogs with debt will be stopped ammonia later, you couldnt pickup per yes.

Yes.

We're on it I mean thats the differentiation of our it there's two ways to pack fresh meat really simply stated there is a film.

On a continuous process.

Using film and then Theres bags in.

Obviously, it's a bit more labor intensive so.

We think we have some good products to offer on both but our foam technology we would.

Put up there with anybody's so yes, we would expect to see an acceleration in net in that space.

Okay, and then just as appalling newmont from the youth.

People who are on.

A number of your North American review convertible that's correct per.

What percent of the moat.

Post consumer would be at this point for you on North America, Yeah, I'm glad you asked because we're pretty excited about this I mean, it's almost.

Becoming pervasive so we're going to exit this year in North America, converting about 10% of our resin is post consumer recycled material. So 10% of what we convert in North America will be Pcr.

In terms of absolute pounds, that's a doubling of the amount of pounds, we were converting two years ago and thats. Despite the pandemic and the pandemic has actually slowed down on that trajectory.

We probably would be at a higher level than 10% had it not been for some of the disruptions in the supply chain from from the pandemic.

And it's also pretty exciting net many of the new Skus that we launch and we've got a lot of new product.

Examples scattered throughout our materials today, many of them are made with 100% Pcr.

And it's almost like.

Electronic vehicles is to some extent.

On launching a lot of new products and PT that arent leveraging Pcr.

To some extent and many of them on 100% of PCR.

So I think what youre seeing your rate kind of where we're in the middle of a.

Migration to a different industry convention, which says there is no reason you can't continue to reuse this material over and over and over again.

Is the supply.

The limiter or growth.

On the.

With similar growth companies crowd.

It's a little bit of both I think right now we're adequately supplied and I would say the market is creating.

On the right level of demand, we all project out at some point in the near to medium term, where we could have a supply constraint, but that's absent.

Other factors that will increase supply things like deposit legislation.

Expanding beyond 10 states in the U S.

Things like consumer education.

You may have seen the every bottle back campaign that.

On a number of the beverage companies are co sponsoring so absent big increases in supply we could be tightened. The next couple of years I do think there will be big increases in supply. However, so I think this trend will continue I think it will accelerate quite frankly, I think we get through the pandemic.

Any concerns around hygiene.

Any any cessation of collection schemes will land and we'll start collecting again I think that 10% number that we're going to end the share out it will be much higher 12 months 24 months from now.

Okay. That's really helpful on our bank group.

Thanks Mark.

Our next question will come from Brook Campbell Crawford with Jpmorgan. Please go ahead.

Okay.

Yes. Good morning, Thanks, Dan brought on Michael just had a couple of follow up questions on on the corporate venture.

<unk> side of things just wondering.

Need consider pre committing in dollar on that too and then channel fund of some sort or is it just really opportunistic investing sort of may and at the head office level. That's the first question.

Then the follow up would be what would you consider investing in and raw material processing or recycling assets.

On that side of things is sort of evolving technologies on the raw material side.

Yes, two good questions.

Discussions that are always ongoing ensign amcor on the corporate venturing outside.

We are getting more systematic as I said part of that is including a couple of SaaS, who will be full time focused on this whether or not we're going to communicate a number remains to be seen we probably will allocate a certain portion of capital every year towards investments of that type, but it won't be material I can tell you that in the <unk>.

And scheme of.

On the capital budget that we have each year or the free cash flow that the business generates but we.

We think a purposeful amount of investing on a regular basis will help.

Help us make sure that we're tapped into the best ideas out there. So I would say watch this space on this one.

And there'll be more to be.

More to be said on this topic.

On the investments in the recycling part of the value chain.

Look never say never.

Prefer not to put big licks of capital into parts of the value chain that are not necessarily.

Areas, we can be differentiated and unique in.

We would prefer to be a demand catalyst and a source of demand for others, who might put their capital in those spaces, because it's more in line with what they do.

And then the other way that we hope to influence infrastructure development is through some of the collaborations and partnerships.

Debt, we've entered into and we announced recently that we signed up with this alliance to end plastic waste, which is not a new entity, but one that we stayed close to for a couple of years and are really encouraged by the progress that that group's making particularly on the waste management side. So we're hopeful that we can influence that part of the responsible packaging equation without alley.

<unk> substantial amounts of capital.

Understood. Thank you click on for Michael just on the corporate cost line.

On a non market about 18 million increase in corporate costs, if we sort of put synergies to one side.

It will just provide a few examples of what.

We are on the step up there and is any of it one off in nature. So that we might see it unwind in FY 'twenty two.

Basically the corporate cost increases 8 million year to date Kennington, you say, there's puts and takes against that but if we just think about that half of the $8 million FX. So we have unfavorable FX in that and we've talked about some insurance claims higher insurance claims that we've had in insurance costs that we've had.

Year to date, so they related to key key areas behind the increase.

As we look forward.

I'd say that that's probably going to roll through the year end and thats going to be about the increase versus prior year at.

At year end, so really thats, a you are not seeing any.

Major movements in.

In the cost.

Albeit we are investing in things like sustainability.

On the innovation in those areas. So we'll continue investing in that space.

As well.

Yes.

Understood. Thanks.

Our next question will come from Keith Chau with MST Marquee. Please go ahead.

Oh, hi, there on a muscle.

This is on one just following up on items question previously on raw materials.

I think in the disclosure you talked about.

And on the favorable impact on revenues in the non mortgage but certainly.

Raw material prices I think interest in the impact on sales should be favorable within the third quarter from 521. So just wondering if you could narrow it down.

Just to give us the sales of without raw materials.

Contribute favorably to sales there and whether there was indeed, an impact or not.

In the third quarter and with as we look into the fourth quarter of fiscal year 'twenty one.

In the initial quarters into next financial year, when the day will be any impact from raw materials.

I mean <unk>.

Short answer is yes, so in the third quarter.

In the flexible segment Youll see a positive impact from raws and I would suspect that will be the case in the fourth quarter as well.

Any guesses as to what the magnitude could be or not material enough to be concerned about not material enough to be concerned about because also as we report the numbers. We are always referring in the first instance to organic sales.

And so we're stripping out that impact, but I'm answering your question directly and there will be a positive impact from in reported sales from passing through higher raw material costs.

Okay. Thanks, Ron and then the thing I'm on it seems like the business is becoming significantly more comfortable with debate on its assets.

Sydney.

And upgrade coming changes synergies, if not today being a soft upgrade instantly share that.

In the future can you give us a sense of whether that will be driven share the cost line or whether you're starting to see some revenue revenue synergies start to come on stream for things.

Yes, Michael Mike just comment on the cost side and on I will talk about the commercial benefits.

Yes look so on the on the cost side as I said, we feel we feel really good about where we are I mean, the integration has gone exceptionally well.

We've been able to generate the synergies from the from the G&A side from the <unk> and more recently, we're starting to get impact on the footprint side.

And as Ron commented on earlier, we got $80 million last year, we were at $55 million year to date. This year and we will we will end up.

Approximately 70% by year end, so as we exit the year.

Captured $150 million.

And we will be at.

At least able to capture the 190 and we've got clear line of sight.

Around the projects that are still to come to.

To deliver that extra extra synergy benefit next year.

As we get more and more through the timeframe, we feel increasingly confident around that delivery. So we're right on track.

So deliberately to 190.

Yes, and then just briefly on the on the on the commercial side I would say more broadly I mean, I think there's examples.

Of product transfers go on in both directions.

We've called out a few examples I wouldn't describe them as material yet, but we've got some products going from.

The North American business into a and Z I think we've got an example on big of cheese.

Individual reps places that's a good example of leveraging our structure from the U S.

Legacy Bemis business into a and said we've got some examples going the other way from our New Zealand dairy film business going.

Going to the U S market.

So I think youll see more and more of that.

It's really interesting and complementary mix of segment participation that the businesses have had historically if I look at North America, the big positions in protein.

Hard cheese processed cheese.

That we acquired.

Absolutely additive for our our portfolio in Europe, and then the pet food and coffee positions that we've had in Europe, historically are completely new and additive to the.

The Bemis, but legacy Bemis platform in North America. So I think we will see more and more of that I think are way to probably described that will be through examples.

As much as anything else.

But I think we're starting to see it already.

Great. Thanks very much.

Yeah.

Our next question will come from Kyle White from Deutsche Bank. Please go ahead.

Hey, Thanks for taking the question.

On the the severe weather this quarter was there any meaningful impact to earnings from this event.

Outside of the raw material inflation that you saw.

Yes, I mean, I wouldn't say material, but definitely impacts I mean, we like everyone else, we're struggling to get raw materials at times.

Some of the businesses that are.

Most dependent on specific materials that are specific.

Plastic.

Plants were a bit constrained.

So we had all of that and more I mean is it really difficult quarter, which is why we're particularly proud that it was our best profit quarter of the year.

Not to mention the fact that in certain parts of the world we're dealing with.

<unk> impacts from COVID-19 on Latin America, India, the businesses are wearing extra costs.

And certainly extra complexity and management time and attention to keep everybody healthy so.

We're not calling anything out as material and Carl but Theres no question that the business had a headwind in the quarter from all those exogenous factors.

Yes. Thank you I know, it's a bit early but given the Greenfield plant you reference on slide eight in China should we anticipate an uptick in Capex next year or will it be kind of similar to this year's level.

Alright. Thank you have on kind of look I think.

We typically would spend three and a half 4% of sales on Capex.

Last year.

The first year after an acquisition like <unk> was a little lower than that said we are around the 400 million Mark I think this year.

Slide 20 will finish the year, probably about 10% higher than that as we look forward. We can manage these investments <unk> done on the full.

We may now Capex spend and you should expect that the capex is going to be somewhere around $3 five 4% of sales, so probably getting closer to $500 million as we as we move forward.

Yeah.

Really pleased with these types of investments because they generate growth and they get good returns.

And.

That really help us support our customer base as well so.

We are quite pleased to be able to investing these.

These activities.

Sounds good thank you.

Our next question on come from John per <unk> of Macquarie. Please go ahead.

I'll get I run on Michael sorry.

Sorry, just another one on on raw materials, obviously popular same here, but when we go back to fiscal light chain I mean emerging markets seem to be in particular an area that.

We saw an extended lag of up to six months you seem to be flagging, a shorter lag. This time, so on how you sort of alluded to it but just trying to understand what dynamics have changed there.

Yeah, I mean, it's a good pickup John you've watched the company for a long time and there is as I said I alluded to in my answer earlier like.

We've improved we improve with each commodity spike and we improve not just when raws are going up but I think each year and so if I. If I contrast, whereas the company today with.

Where were we in 2018 when I also would have said.

Reasonably good at this I think debt.

The base capabilities are more pervasive around the company. So the Asian business, the Latin American business are closer in sophistication and maturity at passing through raw materials. They are almost indecipherable from the maybe the legacy European business that would be the key if I look back at the 2000.

<unk> cycle that would be the key.

Legacy of that if I go back to them on before we got much more sophisticated about aluminum windows spike.

In aluminum occurred in 2011 and 12, so each of them.

Each each opportunity for learning has capitalized on and I think our capabilities are just continuing to evolve.

Thank you and just a final one with St large increases in <unk>, and <unk> and solvents prices.

Is the pass through lag.

Posture and recovery mechanisms similar erosion.

Yes, yes. The short answer is yes, I think that we have good contractual coverage for contracted customers, we absolutely have coverage over those those commodities.

And in the pass through mechanisms function for all intensive purposes, the same way.

Thank you.

Okay. Thanks.

Your next question will come from Nathan Reilly of UBS. Please go ahead.

Hey, Ron.

Question coming through on plant capacity utilization can you give us a bit of non op guidance on where you are on those factors at the moment.

Notwithstanding that you flagged some growth opportunities, but are there any areas around the network, where you might be a touch constrained now there are some opportunities to grow with customers on some of those areas.

Yes look it's a very good question.

One standout area is in the hot fill space.

Containers in North America, I think without question.

On network is maxed out.

Yes.

It's a segment that has grown steadily over five or six year period at about about 3% a year.

But obviously has had a has had a much better run over the last several quarters and so without question that part of.

Our footprint is capacity constrained at the moment now that won't last forever, obviously will.

We will put the capacity in place necessary to capitalize on that on that growth, but thats. The one that stands out other than that.

On the supply demand balance is manageable, but as Michael alluded to a couple of questions ago, We do hope to deploy some more capital and get back up towards that 4% of sales number to capitalize on the growth opportunities that we see.

Okay. Thank you.

Thanks to all the time, we have for questions today on that turn the call back over to the presenters for closing remarks.

Okay. Thank you operator and thanks.

Everyone for joining the call today for your interest in Amcor and for your questions. We will close the call now thanks very much.

This concludes today's conference call. Thank you very much for joining you may now disconnect.

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