Amcor plc

Good day and thank you for standing by and welcome to the AMCOR 2021 full year results. At this time, all participants are in a listen only mode. After the speaker's remarks, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Tracey Whitehead, Head of Investor Relations. Please go ahead.

Thank you, Operator, and thank you, everyone, for joining AMCOR's full-year call for fiscal 2021. Joining the call today is Rhonda Leah, Chief Executive Officer, and Michael Casamento, Chief Financial Officer. At this time, I'll direct you to our website, amcor.com, under the Investor section, where you'll find our press release and presentation, which will be discussed on the call today. We'll also discuss non-GAAP financial measures and related reconciliations can be found in the press release and presentation on our website. Also a reminder that the call today includes some forward-looking statements, which remain subject to certain risks and uncertainties. Please refer to AMCOR's SEC filings, including our statements on Form 10-K and 10-Q, to review factors that could cause actual results to differ materially from what we're discussing today. During the question and answer session, we request that participants limit their questions to a maximum of two and then rejoin the queue for any follow-up. With that, I'll turn over to Ron.

Thanks, Tracey, and thanks, everyone, for joining us to discuss AMCOR's fiscal 2021 full-year results. Joining me today, as Tracey mentioned, is Michael Casimeno, AMCOR's Chief Financial Officer. We'll begin with some prepared remarks, and then we'll open the line for Q&A. We start every meeting at AMCOR with safety, and we'll begin there on slide three. Safety is the first and most important of our values, and AMCOR has been on a long-term journey towards our goal of no injuries. Our safety performance has shown continual improvement, including in the last 12 months, where our performance has been a real highlight. Across Amcor, we reduced the number of injuries by almost 25% compared to last year. All of our businesses reported fewer injuries, and over half of our sites have remained injury-free for at least 12 months. Through a year where the pandemic continued to present operational challenges in many countries, our focus on safety was unwavering, and we're incredibly grateful that our people continue to be engaged and focused on staying healthy as well as safe. We're proud of our safety performance, which we believe is the best in our industry, and the progress we've made over a number of years, but we're also convinced that our objective of no injuries is absolutely possible, and we continue striving towards that goal. We have four key messages today, which are set out on slide four. First, FY21 was an outstanding year for Amcor on multiple dimensions. The operating environment remained highly dynamic, but our teams stayed fully focused on the key business drivers within our control, remained agile as conditions changed, and demonstrated exceptional execution and consistency all year. Financial results exceeded our expectations as the year progressed. We ended the year with momentum, and we expect another strong year in fiscal 22, which is the second key message. Third, our recent performance in many ways is a result of the financial and strategic benefits from our 2019 acquisition of Bemis. Two years on, the integration is now essentially complete, Financial benefits are ahead of our expectations and strategically we're better positioned than ever with a stronger foundation for growth into the future. And lastly, we're capitalizing on that strong base by investing in a number of organic growth initiatives which will maintain a momentum beyond fiscal 22 and for the long term. Turning now to the financial highlights on slide five. FY21 was an exceptional year financially for Amcor with record earnings, exceptional margin management despite steep raw material cost increases and supply constraints, and momentum building through the year. Organic sales growth was 2%, and we exited the year in Q4 with sales 3% higher than the prior year. EVIC growth was 8%, with the flexibles and rigid packaging segments both delivering strong results. growing in several higher value end markets and contributing to margin expansion. In fiscal 21, AMCOR's EBIT margins increased 60 basis points to reach 12.6% for the year, which is a new high and an exceptional achievement in an environment where raw material price increases and supply disruptions continue to require an intense focus on securing availability as well as managing price recovery. We estimate Themis acquisition synergies were around $75 million, and as we close out the final integration activities, we expect to exceed the original synergy target by at least 10%. EPS increased 16% through the year and was ahead of guidance, which we're able to continuously increase through the year. And free cash flow of $1.1 billion was at the top of our expected range. Return on capital or return on average funds employed finished well above 15% at a time when our cost of capital is at an all-time low. And through the year, we returned $1.1 billion of cash to shareholders through share repurchases and higher dividends. The key message here is that the fundamentals of our business continue to strengthen, Our teams around the world have demonstrated unwavering focus on executing against our strategy, and as a result, we've delivered another year of outstanding financial performance with momentum continuing to build as we begin fiscal 22. I'll turn it over now to Michael to provide some more detail on the financial results, and I'll finish up with some comments on growth and sustainability.

Thanks, Ron. Good morning and good evening, everyone. I'll start with a flexible segment on slide six, which performed very well, delivering record sales, EBIT and EBIT margins for the year. Sales includes recovery of higher raw material costs, and as Ron mentioned earlier, these have continued to move higher during the quarter. Across the business, our response has been proactive, and we have implemented price increases quickly. As a result, in the June quarter, net sales increased by more than 100 million, with the annual recovery run rate reaching more than $500 million as we exited the year. From an earnings perspective and consistent with last quarter, the price-cost impact has remained manageable, given the diversity of materials we buy and the multiple regions in which we consume those materials. This is clearly evident in our margin performance, which continued expanding in Q4 and through the year. From a volume perspective, demand in many of our key high-value end markets has remained consistently strong, including meat, coffee and pet food. However, this has been offset by double-digit declines in North American medical volumes and European pharmaceutical volumes, driven by fewer elective surgeries and lower prescription trends. From a geographic perspective, volume growth has been relatively broad-based, with good overall performance in emerging markets And while volumes in North America were higher than the prior year, along with Europe, this is where large parts of our healthcare business are located, and growth in these regions is inclusive of those headwinds. Adjusted EBIT has grown 9% in constant currency terms, mainly reflecting volume growth, exceptional margin management with expansion delivered every quarter at around 65 million of cost synergy benefits related to the Bemis acquisition. Turning to rigid packaging on slide seven, In summary, the business has continued to deliver outstanding results driven by increasing consumer demand in both North and Latin America. Sales growth included a 5% increase in volume as well as a 3% price mix benefit, including higher pricing to recover cost inflation in Latin America. In North America, annual beverage volumes were 8% higher than last year and hot fill container volumes were up 13%. driven by rising consumer demand through the year, which resulted in capacity shortages and historically low inventory levels across the industry. Demand was particularly strong in hot fill categories, including sports drinks, ready-to-drink tea and juice. Year-to-date specialty container volumes were higher than the prior period, with growth in categories including spirits, home and personal care, and this was partly offset by lower volumes in the healthcare segment. Volumes in Latin America were 5% higher than last year, with growth delivered in Brazil and Argentina in particular. EBIT growth of 8% reflects higher volumes and favourable mix across the business, and this was partly offset by higher labour and transportation costs in North America. These higher costs have been a direct result of capacity shortages and low inventories throughout our network, which introduced supply chain inefficiencies in the short term ahead of installing additional capacities. Rigid containers continues to be one of the world's preferred packaging formats since it's recyclable, resealable and hygienic and has the lowest carbon footprint. As you'll see on the slide, this preference continues to be reflected over time with format share in a healthy growing market remaining consistent. Demand for recycled content is also rising rapidly and our use of recycled resin has doubled over the last two years. Looking forward, we expect this trend to accelerate further and are working with customers on a very active pipeline of new product launches incorporating high levels of recycled material. Moving to slide eight, adjusted free cash flow of $1.1 billion was at the upper end of our expected range for the year and we finished the year strongly. Compared with last year, free cash flow benefited from the higher flow-through of higher earnings, and this was offset by $100 million adverse impact from the timing of US cash tax payments and a lowering working capital benefit. Working capital has been an area we have been particularly focused on through the Bemis integration and is a real highlight. In total since 2019, approximately $250 million of working capital has been released, and this has been a source of funds to cover synergy-related cash costs. Capital expenditure increased in the current year as we have stepped up our organic investments in high-growth segments and geographies. Looking ahead, we have a broad range of attractive investment opportunities and expect to increase CapEx by a further 10% to 15% in fiscal 2022. Our financial profile is solid, with leverage at 2.7 times on a trailing 12-month DBA basis, and it's right in line with our expectations. With strong annual cash flow and a strong balance sheet, The business has significant capacity and flexibility to invest in organic growth, execute M&A, as well as return a substantial amount of cash to shareholders. In fiscal 21, total cash returns to shareholders in the form of dividends and share repurchases reached an impressive $1.1 billion. Turning to slide nine and our outlook for the 2022 fiscal year, we expect comparable constant currency EPS growth of 7% to 11% for the full year. This excludes the effect of disposed businesses, which impact comparability, and an unfavorable currency impact of approximately $0.01 per share, assuming current exchange rates prevail for the remainder of the year. So on a reported basis, this results in an EPS guidance range of approximately $0.79 to $0.81 per share. Free cash flow is expected to be $1.1 to $1.2 billion. up to 10% higher than fiscal 2021, even as we are accelerating capital investments to support organic growth. Growing cash flow enables us to continue paying a compelling and growing dividend and allocate cash to share purchasers, which we expect will be around $400 million in fiscal 2022, while retaining the flexibility to fund acquisitive growth when needed. So with that, I'll hand back to Ron.

Thanks, Michael. I'll start with a few points to recap the Bemis acquisition on slide 10. The all-stock acquisition of Beams was completed in June 2019 and was the largest in Amcor's history. So two years in now, our integration efforts are essentially complete and the outcomes are clearly exceeding our original expectations. Firstly, from a financial perspective, the transaction unlocked substantial value through the realization of cost and cash flow synergies, which have materially strengthened Amcor's financial profile. More specifically, based on our fiscal 22 expectations over the three-year period post-closing the acquisition, we will have outperformed the original cost synergy target of $180 million by at least 10%. And as Michael mentioned, the cash released from working capital over the last two years funded the cash costs to achieve those synergies. Margins in our flexible segment will be more than 200 basis points higher than in fiscal 2019. EPS will be at least 35% higher, or at least 21 cents per share. We will have repurchased approximately 25% of the shares issued to fund the acquisition, and the annual cash flow will be close to double AMCOR's annual cash flow in the year prior to the acquisition. Strategically, Bemis was a perfect fit for Amcor. It was a pure play coming into what was already the world's largest global flexible packaging business. And putting these two companies together created the only truly global flexible packaging platform able to serve multinational customers around the world with an even stronger value proposition, especially in the most attractive end markets like healthcare and protein, where our participation has meaningfully increased. Amcor is now the clear flexible packaging leader in every major geography with greater absolute and relative scale advantages. And we've strengthened our talent and capabilities, particularly in R&D, so we can support large and small customers with the broadest range of innovative and sustainable packaging solutions. Today, as a result of the Bemis acquisition, we're better positioned than ever with a strong foundation for growth looking forward. With that stronger foundation, we have a range of organic growth drivers that we're investing behind, and on slide 11, we've highlighted a few. First, an increasing percentage of our sales are coming from the most attractive, higher-growth, higher-value-add segments where we have the best opportunities to differentiate, including healthcare and protein packaging and flexibles and the hot-fill product segment in rigids. Our global healthcare business is approaching $2 billion in sales across medical device and pharmaceutical packaging, segments that require unique capabilities that are not easy to replicate. We're investing to add both capacity and capability with current projects underway in Malaysia and Ireland to highlight two examples. In protein and meat packaging, we have a great opportunity to leverage our capabilities in high barrier films and our growing business in North America to the benefit of our other businesses around the world. In the hot fill rigid packaging segment, we have extensive intellectual property and product design capabilities, and we know how to partner with customers to help them drive growth through innovation. Given the sold-out environment we're in and the growth outlook, we're adding capacity across our North American plant network. The second organic growth driver we're highlighting today is our leading emerging markets portfolio with over $3 billion in annual sales and a long history of profitable growth. Again, we're investing behind the emerging market opportunity, including in the new greenfield plant in China that we highlighted on our last call. And third, innovation and new product development will increasingly contribute to organic growth going forward. We've been investing in this area as well to extend our global innovation center network into Europe and China through the recently announced partnership with Michigan State University School of Packaging and with our entry into the corporate venturing space earlier this year. And finally, the number one organic growth driver for Amcor going forward, which cuts across the other three and really everything else we do, will be the increasing need for more sustainable packaging. And we know there will always be a role for packaging for essential food and healthcare products. And so the ability to provide that packaging so that it meets all consumer needs and is more sustainable creates a unique opportunity for growth. Slide 12 highlights sustainability a bit more, and as we take stock at the end of one financial year and start a new one, we're particularly pleased with the progress we're making to accelerate responsible packaging through advances in package design, waste management infrastructure, and consumer participation. Examples of recent progress on package design demonstrate the breadth of our product range across substrates, with packaging that uses less material overall and more recycled content, eliminates problematic materials, and has a better end-of-life profile. In terms of materials, our use of recycled resin and rigid packaging has almost doubled over the last two years, and we expect to almost double again over the next 12 to 18 months. We've also announced our new AmSky platform, which eliminates PVC and has the potential to transform the sustainability profile of healthcare packaging in particular. To improve end-of-life outcomes, we've commercialized several new recycle-ready product platforms, including the polymer-based AmLite and AmPrima and the paper-based Matrix product ranges, and we've entered into a new partnership to extend our offering of compostable solutions. Demand is growing for these new products and will be scaling up to capture the growth opportunity. Making progress on waste management infrastructure and consumer participation will be equally important, and both require close collaboration with others across the value chain. We stepped up that collaboration over the past year through our partnership network, where AMCOR is increasingly relied upon to shape and establish packaging design standards around the world, which can then inform infrastructure investment and consumer education to help keep packaging out of the environment. We'll talk more about our sustainability agenda following the publication of our annual sustainability report later this year. Slide 13 is a slide we shared late last year at our investor briefing, but it remains relevant today. And we believe the AMCOR investment case is as strong now as ever, and we set out the reasons why on this slide. Several of the points have already been made, but in simple terms, we generate significant and growing free cash flow every year. In fiscal 22, that free cash flow will be up to $1.2 billion. And that cash flow will comfortably support reinvestment in the business, as well as M&A and regular share repurchases, which in turn drive strong EPS growth. And in addition, we'll continue to pay an attractive and growing dividend. We also believe that momentum matters, and momentum has been building at Amcor, which is clear from our recent performance and outlook comments and the expectations we have for our fiscal 2022 year. Finally, on slide 14, a quick recap of our key messages from today. Amcor had an outstanding year in FY21. We believe momentum is building, and we expect another strong year in FY22. The Bemis integration is essentially complete, and we've summarized the outcomes today, which have exceeded our expectations. And finally, we now look forward to capitalizing on a range of organic road drivers, and we're investing in the business to make that happen. With that, operator, we'll conclude our opening remarks, and we'd like to open the line for questions.

Thank you. In the interest of time, we would like to remind participants to limit their questions to two and to rejoin the queue for any follow-ups. Our first question coming from the line of Anthony Petinari with Citi. Your line is open.

Good evening. For the 2022 guidance, is there anything that you'd say about, you know, the cadence of earnings growth, whether you'd expect that to be more second half weighted or first half weighted, given you have a few moving pieces with cost inflation and some volume comps that are maybe a bit unusual?

Look, Andrew, we've given the full year guidance there for you, that 7% to 11%. You know, typically our business is weighted kind of 45% first half, 55% second half. You know, we haven't given particular guidance by quarter, but, you know, I think that range, you know, we're expecting to be within that as we head through the year.

Okay. And then, you know, you obviously have a large global footprint. Is it possible to say how the Delta variant has impacted demand, if at all, across the regions that you operate in? And is there anything sort of anticipated in fiscal 22 guidance from that perspective?

Yeah, Anthony, first of all, it's all incorporated in our guidance, our outlook on the top line, his starting point for the outlook and the forecast for the coming year. It's really early to say. I think, you know, we would say that consumption and our demand, other than in healthcare, has more or less normalized over the last several months, notwithstanding the pickup in, you know, positive test results that are coming from the Delta variant. So at this stage, we haven't really seen any kind of dislocation resulting from COVID in the near term here.

Okay, that's helpful. I'll turn it over.

We have our next question coming from the line of Gansham Fanjabi with Baird. Your line is open.

Hi, good evening. This is actually Matt Krieger sitting for Gansham. I guess I just wanted to start out with, given several moving pieces, including some unusual volume prompts and things like that, Can you outline what your budgeted volume growth by segment and or by region might look like for fiscal 22? And then just given that we're halfway through August already, can you talk about how some of the sales in key segments or in markets have trended to kick off the year here?

Look, typically we'd expect low single-digit growth on the top line. I mean, that's what you saw this year. And if you look over history, that's typically what we see. So, you know, I think as we... To give you any more detail on that, I think it's the low single-digit is where we would point to.

I think also if you look back over time, we've typically grown kind of mid to high single digits in emerging markets and kind of low single digits in developed markets, which is consistent with consumption patterns in those different parts of the world. And then from an end market perspective, we're pleased with the performance in some of the higher value-added segments where we're really pushing typically protein, pet food, coffee, the things where there's more differentiation. Healthcare would typically be at the top of that list. Obviously, we're weathering a bit of a a bit of a blip because of COVID at the moment, but that's kind of how we think about getting to that low single-digit expectation over time on the top line.

Great. That's helpful. And then I just wanted to shift over to the raw material environment. Can you talk a bit about what type of headwind you experience from higher raw material costs and potentially raw material shortages during the latest quarter and the full year of 2021? along with how those raw material trends are likely to impact your business as we move into 2022. Any detail on if you had issues procuring materials or if there was any downtime taken because of lack of supply would be helpful as well.

Yeah, sure. I'll take the financial piece, if you like. So the first thing is, as you know, in the standard industry, we pass through raw material trends. pricing to customers and on a contractual basis. So it's a timing issue more than anything on that front. The other point about EMCOR, obviously we have a broad and diverse range of raw materials and consumption around the globe. So you've got to take that into account. as you look at our numbers through the year. And then, of course, we built capabilities over, you know, many years of getting that raw material passed through. So, you know, from where we sit today, we're really pleased with how we dealt with some of the spikes in 21. You know, as we said in the remarks, we recovered over 100 million inflexibles in Q4 alone and exited the year on an annualised basis. That was about 500 million in those prices, so more to come. The price lag cost was manageable, as it was in Q3. So we haven't called that out specifically. And really, the evidence around that is through our margins. So you can see that our margins continue to expand in Q4 and, in fact, expanded in every quarter throughout the year. So, you know, when we put all that together, we're really pleased with where we've gotten to on that front. And, you know, our teams are really, really, you know, we build capability in that space to make sure that we get that pass through efficiently.

And then on the... Yeah, as far as the outlook in terms of the commodities, I mean, as Michael said, we're pretty diversified, so it's always a little bit of a mixed bag. But generally speaking, we see things moderating and possibly the increases abating over the next quarter or two. As you pointed out, Matt, the supply... availability of certain materials is probably the bigger issue potentially. At the moment, we have not taken any downtime to answer your question specifically. But, you know, there are certain materials, particularly some of the specialty grades that are in short supply and that are on allocation. And that's been quite disruptive, and it consumes a lot of management time just to ensure that we're getting access. And I think we've done a good job of that by virtue of our scale and relationships we have and the breadth of the supply base we have.

But that is as big an issue as as the price inflation. Great. That's helpful. That's it for me. Thanks. Thanks.

We have our next question coming from the line of Salvatore Chiano with Seaport Research. Your line is open.

Yeah. Hi, Ron and Michael. Thanks for taking my questions. So the first thing I wanted to understand a little bit is as we think about that 7% to 11% EPS growth for next year, What are the key drivers of that besides the buybacks and the synergies? How should we think about it by segment and if it's more price-cost recovery-driven or volume-driven, things like that?

So, I mean, I can start there for you, Salvatore. I mean, if you think about the growth of 7% to 11%, you're going to see around mid-single digit from an organic standpoint is the first point. And, you know, then you've still got some benefits from the buyback to come through as well, which is more organic. So there's probably 1% to 2% there that's going to come through. And then, obviously, we've got some synergies left to go, which would be low single digit. So that kind of explains to you the... the make-up of the guidance. And, you know, obviously to get to the upper end, we'd see some better revenue in the top line, perhaps a stronger recovery in healthcare. And, you know, that's the opposite, you know, in terms of the lower end of the range. Maybe some further raw material headwinds could drive the lower end of the range. But that's really the make-up of the components in that guidance.

Okay, great. And then I'm not sure if I missed it, but do you have any outlook with regard to some other items, components of your EPS or free cash flow guidance, like interest expense, EPS, working capital expectations, and also cash flows that you exclude from your adjusted free cash flow guidance?

So, yeah, so we've said the adjusted cash flow is going to be $1.1 to $1.2 billion. Again, a range there which, you know, depending on the earnings, will impact that. You know, working capital potentially could move around depending on headwinds from raw materials, but they're the key items there. We haven't called out specifically interest and tax. I think you can expect that they'd be similar to where we are this year if there was something... unusual call out there, we'd call it out for you. Obviously, we're going to have higher earnings, so the tax absolute will be higher, but, you know, otherwise within that range. And then we're looking to invest more in the CapEx front, as I spoke to in my notes, and that's really to support organic growth into the future in several opportunities that we've got on hand today. Okay, great. Thanks very much.

We have our next question coming from the line of Kyle White here with Deutsche Bank. Your line is open.

Hey, thanks for taking the question. I wanted to focus on rigid packaging for my first question. Hot fill volumes continue to see nice growth here. Can you provide a bit more details on what exactly is driving this? Is it still at-home consumption with some of the large multipacks growing, or is it really just being driven by kind of the new product introductions and innovation that you're seeing in that market?

It's a good question because it's across the categories. So hot-filled containers typically used in ready-to-drink teas or certain premium segments of the juice market and, of course, isotonic sports drinks. And those categories collectively are all growing pretty rapidly, and most of the participants and brand owners in those categories are enjoying that growth. And it pretty much is a combination of the drivers you mentioned, Kyle. There's, I think, increased distribution and availability in multi-pack formats. um there's probably a bit more at-home consumption but there's also a lot of new product launches and a lot of rejuvenation of legacy brands and also just extensions or introductions of new ones so there's a lot happening in that space um a lot is oriented towards uh healthier and better for you type uh line extensions or new products and so there's just a lot of a lot of activity there and that's a segment where there really is only one packaging format i mean it's a It's a PET set of segments that resealability, lightweight, on-the-go consumption. It all kind of fits together with the value proposition of a plastic container. So it's all coming together. The volume growth has been strong. We've seen strong volume growth in the past. We sort of expect at some point, you know, you get back towards mid-single digits. But for now, the industry is enjoying strong growth and essentially a sold-out environment.

Got it. That's helpful. And then on flexibles and healthcare packaging, just giving you notes, a higher value product for you or mix for you. What's kind of the update there? Are you seeing a recovery in market or has it been kind of stalled now recently with kind of the upticks of COVID cases, the consolidation rates that we're seeing?

You know, I think it seems to have stabilized a bit. I'm not sure we're ready to call it, to say that it's turned a corner. These are segments, and the predominant sub-segments would be medical device packaging and pharma packaging. And we're more weighted towards pharmaceuticals in Europe and a little bit more weighted towards medical in North America. And these segments would be growing typically at mid-single digits and have for several decades. And they offer great differentiation and therefore good margins. I'm not sure we're ready to say that we've turned the corner. We see evidence that things may be stabilizing a bit, notwithstanding the recent spike in cases. I'm not sure hospitalizations have followed suit. So I think we would hope that as we work our way through the fiscal year, that's an area that builds momentum through the four quarters of FY22. Got it.

Appreciate the details, and good luck in the next fiscal year. Thanks.

We have our next question coming from the line of Andrew Scott with Morgan Stanley. Your line is open.

Thank you. Ryan, just wanted to sort of step back and ask a bit of a bigger picture question. It was, you know, great job offsetting raw materials in this period. Just want to sort of understand how you see that ability being changed with the Bemis acquisition. Obviously, maybe, if you like, the 1,000-pound gorilla brought that scale in your purchasing. Has that fundamentally changed your ability to manage your resin input and other input costs?

You know, it's an interesting question. There's a couple of things that have changed. I mean, what Bemis would have brought is just greater diversification in the buy. So we got bigger, obviously, and that helps. You know, the relationships we have with the big suppliers are not unlike the relationships we have with big multinational customers. You know, it definitely matters to be big on a global basis, and there's a lot of discussion about it. These regional markets or global markets, I think ultimately, you know, we have some big global relationships, and it's helpful to So, BMIS brought scale. It brought further diversification in the spend. And that's, I'm sure, it helped. But I think the other thing, Andrew, and you've covered us for a long time, I think the experience curve, you know, we continue to go down, and we've kind of learned over the years, and I've been around long enough to have been through probably three of these peaks in the last 10 years. And I think with every cyclical peak, like the one we've been going through, we get better and better in terms of the internal processes and capabilities to, first of all, measure what's happening and then take action and, you know, and mitigate it. So it's probably a combination of BMS and maybe just getting further down the experience curve that's kind of helped us through this cycle.

Understood. And I have covered you for a while, and I know this is a question that you probably get sick of, but to what extent should we view the comments around the buyback as a reflection on maybe a lack of attractive opportunities in the acquisition market at the moment?

Look, I don't think you should see it as an either-or. I think what you're seeing with this result, you know, we've been talking about the cash that the business spent out for a long time, and this is, you know, going into a fiscal year with line of sight to excess cash flow even after continuing to fund the dividend and continuing to actually fund more CapEx. As Michael pointed to, CapEx will pick up again in FY22. Even after those two allocations of cash, the business will generate, you know, a substantial amount left over. And we go into the year with an expectation that we will at the least buy back shares. And, you know, if there was an acquisition that popped up, we would not hesitate for a second to either suspend the buyback or to, you know, find the funding, which we would comfortably be able to do. So I think it's an and, Andrew. It's not an or.

Very helpful. Thank you. Thanks.

We have our next question coming from the line of Adam Samuelson with Goldman Sachs. Your line is open.

Hi. Yes, thank you. Good evening. Good morning, everyone. So maybe following up on that last question and your response, Ron, just thinking on the M&A front, you think about the kind of growth potential beyond fiscal 22. Obviously, there's some more business energies that you've you're capturing and annualizing as you roll into your fiscal 22 outlook, the size and scale of that Venus opportunity was fairly unique and probably not going to be easy to replicate. And so I'm just trying to think about the ability or the confidence that you have to drive the inorganic growth, and especially not just to buy the businesses, but to extract value from them at scale moving forward, whereas it might be harder to find businesses of BMS size moving forward?

Yeah, look, it's a really good question at this point in time because we were absolutely resolute and focused on making the BMS deal a success. We know there's a little bit to do, but it's essentially complete, which is why we provided a bit of a wrap-up today. You're right. From a pure play perspective, there's not another $6 or $7 billion deal out there that's obvious, and we don't feel compelled to move outside of our product segment mix because we just think there's ample growth in the segments that we're in. So if we kind of constrain things or put some boundaries around the the opportunity set that does not limit us in any way. I mean, generally speaking, if you go back over the last 10 years or so, the company's been pretty acquisitive. We're probably up to around 30 deals. We've had a good track record of bringing synergies out on the cost side in particular, getting some product benefits as well. So we'll continue to do that. I mean, I think there's no shortage of medium-sized companies deals in the packaging space as, you know, you can see every week there's another deal announced. And the good thing about being acquisitive and being big is that we're in the deal flow. So, you know, almost never a deal is happening that is at least not put in front of us, and we at least get the option to take a look or not. And that will be part of the formula going forward. So the $400 million that we're allocating this year to buybacks, I mean, we have an equal amount each year that we'd be thinking about deploying in an ongoing sense for both on M&A. And then obviously if something bigger comes up, then we would love to have a crack at that too.

Okay. And then maybe just following on the discussion on growth investments, probably an incremental color on some of the capacity ads within the growth capex. I think I heard a $500 million number referenced earlier, so $100 million, $150 million or so of growth capital, just where that's, being directed and more broadly meeting with some of the responsible packaging and best kind of opportunities you're pursuing if those might be greater uses of capital moving forward.

Yeah, no, it's a good question. I mean, we're going to be stepping up. We'll be about 4% of sales, which we think is a reasonable number to expect us to deploy each year. We've been a little bit lower than that because we've been focused on integrating Bemis, obviously, but we'll be at about 4%. That means another bit of a step up next year, which is incorporated into the free cash flow guidance that Michael described. Look, anecdotally, some of the places that we're deploying cash, I highlighted a few. We're putting some capacity in the hospital space in North America. Great use of capital, particularly when it's onsite, co-located within a customer premises. You know, those are as good as it gets in terms of organic investments. We're investing in the medical space, medical device packaging in Malaysia and in Ireland. We've got some Capacity we're going to put in Malaysia for a certain product category that we typically export out of North America or Europe, and we're going to localize that, which opens up just a whole other set of growth options for us. And in Ireland, we're going to get into a product line in medical that we hadn't been in before. And then from a sustainability perspective, we've made a number of announcements over the last six to 12 months in new products. So we've talked about a couple of platforms like Amlite, which is a recyclable or ready-to-be-recycled retort pouch, which is unique. And the demand has just been outstanding. You know, the product is sold out before it's even barely been launched, and so we're going to add capacity in Europe for that. So those are just some examples. But that all fits within that, you know, roughly 4% of sales number that's embedded in our free cash flow guidance.

All right, great. I appreciate the call. I'll pass it on. Thank you.

We have our next question coming from the line of George Tapas. Your line is open.

Thanks very much. Hi, guys. Congratulations on the end of the year, and appreciate the rundown and the presentation today. Ron, I wanted to segue off that last question and maybe go to slide 12. If we can... If you could, for us, quantify or categorize the packages like Amlite, like the PVC-free films. How much revenue do you think you're doing right now in terms of the responsible packaging product suite that you're offering your customers right now? And what do you think that's growing at, if you could put any numbers around that? And relatedly, is this scenario that could get, I mean, the answer will be yes, obviously, but where you really think there's an opportunity for acquisitions to improve your performance here, or you really don't need acquisitions, you've got the best technology in the market? So, a couple questions to start.

Yeah, let me just, let me answer the second part first. I mean, we do believe we have the best technology in the marketplace. We also are humble enough to realize we don't have all the good ideas out there. And so if there's an acquisition that would add to our product portfolio, we would absolutely do it. And it's one of the reasons why we're going to be much more active in the corporate venturing space. It's another, it's also one of the drivers of the investment with Michigan State. So we're going to do much more in terms of external sourcing of let's call it good ideas and innovation to supplement what we do believe is industry-leading R&D. So I'd say watch this space. As far as the sales into what we might describe as more sustainable packaging, if we think about it through the lens of what's recyclable, we'll just take that lens, and we're not for a second suggesting that that's the only answer here, but that tends to be the most readily available end-of-life solution. We've got three broad segments, two of which are fully recyclable. So pretty much everything that we produce and sell in rigid packaging is recyclable. Everything we make in the carton segment is recyclable. That leaves a flexible segment. And in that space, right now of the sales in the flexible packaging segment, about 60-odd percent of what we're selling today is considered designed to be recycled. There's probably another 75% of our sales that could be, so there's 10% to 15% that could convert. It just requires customers to adopt a different structure. And then you have additional platforms like Anlite and like Matrix and like Amprima, which help move those numbers up. in steps. None of them are going to move that needle on those metrics in a material way in any given year. But over time, the percentage of our flexibles that is recyclable will start to increase as those products get take up. I'll stop there. But we're also acknowledging that's not the end of the story. We've got to have the waste management infrastructure. And the consumer has to participate as well, too. But as far as the package design, that's about where we're at.

Okay. Ron, I appreciate that. And then coming back to the fourth quarter, and I recognize, obviously, MCOR likes to focus on the year-to-date results and the year results, and you had good performance. It looked like in flexibles there was a deceleration, actually a decline, you know, in the low single-digit range in flexibles. Was that just purely... healthcare and the continued, you know, weak end markets for you this year? Did anything else slow down for you at the end of the year as we're exiting and going into fiscal 22? Thanks and good luck in the quarter.

Yeah, thanks, George. No, I mean, it's basically the same story that we've had in Flexibles the whole year. It's healthcare. Healthcare is a sizable business. If you just think about it as between $1.5 and $2 billion in sales, within that Flexibles portfolio, and you think about the big North American medical business and European pharmaceutical business being down double digits, that takes a couple of percentage points off of what you'd expect from a growth perspective, right? They should be growing mid-single digits, and they were down double digits. So that takes a meaningful bite out of the overall segment growth.

Thank you, Ron.

Thanks, George.

We have our next question coming from the line of Richard Johnson with Jefferies. Your line is open.

Thank you very much. Good morning, everybody. Ron, our first question, I just wanted to ask about organic growth in the flexibles division. If I look at this over the last two years, an absolute dollar change. All the growth comes from the cost or efficiency lines. In fact, the mix of volume and price is negative. So that's obviously very impressive. So really my question is, how sustainable is that? How can you continue to drive organic growth simply through cost out or other efficiencies? And should we be worried about the fact that the mix of volume and price continues to be negative?

Yeah, look, I mean, Richard, you've followed the company for a long time. The top line sales has grown kind of low single digits, actually about 2% for a long period of time. Flexibles would normally be in that space. I think the last couple of years is a tough read through if you're talking about the long term trajectory of the business. And that being said, with that level of growth, we've been expanding margins for I don't know, over a decade. And, you know, the flexibles margins now being up over 14%, you know, from where they were 10 years ago or so at probably six or seven, I think gives us some comfort that at that level of relatively modest top-line growth, which mirrors the end markets that we supply, you know, we'll continue to grow profit and expand margins.

Okay, thank you. And then secondly, could you just run through the performance of the carton business in 21 and particularly by region? I'm interested to get an understanding of what volumes are doing. Thanks.

Yeah, look, the carton business, which is about 8% or 9% of sales, had a very good year. The business had a good year on profit. The profit was up. Great job managing cost. And actually, the volume performance was probably a little bit ahead of long-term trend. That business, from a volume perspective, is likely to be flat to declining low single digits. Last year, it was close to flat on a volume perspective, too. I mean, by region, we start to get into some smaller parts of the business, but the bigger parts of Europe and the Americas would mirror the trends that I just described. Thanks very much.

We have our next question coming from the line of John Purcell with Macquarie. Your line is open.

Oh, good evening, Robert Michael. Hi, John. How are you? Just had a couple of questions. Yeah, the first one, Ron, just in relation to CapEx and some of those increments there, can you remind us what your return targets are on that incremental or that growth CapEx? Obviously, you've had growth or return targets in the past, so how how they change, perhaps, or not. And the second question for Michael, just in terms of that pre-cash flow 1.1 bill, you know, what was the drag, if any, from raw materials and higher sort of inventory there or impact on that? Thank you.

Yeah, I'll take both of those. I mean, in terms of returns on CapEx, we really haven't changed the model there. I mean, it's a cash investment. We expect 20% return on those, so, as a minimum. You know, that's typically what we work towards. So no real change there over the term. In respect to working capital, yeah, look, we saw some higher inventory during the period and some higher receivables as we started to flush that through the system and then the offset was the payable. So, you know, from a year-end perspective, it wasn't a meaningful impact. But there's probably still a little bit of that to flow through the system, and it's more a timing issue than anything. But in the cash flow that we saw at the year end, you know, we were pretty pleased with where we ended. It was a strong performance, and, you know, we had a good finish in the year. And that's really on the back of the continued focus in working capital, you know, and particularly around things like debtors and overdue. We've had really good performance there across the board. Just general inventory management has been strong, and we continue to manage... with our suppliers as well. So, you know, overall really pleased on the working capital front.

Got it. Thanks a lot.

We have our next question coming from the line of Anaja Shah with Remo Capital Markets. Your line is open.

Hi there. I wanted to ask about your sourcing of recycled resin. You're clearly sourcing enough to double your usage, and then I think you said you're going to double it again over the next 18 months. And we hear from other companies that it's actually quite difficult to source the amount of recycled resin that they would like to. What do you think that Amcor is doing differently?

Well, listen, it's becoming more and more important, obviously, to our customers. A lot of what we use, and maybe just to mention the numbers, so across Amcor, rigid packaging would be the place where we're using the most recycled resin. We exited FY21 converting about 10% recycled resin out of the total that we convert, and that number is growing in absolute tons, as you referred to, but also it's growing as a percentage of the resin that we convert. In that space, we're clearly the biggest buyer out there, and so we've been actively sourcing bulk from new entrants into the recycled resin space as well as some of the virgin resin providers that have gotten into PCR So it's a pretty broad book that we're buying across. And then in flexibles, it is a little bit more challenging when you're trying to source polyolefins, and that's still pretty nascent. A lot of the material that we're using for flexible packaging is coming from food grade milk and water jugs and things, and those are in scarce supply. That will change over time. Chemical recycling will be a contributor over time. We're active in More than a half a dozen different pilots and feasibility projects on chemical recycling around the world, that will be part of the mix too. So I'd say watch this space, but so far we've been able to satisfy our demand.

Great. That's very helpful. Thank you. And then my other question, you talked about exceeding the synergy target by at least 10%. Maybe you could just give a little more detail on where you're doing better than anticipated, just so we could get a little more granular around that at least 10% number.

Yeah, so the original number was $180 million, and that's the number that we're going to beat by about 10% or at least 10%. We talked at the time of the deal about three big sources. First, G&A overhead reductions. We estimated that would be about 40%. That's more or less tracked. Maybe a little bit – we're probably a little bit ahead of that number, but it's been in that ballpark. Procurement, we said, would be another 40%. That's more or less in line. And then footprint, at the time of the deal, we thought might be 20%. We found more footprint opportunities than we probably anticipated, and so more of the outperformance proportionally will come from footprint, which means plant closures. So if you stand back from it, it's mostly the footprint plant closure side and a little bit on GMA, which is the source of the outperformance.

Great. Thank you very much.

Thanks. We have our next question coming from the line of Larry Gandler with Credit Suisse. Your line is open.

Thanks, everybody. Good day. A couple of questions, obviously. So my first question is, if I can do it by way of example, the question is, what are the top three opportunities to create organic earnings over the next, say, three years, call it FY25. Here's an example of what I'm asking for. In Asia, you guys might be under-skilling in terms of your overall market share in medical and pharma packaging relative to your market share in other parts of the world. So when you look at the size of the Asian market, You know, is that in medical packaging? Is that an initiative AMCOR might undertake, and how would they do it to grow out its earnings over the next three years? You might not look at it geography. You might look at it maybe, you know, pet food across the world. So can you dimensionalize those top three initiatives trying to look past, you know, short-term earnings?

Yeah, it's a good question. I mean, you picked on one. I'm not sure it makes the top three. I'm going to elevate up on the top three, but on the medical point in Asia specifically, absolutely. I mean, we're actually doing that now, and that's the investment in Malaysia that I referred to. We're putting capacity in that part of the world that enables us to be much more nimble and responsive to the local market demand, which is substantial. So that absolutely is part of it. I mean, if I zoom out and I try to think thematically, You know, one thing that comes to mind is broadening our participation in some of the higher value-add segments that we're deep in in one region. So pet food, coffee, protein, these are segments that we have really strong positions in, but it's uneven. So we might be particularly strong in Europe in one and a little bit weaker in North America. And so evening out that participation is going to be a big source of organic growth. As a region as a whole, I would say Asia, particularly China and India, and I would probably elevate up from medical and just say generally in the places we're choosing to play in those Asian, high-growth Asian emerging markets, that would make the list. And then I probably wouldn't rule out rigid packaging in North America, particularly as we continue to expand the healthcare, sorry, the hospital franchise that we have and grow in the specialty container space where there's technology and differentiation, but also share opportunities. So, you know, it's a good question, Larry. I'd sort of give you those three. It's certainly amongst the top, you know, four or five.

Okay. I look forward to scoping those out maybe in the near future. And my second question pertains to alliance in plastic waste. Excuse the criticism, but it feels like a bit of greenwashing here. You know, I, of course, taking this executive committee position and when you get on the website for alliance and plastic waste first of all there's no set of accounts uh and it's supposed to be an organization that's well capitalized but um when you look at the projects um you know i think there was a project in india where they put a um a uh some sort of filter in a river which you know ended up getting stolen There is a couple of projects, one in India and Africa, where it's highly manual intensive, doesn't require a lot of capital of collecting, you know, waste. This is an organization that's backed by billions. And, you know, the projects seem very small. I'm just wondering where you want to take that organization because, as you say, you know, we need the waste management infrastructure, particularly in emerging markets. And I've always had hope that that was going to be the organization that would drive it.

Listen, Mike, I think it's an interesting observation. I mean, I would say that that, of all the different partnerships and organizations that we're a part of, has catalyzed the most actual funding by a long shot. And so, you know, I take on board some of the projects that have been launched are smaller. I think to contextualize it also, we have to keep in mind this is a new organization. Essentially, it was started a couple of years ago, and then as soon as it's staffed up with full-time management, you know, the pandemic kind of has slowed things down. But there is more capital that's been committed by the executive committee and the board of that organization than anything else that we're associated with. It's real money. I mean, we write the check. Yeah, that's what scares me. There's just no set accounts that we've seen anywhere. Well, like any NGO, Larry, sometimes we're an industry association. It's not always as transparent. But the money that the participants are putting into that organization will crystallize and will catalyze action. And there's good examples. I mean, the project Stop in Indonesia is a good pilot. There's one in the U.S. now called First Star, which is small. And I think as the initiative gains steam, we'll have bigger – bolder projects to point to. But for the early days, I'm pretty pleased with the way it's distributing its resources. Okay, good.

Thanks for that, Ron.

Thanks, Larry.

We have our next question coming from the line of Nathan Royal with UBS. Your line is open.

Yeah, hey, Ron. It's pretty clear that you're signalling the completion of the Bemis integration, which I guess gives you the bandwidth to go and pursue some of those smaller bolt-on M&A opportunities. But just given we haven't seen you too active in that space for the last few years, can you just remind us of your bolt-on M&A investment criteria, just in terms of return metrics, but also where you'd be comfortable taking leverage to? And also, where are you seeing the most attractive M&A opportunities right now?

Yeah, I would say across our portfolio, there's going to be bolt-on opportunities in pretty much throughout the business. If I had to put a priority list together, I would say, you know, flexible to reinforce some of the higher value and market segments that we're participating in or in Asia would be near the top of the list. I think in rigid packaging, the specialty space in North America outside of beverage would be high on the list, so that would be from a product perspective. Returns are always going to be important. The company's now generating 15% return on capital, so we need to be there or thereabouts as we think about investments. And, I mean, from a leverage perspective, I wouldn't give you a number other than to say we're going to be an investment-grade company, always have been, and are committed to that. But within that, we have an ample capacity If you think about the EBITDA now, the business is of over $2 billion. One turn would make for a lot of firepower for M&A.

So there's no constraint there. Excellent. Thank you. Thanks.

We have our next question coming from the line of Keith Chow with MST. Your line is open.

Good evening, Ron and Michael. So just a couple of follow-up questions. On the adjusted free cash flow guidance, I take your point around a step up in CapEx, but obviously the offsetting factor for FY21 was that time of the tax payment. So Michael, perhaps if, you know, I don't want to steer you in a direction, but certainly feels like the low end of that range, you know, is probably unlikely and potentially getting more towards the top end. So I'm just wondering if you can provide us with a bit more detail on where you think at this point in time you'd be sitting within that range, notwithstanding some of the moving parts?

Yeah, no, look, as I said, the range is there, and it's a reasonably wide range, $1.1 to $1.2 billion. Obviously factored in that is the earnings guidance range. So we've given a range there of 7% to 11%. So, you know, depending on where we end up in that range will drive the cash flow as well. And the other key component is really the working capital movement. As I said earlier, we've had some raw material increases, which we managed pretty well into the end of FY21. You know, that can be a factor as we head into 22. There can be some movement there, either to the upside or the downside. But, you know, so that's really what's in the range. You know, that said, we've managed working capital really well, you know, over the last two years, particularly in taking cash out on that front. And, you know, as we move forward, we think that that's going to be pretty stable. So, I mean, they're the drivers within that range.

Do you think, Michael, you can continue to improve that average wooden capital to sales ratio absent any other movements in raw material costs? I know, you know, you've done a particularly good job, particularly in FY20. Any more opportunity to come from that?

Well, typically we'd see the working capital, if you go back before the Bemis acquisition, you know, the working capital kind of was in that 8% to 9% range. And for us, we feel that that's pretty comfortable. And when we did the acquisition, you know, it jumped up to 10.7%, then we got it down to 9.5%, and we're down at 8%. So I think we feel pretty comfortable at where we are today. So, you know, you shouldn't expect too much more to come out of the working capital to be relatively stable.

OK, thank you. And then just a second question, and forgive me if I've missed this one, but I think... There were labour and transport costs called out for the rigid packaging business, in part due to the volumes of growth that you're seeing within that business in North America. Is there an expectation for those labour and transportation costs to ease in the coming periods?

The reason behind that was really we saw significant increases in demand, and basically the capacity is full, and the industry capacity is full. So we didn't get a chance, an opportunity to build inventory in the in the quieter months leading up to the summer. And so, you know, what we experienced was increased costs just to manage the supply chain. So we had shuttling costs, increased labour and the like. You know, and that's ahead of installing new capacity. So we've touched on today that we are installing new capacity in that hotel space particularly. So we'd expect over time they should start to abate as we get that capacity come online.

And is it possible, Michael, to give us a quantitative estimate of what that headwind was in the fourth quarter? Yeah, it was about, it was a few million in the quarter. Okay. Okay. Fantastic. Thanks very much.

We have our next question coming from the line of Scott Ryle with Rumor Equity Research. Your line is open.

Oh, hi there. Thank you. I just had one question for Ron. You made some comments in your prepared remarks about the need for waste management infrastructure investment to pick up, which is, you know, that's very, very clear. Do you think that AMCOR will have to invest in this space? Obviously, you're taking an alliance approach at the moment, but do you think in order to control the development of that infrastructure that you will actually have to invest there?

Thank you. Yeah, thanks, Scott. It's a good question. I mean, the short answer is no. I mean, we're going to be active in bringing responsible packaging to life in a number of different ways, but we'll also be, and we'll have to be, somewhat judicious and focused and disciplined about where we deploy our shareholders' capital. And we think the best use of the capital is in developing packaging that is going to have a better end-of-life profile or uses more recycled material or less material in the first place. That's where most of our efforts will go. As far as waste management infrastructure, you know, there's a number of different things and means to fund that, including extended producer responsibility regimes, bottle deposits, and things like that. And when those are properly designed, then we're very supportive of those, and that can likely be part of the answer. But I don't envision us putting capital to work in that part of the value chain in any extensive basis other than maybe just some pilots through a partnership or an alliance.

Great. Thank you. That's a lot. Thank you.

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