Amcor Ltd (AMCRF) CEO Ron Delia on Q2 2019 Results - Earnings Call Transcript
Q2 2019 February 10, 2019 earnings call: zero o\'clock P. M. in the morning ETCompany participants Michael Casamento-
Executive Vice President of Finance and CFORon Delia-
Conference participant Larry Gandler-CEO and Executive DirectorCredit-
Evans and PartnersNeeraj sand
Thomas Morgan Stanley
Campbell LimitedCrawford -
Rimor stock research firm deliaok. Good morning.
Thank you for joining us.
This is Ron Delia, where I will introduce Amcor\'s first-half performance for the 2019 financial year.
The chief financial officer of Michael Casamento Amcor is with me today.
As with all our meetings in Amcor, we will start with safety and safety, as you have heard us talk about before, and this is our top priority in Amcor.
When it comes to safety, we have a goal that there is no injury.
We haven\'t been hurt yet, but our safety performance is the highlight of the first half of our global workforce.
Through their commitment and enthusiasm for each other\'s safety, we were able to reduce Amcor\'s documented number of injuries by 20% over the first six months of fiscal 2018.
We are particularly proud of this performance because we are able to stay focused and alert when the risk of distraction can be said to be higher, and we know that we will not see every six months of decline in this level-
Every six months.
However, we are determined to continue to drive the progress of the whole company until we achieve the goal of no harm.
Go to slide 6, and a summary of the first half.
Our financial performance is in line with our expectations for half.
We have sales growth across the business sector, especially with respect to global customers and healthcare packaging.
In the field of elastic and rigid plastics, revenue growth is balanced, and revenue growth in emerging markets is strong at 9%.
Operating cash flow is also strong, up 27% from last year.
With this good first half result, we are on track to achieve the full year outlook for August that We reconfirm today.
Obviously, our value proposition resonates with customers, large and small.
In the first half of the year, we opened a new factory in India to supply Unilever.
We have extended it for a long time.
Building a long-term partnership with Nespresso, we see again the growth of beverage customers in North America.
Consumers and customers around the world are increasingly looking for sustainable packaging options, which is a huge growth opportunity for Amcor.
As industry leaders, we have a different value proposition in terms of sustainability, we have made real progress in some areas, and I will come back later.
Finally, over the past six months, we have made significant progress in completing the Bemis transaction.
We expect the deal to be completed in the second quarter of the 2019 calendar year, and we are excited about the tremendous opportunities this combination has created for Amcor and our shareholders, I will talk again about the topic behind this speech.
Slide 7 shows half of the key financial metrics.
Sales of all our businesses and 4 companies have increased.
Overall 3% higher
About 2% of the sales growth comes from the recovery of raw material costs.
Excluding the impact of rising raw material prices, the company\'s profit margin was flat from last year.
EPS growth of 3.
4% from the recent acquisition of Business, organic sales growth, restructuring earnings and strong cost performance.
Strong cash flow is supported by outstanding performance of working capital, with a strong balance sheet and a leverage of 2. 8 times.
We are very satisfied with our financial situation and this will be further strengthened after the acquisition of Bemis.
With these results and our confidence in the business outlook, the board has increased the interim dividend to 21.
5 cents per share.
Go ahead and discuss the elastic section in slide 8, where the elastic PBIT is calculated in the same currency and meets expectations, slightly higher than the previous year.
The growth of PBIT reflects the contribution of recent acquisitions and organic growth.
Operating costs across the group are strong and sales growth in our healthcare business is strong.
Revenue growth in emerging markets is also higher than last year.
These benefits are partially offset by the adverse effects of the normal time difference from recovering higher raw material costs to the flexibility outlook for fiscal 2019 on slide 9.
From the guidance we provided in August 2018, the outlook has not changed.
In constant currency terms, we expect the flexibility segment to achieve robust PBIT growth in fiscal 2019, compared to $0. 835 billion in PBIT achieved in 2018.
The following factors need to be considered.
First, moderate organic growth, which has nothing to do with changes in raw material costs.
Therefore, this means that we expect the adverse effects of H1 to be reversed in h2.
Second, after deducting the cost of integration and achieving synergies, a net income of about $10 million was obtained from the previous acquisition.
Finally, the incremental and final restructuring gains associated with the initiatives announced in June 2016 were approximately $10 million.
Move to rigid plastic on slide 10. PBIT was 5.
Calculated in the same currency, 6% higher than the previous year, the business benefits from the increase in the number of beverage terminal markets and a favorable portfolio of products.
Our restructuring plan has made a modest contribution from a good start, and the income of the acquiring enterprise has also increased due to the reduction in integration costs in the first half of the year, which will occur in the second half of June.
In North America, the beverage business resumed overall growth and the mixed business performed strongly.
In Latin America, sales increased by 1% over last year, including in Argentina, where economic conditions adversely affected consumer demand.
Excluding Argentina, the number has increased by 6% over last year.
In terms of the prospect of rigid plastic on slide 11.
Our guidance has not changed, we provided this service in August 2018, and we continue to anticipate that the rigid plastics business achieved robust PBIT growth in 2019 compared to the $0. 312 billion achieved in 2018, this is also considered.
First, moderate organic growth.
Second, after deducting the cost of integration and achieving synergies, net income from prior acquisitions was approximately $5 million to $10 million, and revenue from restructuring initiatives was approximately $5 million to $10 million.
With this, I\'ll hand it over to Michael to discuss cash flow and balance sheet.
Thank you, Ron. Good morning.
As a result, the operating cash flow for the period was strong, at 0. 115 billion, an increase of 27% over the previous year.
This is after deducting the integration and restructuring related costs of approximately $28 million included in the base PBITDA.
Cash interest is 90 million, mainly reflecting the impact of rising US debt costs.
In the second half of the year, we began to benefit from the maturity date of some relatively high-cost fixed-rate debt and expect the interest cost in the second half to be lower than in the first half.
As Ron mentioned, working capital performance is a highlight for all businesses.
This is an area of particular concern and we are pleased to see that these benefits have been achieved.
Our average working capital to sales ratio fell from 10 to 10%.
Last year\'s 4% and 10. In June 2018, 6% per cent.
These improvements relate to a range of areas, including accounts payable and accounts receivable.
The expenditure of the restructuring plan is related to the larger scale
We have announced the scale plan in previous years.
According to our guidance in August, we expect free cash flow for the whole year after capital expenditures and dividends to be between 0. 2 billion and 0. 3 billion.
Judging from the balance sheet and debt status, the key point of slide 13 is that Amcor\'s balance sheet is still strong.
The main goal of our balance sheet is to maintain an investment-grade credit rating.
To achieve this, we have considered a wide range of ratios, two of which are leverage and interest coverage.
The two initiatives are still at a strong level, in line with what we expect at the end of the 2. 8 times and 6.
8 times respectively.
In terms of financing costs, we expect the net interest for the 2019 fiscal year to be between 0. 2 billion and 0. 21 billion in fixed currency, and the interest cost for the second half of the year is lower than I mentioned earlier in the first half of the year.
We continue to be in a very comfortable position relative to our debt situation, with access to a wide range of funding sources and non-
The current debt period is five years, which is an appropriate combination of fixed debt and floating debt, and the currency combination is very balanced.
We have made great progress in our work to ensure that funding arrangements are made for a larger consolidated company before the end of the Bemis transaction, this also takes into account Amcor\'s next large refinancing of millions of bonds and millions of dollars in syndicated financing, all due in April 2019.
All in all, My key message this morning is that Amcor is still in a very favorable position with strong cash generation and balance sheet growth capabilities.
With this, I will give it to Ron.
Thank you, Michael.
In the next few minutes, as I usually do on these calls, I will quickly review Amcor\'s strategy and talk about the long-term growth potential we see for the company.
I will start with slide 15, which outlines our strategy with three elements: starting with a focused business portfolio;
A set of differentiated capabilities;
We want to be the world\'s leading packaging company and win for all our key stakeholders.
The first element is our portfolio.
We have chosen to compete in sections, which have some important features.
First, focus on the primary packaging of FMCG, good industry structure and attractive prospects for relative growth.
These standards have led us today to find a focused portfolio of products in four product areas: Flexible Packaging, rigid containers, special cartons and closures.
We have leadership in most of these areas, winning competition through multiple channels, and we have another scale advantage or something unique in the market.
The second element of our strategy is the Amcor approach, which is how we describe our driven differentiated capabilities in a consistent manner in Amcor.
We believe that these capabilities are key to winning in the packaging industry, and developing them in a consistent way in our business is key to how we get leverage in our portfolio.
From this business group, we generate strong cash flow, not differentiated capabilities, which we want to use to win shareholders.
Slide 16 well describes how we look at the allocation of cash flow, which is essentially our capital allocation framework, what we call the shareholder value creation model, which has not changed for many years.
Value creation has always been consistent and maintained strong and defensive over time by paying dividends, organically developing business, making acquisitions or returning the remaining cash to shareholders.
Going to slide 17 and an update to our sustainability agenda is quite extensive.
We see one of the biggest opportunities for Amcor to move forward from a growing interest in more sustainable and greener consumers around the world --
We believe in packaging;
In particular, primary packaging always plays a vital role in protecting and delivering food and healthcare products in a convenient and practical way.
With our scale and innovation capabilities, Amcor has great opportunities to create differentiated products to meet the environmental needs of consumersFriendly attitude.
A year ago, we became the first global packaging company to promise to develop all of our packaging into recyclable or reusable by 2025, greatly increasing our use of recycled materials, and work with others to drive greater recycling of packaging around the world.
In October, we joined 250 other companies and governments to become signatories to the global commitment to The New Plastics Economy, this allows us to step with more companies and governments to align existing and potential customers to achieve waste and pollution targets based on common definitions and report progress on an annual basis.
Over the past 12 months, our momentum has been growing around sustainable development.
We recently decided to allocate some resources to establish a center of excellence for sustainable development in Europe to promote our research and development of flexible packaging with dedicated technical and engineering resources, we plan to double the number of employees in the coming months and increase the Innovation Lab.
So far, a lot of our efforts have focused on product development, and over the past few months we have introduced a number of new flexible packaging products called HeatFlex and Genesis, which
With promising results, we also recycle films with higher and higher content after trial consumption.
You can expect us to stay active in product development.
The demand for fully recyclable packaging is bigger than ever and we are working with our customers to quickly
Track the commercialisation of these innovations and, in some cases, look for opportunities for collaboration
Invest in special assets.
Through our partnership, we are working to develop recyclable industry standards that support trials of flexible packaging roadside recycling and contribute to public investment and community projects for recycling infrastructure.
This is a very exciting moment in our journey to sustainable development.
As industry leaders, we believe that sustainable packaging is a unique opportunity to drive meaningful growth in the future, and we will take another big step forward in this journey by combining with Bemis, bemis brings together two R & D leaders in our industry and I will offer this deal now
For a quick review, we announced
Stock trading in August 2018, we said at the time, we believe today that Amcor is a very strong company and a leader of its own.
But by combining with Bemis, we have never had such a big chance at a leading company, making a big step towards becoming a leading player in the consumer packaging space.
Combining these two companies can bring an area of space, scale, talent and capability advantage, provide the most eye-catching value proposition for our customers and employees, and provide the most sustainable environment.
From a strategic point of view, we think this combination is very eye-catching and feedback from a range of stakeholders indicates that they will agree.
The combined company will have the most comprehensive flexible packaging footprint in the world and will have greater scale and resources in every key region around the world.
Our portfolio will benefit from more investment in the attractive end market and product segments, which can be transferred across regions and leveraged globally, the opportunity to combine the capabilities and talents of the two companies, create the best team in the industry, and focus on serving customers around the world.
Strong trading indicators, stronger financial position of Amcor in the future, greater liquidity of investors and comprehensive
Stock Structure of cash and taxes
Shareholders are free.
The transaction itself will provide double
The digital form of EPS growth and return is much higher than Amcor\'s weighted average capital cost, releasing the $0. 18 billion cost synergies that neither company can independently obtain.
The teams of Amcor and Bemis continue to work together to further develop cost synergy opportunities in general and administrative costs, manufacturing footprint and procurement.
It is expected that synergies will be delivered relatively evenly in three months
Closed after the year.
And will drive significant revenue growth in the short term, exceeding normal organic growth.
Any revenue synergies will bring additional benefits to these indicators.
Amcor has a good track record in providing acquisition synergies and, of course, we want to go beyond that.
As we get closer to our colleagues and businesses in Bemis, we see real opportunities to do so.
Amcor\'s financial position will continue to decline by 22.
Shareholders have a very good interest.
Positioning differentiated business generated $2.
2 billion of EBITDA gets higher profits each year by providing cost synergies and the potential to grow at a higher rate, as the customer value proposition is stronger, the capabilities complement each other and increases the attractive segmentation
Amcor will maintain an investment-grade balance sheet with annual free cash flow exceeding $1 billion and will continue to pay compelling and competitive dividends, which will increase over time.
It is important that further investment or stock buybacks will have a balance sheet capability immediately.
The trading structure led to the listing of shares on two major exchanges, which created unique and favorable results in terms of index participation.
Given that Amcor\'s shareholders will have 71% of the consolidated company, and taking into account the geographical mix and investment authorization of the Amcor shareholder base, Australian listed shares will continue to be included in the S & P 200 index, we do not expect significant changes in our current index weights.
We also expect the combined company\'s total market value to be eligible for inclusion in the S & P 500.
This means that the combined companies will be ranked top 300 in the world\'s largest index.
Because of all-
Stock structure trading will end without the need for any shareholder to contribute cash, share of stock exchange will be taxedfree.
Since the announcement of the transaction, we have made significant progress in closing, including the establishment of the integrated management office, driving the planning work before the end of the transaction, and supervising the integration and collaborative execution after the end of the transaction.
This IMO is already equipped with about 20 full-time employees.
Time Team members from Amcor and Bemis are supported by several external consultants and have worked together to develop detailed plans designed to start integration quickly, including providing synergies.
The process to ensure the required antitrust licensing and regulatory consent has been completed or is in progress as expected.
With the exception of Europe, the United States and Brazil, all jurisdictions with conditional closures are licensed, and in each of these regions the discussion is at an advanced stage.
In fact, we expect the European Commission to announce a decision in the coming days.
We continue to expect this transaction to be completed in the second quarter of 2019 calendar year, and we look forward to building a strong future with our new Bemis colleagues and customers.
Finally, we had a good start in fiscal 2019.
Our financial performance is in line with expectations and we are on track to achieve our goals with the year-round outlook unchanged.
We have also won customer support in advancing our sustainability agenda on a daily basis, we have made significant progress in completing the Bemis acquisition, all of which have created a very promising future for us
We are excited about future opportunities and we believe Amcor\'s growth potential is still high.
With this, I would be happy to answer the question. Question-and-
Answer session q-
The king Ron Neeraj from Morgan Stanley.
Can you give us an update on the price trends you see in the key input cost category, especially the liquids that we have a hard time tracking? Ron DeliaYes. Thanks, Niraj.
In terms of raw materials, most relevant to our flexible packaging section, we continued to see moderate headwinds in the first half of the year, so we were adversely affected by about $5 million.
Now, raw materials are flat in the first quarter, starting to decline later in the second quarter, in November and December, so we expect the negative impact of $5 million in the first half to reverse in the second year, therefore, the impact of the annual income statement is zero.
But your question about material trends, we do see that oil is clearly falling off at the end of the 18-year calendar, as well as resin and polymer, which is very obvious in some cases.
What I would like to point out is that in some areas you also have a reverse currency movement that offsets the gain when you convert the cost (usually recorded in dollars) back to the local currency
Looking into the future, it\'s hard to say that we see signs of the index rising in the medium term. single-
There will be no difference in liquid in many commodities, but not enough to change our outlook for the year, which will not have an impact on the income statement. David?
Can I ask two questions? First question, you say emerging markets are growing by 9%.
I mean, this is a good one. down statement.
Could you please elaborate on which areas are progressing well and which areas are still lagging behind?
The second question may be on slide 43.
This is probably for Michael.
This is a substantial increase in the contribution of rebates.
I think if this is part of your job, is the $18 million contribution to revenue on the slide, is it a big part of your effort to push the client, drive the title?
Can you pass too close? Ron DeliaYes.
Let me start with the problems in emerging markets.
As you pointed out, we have grown by 9% in emerging markets.
David, our starting point is that we have profit growth in all of these regions, so it is clear that the big ones are Asia, Eastern Europe, Latin America, and each of us has a proper growth.
I would like to say that the most prominent thing is Asia. our sales growth in these three regions is very good, but the sales growth in Asia is very good, and the overall cost performance is very high.
Similarly, growth rates in Eastern Europe are a little lower.
Latin America is also growing.
Now in Latin America, our business spans 9 to 10 different countries, and you always have some intermittent beginnings in different markets.
But overall we have grown in terms of flexible, rigid container and specialty carton business.
So it\'s really comprehensive.
What I want to say is that the Asian business may be the highlight of it.
Unknown analyst [Inaudible]
Ron DeliaYes, take a look at some of the markets I mentioned in the answer to the Niraj question, you have raw materials falling off, but your currency also depreciated significantly.
So we don\'t necessarily see the benefits emerging markets have gained from lower raws at the end of the second quarter, which we may have seen elsewhere.
Look, we will see the future.
We don\'t see anything that will change our outlook for the year.
The rebate point is Michael casamenton, so you are referring to slide 43, thank you.
Including in that line is actually a net settlement. -
Net settlement of legal claims, including the line we recovered from [SI]perspective.
This is, therefore, indeed a key movement in this regard, which is related to our legal solutions.
So you look at it from the perspective of other income, and then on the net, it\'s usually 58 compared to 47 in the previous year, so in general, we see that other income increases by about 10 million, except for one income. off.
But in about 10 million years, we have increased the cost of restructuring and integration, which is clearly offset by this.
So I think the net income of the two companies is about $1 million.
For unexplained analysts, if we look at the cash flow for this period, can you get an accurate picture of what are the key drivers for this very strong performance? Generally speaking, the first half of the cash flow performance will decline?
So, what are the key drivers of this?
Secondly, in terms of sustainability, where do you think you are currently relative to your competitors in terms of packaging?
Not only do we think of flexible and rigid plastics, but it\'s not just looking at other substrates, it\'s not just where you\'re positioned with key customers?
Ron DeliaLet I took that one first and then we came back to discuss cash flow.
It seems that sustainable development is only gaining momentum externally, but the momentum within Amcor should not be underestimated.
I mean, just--
This is a great opportunity, and we are working on it.
In terms of where we are, my starting point is for our customers, not a premium-
Customer discussion levels that occur anywhere in Amcor that do not revolve around this topic or at least use it as the main discussion point.
This is very in line with the spirit of cooperation.
Our customers are aware that society and consumers are looking for better answers.
They also know that Amcor might have these solutions, right?
So from the point of view of positioning costs, we can help them stand out in the eyes of our customers, and I can\'t say where we are.
Our location is very good.
I have seen some numbers as this is the main discussion.
As I mentioned earlier, you see customers, because the needs and needs of consumers are there, so they are more open, willing and eager to commercialize things, and complete the product development and qualification process faster to bring the product to market.
So I think we are also in a good position in our field and I think we are in a better position than anyone because what we see is a capable, technical and helpful customer
If we look beyond the immediate field and consider packaging more broadly, we will still see the plastic taking a share from other forms.
Last year in the beverage industry in the United States, we still see plastics growing in units, and we still see plastics taking a share in units compared to metals and glass, a trend that has been going on in the eyes of many, many years.
I think consumers recognize the recyclability of plastic containers, and part of the challenge is to have consumers actually recycle the container.
But from a technical point of view, the features of the product are completely recyclable, and they enjoy all the other conveniences they are used to, that is, acceptability and light weight.
So we think we\'re good.
Compared to our direct peers, we recommend that the plastic containers and flexible packaging we manufacture are very good relative to the entire packaging space and these alternatives --positioned.
I mean, we can talk more about the specific actions we are taking, the new product development that we highlighted this morning, and the partnership on recyclability, and I would say, if there isAbout this topic.
Cash flow problem?
Michael CasamentoYes, from cash flow, I mean ---
During this period, our working capital to sales ratio has achieved satisfactory results, so we have achieved continuous improvement.
So in this case, we have been paying attention.
It is clear that over the past few years we have seen an increase in acquisitions in this area.
We are now starting to see some benefits flowing there. And it was in --
Overall, we do see some improvements in managing accounts receivable and accounts payable, as we have gained some ongoing benefits there, and we continue to hope, as we progress, we can see some further improvements.
I\'m just wondering if you can tell us the quantity and hybrid performance in a flexible business.
We see a lot of improvements in the rigid plastic business, but if you can tell us what you expect, and the sales and mixing performance of the flexibility department in the first half of the year?
Ron DeliaWhile, I would like to say that the performance in the future will be consistent with the performance in the first half of the year, so we continue to guide moderate organic growth in both areas.
Especially in the first half of the year, we have achieved very good growth in the area of health care.
Our health care includes medical packaging and drug packaging.
As I mentioned, we have achieved good growth in emerging markets and some food categories, and the weaknesses of Europe in mixing that we specifically mentioned are only in some higher value --
Categories are added, I . e. , meals, cooking applications.
These are not the main parts, but the mixed contributions they made in the first half were negative.
Unidentified analysts have asked me a second question about Alusa\'s performance, can you name the question or give some color on the performance of this half?
Ron DeliaLook is on this track and the business has been going on as we expect this year.
It certainly does not have the raw material headwinds of the past 12 or 15 months, and I said in my previous comments that the devaluation of the currency offset the decline in raw materials.
Of course, it does not have the same headwinds.
The potential market in South America is a mixed market.
I will not say that they have made great progress in general, and the business in Argentina has also developed, and the situation in Argentina is particularly frustrating.
But on the whole, we are very satisfied with the business.
We continue to win business from large multinational customers, especially in the supply capacity in South America, which is good for us not only in the region, but also in Europe and Asia, to some extent in North America.
So we\'re happy with the situation here.
Maybe take one from the phone here.
We have Brooke Campbell.
Crawford at JPMorgan ChaseBrook Campbell-
Crawford, first of all, I believe that the first half of the year produced some costs to achieve synergies related to recent acquisitions.
In general, would you help quantify the cost and location of the first half of the region and what is expected in the second half of the year?
Ron driyas, Michael can provide the numbers there.
But in general, achieving synergies and integration costs around $30 million, which is on the 43-page slide that Michael experienced before, which is the experience of the first half, which will be more in the second half, especially in rigid plastic, but it starts at the order of magnitude on the back of the Bolt we expect
About the deal we made recently. Brook Campbell-
Crawford and Bemis also talked a lot about pursuing short-term business, especially in North America.
During this time, would you be interested if you thought of providing Amcor with more similar opportunities today in Europe or elsewhere around the world?
If so, what kind of investment is needed to drive it?
Ron dereyes, you see, this is a trend, it\'s common in all the areas we\'re in, and it\'s shorter for big customers that we\'re surging SKUs and rolling out new products at a fast pace.
In addition, they also take advantage of the smaller customer segment in the market, which is a requirement.
We do a lot of the same things in a flexible business, and Bemis is doing it.
To be able to respond faster, we made some business process changes.
From an asset perspective, we have some short-term printing machines and some digital printing assets in Europe.
None of this really matters, and you\'ll know from the industry that incremental productive assets are just millions of dollars, which is not a big cost of capital.
So as we move forward and update the asset base, more and more asset investments are turning to machines facing this part of the market.
I think this is the flexible side.
The rigid plastic business we mentioned in today\'s release continues to see real, very strong growth in regional beverages in the market.
As a result, smaller customers participating in part of the US market or in a product category continue to grow.
We won with them, and I think plastic won with them, which was our previous question about formatting preferences.
We therefore look forward to the continuation of this situation. Brook Campbell-
Thank you, Ron.
I have one more here.
I just wanted to revisit the team\'s comments on the acquisition last year and unite to issue films with higher barriers between countries.
Just wondering if you could highlight the countries where Amcor and Bemis are currently producing these high barrier films, and whether the area of synergies benefits from that? Ron DeliaYes.
This is a good question.
I think the easiest part to start with is that none of the acquisition metrics we cite today or previously have revenue synergies, so this is a potential source of advantage.
Our footprints are average. -
Our footprint is complementary and they are leaders in North America and Brazil.
We will be the leaders of the rest of the world, and we are all seen as technical players with unique products in bemis\'s case high barrier films.
We\'re fine, too.
Is considered a higher film, but we made a lot of foil
The same is true based on packaging.
So the opportunity is to make films with higher barriers. for example, Bemis may win in North America and bring these films to Europe and Asia, the rest of Latin America, the same, the products we have in Europe that Bemis may not have, our opportunities from Europe to North America and Brazil.
So it\'s really an exchange and it\'s going to evolve in both directions, but I think the key is that there\'s no potential opportunity included in the trading indicator.
John Petit of Macquarie has a few questions.
I think in general I mean the feeling is like the headwinds you \'ve faced over the last 12 months are starting to weaken. Are there any --
We are talking about the basic business, is there any additional headwinds or headwinds that you are paying special attention to at the moment?
Ron DeliaNo, I think ---
Look, I think we \'ve talked about enough issues that have been reflected in 12 months.
Whether it\'s the increase in raw materials or the increase in quantity, there are industry problems, right?
I mean, I don\'t think we\'re immune to these industry issues and they\'re starting to weaken.
We are talking about raw materials.
We haven\'t seen the real shift yet, and what I\'m trying to say is that we \'ve seen the downside of being flat, in fact, $5 million.
In the first half, we hope to get this back, but we won\'t get more at this stage.
We have resumed sales growth in the beverage sector.
I think some of them were last year\'s bike inventory to go to stock, and I\'m not sure if the market is going to be stronger overall, but I think the business has proven that it can bring growth, especially with the smaller clients I mentioned earlier.
So there\'s nothing on the horizon John I think the industry is still quite resilient and defensive, and occasionally you have a period of time, like we did last year, there are a few things that happen you know about the industry, but we just focus on what we can control and we feel very good half of the outlook for the second and second years.
John PurtellJust adds to the cake
On this, in terms of rigidity in Latin America, so the number you mentioned has increased by a few percent, and in terms of EBIT\'s constant currency, what about other comments, moving in a positive direction? Ron DeliaYes.
This is positive.
It grew moderately, and I think sales grew by 6%.
Argentina and businesses benefit from this, from the hybrid programme, and from good cost performance, so income in this regard.
David Walker from Clime Capital
Back to the previous acquisition, can you give us a summary indicator of any revenue synergies that have been achieved? Will it cost more to manufacture and supply recyclable packaging?
Ron DeliaLook I will describe the revenue synergies qualitatively, I think the example of Alusa is the best example of how we get a lot of big revenue-
First of all, we will not include revenue synergies in our return indicators.
Therefore, Alusa is the best example, and before acquiring Alusa, we are very focused on the flexible packaging business of healthcare in America.
We have talked about the desire to do more in the region and to be a wider participant.
I think it was well received, but we did not really take action.
Once we have completed the deal in Latin America, it has had a series of discussions with all the usual big customers and you see the benefits indirectly.
In some of the things we announced today, we have opened a green space plan for Unilever in India.
We expand our cooperation with Suo, and I will not specifically lock these two developments in Alusa, but I will say that this transaction reinforces the views of these two customers, we are a very compelling global partner.
I am not sure if these two things will happen without this deal, I am not sure, but I think we have made a global supply agreement and have made brilliant achievements in South American supply, but it is good for our traditional business in Europe and Asia.
So that\'s what we\'re looking forward to seeing Bemis move on.
I didn\'t quantify it because I think we didn\'t give ourselves much trust in trading metrics anyway, but we know the benefits are happening.
Sorry for the second question?
Unknown analyst [Indiscernible]
Ron DeliaLook, I think at the end of the day, it will cost the consumer world, and that\'s a solution, and scale benefits will increase over time.
At present, recycled content is often more expensive, but this is partly a function of the size of the value chain or supply chain.
There is no technical reason why the input for processing and recycling is more expensive than the raw resin particles, which is more about the safety of the supply and--
However, the lack of capacity or supply has hindered economic development, but the production process should not be different.
Richard Johnson of CLSA
I have one, Ron, but it\'s easy, so give you a chance to go on.
But when I think about the way the CPG companies are being addressed, like still seeing these two elements, one is the recyclability that you have already solved;
These two, they find very clearly where they can find the plastic products.
So I just wanted to know that, in fact, almost every day you see a product being moved out or a company announcing that their product was being moved out of plastic.
So, to what extent or how much work have you done to look for your portfolio that could risk the process?
This is a good question.
I mean, first of all, our efforts in product development are extensive.
So we think that our customers would say that recyclability could be the best result for almost every category and every format.
But in fact, our customers and Amcor or Amcor, like our customers, are exploring a range of solutions, including ingredient stability and biodegradable
Basic materials, etc.
We also talked to some of them. to-
More time for fiber-Based on laminated materials.
I think you will understand the reality Richard, I am referring to the barrier requirements that these products need now, especially if they are to retain functionality, they will not be easily solved by alternatives.
I think the customers know, I think they have some very high
They may see examples of the profile pointed out.
But I think in general, in most cases, the category of products that we offer is best provided by plastic.
Richard JohnsonDo we also made some comments for Bemis?
Because I know that they have a lot of fiber in the big beverage packaging business. From now on.
Ron DRIAS, this is a wrap-up business.
If you think about the core of Bemis, I would say they have some very high value --
Add film and structure for meat and protein liquids, which is high with our
European performance business.
These are areas where it is difficult to see alternatives in the short term, especially those close to attractive costs.
There are only a few Richard Johnson and Mike, if you can.
Could you please help me to go through the decline of D &?
Michael CasamentoYes, of course.
Overall, I think half of the decline is actually currency.
So the net move is about 6 million, which is actually behind the restructuring project that we have abandoned in the past period of time.
Some cash and non-cash.
So part of that is a reduction in D &.
How much is Richard Johnson?
I just want to understand, 7 million currencies, 7 out of these 17 are in D & A, which is A bit hard to understand?
Michael CasamentoThe sport of D & A is 12 years old.
Then move on the basis of the constant currency?
Richard JohnsonYes, half of them are currencies, so the net impact of the currency is 6 or 7, and the total impact of your currency is 17.
So I wonder why . . . ?
Michael CasamentoIn PBITDA is very high.
Richard Johnson is fine.
Let me change it.
And then just on your slide 43, which is very helpful, can I go through the big categories? So it\'s asset sales, not kickbacks, and we\'ll come back to this and discuss the other and the cost of your restructuring.
If I look back on these two years, can you give me a feeling?
Michael CasamentoIt is a comprehensive combination.
Yes, I mean . . . . . . It\'s flexible asset sales, Richard JohnsonSo says sustainably, right?
There will be some rigid people in Michael Casamento.
Richard JohnsonAnd on the last slide, when I think about how you will report your numbers in accordance with GAAP in the United States, do these asset sales come from [civil]
What would they be if they weren\'t?
Said Ron again?
Richard JohnsonSo Can you book these asset sales under GAAP in the United States?
Michael CasamentoLook has some differences in the GAAP in the US, I mean, we are working on this and it is clear that we are reiterating history and I can say, the difference in GAAP in the United States is input and acceptance for IFRS, but on the basis of moving forward, we do not see any significant impact on the potential benefits of the business from the conversion to our base generally recognized accounting principles.
Richard JohnsonAnd, then on the rebate number mentioned in your section, can I confirm that this is a net number?
Does this include the money you keep from Alusa or is it a net number?
So, what is the gross amount, gross rebate or gross settlement you get from clearing these items?
Michael CasamentoThe\'s net sales are £ 15. 5 million.
Richard JohnsonAnd, including the amount you didn\'t pay in the first place?
You said before that you kept some money . . . . . . In addition to the Alusa settlement and some other things, Ron DeliaYes, we did not disclose the total amount because it was a confidential matter and just settled with a private party
Richard JohnsonAnd ended up talking about rigid plastic and North American drinks, could you please let me know how fast you are going to get out of half the growth target? Ron DeliaYes.
Growth in the second quarter has definitely slowed, and we did have growth in the second quarter, but less than in the first quarter, mainly because we--
This is the North American drink I am referring.
In the first quarter of last year, especially one of our major customers, our destocking was very fast.
As a result, last year\'s growth rate or the rate of decline does not represent the market, and this year\'s growth rate has benefited from the cycle of destocking.
I think from an inventory perspective, the second quarter is more normalized, our growth is moderate, and I think you can say it\'s the exit run rate, which is why our outlook for this year has not changed.
We expect moderate organic growth for the rest of the year.
Thanks, Scott Ryle.
Scott Ryall of Rimor Equity Research.
I also hope to be exposed to the perspective of sustainable development. Could you --
In terms of recycling products for the next 5 to 10 years, how do you ensure that you and I know your patents and these things from the perspective of intellectual property, but can you read about recycling? The content of the recycling is actually simpler and will therefore drop.
Yes, that\'s . . . . . . Scott Laila, I think at this point, can you talk to a colleague
Are you investing too?
I think this is a good question.
I mean, intellectual property is very important here because it\'s not necessarily simple, in fact, it\'s hard for you to develop this material to do all the things that consumers do today, this is the long-term preservation of shelf life, open and convenient, in many cases, to provide the ability to cook products in packaging, to provide beautiful graphics, all the things that consumers have expected and demand, and then, you need to provide it in recyclable form, which makes the technical challenges I want to say very large and IP intensive.
Over the past few months, we have announced two products that are well illustrated by the fact that we have adopted a material called HeatFlex in one case, which requires a lot more
The layers in traditional laminate extend down into a layer-based film that provides the same type of barrier with a similar look and feel.
It allows products--
It allows distillation of packaging, so this is where the product is cooked in the packaging at very high temperatures, with high requirements for packaging materials, the quality provided before obtaining a single layer material to replace the multi-layer material is quite a lot of technology, including foil, including metal
This will be an example, and we announced another example last week called Genesis, which, in all polyethylene recipes, has been replaced as many again
The materials I mentioned and both products are completely recyclable.
As a result, the technical needs there are very broad, and while the material mix may be \"simple\", the science and technology in the development of these products is actually more intense. While the co-investments --
If we have the opportunity to deliver any of these new innovations in a very high number and the customer particularly benefits from it, as we have done over the years, there is an opportunity to work together
Invest in places that are good for them to help ensure our capacity is in place
It\'s a win-win situation to venture for us.
Winning is the best way for us to consolidate our partnership.
Including [Scott rydo]feedstock]
As you mentioned, this is a cost effective way . . . . . . ?
Ron driyas, and everything else--so the co-
Investment or potential cooperation
The investment I mentioned is more on the conversion of assets, but we are investing, you can say
Investing in recycling partnerships in different parts of the world, our customers are also contributing to these partnerships.
So we have several partnerships in the US for roadside recycling in hard plastic, flexible packaging and Amcor, and some other partners, including our clients, governments, and non-governmental organizations, in these partnerships, you can characterize it
The same is true of investment.
We have a problem with Larry Gandler.
Larry GandlerHi Ron, there are two more questions I asked, one is roadside recycling, which sounds like some kind of joint venture.
I was wondering if you could talk about its range and put some color on the back of it.
Ron DeliaThere, we mean.
One is the recycling partnership, which has been in existence for four or five years, and it focuses mainly on rigidity, which is essentially non-profit, and it will Amcor--
Not just Amcor, but also converters, brand owners, etc that fund the recycling infrastructure, which now focuses on some of the pilot cities in the US.
The other is about roadside recycling of flexible packaging, which is an organization ---
The acronym is MRFF, basically a trial of roadside recycling of flexible products and helps invest in optical sorting of Murph in order to be able to recover through the same recycling process as other products-
Same as other recyclable items.
Larry GandlerAnd my other question is about tobacco and it looks like your sales are growing in both the US dollar and euro exchange
So I wonder what is driving this, isn\'t it some new non
Push sales of tobacco products and special cartons?
Ron DeliaYes, Larry, is a mix of more heat than burning products in some areas.
These are alternative products launched by Philip Morris and others, but we have also gained some business in Asia, and our customers are doing well in Asia and Eastern Europe.
What Larry Gandler and I said
What I want to say is No.
Like toothpaste or tobacco?
There is one thing about Ron DeliaYes, but it will not be a material driver of growth and there will be moderate growth since then.
Thank you, Larry Gandel.
Thank you, Larry. Ron.
There are a few more calls here, Owen Burrell from Goldman Sachs.
Owen birrelllanks Ron, just a short example of the performance of the rigids, I noticed that you talked about some good progress in the initiative and benefits of the drink, but we know that the profit is
I guess in terms of PBIT growth, you only delivered around £ 5 million, and I just wanted to know, in that industry, where are the issues, where are they going backwards, and how can they be corrected?
Ron DeliaActually, in fact, we are very satisfied with the profit performance of the business, the raw materials have risen sharply, which increases the revenue line and then damages the profit percentage, excluding sales changes that affect profit margins by expanding by 20 basis points, profit margins are distorted a lot.
When we look at it for every 1,000, that\'s how we run our business, and you see a good expansion in the average profit margin per 1,000.
Therefore, we are very satisfied with the development of the business, because its mixing effect has been improved very well.
More valuable filling sales-
The beverage space has been increased, and the container business in particular has continued to grow.
So we are very satisfied with the business.
Owen berreland I just noticed that you spent about £ 40 million on a rigorous restructuring campaign, and in a sense, what is your return period for this investment, what opportunities do we see in terms of investment? Ron DeliaYes.
The number in the account is the accounting number, the cash we are going to invest is about 40 million to 45 million, and the return we expect is about 40%, so that\'s just a return for more than two years, this is a combination of footprint work and reduced overhead, and you\'ll see acceleration starting in the second half of the year.
We have not benefited much in the first half of the year, and with the progress of various initiatives in the second half of the year, we will benefit 5 million to 10 million throughout the year.
Owen bereland is just a second question for you, and Michael is doing very well in terms of liquidity from 10 minutes to 10% minutes. 4% in the pcp.
It has bottomed out in the past decade.
3% three years ago, I was just wondering why it was going back to that level, or what structural reasons do you think are there for the best level of working capital?
Michael CasamentoYou is right.
We tracked it that eight days.
It\'s been a few years since the range of 5% to 9%, and then we have made several large acquisitions, the Alusa acquisition and the Sonoco acquisition, which have much higher working capital.
So that\'s why you \'ve seen growth in the last few years.
Now, we are starting to work on this and starting to reduce working capital, because of course we are very concerned about this issue.
So, you have to expect that we should be able to get back to 9% over time.
Obviously, I think it will take time and we are working very hard in this area.
Before we move on, Ron DeliaWe will be back in the Bemis transaction.
So we have two more calls, and we have Grant Slade from Morningstar.
There is only one of my Grant SladeJust, and in flexibility, you noticed a significant increase in sales in Asia, which I think means that sales in Europe and the Americas are flat and may be negative.
I just want to know, why is the amount of flexibility so hard in developed markets? Thanks.
I think the volume of transactions in developed markets is more or less flat, and we talked about mix earlier.
We have achieved very good growth in health care in North America and Europe.
We have a good growth in many food categories, but we also have soft performance in yogurt and ready-to-eat food and some of the other things I mentioned earlier.
So I think our growth reflects the market, and you see 1% or 2% of the market growth in addition to food, healthcare, food and personal care, and that\'s what we usually see, usually we get the share and win the business, at the same time, we can also share the business, so that we can achieve low order
At any given time, there has been a single digit increase, and nothing unusual has happened in the last six months.
OK, we have more information about Keith Chau, Evans and Partners.
Good afternoon Keith chau, Ron, I just want to focus on the issue of input costs.
I think in last June, I think the headwinds for fiscal 18 were $43 million and $5 million for the first half of 19.
Thus, in theory, Amcor should be able to make up for the full loss even if the cost of input increases.
Expectations for the second half are now only $5 million in a reversal.
So maybe there are only a few questions.
The first question is, is Amcor still looking to recover the headwind of $48 million?
Secondly, if so, what is the time?
Looking at some of the input costs, and where it has been tracked in the last three to four months, I think downwind should actually be larger than the headwinds of 18 years and 1 hour and 19 years? Ron DeliaYes.
The question is well asked. I mean, the simple answer is that we will take back all the $48 million.
Our guidance is that there will be a return of $5 million in the second half of the year.
It depends entirely on the slope of the input cost, the price change of the goods and the movement of inventory in our supply chain.
If we look back six months, we see relatively smooth raw materials in the first four months of this year. We saw polymer-
Basic raw materials declined in November and December.
What we see is a mixed bag.
We see that in our portfolio, the resin index generally rose by 3%, 4%, 5%, which is driven by many factors, including some plans for polyethylene space and announced downtime.
So it\'s hard to predict, but the starting point is to go through all the changes in the business.
So if we don\'t get the release from the commodities industry, we will get the remaining $48 million in the second half of the year.
Keith Shaw, if I--
The prospect of cost is single in the medium term
I assume this is on a fairly low basis after a sharp drop in key costs such as resin and aluminum.
Steep Ron Derry-
I don\'t hear--
After you said steep, what is the problem?
Keith ChauYes, so I think when you talk about a mid-term single
The number of input costs has increased, considering the drop rate of aluminum and resin, is this the lowest level of your input costs?
From the current point of view, we are looking forward to different published indices.
You see a single-
The numbers began to increase at the end of the first half.
Ron delle believes that we will close the call without further questions. Thank you.