Full Year 2022 Amcor PLC Earnings Call
Ladies and gentlemen.
Today's conference will begin momentarily. Thank you for your patience.
[music].
Ladies and gentlemen, thank you for standing by and welcome to <unk> full year 2022 results conference call.
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After the Speakers' remarks, there will be a question and answer session.
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Z Whitehead head of Investor Relations you May begin your conference.
Thank you operator, and thank you everyone for joining M cord June quarter earnings call for fiscal 'twenty two joining the call today is built into Lea, Chief Executive Officer, and Michael Casamento, Chief Financial Officer, before I hand, Joy, but let me note if you watch it whenever.
So I am called Dot com under the investors section, you'll find today's press release and presentation, which we will discuss on Nicole.
Please be aware that we will also discuss non-GAAP financial measures and related reconciliations can be found in that press release and presentation.
Remarks will also include forward looking statements that are based on management's current views and assumptions. The second slide in today's presentation lists several factors that could cause future results to be different than current estimate.
And reference can be made to <unk> SEC filings, including our statements on Form 10-K, and 10-Q for further details.
During the question and answer session as the operator mentioned, we request that participants ask that question and then rejoin the queue for any additional questions with that over to you Ron.
Thanks, Tracey and thanks, everyone for joining Michael and myself today to discuss <unk> financial results for fiscal 2022, we will begin with some prepared remarks before opening for Q&A kicked.
Kicking off with slide three which covers safety, our first and most important value throughout fiscal 'twenty 'twenty. Two we continue to make good progress on our long term objective of eliminating injuries across our global operations.
The focus of our teams on implementing additional safety best practices resulted in a further 3% reduction in the number of reported injuries globally and I'm pleased to report that well over 50% of our sites continue to be injury free for the past 12 months or more.
We pride ourselves on making the wellbeing of our 44000 global employees. Our number one objective and we will continue to strive to achieve our goal of no injuries.
Turning to our key messages for today on slide four first.
First FY 'twenty two it's been another outstanding year for Amcor, we could not be more pleased with how our teams have demonstrated remarkable persevere perseverance and agility continually adjusting to challenges in the operating environment from raw material shortages to high inflation, while remaining focused on driving value for our customers and our shareholders as.
As a result financial performance was strong with gross growth across all key metrics.
The business finished the year with good momentum more than offsetting any external headwinds. So that Q4 was our strongest quarter of sales and EBIT growth and full year EPS growth of 11% was at the top end of our guidance range.
Second we expect the business to continue performing well and we anticipate sustaining strong underlying growth in FY 'twenty three.
And finally, we have a resilient and compelling investment case, which has consistently delivered significant shareholder value through a combination of organic growth value, creating acquisitions and cash returns to shareholders.
Turning to some financial highlights for the year as outlined on slide five.
In short we've added to our track record with another year of sustainable growth in the underlying business.
Focusing on the strong June quarter net sales growth was 13% and this included approximately $1 $7 billion of incremental price increases on an annualized basis related to the pass through of higher raw material costs.
Excluding this pass through organic sales growth accelerated through the year, reaching 6% for the June quarter in both the flexible and rigid packaging segments.
And our strong performance reflects good work by our teams to recover broader and higher levels of general inflation, mostly through the second half of the year.
It also reflects favorable volume and mix benefits and as we have in past in the past several quarters, we benefited from mid to high single digit growth in high value priority segments, which confirms that our focus on these faster growing markets is paying off.
This topline growth converted into adjusted EBIT growth of 9% in the June quarter, and it's worth noting that this high single digit earnings growth was achieved in a quarter, which clearly no longer benefited from any synergies and while we continue to experience significant inflation and an unfavorable price cost lag related to raw materials.
Flexible has delivered outstanding EBIT growth of 11% in the quarter and in line with our expectations earnings growth continued to improve in rigid packaging.
For the full year net sales growth was 13% and 4% on an organic basis, which represents our third consecutive year of accelerating topline growth.
Adjusted EBIT of $1 7 billion was 7% higher than the prior year and adjusted EPS of <unk> 85 per share was 11% higher than one year ago.
Our financial profile remains strong with return on average funds employed at 16, 3% and we also returned more than $1 3 billion of cash to shareholders through share repurchases and a higher annual dividend.
Now before handing over to Michael for more detail on the financial results. Let me provide an update on our business in Russia as.
As previously announced we have been exploring all strategic options for our Russian business and after a thorough assessment, we've decided to sell our three manufacturing sites in Russia.
Until completion, which we expect will occur in the second half of our 2023 fiscal year, we remain committed to supporting our employees and customers, while preserving value for shareholders through an orderly sell process.
We're also proactively undertaking initiatives to help offset the future impact of the divested earnings, including optimizing our European footprint and adjusting our regional cost base.
With that I'll hand over to Michael who will cover the estimated impact of the sale on fiscal 2023 guidance.
Thanks, Ron and I'll begin with the flexible segment on slide six.
Performance throughout fiscal 'twenty, two was excellent across several different dimensions as each one of our businesses responded quickly to the continued evolving market environment implementing measures to recover higher raw material costs manage general inflation.
Cost performance and deliver increasing mix benefits.
Year to date sales of $11 2 billion includes significant recoveries of high raw material costs of $1 1 billion.
The overall price cost impact has remained manageable headwind through this inflationary cycle given the diversity of materials, we buy.
In multiple regions in which we consume less materials.
And the leverage we get from our well developed and deeply embedded capabilities, which have enabled us to implement a range of pricing accurate actions across the business in a timely manner.
Excluding this raw material impact we are very pleased with the organic sales growth, which was delivered across all flexible business units as well as the momentum builds for the year as we focused on successful recovery of rising generally inflation optimizing mix benefits.
Organic sales growth was 4% for the year and 6% in the June quarter.
Representing the strongest quarter of growth for the year.
The strong mixed benefits in part reflect continued growth in priority segments, including healthcare pet food and coffee.
We have made deliberate choices to focus on these segments and through the year have seen organic sales growth in the mid to high single digit range across these categories.
More broadly supply chain disruptions had a dampening effect on growth in certain high value categories through the year.
Including in the June quarter.
As a result year to date in June quarter volumes across the flexible business were in line with last year.
Thanks to face constraints, we proactively took action in parts of the business to a direct direct constrained materials to their highest value is further enhancing mix.
In terms of earnings adjusted EBIT growth of 9% on a year to date basis and 11% for the June quarter reflect strong price mix benefits and favorable cost performance.
Margins also remained strong at 13, 6%, despite an adverse impact of 150 basis points from the mathematical consequence of pass through pricing of higher raw material costs.
Turning to rigid packaging on slide seven.
The key messages today at the underlying demand has remained elevated across north and South America through fiscal 'twenty, two leading to continued sequential strengthening in our earnings growth in the June quarter in line with our expectations.
On a year to date basis reported sales grew by 20%, which includes approximately 16% related to the recovery of high raw material costs.
The 5% organic sales growth was driven by favorable price mix benefits of 2% and volume growth of 3%.
In North America year to date beverage volumes were up 1% hot fill container volumes increased by 2% for the year against a strong comparative period of double digit growth.
We're up 4% in the June quarter, reflecting continued strength in categories like <unk> and juice.
By leveraging <unk> highly differentiated technology design and PCI handling capabilities, we are well differentiated and adding significant value for our customers and the hot fill segment, which over a multiyear period has resulted in compound volume growth of around 5%, helping drive consistent mix benefits.
Specialty container volumes continue to improve throughout the year, including in the June quarter, but on a full year basis remained below the prior year, which benefited from a strong first half in the personal care category.
And in Latin America, the business delivered double digit volume growth for the year supported by higher volumes in all countries, we operate in the region.
In the June quarter marked the highest level of volume growth for the business. This year. It led in part by strength in Brazil.
Turning to earnings in line with our expectation operating conditions and financial performance in the North American business improve through the second half of the year.
After being adversely impacted by industry wide supply chain complexity and disruptions as well as capacity constraints in the first half.
As a result, the overall business delivered adjusted EBIT growth of 4% in the second half with growth improving sequentially and <unk>, 5% in the June quarter.
Moving to the cash in the balance sheet on slide eight we continue to generate strong free cash flow, even as we step up our capital investments and compensate for additional working capital needs from higher raw material cost and supply constraints.
Free cash flow was $1 1 billion in line with the expectations and broadly in line with.
Fiscal 2021.
We are pleased with this result, given we've won the unfavorable working capital impact of higher raw material costs throughout the year and have also proactively increased inventories across the business to help offset some of the volatility created by supply constraints.
Our working capital performance remains a top priority one even more critical in this inflationary environment and despite these challenges we have been able to maintain a 12 month average working capital to sales ratio below 8% and in line with last year.
We also see ample opportunity to increase investments in strategic growth projects, which generate strong returns in excess of 20%. This led to a 13% increase in capital investments during the 'twenty two fiscal year and as we've previously communicated we will continue to step up investments to support future organic growth.
We maintain an investment grade credit rating, which gives us access to funding through the cycle the competitive rates and approximately 54% of our debt is fixed.
Leverage at two seven times on a trailing 12 month EBITDA basis was in line with our expectations at year end and the balance sheet is extremely well positioned with only one maturity in the next 18 months being a $300 million eurobond in March 'twenty three.
We continue to deliver on our investment case, returning meaningful capital to shareholders during fiscal 'twenty, two through repurchasing $600 million worth of shares and raising our annual dividend per share to <unk> 48.
In total we are pleased to have returned more than $1 3 billion to shareholders in fiscal 'twenty two.
Turning now to <unk> outlook for fiscal 2023 on slide nine.
We expect adjusted EPS of approximately 80 to 84 cents per share on a reported basis.
This includes growth of 5% to 10% from the underlying business and a benefit of approximately 2% from share repurchases.
Offset by three nonoperating items, the first the negative impact of approximately 4% from higher interest expense, which is based on the assumption that interest rates increased in line with the current.
Market forward curve expectations.
Second initiative, an estimated 2% negative impact from the scale down and planned sale of our three plants in Russia.
And third a 2% negative impact related to a stronger U S. Dollar assuming current exchange rates prevail for the balance of the fiscal year.
In terms of cash flow, we expect to continue to generate significant adjusted free cash flow for the year of approximately 1% to $1 one.
$1 billion, even as we fund a further 15% increase in capital investments to capture organic growth opportunities.
While <unk> cash flows are typically weighted to the second half in.
In fiscal 2023, the seasonality is likely to be slightly more pronounced as we intend to maintain high levels of inventory in the near term before returning to more normalized normalized levels later in the year.
As a result free cash flow in the September 23 quarter is expected to be lower than first quarter of fiscal 'twenty two.
Our strong cash generation enables us to continue paying a compelling and growing dividend and allocate approximately $400 million in cash to share repurchases during the 2023 fiscal year.
So in summary for me today, the business has delivered another strong year of organic growth as we remain focused on executing for our customers recovering inflation and higher raw material costs and.
And increasing earnings leverage by managing mix, a continued and consistent performance supports our confidence in delivering another year of underlying growth in fiscal 2023.
With that I'll hand back to Ross.
Okay. Thanks, Michael before turning to Q&A I want to refocus for a minute on the longer term and our financial performance continues to reflect consistent delivery against our strategy and a resilient investment case, which is shown on slide 10.
And we enter fiscal 'twenty three with leadership positions in most of our chosen primary packaging segments and with over 95% of our sales for consumer Staples and healthcare products.
We also have absolute and relative scale advantages in all key regions and industry, leading commercial and innovation capabilities with this portfolio. We have a long track record through multiple economic cycles of delivering earnings growth margin expansion and significant free cash flow all while maintaining a strong investment grade balance sheet.
Our cash flow and balance sheet strength is enabling us to step up investments for growth and continue to return additional value to shareholders in the form of a growing dividend and regular share repurchases.
The starting point in creating value for shareholders will always be the underlying organic growth of the business and as we've continually strengthen the base business, including over the last few years with the Bemis acquisition, we've built sustainable organic sales growth momentum with multiple drivers of organic growth that we've that have contributed to that momentum and which are shown on.
Slide 11, we have been focused on these areas for some time and we're investing across each of them.
First amcor has leading positions in higher growth higher priority higher value priority segments, including healthcare meat cheese premium coffee pet food and heartfelt containers.
Collectively we generated more than $4 billion in annual sales across these categories and they are growing at mid single digit rates and offer significant opportunities for differentiation contributing to margin expansion.
Over time, they will represent a higher proportion of our sales mix and become an increasingly relevant driver of earnings growth.
We also have a leading and well diversified emerging markets portfolio generating more than $3 billion in revenue, which we expect will also grow in mid single digit rates over the long term as has been the case for many years.
And innovation continues to be one of the most critical drivers of differentiation in growth in the packaging industry and amcor is coming from a position of tremendous strength with deep R&D talent and capabilities.
And finally sustainability is fundamental to everything we do from an innovation perspective and remains at the forefront of discussions with global brand owners as.
As the sustainability leader in the packaging industry, we continue to be the supplier of choice to help our customers achieve their goals in a meaningful way and at scale.
Organic growth has accelerated over the last three years and as Michael mentioned, we're stepping up capex to around 4% to 5% of sales on an ongoing basis to maintain that momentum.
In our industry. There is also a pipeline a rich pipeline of acquisition opportunities available to supplement our organic growth.
We have a pragmatic and disciplined approach to M&A, we've completed around 30 deals in the last 10 years and we continue to be active.
Earlier this month, we acquired a world class flexible packaging plant in the Czech Republic.
This planned feature state of the art equipment and immediately increases our capacity in central Europe to satisfy strong demand in priority segments, including coffee and pet food.
The acquired land and buildings also provide optionality to scale and potentially consolidate operations in that region, while giving us a highly efficient production hub in a strategically attractive lower cost location.
We've also invested in several new opportunities through our open innovation and corporate venturing efforts. These typically start small, but we're very excited to have recently increased our strategic investment in APAC, a fast growing flexible packaging player leveraging digital technologies to offer smaller production runs and shorter lead times.
This increased investment in APAC is an excellent example of our objective to partner with high growth visionary companies to learn from and to leverage new innovations in business models.
As you heard from Michael we have a strong investment grade balance sheet, and we expect another year of robust cash flow in fiscal 'twenty, three which means we can continue to invest in growth and return a substantial amount of capital to shareholders. We're committed to growing our already compelling dividend every year and <unk> is one of our <unk>.
Small number of companies included in the dividend aristocrats index, which recognizes companies with a 25 year or longer history of consecutive dividend increases our current yield is especially attractive at approximately 4%.
And we've also been regular irregular re purchaser of our own shares allocating $1 5 billion of cash to share repurchases since 2019 over.
Over that time, we've bought back more than 8% of our outstanding shares or roughly one third of the shares that were issued to acquire bemis three years ago.
And looking ahead, we expect our strong cash generation to continue supporting regular share repurchases, including approximately $400 million in fiscal 'twenty three.
So in summary on slide 14, Amcor had another strong year in fiscal 'twenty to generating sustainable momentum and delivering earnings growth at the top end of our expected range, we expect to deliver another year of strong growth in the underlying business in FY 'twenty, three and we're committed to continuing delivering for shareholders by increasing investments in the.
Business and returning value through a compelling dividend and ongoing share repurchases.
So with.
With those opening remarks, operator, we can now turn the line over to questions.
At this time, if you would like to ask a question. Please please press star followed by the number one on your telephone keypad and.
In the interest of time, we would like to remind participants to limit yourself to one question and rejoin the queue for any follow ups.
Your first question comes from the line of Anthony Pettinari with Citi. Your line is open.
Good afternoon.
In.
Hi in rigid you saw really good volume growth in North America, Bev and some of your packaging peers have talked about.
Customers pushing price over volume and maybe reducing some promotional activity I am wondering if you could just talk about me.
Maybe the outlook for Bev volumes in fiscal 'twenty, three and the dynamic that youre seeing there do you think that you're gaining share or maybe youre kind of overweight. Some categories that are winning in the marketplace. Just any kind of further detail there would be very helpful.
Yeah look I think the starting point would be that.
Demand has remained elevated.
Across our business and we had a good solid year in 'twenty two from a volume perspective, but what's really more compelling in our view is that over two years, our volumes across the beverage space are up 6%.
In Hartsville, which is a priority segment for us they are up about 14% over two years and that includes growth in both of the years. So we had super strong growth in 'twenty, one and fiscal 'twenty one.
A little slower growth in 'twenty, two against that stronger comp, but the demand has remained elevated.
Over the long term, we continue to expect kind of low single digit volume growth across our end market segments. We look back over the last 567 years, we've had about 2% total beverage growth, but the heartfelt space has grown closer to three to four and that's what we'd expect going forward I think looking back over the last 24 months, there's been a bunch of ops.
Downs, clearly, but we like our exposure, we're highly levered to the sports drink category, which has gone through a bit of a rejuvenation.
Some of the hot fill juices as well.
Perform well so.
That's your expectation going forward entering its low single digit growth with maybe a little bit more and heartfelt.
Okay. Okay, that's very helpful.
And then just switching to flexible in terms of improving material availability what inning do you think you are in there or where.
At what point does that maybe run its course and does the guidance assume maybe kind of a modest mix headwind in 'twenty three as you kind of maybe go back to some maybe lower margin customers I don't know if thats the right way to think about it but.
And yes it is.
Let me answer it two separate question, let me, let me try to answer both as far as the raw material availability goes I would say, we're I'd say, we're in the middle innings.
It's been a bit like whack, a mole game in terms of the availability constraints that that we've dealt with over the last say 12 to 15 months.
We still have constraints on some specialty polymers I think the commodity raw materials that we source have been in ready supply for quite some time now where we've had constraints it's been more in specialty resins.
At times, we've had constraints or limitations on aluminum supply as well it seems to have abated a bit but as far as the overall basket of goods I would describe that we're in the middle innings I think we would like to believe Theres light at the end of the tunnel as far as our guidance we assume.
Basically ready availability and low single digit volume growth in flexible.
So that's.
Hopefully we see the end of the end of it by the end of the fiscal year in terms of the constraints.
Yes, and then look as far as mix the other the other part of your question I think.
We would expect organic sales growth to be generally similar but over time as materials become more available the contribution to that sales growth will balance out so we might see a little bit less from a bridging from.
From mix and a little bit more from volume, but longer term and this is important to note, making the distinction between the bridging of one financial year to the next.
And just a long term strategic direction, which is to drive improved mix and drive growth in those higher priority segments that we talk about.
Operator, we'll take the next question please.
As a reminder, we would like to ask participants to limit their questions to one and rejoin the queue for follow ups.
Next question comes from the line of Ghansham Panjabi with Baird. Your line is open.
Yes, Thank you and good day, everybody I just wanted to follow up on Anthony's question on the.
On the elasticity impact.
Ron I mean, maybe just a broader portfolio question, just switches, but flexible as well have you seen him.
Any sort of impact as.
As it relates to new product introduction activity or anything like that because clearly a lot of your customers are talking about consumer elasticity, taking hold and then also just to clarify the 3% price contribution and flexible.
Apart from the $11 one password vault, what exactly does that in times like these market based price increases as you term digest, where I am.
And labor costs or is there something else there. Thanks.
Yes, let me talk I'll answer the first question and Michael can come back on the second around the pricing.
Look.
We talk to our customers as you would expect and we're close to our customers across the different markets that we're participating in I think generally the same messages come back and that is what you hear them say publicly which is.
To date.
In this part of the inflationary cycle elasticities have been lower than they would have expected and lower than historical.
Levels, but they are also quick to point out that there are there is elasticity of demand even even across these these more defensive end markets.
And there is there is there is there is the potential for <unk> to increase as we get deeper into this.
This period of high inflation, there is accumulative amount of inflation that builds up which could impact the consumer all of that being said I mean, we really like our portfolio. We have no general industrial exposure were almost completely exposed to consumer staples and healthcare products, which have proven over a number of X.
<unk> cycles to be quite resilient.
And we've got no durables exposure of any of any kind also so we feel like we're as well positioned as anybody.
Certainly if you go back if you had followed the company 510 years ago. Our portfolio now is is more defensive than it's ever been.
And as I said, essentially all of our exposure to more defensive segment.
You want to talk about the <unk> in terms of the pricing so as you've seen from the results I mean, our teams have been out there working really hard to get not only the raw materials.
Increases back in the year and we saw yes, we've put through about $1 5 billion in raw material related price increases through the year about 12% of revenue.
That kind of counted at 25% increase generally across the board in raw materials.
But in addition to that.
Lately, we've seen pretty significant increases in inflation.
Across things like energy and freight and to a lesser extent some labor.
And so clearly our teams have been out in the marketplace.
Recovering those non raw material related items as well are working really hard to do that and.
And if you think about.
Energy and freight is a component of <unk> cost of goods. There are smaller component there around about 3% of our cost of goods.
And during the year, we've seen somewhere between 15% to 20% increases in those those items.
And that equates to around 100 $110 million and then if you take labor and a few other things into account.
The overall inflation for the year with somewhere around $150 million dollar Mark and if you look at our price increases across the board and we had about a 1% price increase non raw material added <unk>, 1% in the sales growth.
That's a pretty similar amount to the inflation that we saw.
Thank you.
Your next question comes from the line of Brook Campbell Crawford with Darin, Chile. Your line is open.
Yes. Thanks for taking my question just one on slide nine.
The sort of 5% to 10%.
Got it great I guess based on that.
Organic volume growth of one 2% can you just sort of step me through that that leverage.
Are you expecting price increases to more than offset cost inflation I'm sure. There's a mix in there, but it's just.
Good leverage from volume too.
To EPS.
Yeah look I would describe it as basically the components that you just outlined so we start with the expectation of low single digit volume growth.
We start with the expectation that that volume growth will be more heavily weighted towards the more differentiated higher value segments that we've called out.
We would expect to continue to get inflation recovery.
And we would expect to continue to drive cost productivity in the business. So those building blocks, probably haven't changed much I mean in certain years, we've had acquisition synergies to contribute we don't have that obviously in 'twenty three but those are the building blocks.
Yes.
Well just on the restructuring costs taken below the line and try to year. There was there was another $11 million in the fourth quarter and then.
Now there was now famous synergies and in that period as well. So maybe you can just help us understand what are some of the examples of things that contribute to that $11 million in the June quarter, and if we should expect for that to continue into FY 'twenty three.
Yes, Thanks focus Michael look that was just the end of the program. So that some tail off on certain costs relating to mostly relating to footprint related.
Items that impairments and other things so that's specifically on that.
The Ms program.
Which is now closed out so you should not expect any more.
Cost below the line for that that program, which we.
<unk> completed this year.
Okay.
Your next question comes from the line of Laurence Gambler with Credit Suisse. Your line is open.
Thank you and just making sure you can hear me.
Yes, Sir.
Thank you.
Okay first question.
I guess, Michael with regards to the cash flow guidance I was hoping for.
At least raw materials.
Inventory not to be a drag on cash flow in F. 'twenty three.
Given the cash flow guidance is.
Not in advance of F. 'twenty two it does seem like there is a bit of a drag just wondering if you can walk us through that.
And my second question is.
It related to.
You recently appointed as part of your question more for Ron you guys recently appointed head of global sales.
To harmonize some of those.
High margin categories.
And your presence across Europe , and U S. Ron maybe you can just talk about the priorities there.
Sure. Okay do you want to take the first one yes sure. So I'll start with the cash I look I mean, we are looking forward to another strong year of cash flow in that one to $1 1 billion range Theres.
There are several factors that drive that obviously, we're going to have some and we will have higher EBITDA.
Within that cash flow from a working capital standpoint.
In FY 'twenty, two we had we had a cash outflow of around $150 million on the back of the raw material price escalation and holding more and more inventory on the back of.
The volatile and disruptive marketplace. So we know that we're not anticipating an additional outflow as a result of that.
But at the same time, you're going to see increased sales and further pass through so there will be some working capital impact from that albeit we will be holding.
Working capital to sales.
Yes around that below eight ratio, which we've been pretty consistent over the last few years, So no real impact on the inventory side.
So also going to depend on what happens with raw material pricing and how the market supply chain works, but but pretty much. We are looking for a neutral working capital impact.
Let me say, we are going to be spending more on capex. So we talked about a 15% step up in Capex, which will.
Thats included in the guidance, then and then with the higher interest.
That's an outflow that we didn't have this year. So when you put all that together and are looking forward to another strong year in that 1% to $1 1 billion range.
And then Larry Yes, you asked about head of global sales and marketing, which is a role that we've had but we've elevated and maybe just for context, when we run the business in a very decentralized way.
Through the business groups, we have a small number of resources in the center.
<unk> drive leverage across the portfolio in areas that we think are the highest impact and sales and marketing has been one of those for quite some time, we've had that role in the center. What's new is that we have elevated it. It's now a direct report to me.
It's in the leadership table and there's a few things that really.
Expecting to get out of it first and foremost as we just as we pivot increasingly towards generating higher levels of organic growth.
And top line growth.
Just want the voice of the customer even more prominent around the leadership table and so this person will help us do that.
Clearly, we have some global customer relationships that have always required a degree of coordination.
Pick that up as well.
And then our commercial capabilities, which which is that initial.
Initiative called value plus that we've had in place for 15 years or so it's.
It's a commercial excellence program inside the company I think of it as sort of six Sigma for the commercial side of the business should also take the lead in driving continuous improvement in that program as well. So that's the that's the rationale for the elevation and an increase in prominence of what's always been a very important role for us.
Your next question comes from the line of George Staphos with Bank of America. Your line is open.
Hi, everyone. Good day Hope you can hear me okay.
Thanks for all the details my question is going to be on Russia, and Mike. So I wanted to understand the guidance for next year.
You mentioned it would be about a 2% effect.
<unk> that you assumed the business winds down and is sold.
By mid fiscal 'twenty three.
Does that mean, then that in fiscal 'twenty four there'll be a residual comparison would be the other half that youre comparing against in fiscal 'twenty three from having the business. In your result, and then more broadly you mentioned footprint alignment cost reduction can you talk to us about how you.
You are going to.
S try to fill some of the earnings that will be leaving and how much will acquisitions play in that and that effort for the company. Thank you and good luck with the new year.
Yes, Thanks George.
And I'll take it Michael.
Tag on here.
At the end, but we've decided to sell these these three plants, which have historically produced around 4% to 5% of our EBIT.
Our planning assumption and the assumption that's embedded in our guidance for the year is that we complete that sale process at some point in the second half of the year.
And between now and then we're scaling back the operations, which is all consistent with what we had said back in March and I think on our call in May.
Now as far as the difference between.
Roughly a 2% headwind in FY, 'twenty, three and whether or not there's any residual impact in 'twenty. Four look we're peddling really hard to offset the gap and so we don't expect any meaningful residual impact in FY 'twenty four.
Clearly, we're losing 4% to 5% of earnings we're going to take a hard look at the cost base and that part of the business will be.
<unk>, if you will the cost base in that part of the company looking at footprint as well.
So we expect to mitigate the remaining.
The impact to the extent there is any.
Okay.
Your next question comes from the line of Adam Samuelson with Goldman Sachs. Your line is open.
Hi, yes. Thank you.
One.
Hi.
I guess first question is just thinking about maybe.
<unk>.
Delivered in the quarter and your thoughts in fiscal 'twenty three.
More regionally.
And just wondering you gave some color regionally in the rigid business, but help us think about kind of what youre seeing in Europe Asia, China Lockdowns.
The most recent quarter that could have proven disruptive and especially in Europe as you look ahead.
Weaker economic growth.
And the impact of energy and power prices how that.
Impacting your view of costs, but also your view of consumer demand and I think high level, one you talked about.
Kind of low single digit volume growth outlook.
Starting assumptions are for fiscal 'twenty, three and I'm, just trying to build up to that a little bit of luck.
I'll handle that part Michael you can come back and talk about the energy point.
Yes, that's right. The starting point is the assumption of low single digit growth.
If we look backwards a bit in 'twenty two.
Because I would expect it will have similar.
Dynamics at work in 'twenty three.
Generally speaking across the developed markets.
We had sort of.
Flat to low single digit volume growth.
In North America, Europe was a little bit softer because we had even more acute supply shortages of.
Of certain raw materials, and we prioritize.
Some higher value segments and customers.
But in the emerging markets and 22, we had mid single digit growth and thats been sort of a long term trend. So that's the way we would expect the FY 'twenty three to evolve as well.
You asked specifically about China, China has been volatile I mean, its been a really consistent grower for us for a long time, we had good growth across FY 'twenty, three as well, but clearly in the fourth quarter in particular with some of the Lockdowns. We had some very strong months and we had some very soft months.
I would expect those ups and downs to persist.
The start of 'twenty, three at least as things normalize, but generally speaking and I guess the next level of detail but.
Beneath the low single digit growth across the portfolio would be.
Kind of lower single digits in the developed markets Europe , and North America mid single digits in the emerging markets of Asia and Latin America.
I would point out as well just because of the.
Some of them.
Comments you made in asking the question I mean, this has been a very resilient business through a number of economic cycles.
I can't emphasize that enough and I also would point out to those that have followed the company for a long time that the portfolio is has not been as defensive as it is now.
We really have no general industrial and durables exposure.
Michael do you want to talk about energy cost, yes. So if you look in terms of energy as I said earlier, we've certainly seen inflationary now energy cost around the globe.
In Europe and that actually in Europe accelerated in the second half.
We've been out there recovering it and where we are.
Certainly anticipating there's going to be more inflation to come.
The teams are out there and covering it and.
The level is dependent on where things get too in that marketplace, and obviously, we affected that into that into the guidance range is a range of outcomes in that guidance range. So overall, we're expecting inflation to continue and the teams are out there recovering it.
Alright. Thank you I appreciate the color. Thank you.
Adam.
Your next question comes from Jakob <unk> with Chardan, Australia. Your line is open.
Evening, Michael enabling Ron just a question on the Capex outlook, obviously, the third quarter update you upgraded the capex to sales guidance to be between 4% and 5% of revenue and today, you mentioned that basically 15% increase in the Capex guidance can you just give us some indication as to where that capex.
He is being allocated is going to allow <unk> to compete more.
And the sustainability and recycled materials.
So are we looking at kind of Bay au investment back into the business I'm just wondering how it sets you up strategically moving forward.
Yes, so look the guidance is consistent.
You do the math, we're working our way up to that 4% to 5% of sales range, which means that for a couple of years there'll be.
Larger increases on the order of 15% to do that.
That you referenced.
Generally speaking.
As a general rule, it's going into business as usual in the sense that we are not allocating capital outside of outside of our lane in the value chain. So what we're not doing is allocating capital in a major way.
Two recycling infrastructure or things like that I mean, we can.
That's a separate discussion, but we think we can contribute to the development of infrastructure in a different way. So from that perspective, you could call. It business as usual, but I think what's exciting to us is that we are.
We see enough line of sight to good organic growth in.
In some of the priority segments that we've referred to in some of the innovation platforms, which do have sustainability attributes.
That we can deploy more capital to drive higher levels of growth.
Examples in healthcare we have.
And a new health care packaging plant in Singapore.
We've also expanded our plant in Ireland, and the medical packaging space.
Put money to work in Switzerland.
To supply must Fresno capsules.
We've continued to invest in our innovation platforms are sustainable innovation platforms.
We've talked publicly about a platform called <unk>, which is recycle ready.
Material that can be used for human human human food pouches in pet food pouches. So those are some examples of where the capital is being deployed.
Your next question comes from the line of Jon <unk> with Macquarie. Your line is open.
Hi, Ron and Michael how are you.
Good John how are you doing.
Very well thank you.
Just in terms of pricing and cost sprayed and how we should think about that are you expecting a meaningful positive price cost spread.
23.
Yes.
Why have the benefit or incremental benefit of famous synergies for the year ahead, and so much as part of that is that sort of price cost spread you're starting to see that come through in a positive way now or is it more a second half whiting assuming it does.
Yeah, Hi, John It's Michael I can take that one look I mean.
Throughout this year, we've seen pretty volatile and persistent <unk>.
Increases in raw material mixed across the globe.
You'll remember, we bought a broad basket of raw materials and geographies and <unk>.
Move at different times in different ways.
But what we did see.
Through the year was.
Recovery of that but but but the hub for the entire year. It was a headwind.
Eligible headwind.
Say it east as we as we got into the second half and in Q4, certainly was a was a marginal headwind.
Wherever all materials out today.
And what we see moving forward.
Still movements upwards.
<unk> is probably one that's come down but.
The marketplace is still.
Across the globe.
A volatile.
But what we're what we've included in guidance for now is that we think in the first quarter things are going to be relatively stable.
Based on what we see today and we could start to see.
Some marginal tile wins as we as we get to December .
But what happened in the second half we will we'll say, it's all going to depend on where the raw materials move, but that's all been factored into our guidance the guidance range.
That we've put out there in that 5% to 10% underlying business obviously.
Throw materials come down fast then.
That's one of the elements that could get us to the higher end of the range and if they continue to escalate.
As you know we recover it but that there is always a lag in that and so that could that could be one of the factors that latest to the bottom end of the range but.
We sit today.
Really neutral in Q1, perhaps.
Slight tailwind as we head into Q2.
Thank you.
Your next question comes from Richard Johnson with Jefferies. Your line is open.
Yes.
Thanks, very much Ron can I just quickly ask you a question on rigid plastics your major competitor and heartfelt reported volume growth. After the June quarter, which was slightly higher than yours and the reason I gave the day growth is market share gain.
In sports drinks and given how consolidated that category is between the two of you I was just I just wanted to clarify whether you've lost any share in that particular area and then just secondly, I think sometimes you have a microphone Michael can you remind me how you account for interest paging gains and losses. Thanks.
Yes.
Look on the hot fill space.
In response to someone's question earlier pointed out over the last two years, our heartfelt volumes are up 14%.
Across any of the categories that are exposed to those theres not been 14% growth I can tell you that so I think that our share has improved over the last two.
<unk> 24 to 36 months pretty meaningfully.
Michael on the interest.
On the interest rate swaps rich again that part of.
The interest expense that runs through that line.
Alright, thanks very much.
Okay.
Yeah.
Your next question comes from Kyle White with Deutsche Bank. Your line is open.
Hey, Thanks for taking the question Ron a little bit more longer term question here just curious how we should think about the shareholder growth algorithm over the long term, you're still targeting 10% to 15% shareholder return I guess why shouldn't it be higher given the increase to capex and organic investments, especially towards some of these higher value end markets that youre targeting I.
I guess, obviously, you're increasing capex now it takes time to get those returns, but do you see runway for for this algo, increasing especially as you include M&A to it.
Look it's a good question.
Thank.
The short answer is yes, you can see a path at some point, but as you pointed out we need there is a bit of ramp up to get returns from the capital that we're putting to work I think the other thing that will happen is that the mix in that algorithm will shift a bit overtime we've been.
Grinding out the organic growth from margin expansion.
Cost productivity over the years and then we have been quite acquisitive.
Although less so more recently, so I think over time youll.
Youll see the organic growth come a little bit more from from the top line overall and.
And a little more commercial productivity.
And I think you.
Youll see us get back on the acquisition.
Path again, as we had been prior to the last few years, so I think that.
We're comfortable with the algorithm at the moment, but there's reasons for optimism that the mix will evolve a little bit.
As we move forward and that's why we're putting our money behind some of these growth projects that I outlined earlier.
Your next question comes from the line of Daniel Kang with CLSA. Your line is open.
Good morning, everyone.
I guess I would notice in terms of resin prices.
Pulled back quite meaningfully in recent months can you talk us through your thoughts on the dynamics that's driving this.
<unk> capacity coming on board potentially.
<unk> a more medium term.
<unk>.
Yes look I think as Michael alluded to the basket of resins that we buy have moved in different directions and at different paces and so overall, we actually saw resins across our global basket go up a bit in the fourth quarter, but there is definitely signs that things will ease.
And in the medium term in <unk>.
Maybe a bit sooner in certain regions of the world.
There is more capacity coming on stream in some commodities and that will certainly take.
Some of the heat out of the pricing remember that supply demand is one element and we also have the underlying feedstock.
Prices.
Playing a role as well so oil and natural gas.
Which have come off a little bit and I'm talking very recently now, but it's really those two things that drive the prices in the polymers that we consume.
For the last.
Period of time here in this more recent inflationary cycle. We've had we've had pressure from both <unk> had raws.
Supply demand working against Us at times, when we've had inflation in oil and gas.
It's possible that in the near term or certainly in the medium term both of those factors.
And we start to see some more meaningful softening and more sustained softening across the basket of raw materials that we're buying.
Okay.
Thank you Ron.
And then the chance of a follow up I just wanted to ask about potential M&A.
Are you seeing more opportunities at <unk>.
<unk> more attractive valuations given the higher rate.
<unk>.
Not yet, but you would you would have to believe that as rates go up.
As the high yield market, maybe gets a little tighter.
A little more constrained.
And that there'll be maybe less competition for deals.
That would be the theme that you would expect to emerge I mean, it's just it's a bit early in the interest rate cycle and.
It's a bit early generally.
And the asset pricing cycle for us to have seen that yet.
But we're in a great position, because we know exactly where we want to go strategically we know exactly the segments.
Wed like to acquire into to advance our strategy and we've got a great financial position to work from with a really strong balance sheet and lots of cash flow.
So we will be well.
We'll certainly be in the deal flow to the extent.
Assets do come to market.
Your next question comes from Mark Wilde with Bank of Montreal. Your line is open.
Thanks, Good evening, Ron Good evening Michael.
Hi, Mark.
Just curious about.
Any inventory destocking behavior that you're seeing we've heard a lot of conversation about this with different retailers, but I think there will also been questions about whether.
Upstream from them, whether some of the CPG.
<unk> taken on a little extra inventory over the last couple of years and whether they might be starting to bleed a little bit of that back out now just any thoughts around that Ron.
Yes look it's always difficult for us to have great visibility into.
Into where things stand from an inventory perspective down the value chain.
Yes.
And this is this is really anecdotally.
I would probably suggest that there is probably more inventory than there needs to be in some parts of the chain.
Sure.
Has it been particularly acute in any part of our business and really help things back.
No but.
I would say with the limited visibility that we have.
Say theres, a little bit more inventory than there needs to be uncertainties in certain segments.
But it will.
Take that for what it's worth which is just a bit anecdotal.
Okay, and then if I could just follow on real quickly could you just update us on sort of where volume is that in both kind of health care and medical devices. Because you did mention some incremental healthcare and device investments I know earlier in the pandemic, but some of those volumes or is there just curious about where you stand right now.
Yes, no. That's a good question I'm glad you asked I mean healthcare volumes generally in medical device packaging in pharma.
Pharmaceutical packaging have a bounce back.
In fact very strongly so we had we had good.
Mid to.
High single digit growth across both of those segments through FY 'twenty two.
Pharma was a little bit slower to rebound, but the medical device packaging volumes for US now are back to where we were pre pandemic.
Now Thats a segment that.
It has grown in sort of the mid single digits for us for many many years, it's good margin business and innovation intensive et cetera. So we expect that to continue but we're back.
Back to where we were in 2019.
Your next question comes from the line of George Staphos with Bank of America. Your line is open.
Okay.
Hey, Rob Thanks for taking the follow up I wanted to come back to acquisitions and recognizing you are going to be very disciplined as always about the businesses that you look at you mentioned that sustainability is core to everything that you do at Amcor clearly.
How important will it be for the acquisitions that you look at to either give you a new technology, a new ability to promote sustainability and otherwise help your customers products become more sustainable or it's important but you really what youre looking at are the financial metrics the improvement in.
And return on funds employed and so on how would you have us think about how you're evaluating that and if you could talk a little bit about the Czech facility.
And just to provide a bit more color on that that'd be great again, thanks, and good luck in the year.
Thanks.
Great question, George I mean, I would say that the two factors that you outlined there are inextricably linked.
As you think about doing an acquisition, especially any anything of meaningful scale.
You'd be thinking more.
Beyond the first couple of years of.
Yes.
Ownership, and so you'd be thinking about the sustainable growth in a business that you'd be acquiring you'd be thinking about the sustainable competitive advantage and all of those things in our universe are going to be linked to sustainability. So it's inconceivable that we would buy something that didn't further enhance our sustainability the sustainability credentials.
<unk> of our product portfolio, I mean that being said, we like our product portfolio as it relates to sustainability, we think that we've got the key too.
More sustainable products.
With the stable of.
Product segments that we're in today, so we don't see any.
Any real need to to step out.
But anything that we look at and we will increase will be accretive.
If you will to the sustainability profile of our product portfolio and because.
For no other reason than it will be it will lead to better financial outcomes over time and higher returns ultimately just really quickly to close off on the Czech plant, we bought a plant which is relatively new.
And it was opened right at the outset of the pandemic. So it's very.
Very low utilization gives us instant capacity.
In Central Europe , and it happens to have assets that are easily directed towards some of our priority segments.
Including coffee and pet care. So it's essentially we're essentially buying a plant more so than our business.
And we closed on that in early August and will be working over the next couple of years to fill up that that site and if things go well then we've got optionality to expand the site as well so pretty excited about that.
Bolt on in that part of the World.
Ladies and gentlemen, there are no further questions I will now turn the call back to Ron for closing remarks.
Thank you operator, thanks, everybody for joining the call today and your interest in Amcor, we've had a strong year in 'twenty, two and we're expecting another strong year in.
In 2003 and.
Expecting that the resilient investment case, we've built up over the years.
Will be especially compelling in this environment. So thanks, again, and we'll close the call there.
This concludes today's conference call you may now disconnect.
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