Full Year 2023 Amcor PLC Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Amcor Full Year 2023 results call. I would now like to turn the call over to Tracey Whitehead, Head of Investor Relations. Please go ahead. Thank you, Mondeep, and thanks everyone for joining Amcor's Fiscal 23 earnings call.
Joining today is Ron DeLea, our Chief Executive Officer and Michael Casamento, Chief Financial Officer. Before I hand over, let me note a few items. On our website amcor.com, under the investors section, you'll find today's press release and presentation which we will discuss on this call.
Please be aware that we will also discuss non-GAAP financial measures and related reconciliations can be found in that press release and the 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 estimates.
Reference can be made to AMCUL's SEC filings including our statements on Form 10K and 10Q for further details.
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 rejoin the queue if you have any additional questions. Over to you Ron.
Thanks, Tracy, and thanks everyone for joining Michael and myself today to discuss AMCOR's fiscal 2023 and June quarter results. We'll begin with some prepared remarks, starting as we always do with safety on slide 3.
Safety is our most important value at Amcor and throughout fiscal 2023 we again made strong progress on our journey for continuous safety improvement across the company.
69% of our sites remained injury-free for at least 12 months and we reduced injuries globally by 31%.
While we're pleased with these results, ultimately it's not just the number of injuries we're focused on, but also the severity of the injuries that do occur.
Tragically, in June , a contractor's employee lost his life at our Pondicherry site in India after falling from a roof.
We immediately conducted a detailed investigation and we're deploying the learnings across all MCOR sites with the goal of eliminating the risk of similar accidents in the future.
We're relentlessly focused on safety globally, and this tragic incident is a stark reminder of the importance of those efforts.
Moving to our key messages on slide 4.
First, Amcor delivered solid operating performance for the 2023 fiscal year. Adjusted EBIT was up 1% and we returned $1.2 billion to shareholders through sharer purchases and our industry leading dividend.
Across the organization, our teams demonstrated agility by taking action to navigate highly challenging and volatile market dynamics characterized by ongoing inflation, softening consumer demand, and customer de-stocking, particularly in the second half of the fiscal year.
Our ability to modestly grow adjusted EBIT under these circumstances was the result of proactive and decisive actions to effectively manage the areas under our control, which is our second key message.
Our teams did an excellent job prioritizing pricing to recover increases in raw materials and general inflation. And as we entered the 2023 calendar year, we stepped up the intensity of our cost reduction efforts to drive productivity benefits.
Additionally, we invested in structural initiatives, including strategic plant closures, that will deliver meaningful cost savings in fiscal 24 and 25.
Third, as a result of these comprehensive actions, AMCOR is well positioned to return to solid mid-single-digit earnings growth in the second half of Fiscal 24, which also leaves us well placed to grow at our long-term trend of high single-digit rates thereafter.
While we expect current market conditions to persist over the near term for the entire industry, we will continue to recover inflation and are confident the benefits from our cost reduction and productivity initiatives will have a sustainable positive impact on earnings leverage.
Additionally, we'll be cycling weaker volume comparatives in the second half and the headwinds we've faced from the sale of our Russian plants and significantly higher interest expense are largely limited to the first half of fiscal 24.
All these known benefits are largely within our control and underpin our expectation of a return to solid earnings growth in the second half without having to rely on a significant change in the demand environment.
And finally, as we and the entire CPG industry continue to navigate a dynamic operating environment, Amcor remains laser focused on executing against our long-term growth and value creation strategy.
We're well positioned as a recognized industry leader and we continue to pursue opportunities to invest in our strong underlying business, particularly through innovation and sustainability initiatives in faster growing higher value markets.
We're also actively pursuing value creating M&A, such as the deal announced last week to acquire Phoenix Flexible Packaging in the high-growth Indian market, and we're committed to returning cash to shareholders through a compelling and growing dividend and share repurchases. At this point, the Pop bourgeoisie has a
Moving to slide 5 for a summary of our financial results.
Fiscal 23 and June quarter financial performance was well within our May guidance range as proactive cost and price actions helped counter ongoing inflation and increasingly softened more volatile volumes as we progress through the year.
Reported net sales for the year were up 1%, which includes an unfavorable currency impact of 3% and approximately $775 million of pricing to recover higher raw material costs.
Organic sales were flat on a comparable constant currency basis as volumes were 3% lower, offsetting a price mix benefit of around 3%.
Full year adjusted EBIT of 1.6 billion was up 1% on a comparable constant currency basis, benefiting from strong operating leverage in the first half of the year and accelerated cost actions in the second half.
Adjusted EPS of 73.3 US cents per share was down 2% on a comparable constant currency basis.
For the June quarter, sales were down 5%.
Positive price and mix of approximately 2% included recovery of $100 million of general inflation and volumes were at the lower end of our expected range down 7%.
Last quarter, we referenced accelerated demand weakness in March and April , and this persisted broadly through the June quarter.
due to a combination of lower consumer demand and continued customer de-stocking, including in priority categories which also impacted mixed compared with last year.
While earnings were in line with our guidance, the June quarter is historically Amcor's strongest of the year, making it more difficult to flex costs.
As a result, weaker volumes had a more pronounced impact on earnings and adjusted EBIT of $436 million was 7% lower than the prior year on a comparable basis.
We continue to execute well in our capital allocation priorities, returning approximately $1.2 billion of cash to shareholders during the year through a combination of dividends, which the board increased to 49 cents per share.
and the repurchase of approximately 41 million shares or 3% of shares outstanding for a total cost of 431 million dollars.
Since 2020, we've repurchased approximately 11% of our outstanding shares, and our industry-leading dividend currently yields around 5%.
Our overall financial profile also remains robust with return on average funds employed at 15.4%.
Slide six highlights the proactive actions we continue to take to manage the areas under our control. We've been successful in pricing for inflation throughout the year, passing through a total of $1.1 billion to compensate for higher raw materials and general inflation, including labor, energy, and freight.
We also delivered more than $200 million in annual cost savings through productivity initiatives, including a reduction of more than 1200 full time employees. And we're investing in structural initiatives that will deliver approximately 35M dollars in savings. Primarily in the 2nd, half of fiscal 24.
with an incremental $15 million benefit in fiscal 25. And importantly, we expect the benefits from these fiscal 23 cost actions and structural initiatives to have an ongoing favorable impact on earnings leverage.
I'll turn it over now to Michael to cover more of the financials. Thanks Ron and hi everyone.
Beginning with the flexible segment on slide 7, fiscal 23 reported sales were in line with last year which included recovery of higher raw material costs of approximately $515 million accounting for 5% sales growth.
Excluding the raw material impact and negative currency movements, sales grew 1% for the year, driven by price mix benefits of 4%, reflecting our ability as a continued price to recover inflation across all flexible resource groups.
This was partly offset by 3% lower volumes.
And while volumes in all regions were impacted by slower demand and de-stocking, particularly in the second half of the year, the demand for the
Our strategic focus on higher value priority categories continue to drive solid sales growth for the year.
Volumes in the pharmaceutical and pet care categories were especially strong, helping to limit the impact of broad-based lower volumes in other categories.
As Ron mentioned throughout the year the business did a good job aligning operating costs with challenging market conditions.
while pricing to recover inflation.
This focus resulted in a 1% increase in adjusted EBITs for the year on a comparable constant county basis.
Margins remained strong at 12.8% despite 100 basis point dilution related to increased sales dollars from passing through high raw material costs and general inflation.
In terms of the fourth quarter net sales on a comparable constant currency basis were down 5%.
with positive price mix of 2% more than offset by a 7% decline in volumes. This represents an accelerated volume decline compared with the March quarter and was a consistent trend across most regions. The greatest sequential declines continue to be seen in the North America and European markets, where overall June quarter volumes were lower by high single digits, consistent with softer retail scanner data and with categories such as premium coffee, protein and healthcare also being incrementally impacted by customer desocking. Adjusted EBIT for the quarter of $387 million was 7% lower than the prior year on a comparable constant currency basis, reflecting the impact of lower volumes, unfavourable mix and ongoing inflation, partly offset by benefits from continued pricing and cost actions. Turning to rigid packaging on slide 8, fiscal 23 reported net sales were 4% higher than the same period last year, including approximately $260 million or 8% of sales related to the past two of higher raw material costs.
Organic sales declined 3% reflecting 4% lower volumes partly offset by a price mixed benefit of 1%. In North America overall beverage volumes for the year were down 6%. Hot fill volumes were in line with the prior year as new business wins in key categories offset unfavourable consumer demand and customer destocking.
In specialty containers volumes were lower than last year with growth in the healthcare, dairy and nutrition categories offset by weaker volumes in food, home and personal care.
And in Latin America volumes were down low single digits versus last year which reflects challenging macroeconomic conditions across the region.
Fiscal 23 adjusted EBIT was down 7%.
as strong earnings growth in the first half was more than offset by challenging market conditions.
that it accelerated through the second half of the year.
Adjusted EBIT margin of 7.5% includes an adverse impact of approximately 80 basis points from the increased sales dollars related to passing through higher raw material costs and general inflation.
Looking at the June quarter, comparable constant currency net sales were down 4%.
Price mix benefits of 2% for more than offset by a 6% volume decline as lower consumer demand and customer D stocking continue to impact the business particularly in North America.
On a comparable currency basis, adjusted EBIT for the quarter of 73 million.
was down 22 million against a strong comparative period. As Ron mentioned earlier, the June quarter is typically the seasonally strongest of the year, and together with volatility and customer autumn patterns, this limits the ability to fully flex costs.
In an environment where production volumes are weaker, fixed cost absorption is also significantly lower and the combination of these factors amplifies the impact on earnings.
The team continue to manage the cost under their control well with additional headcount reduction as more plants shut down days and we continue to focus on cost actions as we manage through this cycle of demand and de-stocking.
Looking ahead to the September quarter, we do not anticipate market challenges to materially improve, which will have an unfavorable impact on earnings compared with the same quarter last year.
Moving to cash in the balance sheet on slide 9.
Our financial profile and investment grade balance sheet remains strong. The leverage of three times on a trailing 12-month MBA basis is modestly up from last year, but is aligned with our expectations given the softer demand of broad-based stockings through the supply chain.
Adjusted free cash flow of $848 million was in line with our updated outlook, though below last year.
This reduction mostly reflects lower accounts payable balances as we moderated our purchasing activities partly to reduce inventories but also in response to the soft demand environment.
This is a timing impact which we expect will abate as we progress through fiscal 24 and whilst we have made good progress bringing down our inventory balances.
with a reduction of more than 400 million from the peak levels in November 2022.
We will continue to focus on reducing overall working capital to support increasing cash flow.
Turning now to the outlook for fiscal 2024 on slide 10.
For the 24 fiscal year we expect adjusted EPS of approximately 67 cents to 71 cents per share.
This includes expectations that organic growth from the underlying business will be in the plus or minus low single digit range as volumes are expected to remain weak particularly in the first half.
Share repurchases will result in a benefit of approximately 2% and currency translation is expected to add a further benefit of 2% assuming current exchange rates prevail for the balance of the fiscal year. This is expected to be offset by a negative impact of approximately 3% related to the sale of our three plants in Russia in December 2022.
and a negative impact of approximately 6% from higher interest and tax expense.
As US dollar and euro interest rates have continued to rise, we expect interest expense for fiscal 24 to be in the range of $320 to $340 million.
In terms of cash flow we expect to generate significant adjusted free cash flow in the range of $850 to $950 million in fiscal 24.
which represents growth of up to 100 million over fiscal 2023.
We have planned to repurchase at least $70 million dollars of Amcor shares in 24.
and we have been active on the acquisition front and will continue to pursue M&A opportunities.
And as always we'll evaluate our uses of cash as we progress through the year.
Slide 11 shows that Amcor has a long history of delivering solid and consistent earnings growth and the phasing of the earnings across the year has also been relatively consistent year to year. For fiscal 24 it's important to call out that phasing of comparable earnings growth is not expected to align with historical trends. We do not expect the challenging market dynamics we've seen in the last two years.
outlook and the unfavourable impact related to higher interest expense, which is expected to moderate in the second half, we anticipate adjusted EPS in the first half of fiscal 24 to be down in the high single digit to low double digit range on a comparable constant currency basis when compared to the prior year. While it's more difficult to predict consumer demand
We do expect customer inventories will have largely normalized by the time we enter the second half of the fiscal year.
Additionally, we have a number of tailwinds in the second half, all of which are within our control, including the benefit of approximately 35 million from structural cross...
Additionally, we have a number of tailwinds in the second half, all of which are within our control, including the benefit of approximately $35 million from structural cost saving initiatives building through the year.
Increased earnings leverage resulting from ongoing benefits from price and cost actions. A reduced interest headwind.
Various earnings leverage resulting from ongoing benefits from price and cost actions. A reduced interest headwind. And favourable prior year volume comparatives.
The combination of these known factors supports our expectation that adjusted EPS grows mid-single digits in the second half of fiscal 24 on a comparable constant currency basis.
It also gives us confidence in resuming our long-term trend of high single digit earnings growth shortly thereafter.
It's also important to highlight here that we do not need to see a significant change in the demand environment to return to solid earning growth in the second half and beyond.
So in summary, we believe the current industry and ANCOR specific challenges will primarily be limited to the 2023 calendar year. We remain laser focused on doing all we can to mitigate the impacts of these challenging conditions while continuing to execute our long-term shareholder value creation strategy. And we expect to return to our historic heights.
single-digit organic growth trajectory as we progress through calendar year 2024.
So with that I'll turn the call back to Ron to provide some longer term comments. Thanks Michael. Turning to our long term commentary, slide 12 highlights our strategic areas for investment where we see faster growing higher value opportunities to drive sustainable growth. On prior calls we've covered opportunities in healthcare and in M&A.
Moving to slide 13, the protein category for Amcor includes packaging solutions for processed and fresh beef, pork, poultry, and seafood.
We like this category because it's a large addressable market which historically has grown globally at attractive rates driven mainly by an increasing percentage of the world's population able to afford to add protein to their diet.
We also like the fact that there are many ways to differentiate and add value for customers, since protein packaging requires specialized, more sophisticated, and increasingly more sustainable solutions to preserve and protect these premium products.
Amcor's unique product offerings have enabled us to successfully grow our participation in the meat category over several years.
Annual revenue from the sale of processed and fresh meat packaging now exceeds $1 billion.
While inflationary impacts are currently creating challenging market conditions, looking forward, there are several reasons we believe Amcor can drive growth at a mid-single-digit CAGR over the medium term.
with margins accretive to our overall average. First, Amcor is well positioned with a comprehensive product portfolio for processed and fresh meat applications.
Underpinning our development of better products are strong capabilities and significant investments in innovation, sustainability, and technical service.
These are critical in an industry that relies on durable, high-barrier solutions to preserve shelf life while providing convenience for the consumer in environmentally friendly formats.
Second, we have a strong presence in North America, but our global scale and reach enables us to leverage our R&D network and installed capacity to transfer technical and process knowledge across regions as we actively pursue global growth opportunities.
And third, there's a unique go-to-market model in some parts of the world where equipment purchases drive the subsequent sales of packaging films and technical services.
Our recent acquisition of Moda positions us well because we're now able to provide a wholly-owned, turnkey equipment solution aligned with this model, where efficiency and the ability to automate are some of the highest priorities for customers. With the recent investments to enhance our offering and go-to-market strategy, we've
We're well positioned to grow in this high-value market and we're excited with the many opportunities to firmly establish Amcor as a preferred provider of fresh and processed meat packaging solutions globally. Just want to spend a minute on sustainability on slide 14. We continue to make excellent progress supporting the development of circular systems.
through the three pillars of our responsible packaging strategy, package design, waste management infrastructure, and consumer participation. And we've made significant advancements on the innovation and design front by developing more sustainable packaging solutions and increasing our use of recycled materials. We'll provide a more detailed update in our sustainability report, which is...
support the development of the infrastructure required for a circular economy.
For example, in May, AMCOR, Delterra, P&G, and Mars formed a strategic partnership to help reduce plastic waste in the global south by providing access to waste management and recycling systems and by enhancing consumer education.
We're also partnering with Lysella and Mondelez to help promote a circular economy by bringing on stream one of Australia's first chemical recycling facilities.
This is an exciting development in a market where Amcor's portfolio of recycle-ready flexible packaging solutions is already well above 90% and will provide local access to food-grade recycled material.
So, in closing on slide 15, our teams are doing a good job navigating challenging industry dynamics by continuing to recover inflation and proactively taking actions to align costs with market conditions.
We're confident in our long-term growth strategy. We have good visibility to factors well within our control that will see us returning to earnings growth aligned with our historic performance and our shareholder value creation model.
And operator, with those opening comments, we're now ready to open the line for questions.
Thank you. The floor is now open for your questions. To ask a question this time, please press star 1 on your telephone keypad. At any point you would like to withdraw from the queue. Please press star 1 again.
You will be provided the opportunity to ask one question and one further follow-up question. We'll now take a moment to compile our roster.
to ask one question and one further follow-up question. We'll now take a moment to ask one question and one further follow-up question.
Our first question comes from the line of Gansham Punjabi from Baird. Please go ahead. Hi, how are you?
Hey guys, good day. You mentioned that volumes for the first half of fiscal year 24 will be down mid to high single digits on a year-over-year basis. I think Michael mentioned that. But what are you assuming at this point for fiscal year 24 in context of the 3% decline you reported in fiscal year 23?
Yeah, so look, we're setting the business up to assume that the current market conditions essentially continue through the first half. So we're expecting the first half to look a bit like the fourth quarter with volumes down mid to high single digits. That's continued softening of demand and continued de-stocking pretty broadly across the geographies and segments that we participate in. So, yeah, we're setting the business up to assume that the current market conditions essentially continue through the first half.
But the second half we're expecting more normal rates of volumes more like flat top single low single digits And that's really just assumes no more D stocking and the fact that we'll be cycling easier comps So we're not baking in any big improvement in demand and so all up that that would see volumes for the full year
down sort of flat to down mid single digits. That's the sort of midpoint of our guidance range would see us down kind of low single digits for the full twelve months.
Got it, that's helpful. And then in terms of the de-stocking, you know, maybe you can just give us some insight as to, you know, the microneuances between the major regions you have exposure to. And the categories that first started to see de-stocking, are you starting to see any sort of green shoots, if you will?
Yeah look the D stocking has been relatively broad and it's we've been at it now we've been living with it for a couple of quarters. The earliest categories where we started to see some signs of excess inventory in the system were those that were impacted the most acutely by the supply chain challenges over the last...
12 to 18 months. So we saw we've seen these stocking in the meat space. We've seen it in the premium coffee space in particular More recently in the fourth quarter. We started to see a little bit of these stocking in the medical packaging space And then certainly in North America in the beverage part of our rigid packaging business
We've seen pretty pronounced the stocking at a point at a seasonal high point in the year. Now, we don't have a crystal ball, but we do anticipate that the stocking will be largely behind us by the time we exit this calendar year. And certainly, it will have a less meaningful impact as we head into calendar twenty four. If you think about it, our volumes.
For the quarter we're down 7% we would estimate that about two-thirds of that volume decline is the the market and our customer performance
And the remaining one third is, is we would attribute to the stocking. So, certainly, as we move forward and the stocking starts to to a bait through the rest of this calendar year. Certainly that will have less of a negative headwind on our growth rates going forward.
Our next question comes from the line of George Staphos from Bank of America. Please go ahead. Hi. Good day, everybody. Hope you're doing well. Thanks for the details. I guess the first question, thanks for having me on, is just a quick one on net interest.
I know qualitatively what you said, you know higher global rates foreign exchange and the like, but the step up even from the fourth quarter rate which was 70 million so, you know 280 million run rate to the I think you're saying 320 to 340 for fiscal 24 is pretty steep And so is there anything?
specific we should be understanding in terms of what's behind that, Michael?
Yeah sure, look I think overall interest rates have continued to rise from this time last year all through the year. So we will be lapping higher rates as we exit. Using Q4 as a proxy is not the best order to use as a proxy for interest because that's our highest cash flow quarter obviously.
We see we are lapping some higher interest just by the way the rates increase as the year progresses. And there may be one or two further rate increases that we've factored into the range. So that's where we get to that 320 to 340 range.
Understood. That's helpful Michael. And Ron, back to demand and the consumer.
To the extent that Amcor produces high value, high quality packaging for, maybe one could argue, sure, they're staples, but more like affordable luxuries, if you will, premium coffee, protein, premium pet.
You know, I think we've talked about it in the past, but do you think there's maybe a little bit more of a negative effect for your customers and therefore for you, given the environment we've been going through with inflation? You know, why, why not? And are you seeing any signs at all from your customers now, asking you to somehow
find cost reductions, give back so that they in turn can maybe be a little bit more competitive at retail and drive their volume. Thank you.
Yeah, look, George, I think that we still believe the portfolio is really defensive and the categories are, for the most part, consumer staples. Now, there are...
number of economic cycles, but I think that we've got a dislocation here that we haven't seen in 40 years around inflation and we get we convince ourselves of the defensiveness of the portfolio at large by looking at the scanner data and You know, it's it's very broad-based the weakness in particular in Europe and in North America and the food business where you see mid-single digit declines and You know, I think generally speaking others who've reported publicly have experienced the same sort of volume effects that we have So, you know, I think yes We do aspire to play at the high end of the market and many of our products
are at the premium end, but generally we're in in table segments that you know will grow consistently through economic cycles. Our next question comes from a line of Brooke Campbell from Baron Joey. Please go ahead. Yeah, good evening. Thanks for taking my question.
Just one on the buyback, obviously there's 70 million dollars left on the existing program, but what's the thinking about potentially a new program at some point through FY24? Is this the priority once you get through the 70 million or are you leaving some cash flow there for...
for M&A or is it priority to sort of pay down some debt and reduce that leverage ratio? Thanks. Yeah thanks Brooke, appreciate the question. Look I think you know if you look at what we've done over the last couple of years you know we've brought back over a billion dollars of shares and in addition to that you know we've certainly started to get back on the M&A.
approach as well. So we've done three deals this year and in 23 and also announced another deal just recently. We're planning to do the 70 million this year so we'll close out that buyback. And I think if you think about our capital allocation approach, I mean clearly the priority is to invest back in the business through the CapEx for organic growth which you know we've stepped that up over the years and we'll continue to do that this year.
we grew the CapEx and we'll have a similar amount as we head into 24, taking into account the demand environment. Next year we obviously pay the dividend and then that grows over time. And then we've got three or 400 million left over for ideally to put the work on M&A or buyback. And so if you think about the last couple of years, we've certainly covered that capital allocation on the buyback side and now putting a little bit more into M&A. So just confirm if you have the capability and products to perhaps offer that format as well given I guess you've.
got already a lot of capital and put into those plans that are co-dicated, I believe. And if that's the way that that customer goes, can you sort of participate and offer a different format? Thanks. Yeah, look, we have a broad offering of fiber-based options for a number of different categories. And so, you know, I think we're going to be well covered as products move between substrates, whether it's aluminum to plastic or plastic to fiber or whichever direction the segment evolves. But I would say that, you know, that is a niche at the moment. It's about expanding the pie. Not every consumer will be...
willing or capable or interested in composting. And you know we know as well as our customer that the sustainability profile of the aluminum capsule is as attractive as any. It's a product, it's a capsule that can be made with 100% recycled aluminum and can be recycled over and over again and there's been a lot of investment in the recycling loop for that particular format.
So, you know, we're not concerned about the long term viability of that of that format. Our next question comes from the line of Cameron McDonald from AMP. Please go ahead.
Hi, good morning guys. Can I just ask a question around that de-stocking that you're talking about and my understanding is also that not only are we getting de-stocking and consumer weakness but we're also seeing down trading from sort of more premium products to more home brand type products.
Is that having an impact on the packaging demand profile as well and the price or margin that you generate from that premium product in more of the home brand space? Yes, look, thanks for the question. It's a different...
story in North America from Europe . So the private label Private label in general has picked up a few percentage points of share broadly across the European market It's been it's it's it's just slightly now ahead of where the share for private label was in 2019 in North America We're not wish you
Ultimately as products or as sales migrate to private label from branded or vice versa We're pretty well exposed. And so we've got a we got a reasonably broad participation in the in the store brand side of the business Such that those share shifts are not really going to have a material impact on our on our volumes and you know, the packaging is
essentially the same, that's part of the private label formula. And so, from a margin profile perspective or differentiation perspective, we're sort of indifferent.
Okay, great. And just going back to the previous question on sustainability of packaging, you know there seems to also be a move to potentially be sort of fibre based and alternative packaging for beverages. What work are you doing around that place?
Yeah, we have a pretty extensive platform that we call AMFIBER, which is fiber-based packaging for a range of product categories. We see the opportunity, particularly in the confectionary space, to move from plastic-based products to fiber-based products, culinary.
So formats like spices and food additives. So our work on the fiber side is pretty extensive.
There's a little less activity in the beverage space to be quite honest But generally speaking, AMP fiber is a big platform for us and we're optimistic about the growth outlook.
Our next question comes from Adam Samuelson from Goldman Sachs. Please go ahead.
Yes, thank you. Good evening, everyone.
I guess the first question is something about the quarter and then moving into goods 24. I wanted to ask a question on mix and I look at it in the flexible segment mix is still a 2% positive contributor in the quarter. Less than it had been earlier in the year but still positive year on year though I look at some of the
parts of Flexibles that I have historically thought had contributed to that mix in terms of health care and and protein and patent premium coffee and those all were down kind of consistent with the overall segment Polymetrically so just help us maybe dissect kind of what's happening in mix and kind of where you see that trending through through fiscal 24
Yeah, look, we had unfavorable mix in both segments in the fourth quarter, and you pointed out the reasons why. I mean, some of the categories that.
you know, you would expect to be positive contributors to mix were softer in the fourth quarter meet in particular pet care even slowed a bit in the fourth quarter as did medical. What you're referring to is price and mix together and I think you got to bear in mind that we're still experiencing reasonably high levels of inflation and we still have been
and continue to be actively pricing to recover inflation. So, you know, for the fiscal year, we priced up about $1.1 billion between raw materials and general inflation, about $300 to $340 million of that was general inflation. And so you're seeing price and mix combined. So you've got positive price offset by mix.
in that number that you're referring to. Okay, that's really helpful. And if I could just follow up on the move or the focus on proteins and the investment in equipment. You've got some pretty large...
incumbents when you think about that market especially on the fresh meat side with equipment. I mean what do you think the business needs to do to scale and and grow more significantly there where you got a competitor who has a pretty significant incumbent market position? Yeah look that's clear and most of our markets are...
acquisition allows us to offer the primary packaging equipment. It will allow us to offer technical services and parts and that all combines with what we believe is industry-leading film technology including in that space. The films in the protein space are amongst the most demanding.
of any that we produce. If you think about the functional requirements for meat packaging, there's obviously a barrier that's required to preserve shelf life. There also tends to be the need for puncture resistance. You've got to run these packages through the packaging lines at high speeds so that the process is better.
It's also one that you know we can leverage over a global footprint And it really represents a pretty visible revenue synergy from the Bemis acquisition of several years ago now So we're pretty we're excited about it and and look every every segment is competitive And we just have to we have to compete and earn the business obviously, but we're pretty optimistic. We'll be able to do that
Our next question comes from the line of Sam Siao from Citibank. Please go ahead.
Good morning Paul, thanks for taking my question. Just wanted to follow up on some earlier comments.
that you've got limited volume growth, as seen in the second half of 24 kind of growth expectations. So just to confirm, it's saying if volume growth does come back, who's working to calm that heartbeats effect outside the year?
needs to go to our single digits in the second half. Yeah, we're not banking on a much improved demand picture. We think it's more prudent for us to set the business up to assume that volumes are gonna be challenged.
through the year. So for the first half of the year we're expecting volumes to continue to be to be down mid single digits mid to high single digits. Second half of the year we would expect volumes to be flat to maybe up low single digits and we believe that's possible without much of an improvement in the underlying demand profile because we're pretty confident that we'll be through
The other end of the stocking cycle by the time we get to to calendar year of 2024. So yeah, there's no.
expectation of a dramatic improvement in the overall demand environment that's baked into our guidance.
Thanks that's helpful and just a follow up on potential volume growth looking through here it looks like we did.
Will the first of the client followed by flexible as we think about a potential data and is it logical to expect bridges to come back quicker than flexibles or is there something you'd call out there? Will the first of the client follow the first of the client?
We would expect the volume trajectory to be roughly comparable. Now RIGIDS has got another seasonally strong quarter to get through and we're not expecting the business to be all the way back from a demand perspective in the fiscal first quarter. In fact, we expect continued softness and continued destocking.
across the two segments.
This is the swing factor in our guidance range. So to the extent that the volume picture improves, you know, that would be a driver of us getting to the higher end of our range or beyond. We're just not setting the business up to expect that. We're taking the cost actions that you'd expect us to take and we're going to be really prudent.
before we anticipate demand coming back. Our next question comes from Daniel Kang from CLSA. Please go ahead.
Good morning everyone. First one maybe to Mike just in regards to your FY24 guidance can you talk us through your assumptions and maybe expectations on price mix and any input costs tailwinds? Yeah sure I think you know if I take the
would come down in that mid single digit range after a pretty benign Q3. In Q4 we saw a look we just saw a modest tailwind you know as we're still cycling through the higher inventories and also reduced purchases so as we look forward on the raw materials side you know what we see into the first quarter really is a pretty
benign environment, basically flat, raw material, maybe slightly down, but that would translate into a relatively modest tailwind.
in the first quarter. You know, after that, you know, we'll see where things go on the raw material side. Look, on the price mix, we'll continue to, you know, price for inflation. You know, so as we've said in the remarks throughout, you know, we expect to continue along the price and cost initiatives that we've already been taking. So.
You know, inflation, albeit we're still expecting inflation, perhaps maybe at slightly lower levels than we've been experiencing, but, you know, we will continue to see inflation as we work through 24. So, you know, we'd expect to see some price to offset that, as well as cost. And then on the mixed side, look, I think...
Initially, we would expect some negative mix, really, as we saw in Q4, which we touched on the call already today. So, you know, things like healthcare, pet food, coffee, etc, as we're just cycling.
some stronger comparities on that front, we would expect mix to be perhaps a negative, particularly as we start the year.
Our next question comes from Richard Johnson from Jefferies. Please go ahead.
Thanks very much. Ron, one of the things we're hearing quite consistently now from a lot of your major customers is some very significant SKU rationalisation programs that they're having in particular. I believe I'm right in saying that Unilever are taking the SKUs down by 25%, which is a huge number. I was just interested in getting your opinion on less than religious and what's right.
on what that means, if anything, for yourselves? Yeah, look, you know, it's maybe not as pervasive as it might seem from some of the public comments, but to the extent that SKUs can get rationalised, it's generally a good thing for us.
You know, there's two things going on. There is a bit of SKU rationalization. The other thing that's happening is, you know, the continued evolution towards more sustainable formats and more sustainable SKUs. And, you know, I think SKUs have proliferated across all the categories that we service. You think about the variety on the store shelf, certainly here in the U.S.
You know, it's really been explosive growth over a long period of time in the number of SKUs that are available. So anything that simplifies the business and takes out unnecessary or non-value adding complexity is generally a good thing. And then, you know, at the same time, you know, we're seeing a lot of growth in the industry.
helping that process along by introducing more sustainable formats is also advantageous to us too. So, you know, I think, you know, we're in lockstep with the customers that you probably have in mind and on that journey or both of those journeys at the same time.
That's helpful, thanks. And then just finally, you referred to your volume pressures being more skewed to developed rather than emerging markets, which of course is perfectly understandable. I was just interested if we could get a bit more detail on where you sit in EM, because others, and there are reports that there's been significant downtrading in emerging markets as well.
away from multinationals to local brands in particular. And that obviously for many large packaging company or global packaging companies, that might be unhelpful. So I'm just trying to get a sense of, you know, why you may have outperformed an EM relative to others. Thanks.
Yeah, look, it's a good question. It feels more like the underperformance in the DMs relative to the EMs is the thing that's not easy to understand. We saw volume declines in Europe and North America, kind of high single digits in the fourth quarter. Again, entirely consistent with the DMs relative.
what others have reported and the scanner data, etc. But the EM business has held up, but we had
volumes in Asia in the emerging part of Asia basically flat in the quarter. Latin America was down mid single digits. So both of those regions had better volume performance than the two big developed markets. Look, I don't know I think we have a pretty compelling value proposition in emerging markets. Generally as an innovation leader and a sustainability leader.
And then our participation in our customer mix.
generally looks like the market. So if I take a business like China, we actually have more of our sales to local customers than to multinationals.
And, you know, basically that reflects the market shares of of those respective customer groups. So I think we're well balanced. For for the differential growth rates that you're referring to.
Our next question comes from a line of John Pertel from Macquarie. Please go ahead. Good evening, Gordon and Michael. How are you? Hey, John . Hey, John . Good evening.
Just had a couple of questions, just first one for Michael, just in terms of interest expense what percentage is fixed and floating now and are you looking to fix more to essentially kind of lock in your interest expense?
Yeah I looked on, so traditionally we've been in that 50-50 fixed bloating mix but more recently so over 23 and looking into 24 we're more 70-30 so we take a bit of the volatility out of the mix there on that front so that's where we sit today on that 70-30 range fixed bloating. But see that is pretty stable.
And thank you and just the second question Ron on acquisition. So are you seeing more opportunities now that fit your criteria? I mean obviously evaluations are generally coming down and will you sort of naturally play at the smaller to medium end. Obviously we saw
can stand here recently sold to private equity? Yeah, look, we have been more active. So we've done four deals in the last 12 months. They're all of the small variety and single plant deals. So the first comment I would make is yes, there are more things that seem to be coming to market. I mean, we went through a period of
pretty pronounced market dislocation through COVID and then the supply chain constraints and now some softer volumes, but I think sellers are more likely to bring things to market now than they would have been let's say two years ago. So the pipeline is relatively robust and we've been able to convert four small deals in the last 12 months. The second part of your question about the size...
Really just reflects the nature of the participants in our space, you know, there's just by number, you know I love a lot more
Smaller single plant businesses than there are large multi multi billion dollar businesses like the 1 that you mentioned. So I think just generally you're gonna see us. Execute more smaller deals doesn't mean for a 2nd that we would not love to deploy bigger amounts of capital. So we would be on the lookout for. For medium and larger size deals as well. I just think by the law of numbers will suggest that most of the deal.
Your line is open. Please go ahead.
Hey, morning guys, evening guys. Question about just the cost out program and how much flexibility you might have around that. Just in terms of whether you know that the stocking trend continues a little bit longer than I guess what you've currently forecast how much flexibility you might have.
to sort of go a little bit harder around the cost base? Yeah, look, we're getting after it pretty good, would be the first thing I would say. So we're going after it reasonably hard. You have to remember also that the business has been optimised through the last several years. I mean, through the Bemis integration, we took a number of plants out of the network.
a couple years before that we took a few out of the RIGIDS network as well. So the business is reasonably well optimized, but that being said, there's more opportunity and we've announced three and a half plant closures already. There will be more to come and if demand remains depressed, then there is the opportunity to do a little bit more. Although I would also point out that theā¦
ultimate path to value creation for the company is to grow and we want to make sure that we've got the productive assets available when demand normalizes. We don't see any of the demand challenges that we're experiencing right at the moment. We don't see a secular. We believe this is a cycle and we believe it's an inflation induced cycle.
Okay, thank you. And I guess just following through in terms of, you know, historically, you've managed cost inflation quite well. But I guess, you know, and I'm talking about the general cost inflation in terms of being able to pass that through to customers with high pricing, but, you know, in a period that's characterised by high level of the stocking and lower demand, he gives an update.
on how you're going just in terms of recovering the general cost inflation and just around that maybe just a comment around you know just how that sort of inflation has been trending recently.
Yeah, well, as far as the trend, you know, I think we are starting to see inflation moderate. You know, I'm not sure that we're seeing prices fall anywhere, but we're seeing the rate of increase certainly decline in across most of the cost buckets. You know, I'd say labor still.
increase in kind of mid single digits. We still have higher energy costs than we had a couple of years ago. Freight might be one area where we've seen some declines off of the peaks. So it's still a real fact of life, you know, number one. Number two, I think we have been pretty successful in pricing to recover. We remain kind of fully recovered.
you will. Last year the general inflation running through the business was over 300 million dollars and we offset that with price.
We'll expect to continue to do that as we go into fiscal 24. We're also reset prices with new contracts and as you expect that probably 2 thirds of the business is contracted. Maybe 3 quarters of the business is contracted. You know, the average duration is.
2 to 3 years, maybe 4 years. So every year you're turning over a portion of the revenue base and having an opportunity to reset pricing. To reflect the current dynamics and the current inflation conditions. So it remains a fact of life, but. I certainly feel like we're coming out the other end of the of the inflationary cycle. Our next question comes from the line of James Wilson.
from Jardin, Australia. Please go ahead. Good evening guys. I was just wondering if you could give us maybe a little bit more colour firstly on how your inventory and working capital management's progressing heading into 2024. Yeah sure, I can take that one there. You know, look we were obviously building inventory this time last year and that was back on, you know, in the early 2000s.
roughly through the top line in terms of price to recover raw material and inflation. So both of those factors have impacted working capital. But from November we really worked down our inventory levels and from the peak in November we've taken nearly $400 million out and $200 million of that was just in Q4.
We haven't seen the full benefit of that really come through from a cash flow standpoint yet because at the same time in this, particularly in the second half of the year, we've seen a much lower payables position. So although our inventory has come down kind of point to point over the year around 200 million, our payables have also actually come down about 500 million. So...
Now if you look at our working capital performance during the year we had a cash out of around $230 million. Really that's the payables impact. So as we've seen the lower demand signals we've started to reduce our purchasing in addition to that taking inventory out of the system. And so you know we did see a negative impact on
on working capital as a cash outflow in the year. You know, as we look forward, you know, we've still got work to do on the inventory side and we'll continue to focus on that. And, you know, I think the payable side will start to normalise as we work through some of this softer demand. So as we work through 24...
Certainly not anticipating a cash outflow at the level that we had in FY23. And you know, we'd hope to be able to get to a more neutral position by the year end. You know, from a working capital to sales standpoint, we're about 9.5%. Working capital to sales at the moment, you know, typically we would be more in the 8-9% range. But I think we've...
certainly got some opportunity there as well as you look forward over the next couple of years. And guys just in terms of how much of that is sort of baked into your free cashflow guidance for next year, am I right in seeing that as sort of a buffer on the downside or is that potentially already baked in into what you've come out with today as guidance? Yeah so the cashflow guidance for 24 is 850 million to 900.
But, you know, we've obviously got some opportunity to do better than that and that's really the working capital is the key factor there.
Our next question comes from the line of Scott Ryle from Rimmer. Please go ahead. Thank you.
Hi thank you very much. Hopefully mine are quite quick questions. I was wondering if you could comment on what you've seen in terms of the changes of your customers in terms of their price expectations around responsible sustainable packaging please and the willingness to pay a premium I guess over virgin product.
How that's changed over the last 12 months, that's what I'm asking. Sorry. Yeah, look, I don't know that it's changed much. I mean, I think customers understand that there's more value to be ascribed to a product that's got a better sustainability profile. And I think consumers understand that as well.
another element of functionality that is now expected in consumer products and that is the the environmental profile is is at least neutral if not positive overall and there's value associated with that and so you know most of these products do have a premium there's also
The scale curve that we need to work through we're introducing new products and like any new product with less volume and less scale Benefits it typically tends to start out at a higher price point. It'll evolve over time but I think as as brand owners look to meet their own commitments and You take the full Range of different costs including
regulatory costs into consideration, the more sustainable products offer higher value and therefore they tend to carry a bit higher price particularly at the outset. Okay, great. Thank you. And then secondly, I just wanted to ask a bit more about the Lychella plant in Australia and just for a bit more detail, am I right, firstly, that you've invested directly in the plant?
Lachella, then can you just give us a few stage gates or timings around when that plant will come into operation?
I guess thirdly just to discuss in the US market where we've got a lot of advanced recycling facilities being built or already built, they tend to be linked with one of the major petrochemical companies. How do you think about the risk around using effectively this solution with a startup please?
Yeah, look, there's a lot there and it's a pretty exciting project, so I'm glad you asked. I mean, the investment we've made, firstly, I would just make sure it's clear it's a modest investment, several million dollars in the single digits of millions of dollars. We're co-investing with Mondelez and we're investing in Lysela as the tech...
to the Australian market with local production which is great because
The collection of soft plastics as they're referred to in Australia through the Red Cycle program needs an outlet. This plant will be a perfect outlet for the recycled plastics that are collected. And then the brand owners in Australia are differentiating and are really advocates for more sustainable packaging including packaging made with recycled content.
and the Australian consumer looking for more sustainable packaging. So we're really excited about this. In terms of stage gates, look, it's a pretty extensive build, as you'd imagine. The site's been selected. There's a chance that the plant could be operational by the end of 2021.
of calendar 24, but it's really an 18 to 24 month project. Our final question comes from the line of George Stapos from Bank of America. Please go ahead. Hi, thanks for taking the following. I was asking earlier just
Are you seeing any signs from your customers at all as they're trying to find ways to stimulate growth? Maybe they're considering more promotional activity at the request of their customers, that they're now coming back to their packaging suppliers and looking for your and other companies' support, perhaps with givebacks, cost reductions, productivity. What's happening there, if anything, on that front? Thanks and good luck in the quarter.
Yeah, thanks, George. Look, you know, others have talked about potentially increased promotional activity. We really haven't seen much of that of any great consequence. You see it a little bit more in the beverage space in the summer season, but really, and there are pockets of promotions here and there, but nothing that's pervasive enough that we would point to that's got a material impact on our volume outlook. I mean.
And the pricing dynamic is as we've discussed on this call, I mean there's continued inflation recovery that's necessary and while it's moderating it's still a fact of life that we've got to recover, you know continued inflation through our cost base and that's what we're busy doing.
Very good. Thanks very much. Thank you. I would now like to turn the call over to Ron Delia for closing remarks. Please go ahead. Thanks, operator, and thanks for everyone's interest in AMCOR and for joining our call today. We appreciate it, and we'll speak to you at the end of the first quarter. And we'll end the call there. Thank you. Ladies and gentlemen, this does conclude our call.
Thanks very much. Thank you. I would now like to turn the call over to Ron Delia for closing remarks. Please go ahead. Thanks, operator, and thanks for everyone's interest in AMCOR and for joining our call today. We appreciate it, and we'll speak to you at the end of the first quarter. And we'll end the call there. Thank you. Ladies and gentlemen, this does conclude our today's call. Please.
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