Amcor plc

Ladies and gentlemen, thank you for standing by and welcome to AMCOR's full year 2022 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. Tracey Whitehead, Head of Investor Relations. You may begin your conference.

Thank you, operator, and thank you, everyone, for joining AMCOR's June quarter earnings call for fiscal 22. Joining the call today is Ron D'Elia, 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 the call. Please be aware that we will also discuss non-GAAP financial measures and related reconciliations can be found in that press release and presentation. Remarks will also include forward-looking statements that are based on management's current views and assumptions. The second slide in today's presentation lists several factors that could cause future results to be different than current estimates. And reference can be made to AMCOR's SEC filings, including our statements on Form 10-K and 10-Q for further details. During the question and answer session, as the operator mentioned, we request that participants ask their question and then rejoin the queue for any additional questions. With that, over to you, Ron.

Thanks, Tracey, and thanks, everyone, for joining Michael and myself today to discuss AMCOR's financial results for fiscal 2022. We'll begin with some prepared remarks before opening for Q&A. And kicking off with slide three, which covers safety, our first and most important value. Throughout fiscal 2022, we continue to make good progress on our long-term objective of eliminating injuries across our global operations. The focus of our teams on implementing additional safety best practices resulted in a further 3% reduction in the number of reported injuries globally, and I'm pleased to report that well over 50% of our sites continue to be injury-free for the past 12 months or more. We pride ourselves on making the well-being of our 44,000 global employees our number one objective, and we'll continue to strive to achieve our goal of no injuries. Turning to our key messages for today on slide four. First, FY22 has been another outstanding year for Amcor. We could not be more pleased with how our teams have demonstrated remarkable perseverance and agility, continually adjusting to challenges in the operating environment from raw material shortages to high inflation, while remaining focused on driving value for our customers and our shareholders. As a result, financial performance was strong with growth across all key metrics. The business finished the year with good momentum, more than offsetting any external headwinds, so that Q4 was our strongest quarter of sales and EBIT growth, and full-year EPS growth of 11% was at the top end of our guidance range. Second, we expect the business to continue performing well, and we anticipate sustaining strong underlying growth in FY23. And finally, we have a resilient and compelling investment case, which has consistently delivered significant shareholder value for a combination of organic growth, value creating acquisitions, and cash returns to shareholders. Turning to some financial highlights for the year as outlined on slide five. In short, we've added to our track record with another year of sustainable growth in the underlying business. Focusing on the strong June quarter, net sales growth was 13%, and this included approximately $1.7 billion of incremental price increases on an annualized basis related to the pass-through of higher raw material costs. Excluding this pass-through, organic sales growth accelerated through the year, reaching 6% for the June quarter in both the flexibles and rigid packaging segments. And our strong performance reflects good work by our teams to recover broader and higher levels of general inflation, mostly through the second half of the year. It also reflects favorable volume and mixed benefits. And as we have in the past several quarters, we benefited from mid- to high-single-digit growth in high-value priority segments, which confirms that our focus on these faster-growing markets is paying off. This top-line growth converted into adjusted EBIT growth of 9% in the June quarter, and it's worth noting that this high single-digit earnings growth was achieved in a quarter which clearly no longer benefited from any synergies, and while we continued to experience significant inflation and an unfavorable price-cost lag related to raw materials. Flexibles delivered outstanding EBIT growth of 11% in the quarter, and in line with our expectations, earnings growth continued to improve in rigid packaging. For the full year, net sales growth was 13% and 4% on an organic basis, which represents our third consecutive year of accelerating top-line growth. Adjusted EBIT of $1.7 billion was 7% higher than the prior year, and adjusted EPS of $0.805 per share was 11% higher than one year ago. Our financial profile remains strong, with return on average funds employed at 16.3%. And we also returned more than $1.3 billion of cash to shareholders through share repurchases and a higher annual dividend. Now, before handing over to Michael for more detail on the financial results, let me provide an update on our business in Russia. As previously announced, we've been exploring all strategic options for our Russian business. And after a thorough assessment, we've decided to sell our three manufacturing sites in Russia. Until completion, which we expect will occur in the second half of our 2023 fiscal year, we remain committed to supporting our employees and customers while preserving value for shareholders through an orderly sale process. We're also proactively undertaking initiatives to help offset the future impact of the divested earnings, including optimizing our European footprint and adjusting our regional cost base. With that, I'll hand over to Michael, who will cover the estimated impact of this sale on fiscal 2023 guidance.

Thanks, Ron, and I'll begin with the flexible segment on slide six. Performance throughout fiscal 22 was excellent across several different dimensions, as each one of our businesses responded quickly to the continued evolving market environment, implementing measures to recover high raw material costs, manage general inflation, improve cost performance and deliver increasing mixed benefits. Year-to-date sales of $11.2 billion includes significant recoveries of high raw material costs of $1.1 billion, The overall price-cost impact has remained a manageable headwind through this inflationary cycle, given the diversity of materials we buy, the multiple regions in which we consume those materials, and the leverage we get from our well-developed and deeply embedded capabilities, which have enabled us to implement a range of pricing actions across the business in a timely manner. Excluding this raw material impact, we are very pleased with the organic sales growth which was delivered across all Flexibles business units, as well as the momentum built through the year as we focused on successful recovery of rising general inflation and optimising mixed benefits. Organic sales growth was 4% for the year and 6% in the June quarter, representing the strongest quarter of growth for the year. The strong mixed benefits in part reflect continued growth in priority segments, including healthcare, pet food, meat and coffee. We have made deliberate choices to focus on these segments and through the year have seen organic sales growth in the mid to high single digit range across these categories. More broadly, supply chain disruptions had a dampening effect on growth in certain high value categories through the year, including in the June quarter. As a result, year to date and June quarter volumes across the Flexibles business were in line with last year. Faced with these constraints, we proactively took action in parts of the business to direct constrained materials to their highest value use, further enhancing mix. In terms of earnings, adjusted EBIT growth of 9% on a year-to-date basis and 11% for the June quarter reflect strong price mix benefits and favourable cost performance. Margins also remain strong at 13.6%, despite an adverse impact of 150 basis points from the mathematical consequence of pass-through pricing for higher raw material costs. Turning to rigid packaging on slide seven, the key messages today are the underlying demand has remained elevated across North and South America through fiscal 22, leading to continued sequential strengthening in our earnings growth in the June quarter in line with our expectations. On a year-to-date basis, reported sales grew by 20%, which includes approximately 16% related to the recovery of high raw material costs. The 5% organic sales growth was driven by favourable price mix benefits of 2% and volume growth of 3%. In North America, year-to-date beverage volumes were up 1%. Hot fill container volumes increased by 2% for the year against a strong comparative period of double-digit growth and were up 4% in the June quarter, reflecting continued strength in categories like isotonics and juice. By leveraging AMCOR's highly differentiated technology, design and PCR handling capabilities, we are well differentiated and adding significant value for our customers in the hotfield segment, which over a multi-year period has resulted in compound volume growth of around 5%, helping drive consistent fixed benefits. Specialty container volumes continue to improve throughout the year, including in the June quarter, but on a full year basis remain below the prior year, which benefited from a strong first half in the home and personal care category. And in Latin America, the business delivered double-digit volume growth for the year, supported by high volumes in all countries who operate in the region. And the June quarter marked the highest level of volume growth for the business this year, led in part by strength in Brazil. Turning to earnings, in line with our expectation, operating conditions and financial performance in the North American business improved through the second half of the year, after being adversely impacted by industry-wide supply chain complexity and disruptions, as well as capacity constraints in the first half. As a result, the overall business delivered adjusted EBIT growth of 4% in the second half, with growth improving sequentially and reaching 5% in the June quarter. Moving to the cash and the balance sheet on slide 8, we continue to generate strong free cash flow even as we step up our capital investments and compensate for additional working capital needs from higher raw material costs and supply constraints. Free cash flow was $1.1 billion in line with the expectations and broadly in line with fiscal 2021. We're pleased with this result given we've worn the unfavorable working capital impact of high raw material costs throughout the year and have also proactively increased inventories across the business to help offset some of the volatility created by supply constraints. Our working capital performance remains a top priority, one even more critical in this inflationary environment. And despite these challenges, we've been able to maintain a 12 month average working capital to sales ratio below 8% and in line with last year. We also see ample opportunity to increase investments in strategic growth projects, which generate strong returns in excess of 20%. This led to a 13% increase in capital investments during the 22 fiscal year, and as we've previously communicated, we will continue to step up investments to support future organic growth. We maintain an investment grade credit rating, which gives us access to funding through the cycle of competitive rates, and approximately 54% of our debt is fixed. leveraged at 2.7 times on a trailing 12-month FTA basis within line with our expectations at year end. And the balance sheet is extremely well positioned with only one maturity in the next 18 months being a €300 million bond in March 23. We continue to deliver on our investment case, returning meaningful capital to shareholders during fiscal 22 year through repurchasing €600 million worth of shares and raising our annual dividend per share to 48 cents. In total, we are pleased to have returned more than $1.3 billion to shareholders in fiscal 22. Turning now to AMCOR's outlook for fiscal 2023 on slide nine, we expect adjusted EPS of approximately 80 to 84 cents per share on a reported basis. This includes growth of 5 to 10% from the underlying business and a benefit of approximately 2% from share repurchases. offset by three non-operating items. The first, the negative impact of approximately 4% from higher interest expense, which is based on the assumption that interest rates increased in line with the current market forward curve expectations. Second, an estimated 2% negative impact from the scale down on planned sale of our three plants in Russia. And third, a 2% negative impact related to a stronger US dollar, assuming current exchange rates prevail for the balance of the fiscal year. In terms of cash flow, we expect to continue to generate significant adjusted free cash flow for the year of approximately 1 to 1.1 billion, even as we fund a further 15% increase in capital investments to capture organic growth opportunities. While AMCOR's cash flows are typically weighted to the second half, in fiscal 2023, the seasonality is likely to be slightly more pronounced as we intend to maintain higher levels of inventory in the near term before returning to more normalised levels later in the year. As a result, free cash flow in the September 23 quarter is expected to be lower than first quarter of fiscal 22. Our strong cash generation enables us to continue paying a compelling and growing dividend and allocate approximately $400 million in cash to share repurchases during the 2023 fiscal year. So in summary for me today, the business has delivered another strong year of organic growth as we remain focused on executing for our customers, recovering inflation and higher raw material costs and increasing earnings leveraged by managing mix. Our continued and consistent performance supports our confidence in delivering another year of underlying growth in fiscal 2023. With that, I'll hand back to Ron.

Okay. Thanks, Michael. Before turning to Q&A, I want to refocus for a minute on the longer term. And our financial performance continues to reflect consistent delivery against our strategy and a resilient investment case, which is shown on slide 10. And we enter fiscal 23 with leadership positions in most of our chosen primary packaging segments, and with over 95% of our sales for consumer staples and healthcare products. We also have absolute and relative scale advantages in all key regions and industry-leading commercial and innovation capabilities. With this portfolio, we have a long track record through multiple economic cycles of delivering earnings growth, margin expansion, and significant free cash flow, all while maintaining a strong investment-grade balance sheet. Our cash flow and balance sheet strength is enabling us to step up investments for growth and continue to return additional value to shareholders in the form of a growing dividend and regular share repurchases. The starting point in creating value for shareholders will always be the underlying organic growth of the business. And as we've continually strengthened the base business, including over the last few years with the Bemis acquisition, we've built sustainable organic sales growth momentum. We have multiple drivers of organic growth that have contributed to that momentum and which are shown on slide 11. We've been focused on these areas for some time, and we're investing across each of them. First, Amcor has leading positions in higher growth, higher value priority segments, including healthcare, meat, cheese, premium coffee, pet food, and hot fill containers. Collectively, we generate more than $4 billion in annual sales across these categories, and they're growing at mid-single-digit rates and offer significant opportunities for differentiation, contributing to margin expansion. Over time, they'll represent a higher proportion of our sales mix and become an increasingly relevant driver of earnings growth. We also have a leading and well-diversified emerging markets portfolio generating more than $3 billion in revenue, which we expect will also grow at mid-single-digit rates over the long term, as has been the case for many years. And innovation continues to be one of the most critical drivers of differentiation and growth in the packaging industry. And ANCOR is coming from a position of tremendous strength with deep R&D talent and capabilities. And finally, sustainability is fundamental to everything we do from an innovation perspective and remains at the forefront of discussions with global brand owners. As the sustainability leader in the packaging industry, we continue to be the supplier of choice to help our customers achieve their goals in a meaningful way and at scale. Organic growth has accelerated over the last three years, and as Michael mentioned, we're stepping up CapEx to around 4% to 5% of sales on an ongoing basis to maintain that momentum. In our industry, there's also a pipeline, a rich pipeline, of acquisition opportunities available to supplement our organic growth. We have a pragmatic and disciplined approach to M&A. We've completed around 30 deals in the last 10 years, and we continue to be active. Earlier this month, we acquired a world-class flexible packaging plant in the Czech Republic. This plant features state-of-the-art equipment and immediately increases our capacity in Central Europe to satisfy strong demand in priority segments, including coffee and pet food. The acquired land and buildings also provide optionality to scale and potentially consolidate operations in that region, while giving us a highly efficient production hub in a strategically attractive, lower-cost location. We've also invested in several new opportunities through our open innovation and corporate venturing efforts. These typically start small, but we're very excited to have recently increased our strategic investment in EPAC, a fast growing flexible packaging player, leveraging digital technologies to offer smaller production runs and shorter lead times. This increased investment in EPAC is an excellent example of our objective to partner with high growth visionary companies to learn from and to leverage new innovations and business models. As you heard from Michael, we have a strong investment-grade balance sheet, and we expect another year of robust cash flow in fiscal 23, which means we can continue to invest in growth and return a substantial amount of capital to shareholders. We're committed to growing our already compelling dividend every year, and Amcor is one of a small number of companies included in the Dividend Aristocrats Index, which recognizes companies with a 25-year or longer history of consecutive dividend increases. Our current yield is especially attractive at approximately 4%. And we've also been a regular repurchaser of our own shares, allocating $1.5 billion of cash to share repurchases since 2019. And over that time, we've bought back more than 8% of our outstanding shares, or roughly one-third of the shares that were issued to acquire Bemis three years ago. And looking ahead, we expect our strong cash generation to continue supporting regular share repurchases including approximately $400 million in fiscal 23. In summary on slide 14, AMCOR had another strong year in fiscal 22, generating sustainable momentum and delivering earnings growth at the top end of our expected range. We expect to deliver another year of strong growth in the underlying business in FY23, and we're committed to continuing delivering for shareholders by increasing investments in the business and returning value through a compelling dividend and ongoing share repurchases. So with those opening remarks, operator, we can now turn the line over to questions.

At this time, if you would like to ask a question, please, please press star followed by the number one on your telephone keypad. In the interest of time, we would like to remind participants to limit themselves to one question and rejoin the queue for any follow-ups. Your first question comes from the line of Anthony Petinari with Citi. Your line is open.

Good afternoon.

In RIGIDS, you saw really good volume growth in North America, Bev, and some of your packaging peers have talked about customers pushing price over volume and maybe reducing some promotional activity. I'm wondering if you could just talk about maybe the outlook for BEV volumes in fiscal 23 and the dynamic that you're seeing there. Do you think that you're gaining share or maybe you're kind of overweight some categories that are winning in the marketplace? Just any kind of further detail there would be very helpful. Yeah, look, I think, you know, the starting point would be that the demand has remained elevated. You know, if we look across our business, and we had a good solid year in 22 from a volume perspective, but what's really more compelling, you know, in our view is that over two years, our volumes across the beverage space are up 6%. In hot fill, which is a priority segment for us, you know, they're up about 14% over two years. And that includes growth in both of the years. So we had super strong growth in 21, fiscal 21. a little slower growth in 2022 against that stronger comp. But the demand has remained elevated. Look, I think over the long term, we continue to expect kind of low single-digit volume growth across our end market segments. We look back over the last five, six, seven years, and we've had about 2% total beverage growth, but the hot-fill space has grown closer to three to four, and that's what we'd expect going forward. I think, you know, looking back over the last 24 months, there's been a bunch of ups and downs, clearly. But we like our exposure. You know, we're highly levered to the sports drink category, which has gone through a bit of a rejuvenation. Iced teas, some of the hot fill juices as well have performed well. So, you know, that's the expectation going forward, Anthony. It's low single-digit growth with maybe a little bit more in hot fills. Okay, that's very helpful. And then just switching to flexibles, in terms of improving material availability, what inning do you think you're in there or at what point does that maybe run its course? And does the guidance assume maybe kind of a modest mix headwind in 23 as you kind of maybe go back to some maybe lower margin customers? I don't know if that's the right way to think about it, but Yeah, let me answer. It's two separate questions. Let me try to answer both. I mean, as far as the raw material availability goes, I'd say we're in the middle innings. You know, I think it's been a bit like a whack-a-mole game in terms of the availability constraints that we've dealt with over the last, say, 12 to 15 months. You know, we still have... constraints on some specialty polymers. I think the commodity raw materials that we source have been in ready supply for quite some time now. Where we've had constraints, it's been more in specialty resins. um at times we've had constraints or limitations on aluminum supply as well that seems to have abated a bit but as far as the overall basket of goods i would describe that we're in the middle innings i think we would like to believe there's light at the end of the tunnel as far as our guidance you know we assume um you know basically ready availability and low single digit volume growth and flexibles um you know so that's that's uh hopefully we see the end of the end of it by the end of the fiscal year in terms of the constraints um Yeah, and then, look, as far as mixed, the other part of your question, I think we would expect organic sales growth to be generally similar. But over time, as materials become more available, the contribution to that sales growth will balance out. So we might see a little bit less in a bridging sense from mixed and a little bit more from volume. But longer term, and this is important to note, making the distinction between the bridging of one financial year to the next and just the long-term strategic direction, which is to drive improved mix and drive growth in those higher priority segments that we talk about.

Operator, we'll take the next question, please.

As a reminder, we would like to ask participants to limit their questions to one and rejoin the queue for follow-ups. Your next question comes from the line of Gensham Punjabi with Baird. Your line is open.

Yeah, thank you. Good day, everybody. I just want to follow up on Anthony's question on the elasticity impact. You know, Ron, I mean, maybe just a broader portfolio question, not just widgets but flexibles as well. Have you seen any sort of impact as it relates to new product introduction activity or new anything like that because clearly a lot of your customers are talking about, you know, consumer elasticity taking hold. And then also just to clarify, the 3% price contribution in flexibles, you know, apart from the 11% pass-through impact, what exactly does that encompass? Are these market-based price increases as you attempt to adjust for higher freight than labor costs, or is there something else there? Thanks.

Yeah, let me talk to them. I'll answer the first question, and Michael can come back on the second around the pricing. Look, you know, we talk to our customers, as you'd expect, and we're close to our customers across the different markets that we're participating in. I think generally the same messages come back, and that is what you hear them say publicly, which is, to date, in this part of the inflationary cycle, elasticities have been lower than they would have expected and lower than historical levels. But they're also quick to point out that there is elasticity of demand, even across these more defensive end markets. And there's the potential for the electricity to increase as we get deeper into this period of high inflation. There's a cumulative amount of inflation that builds up, which could impact the consumer. You know, all that being said, I mean, we really like our portfolio. You know, we have no general industrial exposure. You know, we're almost completely exposed to consumer staples and healthcare products, which have proven over a number of economic cycles to be quite resilient. um and we've got no durables exposure of any of any kind also so you know we feel like we're as well positioned as anybody um certainly if you go back if you'd follow the company five ten years ago our portfolio now is is more defensive than it's ever been um and and with as i said essentially all of our exposure into you know more defensive segments um you want to talk about the price yeah sure in terms of the pricing so as you've seen from the results i mean

our teams have been out there working really hard to get not only the raw material increases back in the year, and you see us, we've put through about $1.5 billion in raw material-related price increases through the years, so about 12% of revenue. And that kind of counted at 25% increase generally across the board in raw materials. But in addition to that, you know, clearly we've seen pretty significant increases in inflation across things like energy and freight, and to a lesser extent, some labour. And so clearly our teams have been out in the marketplace recovering those non-raw material-related items as well and working really hard to do that. And if you think about, you know, energy and freight as a component of AMCOR's cost of goods, they're a smaller component. They're around about 3% of our cost of goods. And during the year, we've seen somewhere between 15% to 20% increases in those those items, and, you know, that equates to around $100 million, $110 million. And then if you take labour and a few other things into account, you know, the overall inflation for the year was somewhere around the $150 million mark. And, you know, if you look at our price increases across the board, we had about a 1% price increase, non-rural material related, so 1% in sales growth. You know, that's a pretty similar amount to the inflation that we saw.

Thank you. Our next question comes from the line of Brooke Campbell Crawford with Barron Shirley. Your line is open.

Yeah, thanks for taking my question. Just one on slide nine. The sort of 5% to 10% organic growth, I guess, based on an organic volume growth of 1% to 2%, can you just sort of step me through that leverage? Are you expecting price increases to more than offset cost inflation? I'm sure there's a bit of mix in there, but it's just good leverage there from volume to EPS?

Yeah, look, I would describe it as basically the components that you just outlined. So we start with expectation of low single-digit volume growth. We start with the expectation that that volume growth will be more heavily weighted towards the more differentiated higher value segments that we've called out. We would expect to continue to get inflation recovery. And we would expect to continue to drive cost productivity in the business. So, you know, those building blocks probably haven't changed much. I mean, in certain years, we've had acquisition synergies to contribute. We don't have that, obviously, in 23. But those are the building blocks.

Just on the restructuring costs taken below the line throughout the year, there was another $11 million in the fourth quarter. And I know there was no beam of synergies in that period as well. So maybe you can just help us understand what are some of the examples of things that contribute to that $11 million in the June quarter and if we should expect some of that to continue into FY23. Okay.

Yeah, thanks, Brooke. It's Michael here. Look, that was just the end of the program, so there's some tail-off on certain costs, mostly relating to footprint-related items, the impairments and other things. So that's specifically on the Bemis program, which is now closed out. So you should not expect any more cost below the line for that program, which we completed this year.

Your next question comes from the line of Lawrence Gandler with Credit Suisse. Your line is open.

Lawrence Gandler Thank you. Just making sure you can hear me. Yes, sir. Thank you. Okay, first question.

I guess, Michael, with regards to the cash flow guidance, I was hoping for at least raw materials inventory not to be a drag on cash flow in F23. Given the cash flow guidance is not in advance of F22, it does seem like there is a bit of a drag. Just wondering if you can walk us through that. And my second question is related to you recently appointed, this is probably a question more for Ron, you guys recently appointed a head of global sales, I guess, to harmonize some of those high margin categories.

and your presence across Europe and the US. Ron, maybe you can just talk about the priorities there. Sure. Okay. Do you want to take the first one?

Yeah, sure. So I'll start with the cash flow. Look, I mean, we're looking forward to another strong year of cash flow in that $1 to $1.1 billion range. You know, there's several factors that drive that. Obviously, we're going to have some, you know, we'll have higher EBITDA rates within that cash flow from a working capital standpoint. You know, in FY22, we had a cash outflow of around $150 million on the back of the raw material price escalation and holding more inventory on the back of, you know, the volatile and disruptive marketplace. So we're not anticipating, you know, an additional outflow as a result of that. But at the same time, you're going to see increased sales and further pass-throughs. So there will be some working capital impact from that, albeit we'll be holding working capital to sales, you know, around that below eight ratio, which we've been pretty consistent on over the last few years. So no real impact on the inventory side. You know, it's also going to depend on what happens with raw material pricing and how the market supply chain works. But pretty much we're looking for a neutral working capital impact You know, obviously, we're going to be spending more in CapEx. So we talked about a 15% step up in CapEx, which will, you know, that's included in the guidance. And then with the higher interest, you know, that's an outflow that we didn't have this year. So when you put all that together, looking forward to another strong year in that 1 to 1.1 billion range.

And then, Larry, yes, you asked about global sales and marketing, which is a role that we've had but we've elevated. And maybe just for context, we run the business in a very decentralized way through the business groups. We have a small number of resources in the center that drive leverage across the portfolio in areas that we think are the highest impact. And sales and marketing has been one of those for quite some time. We've had that role in the center. What's new is that we've elevated it. It's now a direct report to me. It sits on the leadership table. And there's a few things that really I'm expecting to get out of it. First and foremost is we just, as we pivot increasingly towards generating higher levels of organic growth and top-line growth, we just want the voice of the customer even more prominent around the leadership table. And so this person will help us do that. Clearly, we have some global customer relationships that have always required a degree of coordination. So she'll pick that up as well. And then our commercial capabilities, which is an initiative called Value Plus that we've had in place for 15 years or so, It's a commercial excellence program inside the company. I think of it as sort of Six Sigma for the commercial side of the business. She'll also take the lead in driving continuous improvement in that program as well. So that's the rationale for the elevation and increase in prominence of what's always been a very important role for us.

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

Hi, everyone. Good day. Hope you can hear me okay. Thanks for all the details. My question is going to be on Russia, Ron and Mike. So I wanted to understand the guidance for next year. You mentioned it would be about a 2% effect, considering that you assume the business winds down and is sold by mid-fiscal 2013.

Does that mean then that in fiscal 24, there'll be a residual comparison, there'll be the other half that you're comparing against in fiscal 23 from having the business in your result? And then more broadly, you mentioned footprint alignment, cost reduction. Can you talk to us about how you are going to best try to fill some of the earnings that

that will be leaving, and how much will acquisitions play in that effort for the company?

Thank you, and good luck with the new year. Yeah, thanks, George. And I'll take it. Michael can tag on here at the end. But we've decided to sell these three plants, which have historically produced around 4% to 5% of our EBIT. So, the planning assumption and the assumption that's embedded in our guidance for the year is that we complete that sale process at some point in the second half of the year. And between now and then, we're scaling back the operations, which is all consistent with what we had said back in March and I think on our call in May. Now, as far as the difference between, you know, roughly a 2 percent headwind in FY23 and whether or not there's any residual impact in 24, look, we're peddling really hard to offset the gap. any meaningful residual impact in FY24. Clearly, we're losing, you know, 4% to 5% of earnings. We're going to take a hard look at the cost base in that part of the business. We'll be right-sizing, if you will, the cost base in that part of the company, looking at footprint as well. And so, you know, we expect to mitigate the remaining impact to the extent there is any.

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

Yes, thank you, everyone.

I guess the first question is just thinking about maybe the growth delivered in the quarter and your thoughts in fiscal 23, maybe a bit more regionally, and just wondering, you gave some color regionally in the bridges business, but help us think about kind of what you're seeing in Europe, Asia, China had lockdowns in the most recent quarter that could have proven disruptive. And especially in Europe, as you look ahead, weaker economic growth and the impact of energy and power prices, how that both impacts in your view of cost, but also your view of consumer demand. And I think

high-level line. You talked about kind of low single-digit volume growth outlook as a starting assumption for fiscal 23, and I'm just trying to build up to that a little bit more.

Okay. I'll handle that part. Michael, you can come back and talk about the energy point. Yeah, well, that's right. The starting point is the assumption of low single-digit growth. I mean, if we look backwards a bit in 22, because I would expect that we'll have similar dynamics at work in 23, generally speaking across the developed markets, you know, we had sort of flat to low single-digit volume growth. In North America, Europe was a little bit softer because we had even more acute supply shortages of certain raw materials, and we prioritized some higher-value segments and customers. But in the emerging markets in 22, we had mid-single-digit growth, and that's been sort of a long-term trend. So that's the way we would expect the FY23 to evolve as well. You know, if you ask specifically about China, China's been volatile. I mean, it's been a really consistent grower for us for a long time. We had good growth across FY23 as well. But clearly in the fourth quarter, in particular, with some of the lockdowns, you know, we had some very strong months and we had some very soft months. And, you know, I would expect those ups and downs to persist. into the start of 23, at least, as things normalize. But, you know, generally speaking, you know, I guess the next level of detail beneath the low single-digit growth across the portfolio would be, you know, kind of lower single digits in the developed markets, Europe and North America, mid-single digits in the emerging markets of Asia and Latin America. You know, I would point out as well, just because some of the comments you made in asking the question. I mean, this has been a very resilient business through a number of economic cycles, and I can't emphasize that enough. And I also would point out to those that have followed the company for a long time that the portfolio has not been as defensive as it is now. We really have no general industrial and durables exposure. Michael, do you want to talk about energy costs?

Yeah, so, look, in terms of energy, you know, as I said earlier, we've certainly seen inflation in our energy costs around the globe and in Europe, and that actually in Europe accelerated in the second half. But we've been out there recovering it, and, you know, we're certainly anticipating there's going to be more inflation to come. But, you know, the teams are out there uncovering it, and, you know... the level is dependent on where things get to in that marketplace. And obviously we've factored that into the, into the guidance range is a range of outcomes in that guidance range. So, you know, overall we're expecting inflation to continue and the teams are out there recovering it.

All right. Thank you. I appreciate the call. Thank you. Thanks Adam. Your next question comes from Jakob Kakarnas with Jardin Australia. Your line is open.

Evening, Michael, and evening, Ron. Just a question on the CapEx outlook. Obviously, at the third quarter update, you upgraded the CapEx to sales guidance to be between 4% and 5% of revenue, and today you've mentioned that there's a 15% increase in the CapEx guidance. Can you just give us some indication as to where that capex is being allocated? Is it going to allow Amcor to compete more in the sustainability and recycled materials space? Or are we looking at kind of BAU investment back into the business? I'm just wondering how it sets you up strategically moving forward.

Yeah. So, look, the guidance is consistent. I mean, if you do the math, we're working our way up to that 4% to 5% of sales range, which means that, you know, for a couple of years, there'll be, you know, larger increases on the order of the 15% that you referenced. Generally speaking, well, as a general rule, it's going into business as usual in the sense that we are not allocating capital outside of our lane in the value chain. So what we're not doing is allocating capital in a major way to recycling infrastructure or things like that. I mean, that's a separate discussion, but we think we can – contribute to the development of infrastructure in a different way. So from that perspective, you could call it business as usual. But I think what's exciting to us is that we see enough line of sight to good organic growth in some of the priority segments that we've referred to and some of the innovation platforms, which do have sustainability attributes, that we can deploy more capital to drive higher levels of growth. A couple of examples. In healthcare, we've opened a new healthcare packaging plan in Singapore. We've also expanded a plan in Ireland in the medical packaging space. We've put money to work in Switzerland to supply Nespresso capsules. We've continued to invest in our innovation platforms, our sustainable innovation platforms, We've talked publicly about a platform called Amlite, which is a recycle-ready material that can be used for human food pouches and pet food pouches. So those are some examples of where the capital is being deployed.

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

Good day, Ron and Michael. How are you?

Good, John. How are you doing?

Very well, thank you. Just in terms of price and cost spread and how we should think about that, are you expecting a meaningful, positive price-cost spread in 23? And, you know, we know that you won't have the benefit or incremental benefit of BEMA synergies for the year ahead. And I suppose as part of that, is that sort of price-cost spread, you know, are you starting to see that come through in a positive way now, or is it more a,

second half waiting assuming it does yeah hi John it's Michael I can take that one for you look I mean you know throughout this year we've seen pretty volatile and persistent increases in raw material mixed across the globe you remember we buy a broad basket of raw materials and geographies and you know they move at different times in different ways but what we did see Through the year was, you know, recovery of that. But for the entire year, it was a headwind, a manageable headwind. I'd say it eased as we got into the second half. I mean, Q4 certainly was a marginal headwind. You know, where raw materials are today and what we see moving forward, I mean, there are still movements upwards. Aluminium's probably one that's come down. But, you know, the marketplace is still across the globe, you know, volatile. But what we've included in guidance for now is that we think, you know, in the first quarter, things are going to be relatively stable. um you know based on what we see today and and we we could start to see um some marginal tailwinds as we as we get to december um but you know what happens in the second half we'll we'll see it's all going to depend on where the raw materials move but that's all been factored into our guidance um the guidance range um that we've put out there in that five to ten percent underlying business obviously if If raw materials come down fast, then, you know, that's one of the elements that could get us to the higher end of the range. And if they continue to escalate, then, you know, as you know, we recover it, but there is always a lag in that. And so that could be one of the factors that leads us to the bottom end of the range. But, you know, where we sit today, fairly neutral in Q1, perhaps some light tailwind as we head into Q2.

Thank you.

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

Thanks very much. Ron, can I just quickly ask you a question on rigid plastics? Your major competitor in Hossville reported volume growth for the June quarter, which was slightly higher than yours. And the reason they gave for their growth was market share gain in sports drinks. And given how consolidated that category is between the two of you, I just wanted to clarify whether you'd lost any share in that particular area. And then just secondly, a quick question for Michael, if I might. Michael, can you remind me how you account for interest hedging gains and losses? Thanks.

Yeah. Look, on the hot fill space, in response to someone's question earlier, I pointed out over the last two years, the hot fill volumes are up 14%. you know, across any of the categories they were exposed to, there's not been 14% growth, I can tell you that. So I think that our share has improved over the last 24 to 36 months pretty meaningfully. Michael, on the interest?

Yeah, on the interest rates, well, Richard, yeah, they're part of the interest expense. They run through that line.

Great. Thanks very much. Thanks. Your next question comes from Kyle White with Deutsche Bank. Your line is open.

Thanks for taking the question. Ron, a little bit more longer-term question here. I'm just curious how we should think about the shareholder growth algorithm over the long term. You know, you're still targeting the 10% to 15% shareholder return. I guess why shouldn't it be higher given the increase to CapEx and organic investments, especially towards some of these higher value-end markets that you're targeting? I guess, obviously, you're increasing capex now. It takes time to get those returns. But do you see runway for this algo increasing, especially as you include M&A to it?

Look, it's a good question. I think the short answer is, yes, you can see a path at some point. But as you pointed out, you know, we need – there's a bit of a ramp-up to get returns from the capital that we're putting to work. I think the other thing that will happen is that the mix in that algorithm will shift You know, we've been grinding out the organic growth from margin expansion and cost productivity over the years, and then we've been quite acquisitive, although less so more recently. So, I think over time, you'll see the organic growth come a little bit more from the top line overall and a little more commercial productivity. And I think, you know, you'll see us get back on the acquisition path again as we had been prior to the last few years. So I think we're comfortable with the algorithm at the moment, but, you know, there's reasons for optimism that the mix will evolve a little bit as we move forward. And that's why we're putting our money behind some of these growth projects that I outlined earlier.

Your next question comes from the line of Daniel Kang with CLSA. Your line is open.

Good morning, everyone. I guess I would notice in terms of resin prices, it's pulled back quite meaningfully in recent months. Can you talk us through your thoughts on the dynamics that's driving this, your new peak capacity coming on board, potentially providing a more medium-term tailwind?

Yeah. Look, I think, as Michael alluded to, the basket of resins that we buy have moved in different directions and at different paces. And so, overall, we actually saw resins across our global basket go up a bit in the fourth quarter. But there's definite signs that things will ease. And in the medium term, and even maybe a bit sooner in certain regions of the world, there is more capacity coming on stream in some commodities. And that will certainly take you know, some of the heat out of the pricing. Remember that supply demand is one element. We also have the underlying feedstock prices playing a role as well. So oil and natural gas, which have come off a little bit, and I'm talking very recently now. But it's really those two things that drive the prices of the polymers that we consume. And for the last, you know, period of time here in this more recent inflationary cycle, we've had pressure from both. We've had RAS supply demand working against us at times, and we've had inflation in oil and gas. You know, it's possible that in the near term or certainly in the medium term, both of those factors abate, and we start to see some more meaningful softening and more sustained softening across the basket of raw materials that we're buying.

Thank you, Ron.

If there's a chance for a follow-up, I just wanted to ask about potential M&A.

Are you seeing more opportunities at potentially more attractive valuations given the higher rate environment?

Not yet, but you would have to believe that, you know, as rates go up, you know, as the high-yield market maybe gets a little tighter and a little more constrained, that there'll be maybe less competition for deals. You know, that would be the theme that you would expect to emerge. I mean, it's a bit early in the interest rate cycle, you know, and it's a bit early generally in the asset pricing cycle for us to have seen that yet. But we're in a great position because we know exactly where we want to go strategically. We know exactly the segments that we'd like to acquire in to advance our strategy. And we've got a great financial position to work from with a really strong balance sheet and lots of cash flow. So we'll be, we'll certainly be in the deal flow to the extent assets do come to market.

Your next question comes from Mark Wild with Bank of Montreal. Your line is open.

Thanks. Good evening, Ron. Good evening, Michael.

Hi, Mark. Just curious about just any inventory destocking behavior that you're seeing. We've heard a lot of conversation about this with different retailers, but I think there have also been questions about, you know, whether you know upstream from them whether some of the cpgs have taken on a little extra inventory over the last couple years and whether they might be starting to bleed a little bit of that back out now just any thoughts around that ron yeah look it's always difficult for us to have great visibility um into where things stand from an inventory perspective down the value chain i mean i i guess And this is really anecdotally. I'd probably suggest that there is probably more inventory than there needs to be in some parts of the chain. You know, has it been particularly acute in any part of our business and really held things back? You know, no. But, you know, I would say with the limited visibility that we have, you know, you'd probably say there's a little bit more inventory than there needs to be in certain segments. But, you know, take that for what it's worth, which is just a bit anecdotal. Okay. And then if I could just follow on real quickly. Can you just update us on sort of where volume is at in both kind of healthcare and medical devices? Because you did mention some incremental healthcare and device investments, I know, earlier in the pandemic that some of those volumes were weak. I'm just curious about where you stand right now. Yeah, no, that's a good question. I'm glad you asked. I mean, healthcare volumes generally, medical device packaging and pharmaceutical packaging have bounced back very strongly. So we had good mid to high single-digit growth across both of those segments through FY22. Pharma was a little bit slower to rebound, but the medical device packaging volumes for us now are back to where we were pre-pandemic. Now, that's a segment that has grown in sort of the mid-single digits for us for many, many years. It's good margin business and innovation intensive, et cetera. So, we expect that to continue, but we're back to where we were in 2019.

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

Hey, Rob, thanks for taking the follow-on. I want to come back to acquisitions and recognizing you're going to be very disciplined as always about the businesses that you look at.

You mentioned that sustainability is core to everything that you do at Amcor, clearly.

How important will it be for the acquisitions that you look at to either give you a new technology, a new ability to promote sustainability, and otherwise help your customers' products become more sustainable Or it's important, but really what you're looking at are the financial metrics, the improvement in return on funds employed and so on. How would you have us think about how you're evaluating that?

And if you could talk a little bit about the check facility and just provide a bit more call on that, that'd be great. Again, thanks and good luck in the year.

Yeah, thanks. Look, it's a great question, George. I mean, I would say that the two factors that you outlined, they're inextricably linked. As you think about doing an acquisition, especially anything of meaningful scale, you'd be thinking more beyond the first couple of years of ownership. And so you'd be thinking about the sustainable growth in a business that you'd be acquiring. You'd be thinking about the sustainable competitive advantage. All of those things in our universe are going to be linked to sustainability. So it's inconceivable that we would buy something that didn't further enhance our sustainability, the sustainability credentials of our product portfolio. I mean, that being said, we like our product portfolio as it relates to sustainability. We think that, you know, we've got the key to more sustainable products, you know, with the stable of product segments that we're in today. So, we don't see any, you know, any real need to step out. But anything that we look at will increase, will be accretive if you will, to the sustainability profile of our product portfolio. And because for no other reason than it will lead to better financial outcomes over time and higher returns ultimately. Just really quickly to close off on the Czech plant, we bought a plant which is relatively new and it was opened right at the outset of the pandemic. So it's very low utilization, gives us instant capacity. in Central Europe, and it happens to have assets that are easily directed towards some of our priority segments, including coffee and pet care. So we're essentially buying a plant more so than a business, and we closed on that in early August, and we'll be working over the next couple of years to fill up that site. And if things go well, then we've got optionality to expand the site as well. So pretty excited about that little bolt-on in that part of the world.

Ladies and gentlemen, there are no further questions. I will now turn the call back to Ron for closing remarks.

Okay. Thank you, operator. Thanks, everybody, for joining the call today. In your interest in Amcor, we've had a strong year in 22, and we're expecting another strong year in 23, and expecting that the resilient investment case we've built up over the years will be especially compelling in this environment. So thanks again, and we'll close the call there.

This concludes today's conference call.

You may now disconnect.