Amcor Plc (AMCR) — Q3 2020 Earnings Call Transcript

Thank you, operator, and welcome to Amcor's third quarter earnings call. Joining the call today is Ron Delia, Chief Executive Officer, and Michael Casamento, Chief Financial Officer. At this time, I'll direct you to our website amcor.com under the investor's section where you'll find our press release and presentation which will be discussed on the call today. We'll also discuss non-GAAP financial measures as we talk about performance against combined comparative information. Reconciliations of these non-GAAP measures can be found in the press release and presentation on our website. Also, a reminder that statements regarding future performance of the company made during this call are forward-looking and subject to certain risks and uncertainties. Actual results may differ from historical expected or predicted results due to a variety of factors. Please refer to Amcor's SEC filings, including our statement on Form 10-K and 10-Q to review these factors. With that, I'll turn it over to Ron.

Thanks, Tracey. And thank you everyone for joining us to discuss Amcor's year-to-date results. Joining me on the line as Tracey mentioned is Michael Casamento, Amcor's Chief Financial Officer. We'll begin with some prepared remarks and then open the line for Q&A. We'll start with safety. We start every meeting with safety, and always have, and obviously the topic takes on a different meaning in today's environment. Our goal is no injuries and we're making good progress this year so far. This fiscal year we've had 8% fewer injuries in the first nine months of the year, and more than half of our sites around the world have been injury-free for at least 12 months. We're really pleased with that progress at a time with so much distraction and new ways of working to accommodate physical distances, etcetera. It has never been more important than today, and our employees have really risen to the occasion and remain vigilant. Moving on now to the key messages we have for the call today; it's obvious these are unprecedented times for everyone and lots of challenges that no one's had to deal with before. Against that backdrop, it's important to make clear that Amcor is absolutely not immune, but we are relatively well-positioned and we've been demonstrating resilience, so that's the first key message today. There are a number of reasons for that, which I'll come back to in a minute. But it really starts with the commitment of our 50,000 employees around the world and their dedication and resilience through this period has been amazing, and we can't thank them enough. The second key message is that our financial results have been strong through nine months and for the second consecutive quarter, we've increased our outlook for the 2020 financial year. We now expect EPS growth of 11% to 12% and we'll generate over $1 billion of free cash flow this year. We've had good organic growth, momentum building in the businesses, and we've also benefited from faster delivery of synergies from the acquisition of Bemis last year. Now we're coming up on the one-year anniversary of that deal, which was an all-stock transaction, the largest in Amcor's history, and by all measures, it's been exceeding our expectations so far. That's the third point. Fourth, we have a clear line of sight to controllable drivers of shareholder returns in the near-term: defensive organic growth, further cost synergies to come, a compelling dividend, and also the benefits from having bought back over 3% of our shares outstanding so far this year. Lastly, longer term, we'll remain well-positioned to generate continued value for shareholders in all macroeconomic conditions. Five, relates specifically to COVID-19. With almost 50,000 employees in 250 factories around the world in over 40 countries, a global pandemic creates a global challenge for a company like ours. The work to manage through it has been massive as you can imagine. Early on, we established three guiding principles. It starts with keeping our employees healthy. Everything we do starts with safety anyway, so this would be the natural starting point for us and we're taking many extra steps now: more frequent cleaning and disinfection of our facilities and equipment, obviously increased physical distancing, restricted travel, and protective masks, lots of work from home arrangements as well. Again, our employees have been incredibly adaptive and agile as we've introduced new measures to help keep them safe and healthy. Contributing to the communities in which we operate has also been a guiding principle. We're fortunate we've been able to keep our people employed and our operations running so we can help those around us who've been less fortunate. There are hundreds of examples from around Amcor of great initiatives really at the local level, which range from producing face masks and face shields to donating packaging for hand sanitizer or supporting Community Food Banks and healthcare agencies; just lots of really good, passionate work by the teams around the world. Of course, since we make packaging for food and healthcare products, we've got to keep our plants running, so we can continue to supply our customers. Doing that requires extensive planning, obviously to prevent any issues but then also to deal with them in an efficient way should they arise, and we've been doing just that. So again, we've not been immune here, but we've managed well so far with minimal disruptions. I mentioned at the outset that Amcor is relatively well-positioned and demonstrating resilience and I want to come back to that for a few minutes starting with Slide 6. One reason we remain in a relatively good position today and why it's so important that we keep our plants running is because Amcor is making primary packaging for consumer staples. That's really all that we do. It's essentially who we are. We're making packaging for defensive consumer segments like food, beverages, medical, and pharmaceutical products, products that people need all the time, obviously, including now. These supply chains have been recognized as essential by governments and healthcare authorities around the world. That essential designation extends to Amcor and provides us with the license to continue operating. Almost all of the products we package are for home consumption or use in medical facilities or sold through retail. Very little of our packaging is for on-premise consumption or for sales through the foodservice channel. Turning to Slide 7; the primary packaging that Amcor makes for food and healthcare products has always played several important roles; to protect consumers and ensure food safety, to preserve products and extend shelf life, and to promote brands. Those things will always be important, but right now in the current environment, certain needs are especially important for consumers and companies around the world. Hygiene would be the most obvious one. In every aspect of our lives now, hygiene has become much more front and center. Is this beverage I'm about to drink from this beverage container clean? Is this medical product sterile? Should I buy the loose lettuce from the open bin or the packaged lettuce? These are the questions that people have on their minds now. Convenience is another one. We're eating at home now more obviously. I don't have any more time than I used to have, probably less so how can we make cooking and food preparation easier? Can we just pop this product in the microwave? Then automation, if you're running a factory right now, you're asking about automation not just about cost but also about worker safety and whether or not there's a packaging solution that can make the production process less labor-intensive. It's way too early to project how any of these needs will evolve or what priority they'll be given over time. But it is clear that long-term demand for food and healthcare packaging will continue, and that demand will be there globally. Slide 8 indicates Amcor is present in all the major developed and emerging markets around the world and so in this challenging time, we've benefited from our scale, but also our geographic breadth and diversification. The scale provides many advantages at times like this, starting with the ability to ensure we have access to raw materials and other supplies, but also making sure we have redundancy in our supply chain, in our production network. If production is disrupted in one region, there's the opportunity to source from another. Of course, being diversified geographically means in this instance, while one region may be struggling like China was earlier this year, other regions have been less impacted especially during the pandemic, being so global has also meant that we've been able to share learnings as different parts of the world have suffered through the pandemic at different times. We've learned from the experiences in Asia and Europe now as we've dealt with the outbreak at later dates in the Americas. Lastly, turning to Slide 9; Amcor is also relatively well-positioned by virtue of our strong financial situation. The market positions we have in the scale and the defensive consumer segments we supply have led to consistently strong cash flow, which in turn has enabled consistent financial performance and shareholder returns, and that's continuing this year. We also have a strong balance sheet. We're committed to an investment-grade credit rating and we've always maintained lower leverage than most of our industry peers. With consistent cash flow and a solid balance sheet, we continue to have plenty of cash to reinvest in the business, as well as to distribute to shareholders. While our dividend has always been compelling, it's especially compelling right now, relative to the alternatives that investors might consider. Amcor is certainly not immune from the impacts of COVID-19 and we've not been spared by any means, but we're relatively well-positioned to navigate the challenges. I'll touch briefly on Slide 10 on what we've seen over the last few months. We try to run the company for the long-term, and we focus on one year at a time, so we normally discuss results on a year-to-date basis. But clearly, it's an unusual time and we appreciate the need and the interest in some more insights on recent trading activity, and so that's what we've got here on Slide 10. The key message on the slide here is thus far, we've seen no material impact on our financial results that we can directly attribute to COVID-19. We're a global company with balanced exposure across North America, Europe, and the emerging markets. We've seen plenty of puts and takes on volume, especially across regions and categories. Ultimately, sales in the third quarter were in line with the long-term averages that we've seen in the business. There have been no real cost impacts, so no real material impacts on the financials for the company so far. The results for the third quarter were in line with our expectations. Now, Slide 10 lays out what we've seen using volume growth for the third quarter and you see the positives and negatives across the global portfolio. Overall volume growth for Amcor was about 2% in the quarter, 1% in our flexible segment, 5% in rigid packaging. We had good volume growth in North America for beverage packaging, as well as flexible packaging where in flexibles, North America represents about one-third of our sales in that segment. Another third of sales in the flexibles segment is in Europe, and volumes increased by about 1% in the quarter. Then the other third in the flexible segment would be in Latin America, Asia, and especially cartons. Those sales for the quarter were down in the low to mid-single digits. By end-market, healthcare continues to grow well around the world. There is obviously a pickup in home care and protein packaging had a good quarter. On the other hand, anything that does go through the convenience channel, or on-premise of which is a very small part of our portfolio was a bit softer. More recently, in April, we didn't see many changes, but Latin American volumes and all of our businesses in that region were very soft, and beverage packaging volumes in North America were also weaker given that package is often sold through the convenience channel. Other than in the most obvious cases, it's quite difficult to quantify with any degree of precision exactly what the COVID impact on those volumes has been, but all up at about 2% volume growth, the results were consistent with our longer-term averages. So the key takeaway here is that we remain relatively well-positioned and resilient. Let me pass the call over to Michael to discuss the financials in more detail.

Thanks, Ron. Good morning and good evening, everyone. Beginning with a summary of our results on Slide 12; the business has delivered strong year-to-date earnings growth, which reflects a healthy balance of synergies and organic growth. Sales are in line with the prior period excluding unfavorable effects and raw material pass-through impacts. Year-to-date EBIT was up 7% in constant currency terms, with growth in both segments contributing to the double-digit EBIT growth delivered by the Amcor Group in third quarter. Net income and EPS were up by 13% and 14%, respectively, and free cash flow of $360 million was in line with our expectations and significantly higher than last year. Very strong cash flows have enabled us to return more than $1 billion to shareholders through three year-to-date quarterly dividend payments and share repurchases. The board remains committed to a sustainable and compelling dividend, declaring a quarterly dividend of $0.115 per share to be paid in June. Moving to the flexible segment on Slide 13, year-to-date sales were 0.7% lower than the prior period in constant currency terms and excluding a negative impact from lower raw material costs. This reflects solid low single-digit volume growth in flexibles, Europe, and North America across a range of high-value healthcare, food, and home care products, partly offset by weaker demand in China and India through the third quarter. We've previously highlighted business and periodic specific challenges in the flexibles Latin America and especially cartons business and we're encouraged to see the sequential volume improvements we anticipated during the month in the quarter. Year-to-date adjusted EBIT grew 11% in constant currency terms and margin expansion of 150 basis points reflects growing synergy benefits as we move through the year, and strong cost performance. Overall, we're really pleased with the way the flexibles business is performing. Especially so given we've been able to leverage the unique position created through the Bemis acquisition covered on Slide 14. First, there is momentum in the acquired Bemis business, which is evident in the strong year-to-date results in North America. Second, the integration is mostly complete and the teams have come together incredibly well to operate as one and support our customers through the COVID crisis. As Ron mentioned, the timing of synergy benefits is ahead of expectations and we are on track to deliver $80 million in fiscal 2020 and $190 million by the end of FY 2022. Turning to rigid packaging on Slide 15; in line with expectations, adjusted EBIT grew 4% in the March quarter with growth in both North America and Latin America. On a year-to-date basis, earnings were lower given the unusually strong comparison in the first half. Overall year-to-date sales were 2.2% higher than the prior period in constant currency terms, after excluding a 3.6% unfavorable impact from passing on low raw material costs, which reflects volume growth partially offset by unfavorable price mix. In North America, beverage volumes were 1.7% higher with 5% growth in hospital container volumes. The overall North American non-alcoholic beverage market continues to grow at a modest rate, in line with long-term trends. Importantly, as you see on the slide, consumption in PET format has remained stable after taking into account quarterly seasonality. In Latin America, volumes grew 3.4%. It's worth noting that volumes in both regions have slowed noticeably through the month of April impacted by low demand through convenience stores and on-the-go channels as people are restricted from moving around during lockdowns. During the month, volumes in North America were down around 5% to 7% compared with last year, and in Latin America, were down around 12%. While the trajectory from here is difficult to predict, we have assumed volumes will remain soft through the balance of the June quarter. This has been taken into account in our revised full-year outlook which I'll come back to shortly. Turning to cash flow on Slide 16; year-to-date adjusted free cash flow of $367 million increased significantly compared with last year. This is consistent with expected seasonality given cash generation is always weighted seasonally to our fourth quarter when EBITDA is the strongest and when we see working capital benefits peak. Most importantly, we remain on track to deliver more than $1 billion across the current financial year. We've continued to focus on working capital and we measure progress through the working capital and the sales ratio. On this measure over the last nine months, we have released the equivalent of more than $90 million of cash on an annualized run rate through a 70 basis point reduction in the ratio. In this current environment, we've taken a prudent approach to non-essential expenditure. However, the overall strength and reliability of cash generation for our business means we remain in a position to invest and to maintain a strong and investment-grade balance sheet as shown on Slide 17. We have an investment-grade credit rating and our balance sheet metric is strong, including leverage at 3.1x at the end of the third quarter. This is where we expect it to be given quarterly seasonality of cash flows and is in line with last year's 3.1x. As has consistently been the case over many years, we expect leverage will fall in the fourth quarter with FY20 estimated to close at around 2.8x. We have less than 2% of our drawn debt facilities maturing within the next 12 months and we also have ample liquidity of $1.9 billion should the need arise. The key message here is our strong balance sheet and cash flow means we have flexibility to meet the needs of our business and to continue our legacy of paying a compelling dividend while maintaining a strong balance sheet and investment-grade credit rating. Turning to Slide 18, the highlights of our outlook for the financial year ending June 30, 2020. As shown, we expect heightened levels of uncertainty and volatility will continue in the broader environment. This means there are additional challenges with regard to estimating future results. However, the business has delivered strong year-to-date results. We have visibility through the month of April and have assumed that we and our business partners are able to continue operating plants with minimal disruption. Taking these factors into account, we are confident the business will deliver our increased EPS growth range in constant currency terms of 11% to 12% and be able to deliver over $1 billion in free cash flow before dividend and cash integration costs. In summary, we believe we are on track to close out a strong first year following the Bemis acquisition and return significant capital back to shareholders. With that, I'll hand back over to you, Ron.

Thanks, Michael. Just turning to Slide 20 and looking beyond the end of fiscal year 2020 at a time of lots of uncertainty and volatility, we continue to have good clear visibility to controllable sources of shareholder value in the near term. We've touched on each of these already, but we expect continued defensive organic growth for our food and healthcare packaging, additional cost synergies from the Bemis acquisition. We'll deliver $80 million by the end of this year and expect another $100 million over the next two years, continued payment of a compelling dividend, especially in this low-interest-rate environment, and the EPS benefit of having bought back over 3% of our shares this year. In the long term, Amcor's capital allocation framework has not changed and as we saw earlier, over the last five or six years, the model for shareholder value creation has delivered an average of 12% per year of combined EPS growth and dividend yield, and that will be higher this year. Before we close off our opening remarks today, I want to touch briefly on our best long-term organic growth opportunity, which is around sustainability. Sustainability, as it relates to consumer packaging, touches on a number of things that have become increasingly important to consumers around the world, including waste and pollution, greenhouse gas emissions, and global warming; all important issues that aren't going to go away despite the immediate focus right now on COVID. So two points to emphasize today; the first point, as Slide 21 makes clear, is that when it comes to these consumer needs and sustainability concerns, we believe the answer is responsible packaging, not no packaging or misinformed packaging. Responsible packaging requires a total system solution. First, mark design that takes into account environmental impacts through the product lifecycle. That means packaging that's recyclable, reusable, or compostable, made from recycled materials and using less material in the first place. Second, the right waste management infrastructure needs to be in place, whether that's recycling or composting facilities or returnable systems. Finally, consumer participation is critical to properly dispose of packaging in an appropriate way. The second sustainability point today is on Slide 22. Amcor is uniquely positioned to make a difference here and capture the opportunity, and we're fully committed and continuing to invest. This is not a new topic for us; we've been fully committed for several years now. We first made our aspirations public two and a half years ago with our 2025 pledge, and again in August last year, we committed to invest $50 million to accelerate our sustainability agenda. While we're dealing with the pandemic like everyone else, sustainability has and will continue to be in focus for Amcor. Just to close off and summarize on Slide 23, clearly, volatile times, challenging times for everyone. Amcor is not immune or any different, but we are well-positioned in demonstrating resilience. We've delivered strong results so far this year, and we've increased guidance for the second time. The Bemis acquisition is ahead of our first-year expectations. We have clear visibility to shareholder returns in the near and longer term. Of course, one more thank you to any of our employees who might be listening in today. So with that, operator, we'd like to open up the call to questions.

Hey guys, good day to you, and I hope everybody's doing well. I guess first off, Ron, for the regions that benefited from a COVID-related volume increase, is order flow starting to normalize as we're now in May and consumers have basically had time to cycle past the initial pantry loading with demand starting to mirror closer to consumption trends? Then related to that, Bemis on a legacy basis has a decent amount of exposure to meat; just given the meaningful meat production disruptions in the U.S., is that a risk for what would, it's a high margin category for the industry.

Well, maybe I'll take the second one first if I can. The meat business in North America is a big, important part, but it's about 20% of the North American flexible sales. As a proportion of Amcor, it's low single-digit percentage. We really haven't seen significant disruptions in that segment. We've had some ebbs and flows in volume, but no real shutdowns despite the challenges that have been well documented, and that continues. One of the things that is a real advantage for us in that segment or will be longer term is the film technology in that business really lends itself to more automated meatpacking processes and more automation in those facilities going forward. Some of those plants are quite labor-intensive, as you've seen, and so we think in the medium to longer term that's going to bode well for growth, but in here and now, no major disruptions and generally robust volume. The first part of your question was about trends. Look, I think the key message from us today is we didn't see much overall across the whole business that seems to have been impacted by COVID. We obviously see some areas where things grew better than we might expect; 4% volume growth in North America is a couple of percentage points higher than we'd expect, but not astronomical. In a business like Europe, which is just as big, we saw volume growth of 1%, which is, again, sort of normal. And then, obviously in China, in January and February, we had a decline. India was shut in March. So there are really puts and takes. April has continued largely in the flexible space along the same lines. I think, as Michael alluded to, Rigid's volumes have slowed a bit, and everything in Latin America has slowed in April, but generally speaking, if we look across the entire portfolio, there's not much material change.

Okay, that's helpful. Then so just related to that, Ron, on the EPS increase of, let's say, $0.02 at the midpoint excluding FX, can you help bridge that for us year-over-year? Lower interest costs looks like it will sum to roughly half of that. Is the rest from just better volume than you thought initially or is it also due to lower raw material costs?

You've got it; interest less tax is about half, and the rest is just the strong organic performance of the business. We've noticed a building momentum in the core business throughout the year. This was evident in February when we raised our guidance, and it has continued through the third quarter. Volume contributes to this, but we have also experienced strong margin performance overall in the businesses. In flexibles, for instance, we've achieved around 150 basis points of EBIT margin expansion. Some of this is related to synergy, but much of it reflects solid performance in the core business, and the mix has been favorable with robust healthcare sales and other segments, making it a combination of factors.

Sorry, on the raw material fees, is that an incremental benefit?

Not so much so far. Look where Roz go from here with oil hitting the lows that it hit in late March and April, we'll see but in the third quarter, we had a few million dollars benefited similar to the first half where we saw about $4 million to $5 million per quarter. We were at about that pace in the third quarter as well.

Thanks, guys. Hope everybody's doing well. My question just is about the cash flow run. Looks like given the nine months cash flow of 470 and your guidance of over a billion, it's going to rain cash in the fourth quarter. Just wondering if you can talk to whether both Rigid's and flexibles generate significant cash in that fourth quarter and talk to that cash seasonality.

I'll take this one, Larry. Thanks for the question. Look, we're really pleased to feel the cash flow is year-to-date. It's meaningfully better than the prior year and it's in line with our expectations based on the usual seasonality. Looking at the prior year, there are a couple of areas on that we've had, obviously, a lot higher earnings, which is a positive, and also really a good working capital performance. As I mentioned in my notes, we look at the working capital sales ratio, and that's reduced from 10.7% at June 30 to around 10% now, which is a meaningful improvement across the year-to-date. We're right on track to deliver the $1 billion in cash flow we talked about before dividends and typically our quarter four is always the strongest cash flow quarter, and that's for a few reasons. Firstly, Q4 is our highest earnings quarter for the year so typically you're $100 million better EBITDA in Q4 than any of the other three quarters. So probably that adds to the cash flow. The inventory cycle we tend to build inventory leading into the peak season, particularly in Rigid's, and then in Q4, when it's done well, we draw that down, so we benefit from that. We're going to see continued benefits from the working capital sales ratio particularly coming out of the Bemis acquisition, so we've seen some benefit there. Then obviously as we head into year-end, we have a strong focus on working capital and it tends to lead to a stronger rally than some of the other quarters. Overall, we feel good about the position and it comes generally across the board.

Okay. Just to follow up on that, since Q4 is typically our strongest EBIT quarter of the year, with the volume weakness you're experiencing in Rigid's, are there any concerns about potential negative operating leverage impacting those earnings and cash flow?

As we said in the comment flow, we've seen some softness in Rigid's volumes in April. We've factored that into our guidance for the full year. That's also factored into the cash flow guidance, so we feel good about where we're at. Obviously, COVID has some other variability that we've also talked about, but where we are right now, we feel okay with where we're at.

Good morning. Thanks for taking my question. Just a couple for me. First on Rigid's restructuring, just a couple of comments if you could, just around where you're on that cost program and when we should start to see benefits long-term.

We're still going through that. We've benefited, I think, about $10 million or $15 million so far. There's another $5 million to $10 million to go, which will come next year. There are a couple more plants to close, which will happen after the high season at the end of the North American summer, so you'll see benefits in 2021 from the final plant closures in that program, which was announced a couple of years ago.

Okay, understood, then just on flexibles in the 10-Q for the quarter, for the March quarter looks like price mix was a bit of an issue there 4% headwind to EBIT. Just back could you step through there what the issue was with price mix for that business?

It's mostly mixed. I think it's probably because we've got some weaker sales in Latin America as we flagged, especially cartons. Those are the businesses where sales have been weaker. I think mix tends to be lots of different things. I think we'll probably get back to you on that one, Brook, because the business is growing nicely in some of the better segments around healthcare and meat. The offset will be in Latin America and especially cartons.

Hey, good morning, guys. Just wanted to follow up on that last question on pricing trends in general. I think in the prepared remarks, you might have said that price mix was a little bit negative in Rigid's. With the volumes, it seems like some regions' volumes are growing a little bit faster now than other regions. On a segment basis, it seems like the trend is consistent, like you said, with the long-term trends, but seen some divergence between segments. So just wondering how that's affecting mix and then if you could just kind of comment on overall industry pricing in the current environment. Are people being aggressive trying to pass through some of the deflationary benefits? Or if there is any changes in competitive behavior you can ascertain.

On the last one, no changes in competitive behavior. I think the whole supply chain is focused on just keeping our plants running, whether you're an upstream raw material supplier or a downstream customer or retailer. I think what we've seen is reprioritization in a number of different dimensions towards just sustaining operations. So no change in competitive dynamic and certainly no change in pricing. I don't think there's any real commercial discussions happening in our supply chain right now anyway. As far as Mexico is, I think it's a 90-day period, so there's a lot of moving parts. I would say in flexibles, you see the mixed benefits flowing through in the margin expansion. We're doing really well in healthcare this year, have been for several periods now; medical and pharmaceutical packaging growing well, protein packaging, which was flagged earlier, despite some of the pressure on issues in the U.S. which have been more recent, that business continues to grow well. So generally speaking, the mix has been positive.

Okay. And just on the margins, flexibles look like the EBIT margin stepped down a little bit from Q2 despite I would guess, a little bit more Bemis synergy capture there, just wondering if there's anything that would drive some differences in the margins between the 2Q and 3Q? And what's sort of the outlook for the margins in that business in the rest of the year?

Brian, quite frankly, we wouldn't really look at the margins on a quarter-to-quarter basis. We'd be thinking about the full year. I think on a year-to-date basis, the margins have stepped up quite substantially, and we'd expect that to continue.

Okay, this last one for me. Just wondering if you're, in fact, working capital and cash flow, just wondering if in this environment, you're seeing customers look to extend their payment terms or suppliers asking for payment a little bit quicker, if just trade terms are something to be concerned about? And if you think you can kind of hold a line on those?

I can take that one, Brian. Look, I mean, we haven't seen any near-term stress from our customers who, you know, like I said, are typically well placed in essential products, expected to deal with a situation like COVID. And I think having said that, we really continue to stay focused on our working capital management, which includes customer collections and supply terms, but we haven't really seen too much on that front right now.

Good morning, guys. How are you?

Hey, John.

Just have a couple of questions, just firstly, obviously you highlighted Rigid’s weakness in April and likely extending into May or June, but you've lifted your overall guidance for the year on EPS terms, so it does imply outperformance in flexibles. I think you sort of provided some detail there, but essentially is that outperformance coming from, you know, the big developed markets in flexibles, North America or in Europe and you've called out healthcare as well? Just trying to understand where, I suppose, the offset is, if you want, versus Rigid’s.

Rigid's performance was weaker in April as we indicated, but it is still functioning adequately. The situation with volumes is shifting week by week, particularly in the consumer convenience channel in North America. In Latin America, the challenges are primarily linked to the pandemic. However, in the flexibles sector, we are seeing strong progress in both North America and Europe throughout the year. The business in Asia faced difficulties earlier in January and February but has also started to gain momentum. We anticipate a positive fourth quarter for them. The cartons business has also seen recovery after a particularly tough second quarter. While Latin America in flexibles remains uncertain, overall, we have observed and continue to observe solid momentum across the rest of the segment.

And just picking up on Latin American flexibles, obviously, you've indicated payments as a head of your first-year expectations sort of overall, but where does LATAM now stand for in terms of what was a disappointing start with some loss of market share?

Yes, that look that business notwithstanding, you know, the last couple of weeks and the pandemic impacts has been building momentum as well. And so we've sequentially improved profit in that business in each quarter. I think we flagged that at the end of Fiscal ‘19, our fiscal fourth quarter, the business actually had a modest loss. We started to make money again by July and August, having had profit in the first quarter, second quarter, even more so; the third quarter was better again. So despite the softness that we're currently seeing, the business has generated incrementally more profit in each quarter; and so we're on the right track there. And I think operationally and from a cost perspective, the steps that we took in July and August last year and the headcount reductions put us in a good position. I think the customer relationships have been solidified. And we had seen some better volume trends and better comps on sales period over period in January and February than we've seen in the first half of the year, and even March. So, now I think we're dealing with maybe the last major region in the world to go through the pandemic and that's where the softness is coming from now, but generally speaking, we would say that business has progressed throughout the year in line, maybe even a bit ahead of expectations.

Thank you. And just the last one, just to clarify response from an earlier question, just in terms of flexibles, you haven't seen, or you wouldn't characterize it being a significant portfolio of demand in the quarter. So there's going to be an evening out there, you sort of see these trends in terms of at-home consumption being sort of enduring?

Well, if we look at the whole segment, we had pretty modest growth of 1% across the board, and we spelled out on the slide there some of the puts and takes. I think, you know, 1% or 2% buying growth is what you'd expect to see in this business. And in the first half, we had some challenges in Latin America and in cartons in particular, which had us a bit softer than that, but generally speaking, 1% or 2% is what you'd expect and that's sort of where we're at.

Can you hear me?

I can now.

Apologies for the terrible echoes, but if you can’t hear me, just shut. I just want to reference slide 8, and ask a question in general about emerging markets. I know you've touched on this individually across or at times through the presentation. But it looks like proportionately EMs dropped quite materially through the year. And I just want to check, is that an error that you've got Australia and New Zealand in there? So if I adjusted that out, it would have come back even more. So the question really is, can you talk or give a bit more color about EM in general? You talked about China and India, but I'm trying to get a sense of where else the weaknesses has been?

Yes, let’s answer the first question, as I know that emerging markets portfolio or percentage of sales for emerging markets has not changed through the year with Bemis; we are waiting towards EMs, went down a few percentage points overall, but that hasn't changed. Generally speaking, look, I think we've talked enough about Latin America, Asia has been relatively robust this year, save for the late January-February period in China where things obviously were quite soft, although bounced back quite quickly in March; India in March was short essentially. So we had a very soft month in India. But to that point, for the first eight months of the year, we had very strong growth in India and the rest of Southeast Asia. And then, Eastern Europe has been softer in cartons, but pretty robust in food and personal care in the flexible side. So it's a mixed bag like it always is across the EMs, but there's still a substantial part of the business and still an area where we expect to get this proportionate growth going forward.

So just to clarify, is that divide worth $3 billion as a proportion of $13 billion, which is 23%? That’s significantly lower than it was. Is that just rounding? If I look at the data from Australia and New Zealand, it decreases even further. You started the year at 27% in emerging markets, but perhaps we can discuss this offline; I just want to confirm the correct number.

Let's pick it offline, Richard. The percentage in the EMs is in the high 20% in the high 20s.

Okay. I want to go back to John's question about flexibles in Europe. Can I confirm that you haven't lost any market share there? Given the current trading environment, it wouldn't be surprising if you had performed differently than the trend, which suggests about 1% volume growth.

Now, I think in the quarter, you have to remember that Europe was pretty hard hit by this pandemic in many countries in the beginning of March. And so we had probably as much of an impact in, probably the end of February or early March in parts of Europe as we had in Asia. So yes, you had some stronger sales towards the end of the quarter. But in the middle of the quarter there and France, Spain, Italy, parts of Germany, even Switzerland, we saw a pretty dramatic slowdown for a week or two.

Good evening, Ron. I wondered, Ron, just to start out that 4% volume in North American flexibles is one of the strongest numbers I can recall in years for Bemis or even any of the peers. Any kind of particular things you would point to there, behind that growth?

Look Mark, I think it's what you've seen all over the TV and media. It's been well documented. The U.S. consumer tends to stock up like no one else, and sales were particularly strong in March. The business actually had reasonable sales in the first half, likely in the low single digits, which builds on some momentum from where it had been over the last several years. We probably started from a somewhat higher base and then gained a few more points of growth in the third quarter. Overall, healthcare has been strong throughout the year, and we saw good growth across various segments including protein, homecare, and both packaged and powdered beverages.

Okay. And would you say that this is like just better growth from kind of a lot of the old kind of benchmark brands that Bemis had focused on historically? Are you also getting any benefit from this effort they'd had over the last few years to try to diversify their customer base and get down with some of the smaller faster growing brands?

I think the business has performed very well in that area. The growth this quarter and likely throughout the fiscal year since we've acquired the business is driven equally by larger customers in the healthcare space and by gaining traction with smaller customers. This is also true for our rigid packaging business, where we have made a focused effort for many years to engage with the smaller segment of the market. Overall, it's a broad-based growth.

Okay. Any kind of lessons or kind of clues that you take from what you've seen in China and elsewhere in Asia, in terms of what you might expect in terms of recovery in Europe and now in North America from the COVID situation?

Well, the biggest lessons that we were able to benefit from in Asia were just how to deal with the situation operationally. So in China, obviously in February, we had disruptions in a number of sites. We learned pretty quickly about the protocols to get sites up and running and protect sites, everything from how to set up printing lines to ensure physical distancing to how to process hundreds of employees through temperature checks and PPE. All of that we learned through the 11 plants we have in China and the experience they went through in the earlier part of the quarter, and those lessons then were built out in Europe and carried through to Northern America and Latin America. So operationally, would be the big lessons learned. From a consumer perspective, the consumers are quite different. Generally speaking though, our business is very defensive, and it's exposed to the same segments in China as it is elsewhere in the world. It's food, it's personal care, it's pharmaceutical, and medical packaging. And those segments just tend to be quite resilient and defensive. So it's been more on the operational side, where we've benefited from the learnings.

Okay, last one, for me, is it possible to get some sense of what the tobacco volumes are doing kind of year-over-year?

Look, the industry itself declines 2% or 3% a year and some of the customers do a great job of laying all that out. And I think they would say that the global demand in units declines 2% to 3% a year and then you have short-term periods where either there's inventory builds which provide an offset or you might have an excise tax in a major market, which builds on that decline. Our volumes would look similar from that perspective; and then, the offset for the packaging is outside of North America in particular. The complexity of the packaging is quite extensive, and so there's a mix and a complexity offset that drives the sales at a bit higher rate than the volumes. Okay, very good. I'll turn it over. Good luck in the last quarter of the year.