Q2 2023 Amcor PLC Earnings Call
[music].
Good day, everyone and welcome to the EMCORE half year 2023 results today's call is being recorded a lines had been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star one on your telephone keypad, if you would like to have.
Remove yourself from the queue Press Star one again.
In interest of time, we would like to remind participants to limit your question to one in brea join the queue for any follow ups.
I would now like to turn the conference over to Tracy Whitehead head of Investor Relations. Please go ahead.
Thank you operate it and thank you everyone for joining I'm close fiscal twenty-three first half earnings Coke joining today is run Julia Chief Executive Officer, and Mako Casamento, Chief Financial Officer.
Before I had enjoyed that let me note if you watch them.
Web site <unk> dot com on to the investors section, you'll find today's press release and presentation, which will discuss all Nicole. Please be aware that will also discuss non-GAAP financial measures and related reconciliations can be found in that press release and the presentation.
Knoxville also include forward looking statements that are based on management's current views and assumptions. The second slide in today's presentation with several factors that could cause future results to be different than current estimates and reference can be made to am close a SEC filings, including statements on for 10-K and 10-Q for for the day.
S House.
Please note that during the question and answer session. We request that you limit yourself to a single question and one follow up and then rejoined the queue. If you have additional questions with that over to your room.
Thanks, Tracey and thanks, everyone for joining Michael and myself today to discuss and of course first have financial results for fiscal 2023 will begin with some prepared remarks before opening for Q&A.
And I'll start with slide three which covers our first and most important value safety.
Safety is deeply embedded in airports culture, and our management teams understand our collective responsibility to provide a safe and healthy working environment.
Our dedication to eliminating injuries in the workplace continues to result in industry leading matrix.
In our first half we improved further and made great progress with a 24% reduction in a number of injuries globally compared to last year.
65% of our global sites have an injury free for the past 12 months with more than 30% injury free for three years or more.
Safety and a culture of caring for people will always be our highest priority.
Turning to our key messages for today on slide four.
First the business delivered a strong first half in second quarter, despite ongoing challenges in the macro economic environment R.
Our teams are doing an excellent job driving value for customers, while managing the many aspects of the business under their control.
We've increased our focus on flexing cost as demand evolved.
Practically taking actions to drive further efficiency and productivity improvements, while recovering general inflation and passing through higher raw material costs.
The outcome was strong operating leverage with an 8% increase in both EBIT.
And adjusted EPS in the first half on a comparable constant currency basis.
Second, although not entirely immune and a weakening demand environment our business remains Brazilian.
90, 95% of our portfolio is exposed to consumer staples, and health care and markets, which combined with our broad geographic footprint positions as well through economic cycles.
Our volume performance through the first half demonstrates that resilience and compares favorably to the mid single digit are higher declines reported by others in our value chain.
Third a solid first half strong execution and a Brazilian portfolio gives us the confidence to reaffirm our guidance ranges for fiscal 2003.
We're confident in the ability of our teams to continue focusing on the control of those.
Wherever are also mindful that through the second quarter, the demand environment softened and became increasingly volatile.
We expect this will continue in the near term.
And as we entered the second half of the fiscal year, we're more cautious in relation to the demand outlook and we currently expect to be towards the lower end of our EPS guidance range.
And our final and most important key message is that we remain focused on executing against our strategy for long term growth the.
The business generates significant annual cash flow, which allows us to invest in organic growth opportunities pursue acquisitions pay an attractive and growing dividend and regularly repurchase shares.
We're confident in the strength of our underlying business.
Execution capabilities and capital allocation framework, all of which supports are compelling investment case.
Moving to a few financial highlights on slide five <unk>.
First have reported net sales were up 6%, which includes approximately $670 million a price increases related to hire raw material costs.
Excluding the impact organic sales were up 2% on a constant currency basis and volumes were 1% lower.
Both are flexible and rigid segments did an excellent job driving price and mixed benefits, including recovering around $160 million of general inflation.
We're making good progress on our commercial and strategic agenda, and with our priority segments continuing to deliver high single digit organic growth and several of our emerging markets businesses also growing at high single digit rates in line with long term trends.
Positive price mixed performance more than offset modestly lower overall volumes, which reflected generally softer and more volatile demand as well as customer destocking and parts of the business.
Operating leverage was strong as we continued to increase our focus on cost and the business delivered an 8% increase in both adjusted EBIT and EPS for the first half.
Looking at our December quarter financial performance reported net sales growth was 4% and 1% on an organic basis.
Justin EBIT Meps each grew 7% so another solid quarter, highlighting the benefits of geographic diversification and exposure to more defensive end markets, even as we experienced softer demand.
Through the first half Amcor returned approximately $400 million of cash to shareholders through a combination of dividends in share repurchases and today, we've increased our plans repurchases for fiscal 2003 by up to $100 million.
Our overall financial profile remains robust with return on average funds employed at 17%.
We're pleased with our first half in our December quarter financial performance and I'll now.
Turn it over to Michael to cover more of the specifics.
Thanks, Ron beginning with a flexible segment on slide six.
Business perform well in the face of challenging macroeconomic conditions executing to recover high raw material costs managed general inflation improved cost performance and deliver solid mixed benefits.
Reported first hostiles grew 5%, which included recovery of higher raw material costs of approximately $460 million, representing 9% of growth.
Now teams continue to do an excellent job passing on increases in commodity costs and as expected the related price cost impact on earnings for the second quarter was mother's modestly positive after being neutral in Q1.
Excluding the raw material impact in negative currency movements.
3% the dice the first half in December quota.
Driven by favorable price mixed benefits of 4%.
[noise], partly offset by modestly lower volumes.
As Ron mentioned sales across our high value priority segments, which include healthcare Petcare in protein remained strong collectively growing at high single digit rates through the first half and contributing to positive proche mix.
We also continued say strong growth in our businesses in India, and Southeast Asia, particularly in health care and made and markets.
This helped limit the impact of lower volumes in some business units across categories, including coffee.
Condiments confectionery and highly personal care way, we have same varying degrees of customer destocking allowed demand.
Volumes were lower in China due to Covid related Lockdowns in Latin America, where inflationary pressures unfavourably impacted demand in several countries.
In terms of earnings for flexible so we again demonstrated strolling operating leverage adjusted EBIT group.
8% for the half reflects ongoing price mixed benefits and favorable cost performance.
Margins remained strong at 12.6% despite the 120 basis points solution related to increase sales calls.
Associated with passing through high raw material costs.
Turning to rigid packaging on slide seven.
Built on its first quarter performance with another solid another.
Another quarter soda earnings growth.
First hostiles increased by 12% on a reported basis, which included approximately $210 million or 30% of styles related to the pass through of higher raw material costs.
Well getting sales declined by 1% for the half, reflecting 2% lower volumes, partly offset by 1% priced mixed benefit.
Looking at the December quarter overall volumes declined by 5% with the beverage business in North America, Latin America impacted by lower consumer demand in customer Destocking.
In North America first half bedroom beverage volumes were down 5%.
This included heartfelt container volumes, which increased 2% in the half, but we're down 2% in the December quarter, which was in line with market.
Culturally volumes with Laura and the half and quota due to a combination of a lower consumer demand and customer data okay.
In Latin America volumes of marginally higher for the first half with growth in Mexico, and Argentina, offset by lower volumes in Brazil.
Consistent with what we saw in the flexible segment. The December quarter was on five Billy impacted by the consumer demand in the region.
Especially containers business delivered good performance with solid volume growth from healthcare Darian nutrition and markets.
And overall adjusted EBIT for the original segment in the first half increased 7% on a couple of constant currency basis.
Teams being able to adjust to evolving market conditions and improve operating cost performance.
Moving to cash in the balance sheet on slide eight.
We had a strong sequential improvement and adjusted free cash flow, which came in at $338 million for the December quarter.
In line with last year.
For the hockey a cash outflow of $61 million was a lot of the last year, largely reflecting the unfavourable impact on the working capital cycle related to high levels of inventory and high raw material costs.
These impacts also make a cash flow seasonality, which is typically waited for the second half of the year more pronounced physical twenty-three.
A financial profile remains strong with leverage at 2.8 times on a trailing 12 months <unk>.
S as in line with our expectations for this time of year, given the seasonality of cash flows and their estate of proceeds from the rush of business, though.
We repurchased $40 million worth of shares in the December quarter, and expect to repurchase up to $500 million in total through the 2023 fiscal year.
Prior to turning to our outlook I wanted to provide a few more comments about the complaint it's out of our Russian business.
We received solid price as a $365 million in addition to $65 million of cash which was repatriated upon completion.
In terms of the use of total proceeds received we expect to do three things first.
First we will invest approximately $120 million in a range of cost saving initiatives.
Across the business to partly offset divested earnings.
This is in addition to approximately $50 million of cash we allocated back in August of similar initiatives.
Secondly plan to allocate up to 100 million for additional share repurchases.
And finally, the balance is expected to be used to reduce net debt in proportion with the best that EBIT, maintaining a leverage ratio.
Taking us to the outlook on slide nine we are maintaining a guidance range for adjusted EPS of 77 to 81 cents per share a shaming current foreign exchange rates prevail through the balance of the year.
As Ron mentioned, while we are taking aggressive action now to flex the cost base across the business. We expect the environment will remain volatile in the near term and entering the second half of the fiscal year, we are more cautious in relation to the demand outlook and currently expect to be towards the lower end of <unk> guidance range.
I'm waiting to bridge on this slide lies out the elements underlying I'd expectations we.
Can we expect any.
Growth of approximately 3% to 8% on a comparable constant currency basis to be comprised of approximately 5% to 10% growth from the underlying business and a benefit of approximately 2% from share repurchases.
This will be partly offset by negative impact of approximately 4% related to hire estimated interest in tax expense.
Effective tax rate for 2023 is expected to be lower than last year in the 18th 19% range. However, the year over year benefit. This provides is more than offset by higher interest expense.
Now that we have clarity on the timing of the style, we expect a negative impact of approximately 3% related to the divestiture about three plants in Russia and.
In addition, the U S dollar has wake and since our last update how we now expect a negative impact of approximately 4% from currency translation movements.
We also reaffirming adjusted free cash flow arrange for the year of one to one to 112 1.1 billion, although likely towards the lower end of the range is noted on last protocol.
So in summary from me today of the businesses delivered another solid results and we remained focused on supporting our customers and taking actions to Rick to continue recovering inflation and flex a cost base balancing these priorities will levell business well positioned as we navigate through higher than usual volatility in demand macroeconomic gnomic challenges in the near term.
With that I'll hand back to her.
Thank you Michael and in previous quarters, we've highlighted multiple drivers organic growth would you see on slide 10 and include priority segments emerging markets and innovation before we open the line of questions I wanted to just take a few minutes to talk about one of our most important priority segments, which is healthcare.
An overview of our global health care packaging business is shown on slide 11.
With more than $1.8 billion in annual sales in fiscal 2000 to our portfolio covers both flexible and rigid packaging formats and is evenly split between medical device and pharmaceutical packaging.
This is a truly global business with global customers and globally recognized products and technology platforms, and it's one where we have scale on every region, including in emerging markets.
This is not an easy market to enter because health care packaging is also highly complex with many functional demands quality standards and regulatory requirements. This.
This complexity provides ample opportunities to differentiate and add value through our industry, leading product innovation materials science and global regulatory capabilities and makes healthcare a strong contributor to answer as growth profile from both the volume it mixed standpoint.
It also supports strong collaboration with customers leading to a book a business that tends to be more consistent over the medium and longer term.
Moving the slide 12.
Globally healthcare packaging has a substantial market with significant head room and growing at mid single digit rates over time, and we're investing to capture more of that growth.
As an example in the December quarter, we localized thermoforming production in Europe at our medical packaging site in Sligo Ireland.
This is an exciting project that leverage the experienced in technical know how of our sites in Minnesota in Puerto Rico.
As a result, our European business and customer base will now benefit from local access to a broader range of specialized healthcare packaging solutions.
And another organic growth example, we opened a world class dedicated healthcare Greenfield plan in Singapore at the end of calendar 2021, enhancing our ability to serve the rapidly growing Asian market.
M&A also plays a role in supplementing organic growth in this segment.
Few weeks ago, we announced the acquisition of Shanghai based M. D. K, a leading provider of medical device packaging in the China market.
This is a great acquisition that enhances our leading position in the broader Asia Pacific Medical packaging market.
Product capabilities and.
And a complimentary customer base.
Drilling down a little more on sustainability and moving on to slide 13.
Across all substrates and and markets. The sustainability of packaging solutions continues to be a critical consideration for customers consumers and regulators are.
Collective objective is to create a truly circular economy for the packaging industry and the solution is responsible packaging, including package design infrastructure development and consumer participation.
In terms of package design amcor, as well positioned as a leader in the industry.
Today, nearly 100 per cent of our rigid packaging and specialty cartons products and more than 80% of our flexibles products are designed to be recycled or have a recycle ready alternative.
This matters because his deadlines to meet previously established goals rapidly approach customers are increasingly adopting more sustainable solutions.
As an example, this quarter Mars adopted and fiber performance paper for part of their confectionery range in the Australian market and forever or Shea launched and am fiber pilot in the European market.
These two companies joined Nestle, who initiated a global transition to pay per view packaging for one of their core brands in 2022, and they are now adding a pilot for the Kid Cat brand.
We've also seen important progress in the development of the infrastructure and technology required to produce recycled materials while.
While the use of food grade recycled petey is growing rapidly, including in our original packaging business the ability to produce recycled content for and from flexible packaging will be a critical ingredient to creating circularity.
Significant strides are being made in advanced recycling technologies, which enable use of recycled content in flexible packaging applications, where mechanically recycled material may present regulatory or technical challenges.
To meet ongoing demand for more recycled material and to support infrastructure and technology development.
<unk> continues to increase our long term off to commitments.
In December we announced a five year extension of our partnership with Exxon Mobil to purchase certified circular probably ethylene, giving us line of sight to significant quantities of recycled material that can be used in healthcare and food grade packaging applications.
We also recently announced a partnership with Lifestyler to further explore an investment in one of Australia's first advanced recycling facilities.
These agreements provide another point of differentiation in value, which can be applied across all end markets for customers like <unk>, we've incorporated 30% advanced recycled materials.
Into their packaging for the Cadbury dairy milk brand in the UK in Australia.
These capabilities also position and forward to meet the sustainability goals, we share with our customers and to contribute to a truly circular economy for the packaging industry.
Turning to slide 14.
The opportunities and investments I've outlined today in our health care business or innovation across a range of substrates and are increasing access to advanced recycled materials are just a few examples of the initiatives, we have underway, giving us confidence that we have built and continue to build a strong foundation for growth and value creation.
Don't expect to be immune to macroeconomic challenges, but we believe we're well positioned with a resilient portfolio and multiple drivers of growth including cost productivity.
Additionally are consistently strong cash flow provides the ability to reinvest in the business to pursue acquisitions repurchase chairs and grow the dividend all of which positions as well to generate strong and consistent value for shareholders over the long term.
And finally in summary on slide 15.
We have delivered a strong first half and a macroeconomic environment that remains challenging we're more cautious on the demand environment entering the second half, but our portfolio leaves us well positioned and most importantly, we remain focused on executing against our strategies for long term growth.
Operator with those opening remarks were now ready to open the call to questions.
Thank you once again, everyone that is star one to ask a question and please enter in the interest of time, we'd like to remind you to limit yourself to one question you may Rachel in the queue after that.
We'll take our first question from Anthony Pettinari, which city.
Good afternoon.
A lot of CPG companies and packagers have talked about a drop in December volumes, but kind of a meaningful improvement and maybe a strong start in January I'm. Just wondering have you seen this or or did you see kind of <unk>.
December weakness continue into January I'm, just trying to square what sounds like maybe.
A weaker view on fiscal second half demand and then maybe specifically you talked about restocking and lower demand for Richards I'm. Just wondering what you think restocking stands now.
Yeah.
Sure. Thanks for the questions Anthony.
Maybe I'll just back up a step and talk about the chronology of.
Volumes that we saw it through the second quarter.
Very much a mixed picture in October and November depending on the business and the geography.
The story was relatively mixed but across the business are volumes were relatively flat in those two months December we definitely saw things softened.
We had volumes across the group down mid single digits I think that's the function of softening demand, but also destocking and a number of segments.
We know that because customers took more shutdowns than normal and longer shutdowns than normal.
As we work our way as we worked our way into January we did see some improvement.
I'm not sure that we would call it a trend, but we definitely saw some improvement in January , albeit mixed and so the word I would use with regard to our outlook is cautious and it's this caution around this demand outlook from here, given the volatility which really had swung.
Quite considerably from month to month and almost week to week.
I'd say that despite the improvements.
January we just remain cautious on the demand.
Side of the of the equation as it relates specifically to Richards.
And Destocking I think it's it's clear.
There has been some destocking in that in the beverage segment.
North America, and also a Latin America to a certain extent.
We've also seen demand soft generally if you look at the scanner data for the quarter the market generally in North America for beverages was down mid single digits.
We also know that our mixes more exposed to the convenience channel convenience store sales were down even even further than the broader market. So.
I think that our volume performance and ridges through the quarter as a function of a softer market probably some destocking and then offset by some business women's that we picked up particularly in the hustle side. So.
That's that's.
To where we see it as it relates to volume.
Oh, Okay. That's very helpful. And then just you know in the release I think you talked about maintaining the full year EPS in free cash flow guide you know.
In your comments you said you could be at the lower end, you know without putting too fine a point on it is there any reason not to sort of formally lower the guidance range or are there may be circumstances that could get you maybe to the higher end of the guide is it just you know completely.
Completely dependent on volumes or is there any way that we should think about you know.
Getting to maybe the higher end of the lower end of the guide.
Yeah look I think the primary reason for not changing the guidance as we have half a year left we've got two quarters.
We've got a relatively wide range when you consider that we've got two quarters left and we've maintained.
With a the range uhm the swing factor really will be volumes.
It really will come down to volume.
The volume outlook for the second half I think we also feel pretty good about the execution capabilities of the business and the ability to continue to take cost out which was a real highlight for us with a <unk> in the first half.
We believe will continue to do that in the second half.
But this one factor will be will be volumes and what could lead us to the to the high end of the range we could have.
Low single digit volume growth.
We could get out front of raw materials, they come off at a faster paced and we're assuming and a weaker U S. Dollar would would help as well and the inverse would be true.
For the lower end of the range I think it's also fair to say that at this point in the year.
We have a wider range of demand outlook than we normally would wider range of possible scenarios for volume than we ordinarily would RV.
<unk> would be volumes could be anywhere from.
A couple of points to download single digits.
And it's unusual for us to have a forecast that could include a decline in volumes.
So for all those reasons we've.
We've decided to express some caution here, but what we think with two quarters left and with some <unk>.
Strong cost performance.
Will continue into the second half we thought it was prudent to maintain the range at this stage.
We'll take our next question from John per Cal with Macquarie asset management.
I'll get get anything runner, Michael how are you.
Hey, John good thanks to John good.
Just in terms of caution Knicks see that's putting up a benefit for you I've.
A long period of time, we sold that continuing this half with a 4% benefited and Flexibles and.
Presumably healthcare, which he pulled out <unk> instead of a key part of that so the question is how you say that probably makes profiling for the second half I mean would it be J decided you're expecting slightly less prosch and make Spanish it in the second half relative to the first.
Yeah, you want I can I can help you with that one sir you're right. The teams have done a good job on pricing and you know.
Getting out there ahead of inflation and recovering that and you saw her in that we can we commented in the half the recovered about $160 million in.
Uhm cost inflation during the period, but we also had really good <unk>.
<unk> benefits, particularly from the strong healthcare performance, particularly in not in the house and the half way, we silly a double digit growth which is.
Above average card for that part of the business in a bit of rebound uhm versus the prior year. So as we look forward into the second half.
They'll still be the the price makes benefit day, but inflation still day, we've got to recover that and you know in the health care side.
Comparatively and open a stay the same level of growth and therefore, the mixed benefits. So low we still expecting that we would we would say that it will be lower than what we saw in the first half.
Okay. Thank you.
We'll take our next question from George Taphouse with Bank of America.
Hi, everyone. Good day, good evening good morning.
My question on for the call is on cost savings Ron you talked about.
Aggressive action forget exactly how you phrase it but to to obviously all set some of the headwinds that you're saying can you talk a bit further about.
What those actions are can you size them either in relation to.
The volume weakness that you're seeing or the ability to offset the dilution from Russia, and how can cost say build.
Build into both calendar.
Twenty-three and fiscal 24 to offset that further dilution you'll have an <unk> from Russia I at least in the first half of the upcoming new year. Thank you okay.
Okay. Thanks George.
Let me respond to the question of Mic on a response to the question in two parts I think there's the cost savings.
Activities that we've been undertaking through the first half.
In the face of softer volumes and then there's the.
Offsets to the Russian.
The divestment of the Russian earning so look we got out front I think very practically.
And fairly aggressively on cost in the first half I mean, I think the way to think about it as we had a really strong operating leverage with 2% organic sales growth really flat two minus 1% on the volume line and we had 8% EBIT growth and if you think about the drivers of that EBIT rose.
Price and mix sort of upset and we recovered inflation, so and really the profit growth was driven by cost outs, and so where did the cost outcome from we.
We did a really good job of flexing labor, we cut shifts we reduced over time several hundred people are out of the business.
Reasonably meaningful headcount reduction across the business. We've also pulled the procurement lever pretty.
Pretty hard and cut back on discretionary spending and we got out front early on those actions given the volatility that we saw.
And just reading the tea leaves from.
Discussions with customers on the demand environment those those initiatives those actions will continue into the second half.
And may underpin the outlook that we've that we've reaffirmed today I think Russia is is almost a separate.
Separate topic, if you will.
To levels that Michael can talk about some of the specifics, but we had a business in Russia with three plants.
That represented about 2% to 3% of our sales and roughly 4% to 5% of our EBIT in any given year, so essentially $80 million to $90 million of EBIT, which we've now divested.
And we are resolute and trying to replace that EBIT as fast as we possibly can.
And so with the proceeds exceeding our expectations, we generated a pretty healthy profit on the sale of the business as well and and the proceeds of over 400 $430 million micro alluded to.
A bit ahead of our expectations. We think it's a it's a good use of of cash to reinvest in the business and take cost out structural cost out to help offset the $80 million to $90 million of EBIT that we've.
That we've divested Michael maybe you can talk a bit more about the financial profile of what we're planning to do the show. Thanks, Sean Yeah. I mean, just following on from that so uhm, we announced today, we're gonna use part of the proceeds to help divest to.
To help offset the divested earnings and we.
We announced today around $120 million of cash will be put to work in cost saving initiatives.
Things like footprint in SG&A and the like and that's in addition to to 50 million cash that we allocate it back in August as well so in total about $170 million.
Of cash is going to be invested in in cost out initiatives over the next 12 to 18 months and we would expect to get kind of a 30% return on that at full run right but.
But if you think about the timing of that you know.
Those initiatives around each Donny will start to work on those this financial year. So there is no impact factored into no no no upside factored into the guidance range in FY twenty-three, but certainly we're expecting benefit from this program in FY 24, and I need to FY 25, and if you think about that.
Bear in mind in.
H one in FY 24, we will have a headwind.
These programs will kick in that but why did more to the back end of the of the year. So on that on that 170 million investment. If you if you call a 30% return.
Roughly a 50 million.
Potential impact too to offset the Russian ratings I would say that two thirds of that we think we can achieve in FY 24. So over the course of FY 24, we feel that we can pretty much minimized any headwind from the rest of your ratings in the first half of April of 23.
And then you'll get the full run right as we head into a fly 25.
Thank you.
We'll take our next question from Larry Gambler with credit Suisse.
Oh, Thanks, Micheal and run.
As well just continue onto that.
Last comment can you just talk about some.
Some of the specifics about how to achieve that 30 per cent return $50 million savings.
From those Russia cost saving actions what are you guys doing there.
Yeah, as Michael alluded to Larry we're gonna close implants, and as we think about it and take some overheads out if we if we think about this environment that we're in uhm.
With the demand backdrop.
Being as uncertain as it is.
And the fact that we're also already increasing our capex.
To pursue growth, particularly in our in our priority segments, we feel like that's pretty well and trained. So then the next the fastest way to generate earnings to offset the divested earnings is through cost reduction and cost reduction and a structural which means you know optimizing the footprint and it's a business that we've got 220 plants around the world.
There's always opportunities.
To optimize further and so that's that's largely what we'll do when we will as I said, we also will reduce overheads and parts of the business as well to the right side of the cost structure.
Okay, that's pretty clear, thanks, and one of one.
One other thing that caught my attention is you guys repurchased only $40 million of stock in the first task and then to target for 500 million now for the full year.
So I'm just wondering was there anything that kind of gave you some hesitancy in the first task.
I'm not interested if you know on the M&A pipeline.
You guys might've been.
Looking at something that caused some hesitancy.
Well I think.
Ultimately we started the buyback in Quito, we spent $40 million.
If you think about the cash flows in the first half we also invested in some some MNI activities that we we acquired the upon in the Czech Republic, We we spent a little more on APAC and.
And at the same time, we will.
Managing the cash flow as we start to release some of the inventory that that we built up on the backup supply chain constraints.
Over the past 12 months. So we started to see that come out of the systems towards the end of quota to which gave us.
The ability to start to do the buyback and then as we look forward.
Full willing to H, two we will start to see more.
As I as I mentioned in my comments will say the cash flow more waited to the second half, particularly as we start to get through the inventory and working capital impacts from that in addition to that you've got the proceeds from the from the Russia style, which we're allocating $100 million to the buyback. So really it was around the timing of the cash flow and just managing that through and we can get the.
Buyback down in the second half as we've done in <unk> in the past so uhm, we feel like we we can get the $500 million.
We'll take our next question from gunshot Punjabi with bird.
Hey, guys. Good data everybody I just wanted to go back to the question under caution Ronnie reference.
Can you elaborate on whether this is a closet at a specific region between the Europe Europe and the U S. A Latin America or is it just universal.
I'm, just trying to get a sense as to maybe some of the just the moderation of volumes that were C is really a function of perhaps just catching up.
Over the last year or so from previously depleted inventory then that will just approaching a more normalization phase and an adjustment related to that.
Yeah, I don't think we know the answer to that is a short short response to your question. The caution is based on the volatility that we've seen in demand patterns globally.
Now if we look specifically in the second quarter.
More segments specific in North America and Europe .
And then we had some geographies where where things got.
Got got even more volatile as we went through the quarter in particular, Latin America, where we saw some destocking, but also just we think some softer demand in light of the deteriorating macroeconomic environment in several countries down there China would be another one where we.
We saw <unk>.
Demand softened considerably in the second quarter really concurrent with Covid Lockdowns now obviously those are behind US we would expect the businesses to bounce back, but how strongly bounces back.
As an open question.
And look as far as the drivers of volume in the quarter and even into January how much is related to the consumer pushing back on on prices that have been put through.
So.
Generally speaking there's been volatility across the business.
And that adds up to a degree of caution on our on our part.
Okay I understood and then just given the increase in interest rates I mean, obviously, it's a big headwind between.
<unk> 23 in fiscal year 2000 pages for everybody really I was thinking definitely if at all in terms of allocating cap cash flow towards buybacks versus that paid of.
Yeah.
Interesting <unk> for us the buyback still make sense. It's APSA creative you know, we have strong cash flow and and you know <unk> <unk>.
Regularly doing buybacks and will continue to do that you know where the interest rates are still make sense from that perspective.
We'll take our next question from Daniel Hang with C. L. S. A.
Morning, and everyone.
And on the impact of Destocking.
It's.
Quite difficult to quantify but can you estimate how much concentrated to the volume softness and vice flexible some richards.
Seeing any green shoots at this point and sense of the Destocking cycle coming to an end.
And just.
Wondering what your your scheming in terms of Destocking and your guidance.
You look Daniel it's a difficult one to estimate I mean, I think you would have to triangulate a few different data points. You. If you look at the scanner data and look at the results of other public companies that are reported volumes were down.
Considerably in light of those comparisons are volume performance was actually good.
But when we know anecdotally in certain segments.
Particularly in coffee single serve coffee in Europe .
Some of the dairy segments in the U S.
In Europe , we know.
And some of those places, including beverage in the original packaging segment that there was excess inventory in the system and we know that because customers took shutdowns.
In a way that they haven't in the past meeting.
Longer shutdowns.
So it would be very hard to parse out the volume performance of the half the volumes are down 1%.
Think that probably compares favorably to the other external markers out there, but it would be really hard to parse.
That 1% in terms of what was Destocking versus what is just a softening consumer environment given the price increases that have been put through.
Pretty much all segments in all regions.
Thanks for an apostrophe.
We'll take our next question from Anna Samuelsson with Goldman Sachs.
Thank you good afternoon.
Everyone.
I guess I wanted to come back to this question on next and Ronnie earlier, you alluded to maybe healthcare, which had been a strong growth driver.
Writing as we go into the into the into the back half of the year can you just maybe calibrate that a little bit largest in the in the context of.
<unk>, probably cautious kind of volume outlook.
Yeah did you see the health care business handling out and kind of help.
Help us think about how what happens <unk>.
<unk> 24 ages are lapping some of the.
With a <unk>.
Well, how health care has been a good grower for us over many many years and it's grown both the medical packaging side and that pharmaceutical packaging side of grown kind of mid single digits.
Globally, obviously, a bit higher in the emerging markets and that's been consistent over a long period of time I think.
We saw a extra ordinary growth.
In the first half coming off of actually a quite quite a strong fiscal 22 as well.
A few drivers there that.
We think have been.
Fueling that growth obviously.
Our market position is quite strong and the innovation that we've been bringing to the market is quite strong and we're investing behind that as we've highlighted today.
I think there has to be.
To be clear, there's been some pent up demand because some of the supply chain constraints that.
We've we've talked about and others have talked about really hit the healthcare segments for us in a pretty acute way. Those are those are unwinding and some of that pent up demand as being satisfied.
And.
I think it's also not a not a secret that on the pharmaceutical side. There has been a relatively big cold and flu season.
So those are some of the things that really fuel double digit growth globally across both the medical device and pharmaceutical segments for us in the first half and we believe that the business will continue to grow it healthy rates will revert more towards long term trends.
That we've seen over a long period of time and the kind of mid single digit range and that would apply going into FY 2004 as well.
Okay. That's helpful. If I can squeeze it another one in the context of it maybe on the food and consumer good closet slowing demand in Centerview. These talking on the part of the customers have you seen their engagement on.
New products and new form factors sore throat for packaging change at all it activity rfps need that kind of activity different then then thanks for 12 months ago.
No if anything it's accelerating particularly around the sustainability side, where many of the brand owners that we work closely with have the same commitments that we have.
And have made similar pledges around recyclability or recycled content.
You know those those commitments are fast approaching the data fast approaching.
If anything we're seeing an acceleration in that dialogue.
Being could take up some of the examples we sided today.
With our armed fiber.
Performance paper platform, which is getting good take up in the marketplace. We're.
We're seeing good good good early take up of advanced recycled material and products that contain that.
That offtake and so look I think at the moment, it's it's.
It's not slowed down at all I think also brand owners are looking for ways to differentiate.
They try to scratch out whatever growth again.
We'll take our next question from Nathan Riley with you B S.
Hi.
Hi, guys wrong would you mind, just told me to have a latest round. The general price increases have been received by customers just given that lower demand outlook, particularly with those December volume cyclist. Notable turned down.
Autumn mentioned, it's getting even added to recover.
<unk> <unk> bio site, you'll call me or managing extra capacity, so just interested alright abuse on pricing.
Yeah look I mean, we've been added now for awhile.
We put.
About 670 odd million dollars of priced into the market in the quarter just to recover higher raw material costs.
Another $160 million or so to recover general inflation.
It's certainly not getting easier.
But we are passing it through and were recovering and I think you can see that in the margins.
The margins of expanded.
Excluding the dilution effect of the raw material prices going through the top line. The margins have continued to expand and not shrink and I think that's.
It should give some confidence that we are out there recovering it.
It doesn't mean that the conversations are getting easier I think the consumers.
Probably starting to get a bit tired elasticities.
If they haven't already are likely to increase I think that's what we're hearing for most of our brand owners are brand owner customers.
But at this stage, we are still recovering and we expect to continue to fully recover are inflationary cost in the second half.
Perfect. Thank you.
Our next question comes from Mike <unk> Securities.
Thank you all rolling Michael Cheesy and appreciate the taking of questions first $120 million in costs take out an S. G&A removal can.
Can you tell me on what regions, you're looking at it and were there any particular mortgages and mortgage that you're looking to restructure.
As quickly on your agent business, especially with China illuminating each code restrictions have you seen any type of improvement recently.
In the volume.
And was there anything else you can <unk> in your recent M. D. K acquisition. Thank you.
Maybe I'll address the second question first into Michael can come back on the $120 million.
Look it's relatively recent that China's reopened and then we went into the Chinese new year in January .
But we do expect that business to bounce back more.
More importantly, the China business has done an outstanding job managing costs. So despite the volume declines.
That ran alongside the Covid Lockdowns the business grew earnings and.
In the first half, which was just an outstanding outcome.
It's been a business for us that is grown at least mid mid to high single digits over many years.
What's really important in China has to be very focused and our participation strategies healthcare is a place we want to participate and we want to go deeper.
China, and we're doing that both organically and we're doing that through.
Mmk and the M D. K acquisition that we announced last month is a good example of that it's to small business one plant outside of Shanghai compliments very well.
Another medical packaging plant that we have.
Near Shanghai as well it brings us some complimentary products that we didn't have local production of in China and it also expands our book a business with a new set of customers. So we're pretty excited about that and we think that's all part of the long term.
Secular growth that we've experienced and will continue to experience in in China.
$120 million, you want to comment on that $120 million, we see opportunities across the businesses of all mentioned this.
On a 220 plants around the globe, it's going to be focused on taking some plants out of the network and you know as well as SG&A opportunities to rod sizes business. Yeah. There is some focus in Europe , but generally speaking will say opportunities across the globe. So that's.
That's that's to come.
Wherever we can find EBIT to offset the EBIT, we've sold is where will be welcomed.
We'll take our next question from kick up continuously check in Australia.
<unk> <unk> <unk> <unk> Mark would just a question for you I'm just wondering if you could talk through some fixed variable cost structures across the divisions.
Just not immediate talk about some plans downtime, which was a little bit higher than expected and just talk about how that slide through to somebody close benefits in half whether that will occur until the second half of the year the volume environment urban each week.
Yeah, I think you've got to think about it in the context of just that cost of goods and the breakup of the of the cost of goods, where we where we focused on on taking some of that cost out you know.
All that Cogs about 60% to 70% of it is the raw material.
Then get into liable, which is around that 10% to 15% and then things like energy and Friday, So where we where we really focused was around just managing the labor in the in the in the hearth, particularly flexing <unk>.
As well so.
If anything we've we've we've recovered inflation, we talked about that $160 million, but within the within the within the performance in the half we absolutely took some cost out we haven't we haven't specified the exact amount, but to Ron's point earlier, there was a few hundred heads as well from the from a direct labor standpoint.
That came out as well as just a generally managing and flexing that cost in line with the demand.
Thanks to us.
We'll take our next question from Kyle White with Deutsche Bank.
Hey, Thanks for taking my question, just curious given the kind of customer or less issues that you've talked about have you seen any shift in your customers go to market strategies on pricing is volumes are starting to decelerate any sign of increased trouble activity that could drive volumes and I understand it might be hard to give a general state would give you a diversification.
Within flexible so I guess I'm, most interested on hot and cold filled beverages within Richard packaging, but any details would be appreciated.
Yeah. It's a good question we have seen.
Some shifts in the consumer in some of that driven by actions that the brand owners, who have taken in the beverage space and if we just focus on North America.
Hello, some of these.
Some of these points would hold in Latin America, as well, but in the beverage space in North America.
When the consumers under pressure they tend to revert to multipacks and smaller unit sizes.
And so if they're if they're if they're going to buy a soft drink they are likely to buy it in a in a pack of 12 with a unit prices is lower than buying it through the convenience store in the in the cold chain. So we have seen some of that.
That's probably contributed to the softness, particularly on the cold pills side.
I think we've seen some other examples in in other segments in Europe , and the coffee segment, we've definitely seen.
Soft volumes in the in the more premium and and the single serve.
System sales and we've seen higher sales in the segments that are multi serve so think about.
Capsules in our system versus.
Brown coffee or instant coffee the instant coffee is what's being pushed at the moment. So we are seeing a little bit of that sort of behavior.
Maybe just different.
Different degree of emphasis across their product mix.
As they help the consumer through through high inflationary environment.
Thanks, I'll turn it over.
We'll take our next question Camryn Mcdonald with a M P.
Good morning, guys Uhm, just a question for me.
Coming at it a different way with regards to the.
We will come to the Ballgames.
And the demand environment.
Can you should <unk>.
<unk> actually looks like.
<unk>, <unk>, <unk>, <unk> and and amateur usability you've got <unk>.
Uhm, obviously your products get put into the production facility you needed seats on the shelf.
We've got a sell it so you you get.
The visibility.
Well the customers are expecting so he got good visibility into the to the rest of the third quarter or kidney seemed to the fourth quarter at this stage.
The business is exposed really to consumer staples, and fast moving consumer goods and healthcare and.
Typically will have visibility a few months out.
Obviously, we have long we are planning discussions with our customers over a longer period of time, but as you get.
Near near those those discussions get more and more granular and you get more a greater degree of accuracy as you get closer so I would say our degree of of forecast visibility extends.
A few months.
And.
And that's about the extent of it in right now.
Those forecasts are moving around quite a bit and have been now for the last few months of volatility has increased and the variability in forecasts has increased.
I think on the positive side.
To the extent that there is.
Any destocking that's gone on in our value chains, we would expect that to work itself through.
Reasonably quickly and.
And as a matter of a quarter or two we should be through whatever destocking.
Needs to occur.
Alright, thank you.
We will take our next question from Richard Johnson with Jeffrey.
And thanks very much run I just have a question on strategy uhm, you'll you'll shareholder value accretion models.
Forefront of the Australia go very much the foundation of your strategy for a very long time now.
I'm conscious of the fact that the T. S. A I was really struggled to keep pace with the value add in more recent years and really more questions. Around this is a long 10 numbers because you were about to lose the the big benefit of Alcan in your 10 year numbers and I was just wondering you know how we should think about that how you think about it and whether the whether the models to the appropriate.
Yeah. It's a good question Richard we certainly believe the model still appropriate if you go back and look over a 10 year period post the alcan.
Acquisition, which is about 13 years ago now.
The last 10 years, we've been well above from an intrinsic perspective.
Well above the five to 10% to 15%.
Shareholder value creation model that we that we talked about we still believe the business will generate low single digit top line growth it will convert that.
With operating leverage like we've seen in the first half.
And then with the excess cash flows of the business, we're going to continue to acquire a buyback shares and.
And continue to grow our dividend. So all up we think the model still makes stomach sensitive.
Elder soon and in good stead and will continue to do so going forward.
Just a quick one on Russia for Michael Lemay, Luckily it looks like your books I think off the top of my head. It's about 15 million the cost related to Russia below the line in the quarter can I just check whether that's correct and secondly, what it might be in fairly now you solve the businesses <unk> add a line.
<unk>, we took a 250 million guy and obviously on the on the sale transaction and then they wish in cost just in relation to transferring in business.
Yeah. Some of you crying costs still to just.
Transfer the equipment, etc, Uhm in that as we look forward.
You'll see the restructuring costs dot to come through that will that will run through that line, but.
Generally that that cost in relation to Russia are finished yes.
We'll take our next question from Brett Campbell Crawford bearing joy.
Yeah. Thanks for taking my questions just on Capex looks like a lighter capex quarter the December .
<unk> it looks like it's right $94 million can you just remind us I guess and what the expectations off the full year I think at the loss result, it was 550 to six.
It takes me a million dollars capex was the expectations. So just an update on that level would be great in any reasons for the ladder and <unk> <unk> <unk>. Thanks.
Yeah sure intend to the half.
Flaring around that $250 million, there's a bit of FX in there as well versus prior years.
Prior you were running about three 4% ahead for the full year.
The number of 550 to 600 still in the range of outcomes.
Likely to be kind of that 5% to 10% ahead of upper.
Prior year and we've got you know I would continue to invest in the focus segments and the and the innovation platforms, which you slowly paying focused on that investment.
Real change on that on the Capex outlook patch a little lower than.
Or at three months ago, but pretty similar.
Thanks, and a follow up if I could just trying capital M.
M a strategy Ron if you wouldn't mind.
And reminding us of the M&A strategy as it is today and has it changed at all over the last couple of years I guess I ask is because more recent <unk> focused on five or paper typed.
Ideals like Pol pot can I add the line in China, <unk> Ignostic, but just an update radeon you have a nice strategy will be fantastic. Thanks.
Yeah, well look I mean, we are substrate agnostic that's been true of the company throughout its history and talked about 25% of what we do is is either fiber or aluminum.
But as far as M&A goes no no change I mean, we think there's going to be good bolt on opportunities across the portfolio. Thank you see some examples this year with this healthcare acquisition in China and BK Michael.
Michael referred earlier to a plant we bought in the Czech Republic R earlier in the year.
To bolster our eastern European footprint so.
So we think there'll be deals like that I mean, those are the deals that are out there because many of the companies in our space are small and so we've got to be comfortable bolting on small businesses to our our footprint that'll be part of the mix.
And then where we can supplement the portfolio, we'd like to do that too I mean, certainly in the priority segments that we've nominated we'd like to continue to grow healthcare being being the one we've talked more about today.
In Richards.
Obviously the hospital space is one that we have a strong position in but outside of beverage.
There are opportunities for us to continue to grow as well. So there's a number of areas, where we think the portfolio could be bolstered, but there'll be both on opportunities across the flexible as in Richards segment. So no change to to note.
We'll take our next question <unk> and S T.
Hi, guys. Just wondering if you are able to give any insight into what the interest rate in cause could be in F. Y 24, and also attacks on <unk> lower right in the period, but wondering what we should.
Expect for the balance of that fly twenty-three and what we should consider it to be a more normal at stripes.
Look I mean, if you think about interest in text together this year.
From a full year guidance standpoint, with cold out and they are going to be a headwind of around 4%.
And attacks.
We've pulled out is going to be more than that 18% to 19% Verizon that's really on the back of the.
The mix of earnings and particularly where our interest expenses, which is in high cost uhm higher tax cost countries.
But when you put that together with the interest.
Increase.
That's more than offset by the increased nature. So sorry for this year, 4%, we haven't we haven't called out any guidance for FY 2004 at this stage, but.
Basically in the first half depending on where interest rates go there could be some headwind but.
And yet the same way that ends up so.
Taichow.
And I will come back to you on that one.
Okay can I follow up question from John <unk> with my <unk>.
I'll get out again uhm just a.
A quick follow up Uhm, Mark will just on the raw material a side, obviously saw a modest benefit there in the second quarter.
Looks like the rule Madden indices of rich tries to say why so the question is what if you bite into guidance because it looks like that should be a.
Pretty material rule material benefit.
In that second half.
Yeah. It looks on your on with as we mentioned in we started to see some modest benefiting in Q2 from raw materials as I've come down obviously, it was still holding hi inventory. So they are working their way through the system, which you are still going to see some impact from in Q3 as we look those down we would expecting guidance raw materials Rotten.
Now they are pretty benign across remembering we buy a really positive.
Materials across borough geography, so when we see that pretty benign outlook for raw materials, selling Keith Ray we regain expecting.
Some some modest tailwind from the raw materials side.
Beyond that it's really going to depend on what happens to the raw materials and how how quickly we can get the inventory out of the system also linked to the demand environment, John as well as tight clearly if.
I demand improves and we we get stronger than we are stronger demand in inventories will come down Foster you might get a little.
Hi, tailwind meow, the opposite is true if demand dyestuff is demand is softer and we can't get the image. We added system as quickly then and that will impact, but the guidance as a range of outcomes built into it and that's all affected into the guidance range at this stage.
Ladies and gentlemen, this concludes our question and answer session I would now like to turn the call back about your Vandalia for any closing remarks.
Okay look we would just like to thank everybody for their interest in amcor, operator, we feel like we've had a very strong first half and we're looking forward to closing off another strong year for the company for.
For fiscal 2003, so we will close the call there thanks very much.
And that concludes today's presentation. Thank you for your participation and you may now disconnect.
[noise].
Mmm.
Mmm.
Mmm.
[noise].