Q2 2022 Amcor PLC Earnings Call

[music].

Welcome My name is Anna and I will be your conference operator today at this time I would like to welcome everyone to the Amcor 2022 half year results conference call all.

Speaker 1: My name is Emma and I will be your conference operator today. At this time, I would like to welcome everyone to the AMCORE 2022 half-year results conference call.

Speaker 1: All lines have been placed on mute to prevent any background noise. After the speaker's remark, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again press the star one.

All lines have been placed on mute to prevent any background noise.

After the speaker's remark there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If he would like to withdraw your question again press the star one.

Speaker 1: Thank you. Tracy Whitehead, Head of Investor Relations. You may begin your conference.

[noise] Tracey Whitehead head of Investor Relations you May begin your conference.

Speaker 2: Thank you, operator, and welcome everyone to AMCORS First-Hast Earnings course of fiscal 2022. Joining the call today is Ron Delia, Chief Executive Officer and Michael Casamento, Chief Financial Officer. At this time, I'll direct you to our website, AMCOR.com, under the Investors section, where you'll find our press release and presentation, which will be discussed on the call today. We'll also discuss non- GAAP financial measures and related reconciliation can be found in the press release and presentation on our website.

Thank you operator, and welcome everyone to Amcor first half earnings call for fiscal 2022 joining the call today is Ron Delia Chief Executive Officer, and Michael Casamento, Chief Financial Officer at this time I'll direct you to our website amcor dot com under the investors section, where you'll find our press release.

Presentation, which will be discussed on the call. Today, we will also discuss non-GAAP financial measures and related reconciliations can be found in the press release and presentation on our website.

Speaker 2: Also a reminder that the call today includes some forward-looking statements which remain subject to certain risks and uncertainties.

However minded at the KOL today include some forward looking statements, which remains subject to certain risks and uncertainties.

Speaker 2: Please refer to AMCOR's SEC filings, including our statements on Form 10-K and 10-Q to review factors that could cause actual results to differ from what we are discussing today. During the question and answer session, once again, we request that participants limit their questions to a maximum of two and then rejoin the queue for any follow-ups. With that, I'll turn over to Ron.

Please refer to <unk> SEC filings included including his statements on Form 10-K , and 10-Q to review factors that could cause actual results to differ from what we are discussing today.

During the question and answer session. Once again, we request that participants limit their questions to a maximum of two and then rejoin the queue for any follow up with that I'll turn it over to Rob.

Speaker 3: Thanks, Tracy, and thanks, everyone, for joining Michael and myself today to discuss AMCORP's fiscal 2022 first half results. We'll begin with some prepared remarks before opening the line for Q&A, and we'll start with safety, which is where we start every meeting at AMCORP.

Thanks, Tracey and thanks, everyone for joining Michael and myself today to discuss <unk> fiscal 2022 first half results will begin with some prepared remarks before opening the line for Q&A I.

I will start with safety, which is where we start every meeting at amcor.

Speaker 3: It's the first and most important of our values, and keeping every one of our 46,000 employees around the world safe and healthy is our highest priority.

It's the first and most important of our values and keeping every one of our 46000 employees around the world safe and healthy as our highest priority.

Speaker 3: In the last six months, we reduced the number of injuries across the company by 10% compared to the prior year. And 58% of our sites have remained injury free for at least 12 months.

In the last six months, we reduced the number of injuries across the company by 10% compared to the prior year and 58% of our sites have remained injury free for at least 12 months.

Speaker 3: Our teams have continued to make good progress on safety, despite the complex environment, and we're proud of their focused dedication and performance. However, our ultimate goal is no injuries, so there's more for us to do.

Teams have continued to make good progress on safety. Despite the complex environment and we're proud of their focus dedication and performance. However, our ultimate goal is no injuries. So there's more for us to do.

Speaker 3: We have four key messages set out today on slide four for those following along with the webcast.

We have four key messages set out today on slide four for those following along with the webcast.

Speaker 3: First, we delivered a solid result through the first half and we can confidently reaffirm our full-year guidance. While we continue to navigate through the challenging and dynamic operating conditions affecting the entire industry, our teams are executing and performing exceptionally well.

First we delivered a solid result through the first half and we can confidently reaffirm our full year guidance, while we continue to navigate through the challenging and dynamic operating conditions affecting the entire industry. Our teams are executing and performing exceptionally well.

Speaker 3: We continue to prioritize our customers and our scale and operational agility have enabled us to service demand and drive growth in priority segments while also recovering higher input costs at the same time.

We continue to prioritize our customers and our scale and operational agility have enabled us to service demand and drive growth in priority segments. While also recovering higher input costs at the same time.

Speaker 3: We've also increased cash returns to shareholders, which is our second key message. We now expect to return more than $1.3 billion of cash in fiscal 2022 through dividends and share repurchase.

We've also increased cash returns to shareholders, which is our second key message. We now expect to return more than $1 $3 billion of cash in fiscal 2022 through dividends and share repurchases.

Speaker 3: Third, we've built a strong foundation over the last several years, and we're focused now on investing for long-term growth with an emphasis on priority segments and geographies and our innovation capabilities.

Third we've built a strong foundation over the last several years and we're focused now on investing for long term growth with an emphasis on priority segments and geographies and our innovation capabilities.

Speaker 3: And finally, for many years, we've made great progress against a broad range of sustainability goals.

And finally for many years, we've made great progress against a broad range of sustainability goals.

Speaker 3: And we're raising our ambitions again with a commitment to achieve net zero greenhouse gas emissions by 2050.

We're raising our ambitions again with a commitment to achieve net zero greenhouse gas emissions by 2050.

Speaker 3: Turning to the financial highlights on slide five, we delivered double-digit net sales growth, which includes approximately $650 million of price increases. We remain incredibly proud of our teams and in the tools and capabilities we've developed over many years that enable us to continue recovering increasing costs in an environment characterized by broader inflation than we've seen for some time.

Turning to the financial highlights on slide five.

We delivered double digit net sales growth, which includes approximately $650 million of price increases we remain incredibly proud of our teams and in the tools and capabilities. We've developed over many years that enable us to continue recovering increasing costs in an environment characterized by broader inflation that we've seen for some time.

Speaker 3: Excluding this pass-through impact, organic sales grew 2% on the back of higher volumes and favorable mix.

Excluding this pass through impact organic sales grew 2% on the back of higher volumes and favorable mix.

Speaker 3: Both segments and every geographic region contributed to organic sales growth and volume growth accelerated in the second quarter in both our flexibles and rigid packaging businesses.

Both segments in every geographic region contributed to organic sales growth and volume growth accelerated in the second quarter in both our flexible and rigid packaging businesses.

Speaker 3: a flexible segment at a particularly strong quarter, generating high single-digit earnings growth, and margins remain strong.

The flexible segment had a particularly strong quarter generating high single digit earnings growth and margins remained strong.

Speaker 3: In rigid packaging, our results for the half were in line with our expectations.

In rigid packaging our results for the half were in line with our expectations.

Speaker 3: The business continued to experience a particularly challenging environment in North America, which resulted in operating inefficiencies and higher costs, although we're encouraged by a number of favorable trends we've seen through the half and earnings improved as we exited the second quarter.

The business continued to experience, a particularly challenging environment in North America, which resulted in operating inefficiencies and higher cost. Although we are encouraged by a number of favorable trends, we've seen through the half and earnings improved as we exited the second quarter.

Speaker 3: EPS increase 9% for the half. Our financial profile remains strong and cash returns to shareholders are significantly higher.

EPS increased 9% for the half our financial profile remains strong and cash returns to shareholders are significantly higher.

Speaker 3: we've repurchased almost $300 million of shares in the first half, and we expect to repurchase a total of $600 million through fiscal 2022, which is $200 million higher than we anticipated last quarter.

We've repurchased almost $300 million of shares in the first half and we expect to repurchase a total of $600 million through fiscal 'twenty, 'twenty, two which is $200 million higher than we anticipated last quarter.

Speaker 3: Combined with dividends, this means we anticipate returning more than $1.3 billion of cash to shareholders for the fiscal 22 year. With that, I'll hand over to Michael for some further detail on the financial performance.

Combined with dividends. This means we anticipate returning more than $1 $3 billion of cash to shareholders for the fiscal 'twenty two year with that I'll hand over to Michael for some further detail on the financial performance.

Yes.

Speaker 4: Thanks Ron, hi everyone and turning to slide six and beginning with the flexibles. The business performed very well through the half year as our teams demonstrated impressive focus when it comes to recovering higher input costs and managing operating performance whilst delivering growth in higher value priority segments.

Thanks, Ron Hi, everyone, turning to slide six and beginning with the flexible.

The business performed very well through the half year as our teams demonstrated impressive focus when it comes to recovering higher input costs and managing operating performance, whilst delivering growth in high value priority segments.

Speaker 4: Reported sales growth of 10% for the half includes recovery of approximately $480 million of higher raw material costs, or 10% growth compared with last year. And in the December quarter, recoveries reached almost $1.1 billion on an annualised basis.

Reported sales growth of 10% for the half includes recovery of approximately $490 million.

The higher raw material cost or 10% compared with last year and in the December quarter recoveries raised almost $1 1 billion on an annualized basis.

Speaker 4: Consistent with the outcome in the first quarter and as expected, the overall price cost impact in the first half was unfavourable but remains manageable given the diversity of materials we buy, the multiple regions in which we consume those materials and the implementation of a broad range of pricing actions.

Consistent with the outcome in the first quarter and as expected the overall price cost impact in the first half was unfavorable but remains manageable given the diversity of materials, we buy the multiple regions in which we can change those materials.

Implementation of a broad range of pricing actions.

Speaker 4: As a result, margins have remained strong at 12.9% percent, despite higher raw material costs and related pricing recovery. At 480 million through the half, the top line recovery alone had an unfavorable impact on margins of 130 basis points.

As a result margins have remained strong at 12, 9% percent.

<unk> high raw material costs and related pricing recovery.

$480 million through the half the top line recovery alone had an unfavorable impact on margins of 130 basis points.

Speaker 4: Excluding this raw material impact, revenue growth of 2% was driven by favorable mix across the business and reflects our long-term strategy of optimizing performance through the delivery of consistent growth in priority segments, including healthcare, coffee and pet food.

Excluding this raw material impact revenue growth of 2% was driven by favorable mix across the business and reflects our long term strategy of optimizing performance through the delivery of consistent growth in priority segments, including healthcare coffee and pet food.

Speaker 4: Notwithstanding the dampening effect on volumes that supply chain disruptions had during the period in some categories, including healthcare and protein products, overall volumes across the business

Notwithstanding the dampening effect on volumes that supply chain disruptions had during the period in some categories, including health care and <unk> products.

Overall volumes across the business.

Speaker 4: We're in line with the first half last year and we saw low single-digit volume growth in the December quarter.

We're in line with the first half last year, and we saw low single digit volume growth in the December quarter.

Speaker 4: In terms of earnings, adjusted EBIT was up 7% for the half and reflects growth in high value segments and strong operating cost performance.

In terms of earnings adjusted EBIT was up 7% for the half and reflects growth in high value segments and strong operating cost performance.

Turning to the rigid packaging business on slide seven.

Speaker 4: Reported sales grew by 17% in the half, including 13% related to the pass-through of higher raw material costs.

Reported sales grew by 17% and Uh huh, including 13% related to the pass through of higher raw material costs.

Speaker 4: Excluding the raw material covering, the business delivered year-to-date sales growth of 4% against a strong period of double-digit growth last year, and this included a 3% increase in volumes as well as a 1% price mix benefit.

Excluding the raw material covering the business delivered year to date sales growth of 4%.

Against a strong period of double digit growth last year and this included a 3% increase in volumes as well as a 1% price mix benefit.

Speaker 4: In North America, underlying demand in the beverage business remains strong and yet to date volumes were 3% ahead of the same period last year, accelerating to 6% in the December quarter and building on 13% growth delivered in the second quarter last year.

In North America underlying demand in the beverage business remains strong.

Year to date volumes were 3% ahead of the same period last year accelerating to 6% in the December quarter and building on 13% growth delivered in the second quarter last year.

Speaker 4: Hot fill container volumes were broadly in line with the second quarter last year. Notwithstanding we are cycling growth of almost 30% in the prior year.

Hot fill container volumes were broadly in line with the second quarter last year, notwithstanding we are cycling growth of almost 30% in the prior year.

Speaker 4: We have seen good volume growth in isotonics as well as iced tea categories where customer demand for 100% recycled PET bottles has been strong.

We are seeing good volume growth, you know I photonics, as well as ice tea categories, where customer demand for 100% recycled P T bottles as being strong.

Specialty container volumes were lower against the prior year, which also benefited from higher volumes in the Highland personal care category.

Speaker 4: Specialty container volumes were lower against the prior year, which also benefited from high volumes in the home and personal care category. And in Latin America, the business delivered double-digit volume growth, reflecting strength in Argentina, Mexico, and Colombia, and earnings were higher.

And in Latin America, the business delivered double digit volume growth, reflecting strength in Argentina, Mexico, and Colombia and earnings were higher.

Speaker 4: From an earnings perspective, the business in North America was adversely impacted, as we expected, by inefficiencies and higher costs resulting from industry-wide supply chain complexity and disruption.

From an earnings perspective, the business in North America was adversely impacted as we expected by inefficiencies and higher costs, resulting from industry wide supply chain complexity and disruptions.

Speaker 4: As Ron mentioned, earnings performance improved as we exited the second quarter and this was helped by a number of positive trends including better availability of PET resin and new capacity coming online which also supported our ability to build some additional inventories ahead of the peak summer season.

As Ron mentioned earnings performance improved as we exited the second quarter and this was helped by a number of positive trends, including better availability of pay T resin and new capacity coming online, which also supported our ability to build some additional inventories ahead of the peak summer season.

Speaker 4: Although the operating environment is likely to remain dynamic and somewhat complex, we anticipate conditions will continue to improve and earnings for the rigid packaging segment are expected to grow in the second half compared with the same period last year.

Although the operating environment is likely to remain dynamic and somewhat complex. We anticipate conditions will continue to improve and earnings for the rigid packaging packaging segment are expected to grow in the second half compared with the same period last year.

Moving to cash in the balance sheet on slide eight.

Speaker 4: First, as a reminder, our cash flow is seasonally weaker in the first half of the fiscal year and this year we delivered cash flow within our range of expectations for the half, particularly in light of a higher cost environment.

First as a reminder, our cash flow is seasonally weaker in the first half of the fiscal year and this year, we delivered cash flow within our range of expectations for the half, particularly in light of a higher cost environment.

First half cash flow was below last year and this mainly reflects the timing impact of higher raw material costs on working capital across the business along with planned inventory increases.

Speaker 4: First half cash flow was below last year and this mainly reflects the timing impact of higher raw material costs on working capital across the business, along with planned inventory increases.

Speaker 4: We continue to maintain a strong focus on working capital performance, which is even more critical in an inflationary environment, and our rolling working capital to sales ratio remains below 8% and in line with last year.

We continue to maintain a strong focus on working capital performance, which is even more critical in an inflationary environment and now rolling working capital to sales ratio remains below 8% and in line with last year.

Speaker 4: As planned, capital expenditure is tracking high than last year as we have stepped up organic investments in priority segments and geographies.

Okay.

As planned capital expenditure is tracking higher than last year as we have stepped up organic investments in priority segments and geographies.

<unk> balance sheet remains strong with leverage at two nine times on a trailing 12 month EBITDA basis, which is where we would expect to be at this time of the year given seasonality of cash flows.

Cash returns to shareholders in the first half were almost 50% hard last year, and we increased our quarterly dividend per share and repurchased a greater amount of shares.

And as Ron mentioned earlier, we now expect to allocate a total of 600 million towards share repurchases in the 2022 fiscal year, which includes the additional $200 million announced today.

Taking us to the outlook on slide nine.

The business has delivered a solid result for the half in line with our expectations and the outlook for our business remains positive.

Speaker 4: This enables us to do two things today. First, reaffirm the 2022 guidance we outlined in August and November , where we continue to expect adjusted EPS growth of seven to 11% on a comparable constant currency basis, which represents an EPS guidance range of approximately 79 to 81 cents per share on a reported basis, assuming current exchange rates prevail for the balance of the year.

This enables us to do two things today first reaffirm that reaffirmed the 2022 guidance, we outlined in August and November .

We continue to expect adjusted EPS growth of 7% to 11% on a comparable constant currency basis.

Which represents an EPS guidance range of approximately 79 to 81 per share on a reported basis, assuming current exchange rates prevail for the balance of the year.

Speaker 4: And we continue to expect free cash flow in a range of $1.1 to $1.2 billion.

And we continue to expect free cash flow in a range of one one to $1 2 billion.

Speaker 4: Secondly, our positive outlook leaves us well positioned to increase our share repurchase by 200 million in fiscal 22, as previously mentioned.

Secondly, our positive outlook leaves us well positioned to increase our share repurchases by $200 million in fiscal 'twenty two as previously mentioned.

Speaker 4: It's important to note the majority of these additional repurchases are expected to take place in the fourth quarter, and due to the limited impact this will have on the weighted average number of shares outstanding in fiscal 2022, there is not expected to be any real benefit to EPS growth until fiscal 23.

It's important to note. The majority of these additional repurchases are expected to take place in the fourth quarter and due to the limited impact. This will have on the weighted average number of shares outstanding in fiscal 2022, there is not expected to be any real benefit to EPS growth until fiscal 'twenty three.

So with that I'll hand back to Ron.

Great. Thanks, Michael before closing and turning it over to Q&A, just a few minutes on the longer term starting with our investment case on slide 10 and.

Speaker 3: Okay, thanks, Michael. Before closing and turning it over to Q&A, just a few minutes on the longer term, starting with our investment case on slide 10. And we've maintained a consistent strategy for several years now that's guided how we've evolved our portfolio and developed our capabilities. And as a result, Amcor is better positioned strategically than ever before with a stronger foundation for growth and shareholder value creation.

And we've maintained a consistent strategy for several years now that's guided how we've evolved our portfolio and developed our capabilities and as a result, amcor is better positioned strategically than ever before with a stronger foundation for growth and shareholder value creation.

Speaker 3: We've managed the portfolio so that we're now the global leader in most of our chosen segments within the primary packaging space for fast-moving consumer goods and healthcare products.

We've managed the portfolio. So that we're now the global leader in most of our chosen segments within the primary packaging space for fast moving consumer goods and health care products, and we have absolute and relative scale advantages and a strong track record of performance and that track record related to our consistent earnings growth and margin expansion and significant free cash flow.

Speaker 3: We have absolute and relative scale advantages and a strong track record of performance. And that track record relates to our consistent earnings growth and margin expansion and the significant free cashflow we generate every year.

Generate every year and.

Speaker 3: And with a strong balance sheet, we're able to use that cash flow to step up investments for growth, including in fiscal 22, where we expect catbacks will be about 15% higher than last year, and we can see that leading to increasing momentum across the business.

And with a strong balance sheet, we're able to use that cash flow to step up investments for growth, including in fiscal 'twenty, two where we expect capex will be about 15% higher than last year, and we can see that leading to increasing momentum across the business.

Speaker 3: At the same time, we're also returning a significant amount of cash to shareholders in the form of regular share repurchases and a growing dividend.

At the same time, we're also returning a significant amount of cash to shareholders in the form of regular share repurchases and a growing dividend.

Speaker 3: Organic growth has always been a key driver of our overall financial performance and we're actively investing in several areas highlighted on slide 11 that will continue to drive long-term growth.

Organic growth has always been a key driver of our overall financial performance and we're actively investing in several areas highlighted on slide 11 that will continue to drive long term growth.

Speaker 3: First, we're strategically focused on the most attractive segments, and this guides how we prioritize investments back into the business. We'll talk more about these segments in a minute.

First we're strategically focused on the most attractive segments in this guides, how we prioritize investments back into the business, we'll talk more about these segments in a minute.

Speaker 3: Second, we continue to see tremendous opportunities to invest and extend our competitive advantages in emerging markets. We already have a leading emerging markets portfolio that generates roughly $3 billion in annual sales, and we see no shortage of growth opportunities in these markets where we expect mid-single-digit growth and good profitability over the long term.

Second we continue to see tremendous opportunities to invest and extend our competitive advantages in emerging markets. We already have a leading emerging markets portfolio that generates roughly $3 billion in annual sales and we see no shortage of growth opportunities in these markets, where we expect mid single digit growth and good profitability over the long term.

Speaker 3: Third, innovation and our world-class R&D capabilities remain a clear differentiator frame court. Innovation will increasingly contribute to organic growth going forward, as we partner with customers to develop more sustainable and high-performance solutions for their specific needs and those of their consumers.

Third innovation and our World class R&D capabilities remain a clear differentiator for amcor innovation will increasingly contribute to organic growth going forward as we partner with customers to develop more sustainable and high performance solutions for their specific needs and those of their consumers.

Speaker 3: Slide 12 takes a closer look at some of those higher growth priority segments. These attractive segments are expected to represent an increasing percentage of our sales mix and contribute to consistent margin expansion.

Slide 12 takes a closer look at some of those higher growth priority segments. In these attractive segments are expected to represent an increasing percentage of our sales mix and contribute to consistent margin expansion and.

<unk> is a leading position in each of these categories, which collectively generate over $4 billion in annual sales today and would share a few common features.

These are large addressable markets, each well over $1 billion and the growth rates are all higher than the average across broader consumer markets, meaning there is significant room to grow.

There are also many opportunities to differentiate across these categories given the need for higher performance features such as barrier heat resistance and resale ability, which in turn drives higher margins.

And in order to fully capitalize on the great potential we are increasingly allocating capital towards these segments in healthcare, we're investing to add capacity and capability in Europe , and Asia and this quarter. We celebrated the opening of a state of the art medical packaging facility in Singapore to serve as an accelerating demand in the Asia Pacific region.

We recently began ramping up production on new assets in Europe to service the premium coffee segment, and we're adding <unk> capacity in our rigid packaging business in North America, given the sold out environment and positive growth outlook.

Over time, we expect mid single digit growth in these segments, which will drive continued sales mix improvement and sustainable margin expansion.

Moving to slide 13.

Sustainability is increasingly embedded in everything we do and we continue to believe this represents our greatest opportunity for growth and differentiation.

We also continue to believe responsible packaging is the answer to addressing concerns around packaging waste.

And by responsible packaging, we mean, the combination of packaging design waste management infrastructure and consumer participation.

<unk> recently commissioned a global survey, which enabled us to hear directly from 12000 consumers around the world and provided several powerful insights among them Recyclability is considered by far the most important environmental attribute of packaging more important than which material issues or whether the packages reusable.

Three quarters of respondents indicated they would like to recycle more and more than two thirds said, they're willing to pay more for a product with a package that's recyclable.

Now our package design efforts have always had the consumer front and center and we're making great progress innovating against those consumer needs.

Across our own portfolio over 95% of our rigid and specialty container packaging specialty carton packaging is recyclable today.

But our most significant progress over the last two years has been in our flexible packaging segment, where multiple materials are often required to deliver the required functionality.

Today, 76% of our flexible packaging portfolio has a recycle ready alternative and this represents substantial progress from 56% just two years ago.

An important contributor to this progress has been the launch and commercialization of new product platforms, such as amyloid and prima and Ams Sky.

And last week, we announced Dan and fiber, our new platform of performance paper packaging.

These technology platforms will be leveraged across our global footprint across multiple categories and for multiple customers to provide the more sustainable and high performing packaging consumers are looking for and to drive growth and margin expansion for amcor.

Responsible packaging is a critical element of our sustainability agenda, but every company's environmental footprint goes beyond the products. It makes.

And to lead the way and reach our own ambitious goals, we launched <unk> <unk> program in 2008, and since then we've reduced the environmental impact of our operations by continuously exploring new and more impactful ways to reduce emissions waste and water at every location.

The value created for our customers and the environment through our work on a range of ESG initiatives has been recognized by several independent organizations and <unk> continuing to demonstrated industry leadership.

Last week, we increased our ambitions again by committing to achieve net zero greenhouse gas emissions by 2050 with near and long term targets aligned with the science based targets initiative.

We're excited to step up our ambitions to further reduce the carbon footprint of our products and operations.

And to support our customers as they strive to meet their own goals for functional high performance packaging with the lowest possible environmental impact.

And finally on slide 15 to summarize <unk> delivered a solid results through the first half as we continue to perform well through challenging and dynamic operating conditions and we've confidently reaffirmed our full year guidance.

We've also increased cash returns to shareholders and expect to return more than $1 3 billion in fiscal 'twenty, two through dividends and share repurchases.

And looking over the longer term, we built a strong foundation for growth and value creation over the last several years, we're investing to capture that growth and we're building on our sustainability progress as we use science based targets to define our journey to net zero emissions.

And with that operator, we'll open the line for questions.

At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad in the interest of time, we would like to remind participants to limit their questions to two and rejoin the queue for any follow ups.

Your first question comes from Ghansham Panjabi with Baird.

Your line is now open.

Yes, thanks, and good day everybody.

<unk>.

So my first question just the.

The commentary you had in your press release about volumes being lower in certain categories like cheese coffee frozen food.

And then up in healthcare I mean, you kind of see.

<unk> background is that just a function of mean reversion relative to pre COVID-19 levels.

Maybe you can just talk about what's actually going on the end markets in terms of underlying demand it the consumers in different regions, such as the U S and Europe navigate extremely high inflation relative to the previous baseline in terms of purchasing patterns.

Yes, again, some first thanks for the question look I am not sure. Its mean reversion I think we've sort of been back to a more normal trading patterns now for at least five or six quarters I think what we're seeing there is a good recovery in health care, which has.

<unk> been going on now for a couple of quarters in medical and in the second quarter, we started to see better pharmaceutical volumes. So.

So we had high single digit growth across the businesses in health care that that one is I'd say more of a return to normal trading conditions as far as the food categories go the only thing that I would point out that that's the exogenous as some supply shortages, we have on key inputs, we're still leaving.

Some money on the table with.

Sales that we can't realize and an order book that we can't completely fulfill because we've got some materials that are just not as available as.

As we'd like that's the only thing I could point to otherwise I think what youre seeing in the quarter and at the micro at the segment level is just the ebbs and flows that happened over any 90 day period.

Got it and then for my second question.

So enormous amount of beverage can capacity being added in North America, which will start to hit this year in particular.

As you sort of look at your original business and look at your backlogs.

Share of new product introductions at the beverage customers may be introducing et cetera.

How do you see that dynamic kind of playing out for <unk>.

Well firstly the demand in that business is super strong and Thats actually thats. The big driver of the profit shortfall that we've had so far in the first half is that we're just oversold and in the second quarter. We had we had volume growth of 6%.

<unk> on a year on year comp, which was quite strong a year ago. So the demand is really really strong would be the first point, we are adding capacity as we've talked about to try to alleviate some of the bottlenecks I think the second thing is that we've never seen.

The container the plastic container really in direct competition with the metal can because we see different distribution channels, you see PT, primarily through the cold chain and through our convenience stores and more single serve and you see the can historically through big box retail in 12 months to 24 pack. So we've not really.

<unk> competition in things like ice teas, our sports strengths, our heartfelt juices and when we talk to our customers and we're as busy as ever on new product introductions theyre not really talking about the tradeoff between one format or the other it's more the format. That's best aligned to their segment needs in their segment goals. So.

Cans have been growing quite rapidly the capacity has been added for several years now it hasnt hasnt slowed our volume growth really at all.

Okay.

So much.

Your next question comes from the line of Anthony Pettinari with Citi. Your line is now open.

Good evening.

Ron on rigid given the supply chain issues and some availability issues that <unk> seen.

Would you anticipate getting back to sort of a normal level of profitability.

Is that by the end of fiscal <unk> or at the end of the fiscal year I'm just trying to understand what your guidance full year guidance sort of assumes on that front and as you look back on the first half understanding maybe you can't do this but in terms of the total EBIT impact of these disruptions is there any way to kind of.

Yes.

Kind of put.

<unk> put a finer point around that on the rigid side.

Yes look good question I mean first the first question in terms of the outlook. The business has been improving profitability has been improving through the first half.

<unk> continues to improve.

As we go into the third quarter here, what we've said today is that we expect profit growth in the second half versus the second half last year. The pace of that is going to depend on a number of factors. So.

I called out specific guidance for the third quarter I do expect as we get towards the back end of this fiscal year, which is sort of May June period.

And a new high season.

I'd like to think that we're going to exit this year at a more normal level of profitability and the reason I say that is there's a number of things that are working in our favor here firstly demand remains strong and it always starts with that <unk> <unk> question demand has.

Has remained very robust, particularly.

In the beverage space. So that's the first thing.

<unk>, we have been increasing capacity and we've been adding incremental capacity.

Throughout the last couple of quarters almost on a monthly basis. So we're going to end up adding around 5% to 10% capacity in the heartfelt network and then thirdly, we're entering the third quarter with with inventory and with it with a reasonable amount of inventory, which is where you would typically expect to be at the start of a third quarter. Its a seasonal business in <unk>.

To enter.

January February with inventory last year, we didn't have any.

So that led to a bit of a ripple effect that we're still working our way out of so those are the reasons why we feel pretty optimistic about the second half and the pace will.

We will be determined by just how quickly we can bring capacity on stream and our availability of inputs.

As far as.

The second question about the drivers of the profit impact I mean look it's really hard to parse them out theres three things going on there I would say one is.

Demand, just really outstripping supply at a rapid pace.

That has led to inefficiencies.

In a sold out environment in China service every last bottle of demand has led to just inefficiencies in the system.

The second thing is we do have inflation in route recovering you can see the price impacts in the sales line.

And then the third thing is just the performance of the business right and as managers, you're always trying to isolate how much of it is that performance of the business. We think it's actually been quite good.

But it's very hard to piece out the quantitative impact of those three different drivers.

Okay. Okay. That's very helpful. And then just switching gears on the M fiber platform can you give any more details there in terms of.

Is there any sort of incremental capex investment team, maybe percentage of your volumes that might be fiber based either now or in the future and then is this targeting sort of existing customers that are asking for a maybe a paper option or is it going to cannibalize existing sales are you going after totally new customers new.

Corey just any any details there.

Yes. It is.

Rejuvenating categories, which historically have not been.

And at the highest level of priority. So confectionery is an important category for in volume terms for US. This is a differentiated product that we're going to start launching in that particular segment that just changes our outlook on the attractiveness of that space and the profitability.

Firstly what is it.

Paper based platform.

That really kind of thread the needle between the issues at pure paper solutions have which is that there is no barrier.

Our coated paper, which tends to result in much lower fiber recovery and therefore at times is not recyclable.

The fiber platform kind of threads the needle between those two extremes. So it's barrier if there'll be a barrier properties.

The product runs on the customer filling lines at generally the same speeds so theres no.

Productivity discount that the customer has to wear.

And so we're really excited about it and we're going to roll it out globally I wouldn't expect any material change in capex, specifically related to this platform, but we are investing behind these platforms generally in these growth segments. We've alluded to that several times. So we will continue to deploy capital against the growth opportunity.

Okay.

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

Your next question comes from the line of Jacob take harness with J D. Jordan, Australia. Your line is now open.

Hi, Ron Hi, Michael I, just wanted to get a better understanding Mickey Catherine Liu.

I know that you mentioned that some of that does relate to some of the price increases that you're seeing across the raw materials. Just wondering how much of it is anticipate traded as well just so to avoid some of the supply chain issues that you mentioned that the company was cycling in the second quarter.

Yes, Hi, Hi, Jami, thanks for the color I can take that one it's Michael here, yes.

Yes.

As we as we outlined in the in the relation that we've seen.

An outflow of working capital higher than the prior year and really the key driver of that is as raw material, both the raw material inflation and the timing of that flowing through the business.

And then in addition to that in the second quarter, particularly we were able to take some planned inventory.

Inventory increases.

Both in the rigid and flexible business and Ron alluded to that on the <unk> space.

Last year, we weren't able to increase inventory idle.

Whereas this year on regions, we are entering the third quarter and have been able to increase some inventory which is.

Youll see that flush through the system in the second half.

And on the flexible side, yes, we've seen some increases.

Yes.

Cautionary advice targets to ensure we've got supply.

And.

That's again going to flow through in the second half, which is why we were confident around.

The cash flow projection of the business in Q2 and for the full year.

Thanks, Michael and then just the second part maybe one for Ron the first quarter. You did mentioned that you expected the regimen supply.

It relates to the <unk> business to improve into the second half is that still the case is there anything that you're seeing on the horizon and that would bring that rig availability into question.

No.

Greetings to supply and I would say, we did see a modest improvement through the quarter. That's one of the reasons for our more positive outlook in the second half is that resin is generally more available.

Not all the way back to 100% supply were sold at less than 100% of what we would like to source, but we're in a much better position now than we were three months ago.

Yes.

Thanks.

Operator could we take the next question please.

Sir Your next question comes from the line of Larry Gander with Credit Suisse.

Your line is now open.

Thanks, guys for taking my question.

I'd like to ask a question or two on sustainability.

Ron It looks like you are very well through.

Major sustainability goal of.

100% Recyclability by 2025.

We only flexible is now at 75% coverage.

Is it time to start looking towards the next milestone you've got IC put the.

Greenhouse gas emission.

Target out.

I'm interested in that so let me just.

Interject with the question on that one is I think most of your emissions are stage.

Scope three.

So the question becomes is.

Would you guys invest collaboratively with your supply partners to reduce reduce greenhouse emissions and are there opportunities for doing that.

And then the other area I wanted to ask about was not only GHT, but waste management.

How do you articulate an established goals like you've done for Recyclability.

For waste management infrastructure, which is one.

One of your objectives as well.

Yes, let me take the questions in order Larry So firstly on the greenhouse gas emissions. This is this is the next logical step in our evolution and our journey we've been on.

The greenhouse gas reduction path for over 15 years now back in 2008, we set our first public targets to reduce greenhouse gas intensity by 60%.

And we're well on our way to doing that that was a 2030 goal and every few years, we set a new a new benchmark for each of these each of it.

Areas of our entire action program greenhouse gases waste and water and so that's where we're at where we're at a moment in time, where it's time to rethink our objectives.

And also speak in the same language as others and science. The science based targets initiative has helped I think bring some standardization.

In a sense to the way companies talk about their greenhouse gas profile and so we are jumping onboard that and with that.

That initiative and we'll set some near term targets over the next 24 months as we work with that with that group to Val.

A validating and qualify our targets will set and B and report out on what those targets are on the pathway to zero to net zero by 2050.

And as far as the waste management part of the equation, Firstly Youre right were making fantastic progress on the packaging design.

Aspect of responsible packaging and we're going to without question get to 100% of the portfolio with a recycle already option by 2025, we have no doubts about that at all.

And the take up in the interest and demand from customers has never been stronger that just continues to intensify many of them had the exact same goals.

The waste management piece of the equation is is also one that we can influence, but not alone and thats, where some of the alliances that we're in some of the work that we're doing with the alliance <unk> waste.

Some of the work with the consumer goods Forum, the <unk> Foundation and see the future.

The initiative is.

Is going to take partnerships and I think ultimately what we want to see is that our packaging is not just designed to be recycled but it actually is recycled.

And we know and we cited today this consumer research that we've done that consumers want to recycle more they would gladly recycle more.

If the infrastructure was more available and so we all have a role to play including government.

And amcor at our suppliers and customers to make that happen, but that will not be.

Amcor alone.

Yes, Rob that's why yes.

Focused on those two areas because unlike recyclability.

These two things are out of your control and may require investments much more significant capital investments.

Then the.

Recyclability objective so youre scope three emissions are your biggest part of your emissions.

My question is.

Should you guys be paying dividends and buying back shares still have EUR.

<unk> and mixed soda green.

<unk> sustainability objectives are going to be capital intensive.

And.

Require partnerships.

Alliance to end plastic waste.

<unk> talked about $1 5 billion of capital commitments by 2024.

2019 accounts, they did 8 million bucks of subsidies.

Maybe David and.

Invoice coming for some 200 million Bucks of infrastructure capital, that's going to hit your desk I don't know.

But.

It sounds like.

You guys may need to put a stake in the ground in terms of.

The investment levels to reach those other objectives.

Good luck.

Not anticipating that we're going to put real meaningful capital in that part of the value chain. We are investing in pilots and we're happy to help fund pilots that are proof of concepts and we're also happy to supply demand in the form of off take agreements. We've got lots of pilots underway with a number of.

Our suppliers on chemically recycled material et cetera.

But look waste management, it's not a it's not a narrow extra.

Exercise right. So the waste management is a very local activity and it's usually collecting all sorts of materials.

Some of which are.

Packaging after it's been used but only a portion so.

I fully agree with the notion that it's going to take a lot of money to get the waste management infrastructure around the world where it needs to be I'm, just not sure that is a converter. It's the best use of our shareholders' capital.

Yes, I know.

<unk>.

It's definitely.

Debatable question, but okay.

Let's just move on to an excellent run.

Quickly acquisitions, we haven't seen much from amcor since themis.

Just wondering if.

What youre seeing in terms of deals is businesses that don't really align or are the prices too high.

Yes, it's a good question I mean, the first firstly, we would we would like to be active I mean, we clearly have various JV in <unk> and reasonably good track record of generating value out of acquisitions, and we would like to continue to do that we will continue to do that.

Constantly in the deal flow if theres a deal in our space that Youre reading about then you can rest assured that we've had to look at it <unk>.

I think there's a couple of things going on.

Only.

The last nine months or so or six months six to nine months, where we've really been able to say that we've bedded down BMS I'll remember that was the largest acquisition. The company has ever done by a factor of three.

And we were laser focused on making that a success for the first two and a half years, which is pretty much just bringing us to the last couple of quarters.

I think that's well and truly behind US now and we certainly have the capacity to take something else on I think at the same time, we've got asset prices that are quite elevated and we've got businesses that are particularly difficult to diligence right now.

Increasingly that will dissipate the complexity that I'm, referring to relates to the top line impacts that Covid has had on different businesses and it's very difficult to assess that so it is a challenging period, we're going to remain really disciplined but we will be active and we will get back on the acquisition bandwagon here sometime soon.

Your next question comes from the line of Mark Wilde with BMO. Your line is now open.

Good evening, Ryan Good evening, Mike.

Hi, Mark.

I Wonder for the first question Ron I, just wanted to confirm kind of where we're at in terms of kind of the recovery in the medical device packaging area I know bemis. It put a lot of money into a new facility up at Oshkosh, It sounded like with a drop off in elective surgeries.

<unk> was running kind of well short of capacity can you just update us.

Yeah look at some medical device packaging is as good a segment as we're participating in and we're seeing a steady improvement over the first half of this fiscal year.

I would say that demand is is is not all the way back but most of the way there and the demand is driven by elective procedures surgeries and the like.

Demand is mostly recovered from its lows during the Covid period. There is also some resins that we use in that business, which had been in short supply. So that's also held us back a little bit. So we're we're probably two thirds to three quarters of the way back to the baseline that you would expect in that business, but this is a business to high.

Very profitable part of the business a lot of differentiation.

And innovation and IP.

And it's a business that historically has grown at least at mid single digit rates.

Now in the first half, we've actually seen that but.

But we also realize there is more to be had there.

Okay and then the second one I have is another follow on around M&A.

Long time entrepreneur in the premium card market as a new private equity vehicles. So just kind of in my mind raise a question about how you would assess the options.

Around your carton business sits.

It's a smaller piece of amcor overall, so if somebody was out there looking for kind of premium pulling garden assets <unk> got them <unk>.

How would you how would you have us think about how you assess that business.

While the cartons business is between 7% and 8% of our sales today, but it's an important piece of our offering and I think even the fiber platform today that we've talked about speech.

Speaks to the importance that we place on having a diversified substrate mix.

It's a business that is a highly cash generative business and it has.

Clear leadership position in its in its market. So it's a pretty important part.

The portfolio I mean that said we are economic rationalists.

And but there is no change no desire to make any kind of big shift in the portfolio at this particular point in time.

Okay fair enough I'll turn it over.

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

Hi, Thanks for taking my question good evening everybody today.

I guess first of all I'm not surprised by what you find from your study Ron in terms of Recyclability being most important for the for the customer for the consumer and really translating that into recycling will be key from here I guess I had an operating question and then kind.

Kind of a follow on bigger picture question. So in in rigid you've had these operating issues and inefficiencies through no fault of your own have taken away performance from where it otherwise would have been what options do you have as contracts come up for renewal what desire do you have or may be building an additional clauses.

Two year contracts to capture some of those inefficiencies when they're not out of Europe .

They are not in your control and Youre doing what you can to service a customer relatedly within flexible on operations.

With the volume accelerating in the quarter versus <unk> and certainly all the pricing action that youre seeing.

I would have expected maybe a bit more dollar traction in EBIT in the quarter, that's not a humorous here, but if there's a way that you could quantify if inefficiencies and flexible maybe.

May be cautious some performance in <unk>, recognizing you're very happy with the performance. This is the way that you could quantify that that'd be great.

Yes, I think to Richard's question to Michael can comment on flexible in the raw materials impact their emergence of the contracts are quite robust ultimately you always have to make a choice at the level of demand that we've seen in that business.

And you run into this periodically youre sold out.

When Youre sold out then the cost to produce the marginal unit are almost infinite right and so you end up in this.

Jim even with.

We would say are pretty watertight contracts.

Better served us well over the years that have been quite fair I think with the customer as well you end up in a situation, where you probably would make more money. If you didn't take the last order but.

While we're in this for the long haul and we've got customer relationships that date back decades, and we expect to maintain for decades into the future. So.

You sort of have to wear it a little bit I would imagine that the customers are also wearing when we know this for a fact, they've got their own disruptions from trying to service their own peak demand.

And I am not sure that there is a contract mechanism.

To capture the uniqueness of the environment that we've just faced I think the answer to it is to get out in front in terms of inventory build when you have a seasonal business like we have and to just make sure that we're keeping abreast of the capacity needs and adding capacity on a regular basis, which is what we're doing.

Maybe Michael can comment on the flexible as profit impact and profit leverage.

Yes sure. Thanks Ron.

Look on the flexible space and then we closed the half out EBIT grew 7% pretty consistent growth out of both quarters. Some improvement in volume in Q2 as you mentioned.

We're still cycling some pretty high raw material costs.

In the in the in the half we recovered $490 million and the top line was about 10% that said.

There was still some price cost lag, which is manageable, but it is still.

A negative on the business.

And as we look forward.

We would expect that that starts to ease.

As we as we head into the second half.

And I should abate somewhat so really that's the that's the key difference on the flexible side, we're still seeing really good.

Performance in the priority high value segments that Ron touched on earlier.

And margins overall have.

Really strong.

At 12, 9% if you take that.

Topline recovery on the raw material out.

Margins would have been 130 basis points higher.

In fact 70 basis points ahead of prior year. So overall, we feel pretty good about where the flexible businesses at <unk> and particularly that recovery on the raw material.

And how that looks moving forward.

I appreciate the thoughts on quick one just in terms of the increasing of the value return I don't think anyone's complaining, but considering that you only maintained your guidance and again you are having a very solid year. It's in line with expectations. What prompted your ability to raise the the value return recognizing thing happened at the end of the year. Thanks guys.

Good luck the rest of the way.

But yes look we.

As we said we've got a really really strong balance sheet right now I mean, the cash flows.

US solid in the second half.

It looks pretty strong on that front as well so we've got flexibility in the system we.

We've announced $400 million back in August .

Based on where we sit today.

And we can announce a further 200 and that's what we've done.

We still have flexibility in the ESSA M&A transactions come alone. We can we can do that as well.

The underlying performance of the business is strong and enabled us to announce that further buybacks.

Thanks, Mike So I was getting at good luck in the quarter Bye Bye now.

George.

Your next question comes from the line of Nathan Reilly with UBS. Your line is now open.

Hi, Ron just a quick question a quick question, but it's a question of us before over the last couple of years just around famous.

The focus over the last couple of years has been on the integration of that business and obviously delivering the cost synergies, but now that the heavy lifting being done on that front is youll sizes now able to shift to start realizing some of the potential revenue synergies from that acquisition and I'm also curious too.

What extent is that related to potentially the growth that you're targeting in these priority flexible segments.

Yes, I think the short answer is yes, I mean, I would like to believe that we've been extracting commercial benefits from day, one and different ways of managing mix and managing.

Raw material pass through in the way the capabilities that I think amcor brings to the table I think have been.

Accruing benefits over the legacy Bemis portfolio from the beginning but as far as it relates to growth.

I think no question. The organization is now oriented itself towards generating a bit more growth we've got.

Number of tools at our disposal to do that I think youre seeing evidenced already of.

Things that you could label revenue synergies if we look at some of these new product platforms that we've spoken about in some respects. Those are examples of revenue synergies that the Android platform, which is a recyclable.

Pouch for human food or pet food is an example of an innovation that <unk>.

Amcor has.

<unk> had developed which will be leveraged over the legacy bemis footprint and on the other.

Going the other way the <unk> platform, which is again recycle recycle ready all polyolefin structure is a legacy bemis.

Platform that we're leveraging around the world on the legacy Amcor footprint. So I think youre seeing examples already.

And Theres a lot more sort of smaller examples where we've supplemented capacity.

From out of the region, we've ceded some of the healthcare growth.

In Asia from some of the legacy Bemis assets that someone asked us about earlier. So I think short answer Nathan is yes, the agenda is evolving.

But I think we're also seeing some benefits in real time here and probably have been for the last couple of years.

Got it and final question just on the lip volume growth of 1% across the group this half.

Notwithstanding the supply chain constraints and challenges in raw material challenges <unk> been facing.

What sort of volume equals lift all the title because of those issues.

I would say another percent or two.

Say, it's the delta between the long term average of low single digit growth averaged a couple of percentage points.

And where we were I think it is produced as straightforward as that.

And this is a business that prioritizes mix right. So the mix is.

Segment, we're constantly trying to optimize and when you do that sometimes.

Unsatisfied relapsed order, so I'd say, it's a couple of percentage points.

Yep got it understood. Thanks for taking my questions.

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

Hi, Thanks, I appreciate it on M&A, you've integrated BMS, which was a large transformational acquisition as you mentioned would you have the appetite and willingness to complete another large transformational dealer fill the near term and maybe increase your resin buying scale, if such a deal were to come to market or.

Or would you be looking at bolt on deals for specific technologies or end markets rather than just scale.

Yes, I would probably say that we.

We would not be doing something just for scale.

Love to.

And the company has shown over the years.

Thrived and really rallied around big big transactions and going back obviously bemis.

The Alcan transaction, we did about 10 years ago. These had been company defining transactions that.

Really seeing CNS get to new levels, So we'd love to be able to find something like that but the target set is.

Is what it is and it's the competition that we're dealing with in the market every day and that means most of them. Most of the deals like 90 plus percent of the opportunity space out there are going to be what you probably characterize as bolt ons.

So it's going to be strategy first.

And scaled second we wouldn't do something just to just to get bigger.

Got it and then on Latin America. It seems like volumes are up nicely in that region, I guess or you just haven't seen any impact from maybe the slowdown in the macro economy in Brazil, or the rise of Covid cases in that region.

Well Latin America is the tale of a couple of different stories for us in the rigid segment, we had a fantastic half with doubled.

Double digit volume growth and really good earnings growth.

In the flexible space, we've we're exposed to some other categories, who are exposed to home <unk> personal care for example, which had a really strong year, one year ago, and so volumes are actually a little bit behind in the flexible space. So it's been a bit mixed and I think the <unk>.

Some of the segments in food and personal care have been a little bit more impacted by the macro environment and some of the COVID-19 impacts, whereas the beverage space.

We've not had those impacts so it's a bit mixed it's still an important region for the company.

It's a business that set of businesses, we've been in for a long time.

We're confident in the long term outlook, but it's a bit mixed at the moment.

Thank you I appreciate it Ron.

Okay. Thanks.

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

Hi, Ron and Michael how are you.

Good John Thanks, how are you.

Not too bad. Thank you just the first one on the flexible side appreciate it's on the 90 day period.

There was a slightly less incremental earnings up tick in the second quarter.

This is the sequential first quarter than what we've seen historically so it looked like there was a bit of adverse APAC EMEA, but.

Was there a slightly larger I know you haven't called it out as a material item, but was there a slightly larger earnings drag from raw mats in the second quarter versus the first or anything else to call out there.

Hi, John its Michael I can take that one look overall, there was a pretty consistent performance quarter on quarter. I mean, it's a 90 day period, there's some minor puts and takes.

In terms of the raw material price cost that remained pretty consistent.

The lag of Earl is pretty consistent and manageable as I said earlier.

Really it's a 90 day period.

It's been pretty consistent.

We've got 7% for the half we had 8% in the first quarter, 6% EBIT growth in the second quarter.

Nothing really to call out on that front.

And just the second one.

Just interested in what you're seeing on raw materials.

You've made some comments here on supply chain and <unk>, improving but just in terms of romance you expecting any any relief there in the in the second half I think U S resin prices have come back a bit.

But you've also announced that up to 15% Cross Ron's effective January .

Yes, John I mean on the raw materials side you're.

It's a little bit mixed across the globe.

As we exited the second quarter, we did start to see some some easing in North America, and Latin America are uncertain on certain input types like pay et cetera.

But then in Asia and Europe .

You're still seeing some increases there so as we look forward.

I'd say, it's reasonably balanced.

Stable as we look ahead, but there is some some mix differences across.

Raw material inputs and geographies.

So that overall.

Say things.

Reasonably stable and perhaps coming off slightly in Q4.

We will see where we go with that.

Got it thank you.

Okay.

Your next question comes from the line of Salvador Tiano from Seaport Research Partners. Your line is now open.

Okay.

Yes, hi, thanks for taking my questions. So I want to come back a little bit about on the fiber packaging, but are you investing in.

And firstly, if you can talk a little bit about your.

Yield plastics versus fiber, especially because.

Certainly yielding vocal but plastics are better it can be better from a sustainability standpoint that generally.

You mentioned youre, not really seeing in substitution or at least in that big scale.

In favorable paper so how has this.

Has your view changed and are you seeing bigger threats.

Two plastics in some regions.

No, we'd see a big opportunity here.

There is a sweet spot in the in the fiber based or paper based.

Flexible area that we think we have a good solution for us so.

Somewhere between pure paper solutions, which typically have less functionality and no barrier or coated paper, which typically have lower fiber recovery and therefore at times cannot be might not be recyclable.

We've come up with a better mousetrap that sort of.

Splits the difference so to speak and provides a paper based solution for anybody who wants one and there are certain categories, where there are paper solutions out there now confectionary would be one of them.

And we've got some paper in confectionery and have for a long period of time. So this is more of a product based opportunity that we see.

And anything else I mean, we continue to.

We believe that plastic based flexible packaging quite often is the best environmental solution to satisfy all of the different criteria that our customers have and consumers have so no philosophical change other than.

Opportunity to deliver to the market of innovation that we.

We think is unique.

Great. So essentially tomorrow siding fencing will rather than defensive here yes.

Yes, and the other question.

Again regarding the fiber packaging option kind of remind us or EBIT, excluding overseeing folding carton tobacco, which is calculated.

It's a different category what is your.

What the paper converting.

Opportunities sorry businesses do you have in which region.

How important would be M&A to expand.

Your your new innovations in fiber packaging.

So in the flexible perimeter not including cartons, we have.

Foil based business and we have a reasonable business that has that has got paper and the structure and those are both global so we have paper based structures and medical packaging.

We have paper solutions in protein, we have a platform called skin Nova.

Which is which is a combination of a laminate that peels off of paper base tray for for meat.

We have another one called paper Lee.

So we've always had paper solutions.

It's probably.

It's not the largest part of our portfolio, but paper in foil collectively would be probably 20% of our flexible portfolio.

Okay.

Great and just on M&A.

But the important strategy to expand here.

Im not sure that M&A is really the answer here I think that.

Growth in this space largely come from innovations and I think we've got capability. There is probably good ideas out there that we don't have that we could access maybe in <unk> in a commercial sense, but I'm not sure that.

We'd be thinking about any sort of material M&A.

Against this trend.

Okay, great. Thank you very much.

Okay.

Your next question comes from the line of Adam Samuelson from Goldman Sachs. Your line is now open.

Yes. Thank you a lot of ground has been covered this evening so just.

Just one question on the demand side at earliest speaks to what Youre hearing from your packaged food.

And CPG customers around demand elasticity.

Given all the inflation that they're absorbing.

And that's getting passed onto the consumer.

Are you seeing any signs that that the consumer can taken any more in terms of price increases and you're seeing that impact specific categories or shifts into value with things that would have an impact on your volumes and your mix as you look out over the course of calendar 'twenty two.

Yeah look it's a good question I think it's on everyone's mind, Firstly I'll contextualize it by just reminding you that for.

Almost every category that we're participating in the package is a very small part of the overall cost of goods that are brand on our customers or our health care customers are bringing to market. So it's not the most material driver of their income statement.

Ron I was just to be clear I am not trying to imply that added to our price increases that are driving and I think it's broader inflationary economy broadly yes.

I get that I, just wanted to make sure it makes that contextual point.

But that said look no.

The conversations we've had with customers and I think also their public commentary.

Through this this earning season and probably even in the last one they're not seeing the elasticity that they may have historically had modeled and anticipated.

At this point in time.

Price increases seem to be going through demand seems to be sustained across the categories that we're exposed to.

Okay.

Very helpful I'll pass it on thank you.

Okay.

Your next question comes from the line of Keith Chau with MST Marquee. Your line is now open.

Hi, Ron Hi, Michael first question, Ron just following up on John's question earlier.

On price cost.

And completing that discussion point.

So price cost was upside down in the quarter and raw materials have now flattened off you've got price increases in the mix now.

Do you expect price cost to come out neutral in the third quarter and potentially broad side up in the fourth quarter can you give us a bit more clarity on that.

Yes, I can take that one Michael.

Yes.

We said the first half.

Price cost lag was was was unfavorable but manageable.

As we said earlier the raw materials appear as though on balance they are starting to stabilize as we head into Q3.

And we also see that the price cost lag.

Should ease as we head into Q3, and perhaps get closer to neutral.

And then as we look forward into Q4, let's say what happens with raw material pricing, but at this stage.

Materials do Asus as the industry forecast would suggest then perhaps that's a slight positive recovery in the fourth quarter, but let's wait and see what happens on that front.

So just to be clear, you're not expecting the price cost issue to get worse as the year progresses. It should be a delta on the second derivative.

Correct, Okay Donald.

Excellent and then just secondly on cash flow I know, we've talked a lot about working capital one unwinding.

But the quantum of cash flow into the second half of the year is 90% of your target I think in the last couple of years, it's been around 75% of target that you'd need to deliver in the second half.

Will it purely just be the factors that you've called out working capital unwind.

In slot improvement on capacity to generate more cash flows that will drive that outcome or are there any other factors that we should be considering outside of that.

No you've pretty well covered at case I think as you know on the cash flow is definitely seasonally weighted to the second half of the year and particularly Q4.

And in the first half of this year versus last year, we did see some unfavorable impacts, particularly in working capital and inventory.

Expecting.

That to unwind in the second half and with the higher earnings.

Two key elements that that will see us deliver within that range and we feel pretty confident around that just based on past experience. If you look at the second half last year's cash flow and then you take into account some of the unfavorable working capital impacts we had in the first half.

And then reversing then.

It seems a pretty consistent.

In terms of the second half delivery on the cash flow side, we feel pretty confident around that.

Your next question comes from the line of Scott Ryall with Wilmar equity Research. Your line is now open.

Hi, there thank you very much.

Shown on slide 10 in place could you give us an update the appetite is really helpful data that you've given us could you give us an update around your targets.

Sure.

Using recycled material in your packaging place, just where youre up to on that.

Yes, so we have a target now to 10% of what we use.

To make packaging be recycled content and by 2025, and we're making great progress so predominantly.

The predominant use of recycled content at the moment is in our rigid packaging business and we've gone from 5% in that business in 2019 to over 10% last year. This year will be well over 15% and in terms of actual tons or pounds of material that number is doubling just about every 18 months. So we're making.

Really good progress and then in parallel we're pretty excited about some of the applications.

In flexible as well as some of the projects that we're working on on chemical recycling to get that number up even further.

Okay and are you seeing any to any difference in the pricing of recycled materials.

Are you in an absolutely listen to.

Pricing, but can you comment about the pricing and raw materials versus versus Virgin.

Yeah, absolutely look there at a premium.

In rigid packaging, which is.

The primary user of recycled <unk> in our business the.

The premium now for recycled PDT is between 40, and 50% that number ebbs and flows but it's as much demand driven right now as it is supply and cost driven.

Okay. Thank you very much that's all I had.

Your next question comes from the line of Richard Johnson with Jefferies. Your line is now open.

Thanks, very much Ron just a couple of quick questions on back on rigid plastics and <unk>.

What extent do you think that the business is it a strategic disadvantage.

And that May explain some of the profit impact that we're seeing at the moment and what I mean is that your principal competitors have a far greater onsite presence than you do and I was just kind of wondering whether that's having an impact.

I would think so Richard I mean I think.

No one in this space is having an easy time of it and you can see that yourself from the results that others have published so I don't think were in any kind of a disadvantage I think we have some quite sizable on site installations in the beverage side of the business, which is really where it matters. The most.

And then we have scale from a network perspective and from a procurement perspective. So I don't think the businesses disadvantage I think it's just a combination of factors at the moment, starting with demand, which is a good problem that.

Which of which have just conspired to lead to a rough profit outcome for a couple of quarters.

Okay. So sort of following on from that when you think about it strategically given that pretty much everybody else in that space has needs an onsite strategy.

How do you how do you think about your long term the long term prospects for that business given that you've gone in the other direction.

I don't think we have got in the other direction I would say over time a lot of the capital that's been deployed in the beverage segment of that business has been for onsite installations, but it's not necessarily a panacea there are times when it makes sense to go on site and in times when it makes sense for everybody, including the customer to supply from.

From a different location.

Wouldn't say that it's necessarily that one answer or one size fits all for everybody.

I think overtime, our network has been more onsite and offsite or in terms of our capital deployment, but I don't think that we have any kind of a disadvantage as a result of our footprint.

Your next question comes from the line of Brook Campbell Crawford with Baron Joey Your line is now open.

Yes. Thanks for taking my question I, just like to highlight on slide <unk> just the <unk>.

One way that needs to I guess.

<unk> that may see redesign between now and 2025 <unk>.

Are you able to provide.

Estimated large segment that the.

<unk> roughly of that portfolio is remaining to be redesigned that there'll be the first question.

And then also what is profitability look like for that.

25% out of the business no comparator.

Compared to the proportion of that portfolio thats already been redesigned faithfully recyclable.

Yes.

The structures that still are to be redesigned our some of the more sophisticated structures out there wouldn't.

I wouldn't be surprised to hear me say that in quite often they're ones, where we have something very different in the market and some sort of a competitive advantage.

And that means that the science and the research required is just going to be more difficult and take some more time.

There are segments in certain medical segments held.

Health care segments, I should say some of the protein structures.

We're still working on alternatives for.

Those would be some of that come to mind Brook, but generally speaking what's left is the harder part of the portfolio, but on the Sam on the other hand, some of the more profitable segments that were participating into.

Ladies and gentlemen, this concludes our question and answer session I will now turn the call back to management for closing remarks.

Thanks, operator, and thanks, everyone for joining us today and for your interest in <unk>, We've had a solid first half and our outlook is for a strong finish as well in a very strong fiscal 2022, So I think with that we'll close the call.

This concludes today's conference call. Thank you for attending you may now disconnect.

Yes.

Okay.

Yes.

Yes.

Yes.

Okay.

Yeah.

Thanks.

Thank you.