Amcor Plc (AMCR) — Q1 2021 Earnings Call Transcript

Thank you and welcome to Amcor's first quarter earnings call for fiscal 2021. 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 Investors section, you'll find our press release and presentation which will be discussed on the call today. We'll also discuss non-GAAP financial measures and related reconciliations that 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 statements on Forms 10-K to review those factors. With that, I'll hand over to Ron.

Thanks, Tracey. Thanks, everyone, for being with us today to discuss Amcor's first quarter results for our 2021 fiscal year. We appreciate you making the effort to join the call, and also for any of our team members who are on the call today, we appreciate their efforts as well, which have been really outstanding over the start to the fiscal year. As Tracey mentioned, joining me on the line today is Michael Casamento, Amcor's CFO. We'll start with some brief prepared comments before we take your questions. If I start with slide 3, everything we do at Amcor starts with safety. As you would know from those who have followed us before, safety is a value at Amcor, so the priorities in the business may shift from time to time, but our values remain consistent and safety would be the most important of those values. This year, given the context around COVID-19, we're also clearly focused on keeping everyone on our team healthy as well. As we continue to navigate the additional risk and complexity of operating during the ongoing pandemic, we remain confident and convinced that the protocols we implemented earlier this year in our facilities will enable us to continue to keep our co-workers healthy and keep our plants running as they have thus far. Regarding safety in a more traditional sense, our recent performance continues to be a real highlight for Amcor through the first quarter. Across the company, we achieved a 30% reduction in the number of injuries compared to the prior year, and over half of our sites were injury-free for at least 12 months. That's a significant achievement in our view, particularly in the current environment, and it's a direct result of the dedication, commitment, and focus of our employees to keep themselves and their co-workers safe. Moving on to slide 4 and the key messages we have for today, first and foremost, we've had a strong start to fiscal 2021. We delivered outstanding results in the first quarter, which were ahead of our expectations, and both segments produced strong organic growth. Our flexible packaging business is capitalizing on the strategic and financial benefits from the transformational Bemis acquisition. The rigid packaging business is also building momentum with strong volume growth and cost performance. Second, the outperformance in the first quarter gives us the confidence to raise our outlook for fiscal 2021. We now expect adjusted EPS growth of 7% to 12% in constant currency terms, and today we've also announced the dividend increase and a share buyback. Lastly, the investment case for Amcor has never been stronger. In the near term, organic growth from our consumer and healthcare exposure should remain resilient, we'll deliver further acquisition synergies, and we continue to offer an attractive dividend currently yielding more than 4%. In the long term, we're very well positioned. Momentum is building around innovations to deliver more sustainable packaging, and we have a strong balance sheet with an annual free cash flow of over $1 billion that provides the capacity to invest back in the business to pursue growth opportunities and to maintain an attractive dividend. Slide 5 provides a summary of our first quarter financial results, and earnings growth was strong with EPS increasing 20% on a constant currency basis, driven by three discrete components. The first, 8% of the EPS growth was organic, which is a real highlight for both the flexibles and rigid packaging segments. Organic growth in the flexible segment was more than 4%, and all of the 7% growth in the rigid packaging segment was organic. The strong performance in the operating businesses was partially offset by the phasing of some corporate expenses during the first quarter. Demand for our products remained resilient, with overall volume growth in North America and the Asia Pacific region, while volumes in Europe were marginally lower than last year. Good leverage continued to the bottom line, further enhanced by favorable operating cost performance. 7% of the EPS growth came from synergies resulting from the Bemis acquisition, and we delivered an incremental $20 million in cost synergies during the period. We're well on track for the full year. Finally, the remaining 4% of the EPS growth came from the benefits of the share buyback that we completed last fiscal year. Free cash flow was in line with our expectations, and the business continues to make good progress on working capital, with our balance sheet remaining strong. The underlying business's strength and our financial position means we've also been able to increase cash returns to shareholders during the quarter. Today, the board declared a quarterly dividend of $11.75 per share, continuing our long track record of dividend growth, and we also announced plans to repurchase $150 million of shares. The key message here is that Amcor had a strong start to the 2021 fiscal year, with both segments delivering excellent results and building momentum. With that, I'll hand over to Michael to provide some more color on our financial performance for the quarter and our outlook for 2021.

Thanks, Ron, and hi everyone. I'll start with some comments on the flexible segment on slide 6. Our overall segment volumes were 2% higher than the prior year, with particularly good growth in North America and higher volumes in Latin America and the Asia-Pacific region. This was partially offset by marginally lower volumes in Europe and an unfavorable price mix in North America, where – over the last quarter and relative to last year, we saw some variable demand shifts across the portfolio. A combination of higher volumes and lower price mix resulted in net sales being 1% higher than last year, excluding the unfavorable impacts of currency, the pass-through of lower raw material costs, and the impact from divested businesses. The adjusted EBIT for the period grew 11% in constant currency terms, and margins expanded by 140 basis points. This was driven by a combination of these higher volumes, synergy benefits and strong operating cost performance, which mainly reflects productivity improvements and waste reduction. Overall, we're very happy with the performance across the flexibles business, which has been significantly enhanced as a result of the Bemis acquisition. Before moving to the rigid packaging segment, I'll provide a brief update on Bemis cost synergies on slide 7. As Ron mentioned, we delivered an incremental $20 million in synergies during the quarter, which was in line with our expectations. Our teams remain resolutely focused on achieving our goals and we continue to see benefits accrued from flexibles G&A procurement and from the initial work we've undertaken on plant closures. The business has outperformed against our initial synergy expectations last year and we are on track to meet our objective of $50 million to $70 million in cost synergies for fiscal year 2021. We're also well on our way to delivering $180 million by the end of fiscal year 2022, a milestone we remain confident of reaching. Turning to rigid packaging on slide 8. In summary, the business delivered an outstanding result with organic growth driving earnings 7% higher than last year. Sales growth included a 4% increase in volumes as well as a 4% price mix benefit, which includes higher pricing to recover cost inflation in Latin America. Volume performance was strong in North America, and mix was positive. Beverage volumes were up 7% compared to last year, and hot fill container volumes were up 12%. There was growth across most beverage segments due to higher consumption of packaged beverage products and the launch of innovative new products in PET containers. Specialty container volumes were also higher owing to continued growth in spirits, personal care, and home cleansing categories. As a partial offset, volumes were lower with a 3% decrease in Latin America, and while this represents a sequential improvement, performance continues to be mixed by country. Adjusted EBIT for the period grew 7% in constant currency terms. This reflects higher volumes, favorable mix, and lower plant operating costs, partly offset by lower fixed cost absorption related to a demand-driven drawdown of inventories in North America. Overall, we are really happy with the commercial and cost performance of the business during the quarter and believe we are very well-positioned for continued growth. Moving to cash, balance sheet, and currency on slide 9. Adjusted free cash outflow of $190 million was broadly in line with the prior year and within our expectations for the period. As a reminder, our cash flow is seasonally weaker in the first half of the fiscal year and this quarter also includes approximately $50 million of U.S. cash tax payments that were deferred from Q4 in 2020. We remain focused on improving working capital management. As you can see, momentum continued this quarter with our rolling 12-month average working capital to sales ratio at 8.8%, down from 9.5% at the end of June just past, and 10.7% when we completed the Bemis acquisition back in June 2019. We continue to have a strong BBB, Baa2 investment grade balance sheet with leverage standing at 3 times on a trailing 12-month EBITDA basis, which is in line with the expectations for this time of the year. We have no material refinancing over the next 12 months, and with this strong financial profile, Amcor continues to have significant capacity and flexibility to invest in many growth opportunities available to us. We've highlighted our currency mix and the impact from currency movements in Q1 on this slide. While the net translation impact of currency movements was unfavorable during the current quarter, you can see it has been a result of significant depreciation in our basket of approximately 20 different currencies, which began to depreciate through the second half of last year, being partly offset by strength in the euro in the quarter. This brings me to our outlook for the 2021 fiscal year on slide 10. Today, we have increased our guidance for constant currency EPS growth to a range of 7% to 12%, and we continue to expect adjusted free cash flow of approximately $1 billion to $1.1 billion. The strong start to the year and the momentum we see in the business are the two factors that have given us the confidence to raise our 2021 full-year guidance. We expect the business to continue demonstrating resilience as a supplier of essential consumer goods, but we are also maintaining a reasonably wide range of outcomes for the remaining nine months of our fiscal year, which is appropriate given the ongoing uncertainty and complexity related to the COVID-19 pandemic. In summary for me today, the business is performing well. Organic growth is strong, synergy delivery is on track, our financial profile remains solid, and we are positioned to deliver another year of EPS growth in fiscal year 2021, which is ahead of our original expectations. With that, I'll hand back to Ron.

Thanks, Michael. Just picking up on slide 11, many of you will be aware, Amcor hosted an Investor Briefing a few weeks ago and this was an opportunity for several members of our management team to provide an overview of the company and to highlight our growth opportunities. The materials from that briefing are available on our website. I encourage anyone interested in learning more about Amcor to have a look. But the main theme of the event was to outline our investment case. Why invest in Amcor? Before turning to the Q&A, I'll just take a couple of minutes to reiterate and reaffirm those key messages that we use to answer that question, which are shown on slide 11. To start with, we're a global industry leader with a 160-year history, strong track record of performance and a clear strategy going forward. Organic growth has been very consistent as a supplier to stable end markets, and we have several levers to pull to continue to grow, including product innovation and capitalizing on our leadership positions in faster-growing emerging markets. Our dividend remains compelling and currently yields greater than 4%, and that dividend will continue to grow. We have a strong investment-grade balance sheet with substantial capacity to invest and no shortage of opportunities. Lastly, we have momentum right now, which is very clear in the results delivered today, and we expect this to continue as we realize further synergy benefits and organic growth. These drivers have resulted in 10% to 15% of shareholder value each year, with EPS growth and dividend yields, and we expect that to continue. Another way to look at this return is due to our shareholder value creation framework on slide 12. We generate strong cash flow from relatively defensive end markets and we redeploy that cash flow as shown on the slide here through a combination of reinvestment in the business, M&A, and share repurchases. We expect to generate 5% to 10% constant currency EPS growth, our dividend is growing, and has historically yielded between 4% and 5%, which continues to be especially compelling in such a low-interest-rate environment. Adding these components together results in an annual shareholder value of 10% to 15%. We are very well positioned to continue that trend. One of the reasons we remain confident in that model is due to our sustainability agenda. We believe without question that sustainability will be the biggest organic growth opportunity in the business over time. It's part of our winning aspiration and our best opportunity to differentiate and create shareholder value. We've developed a reasonably well-informed perspective over the years on sustainability and we believe we're uniquely positioned to leverage our scale and resources to help address growing consumer concerns about climate change and waste. Our best answer to addressing those consumer needs and sustainability concerns is responsible packaging, which means a system-based solution across three elements: First, packaging design that accounts for the full environmental impact, including its footprint through the full product lifecycle. This would include packaging made from recyclable or compostable structures, packaging made with recycled material, packaging made with less material in the first place, or reusable packaging. Second, the right waste management infrastructure, whether it's recycling or composting facilities or returnable systems to enable the packaging to stay out of the environment. Lastly, consumer participation to properly reuse or dispose of packaging after its use. Amcor already offers a full range of responsible packaging options today, including packaging made from 100% recycled material, compostable packaging, and packaging made from bio-based materials. We're making meaningful progress leading the way in defining and developing innovative, more sustainable solutions that our customers want and their consumers expect. A great example of a differentiated breakthrough innovation from Amcor is the AmLite HeatFlex product for retort, which we launched a few weeks ago. This is the world's first fully recyclable retort pouch, which Nestlé has introduced into the market for wet pet food. There is a wide range of end market applications for this multilayer structure and we're excited about the demand potential for this product over time. In summary on slide 16, Amcor has delivered an outstanding first quarter result, with both the flexibles and rigid packaging segments delivering strong organic growth and building momentum. Based on this strong start, we've raised our outlook for fiscal 2021. We've increased the dividend and we'll buy back shares. Finally, the Amcor investment case has never been stronger, with resilient organic growth, further acquisition cost synergies, substantial capacity to invest to grow the business, and to maintain an attractive dividend. With that operator, we'll open up the line for Q&A.

Hi. On full year guidance, could you talk a little more about the drivers of the raise? Is it fair to say that improved expectations around organic growth are the primary driver? Are there others that you'd highlight? And then when you think about price mix for the year, are you thinking about that as a positive, neutral, or negative? Any color you can give there?

Yeah. So I'll take the question on the guidance. The increase in the guidance reflects the improved performance in the first quarter, which was ahead of our expectations. We were pleased with the performance on that front. In terms of the balance of the year, there's no real change in the range of outcomes that we anticipated back in August to what we see today. So really, the key driver was the Q1 performance. Clearly, we've got good momentum in the business and we're comfortable with where it's heading, which has given us confidence to raise the guidance.

Okay. That's helpful. And then with regards to the mid-single-digit volume growth in North American flexibles, do you feel like you're growing faster than the market? Were there any kind of comp issues that you'd flag? To the extent that you're saying maybe a higher level of demand in CPG categories, do you view that as sustainable? I'm just wondering if you could frame the relative strength in North American flexibles because it's a bit better than what the business has done historically, and what some of your peers are doing.

Yeah. I'll take that one, Anthony. Look, first of all, where was the strength in North America in flexibles? It was in some of the key segments for us going forward; meat, cheese, pet food. These are all high value-added segments. Back to your question on mix, we also had growth in home and personal care, which is important as well. I would say that our growth is generally speaking relatively consistent with some of the peers and customers we track. But I do think that we're performing very well and not missing any opportunities to pick up business along the way. We would expect the business over time to grow roughly with the market as we try to manage mix and optimize mix. That's low-single-digit growth, which would be the expectation.

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

Hi everybody. Just as a follow up to Anthony's last question. Again, back to North American flexibles, was the trend line of mid-single-digit growth pretty consistent during the quarter? Are you seeing comparable momentum going into your second quarter? And then, you call it unfavorable mix for the region. Can you also expand on that? I assume it's partly healthcare weakness, but any color there would be helpful. Thanks.

Yeah. Look, I think generally speaking month-to-month, week-to-week volatility is still pretty high relative to historical patterns. I mean if I look at generally across Amcor, we had a stronger July, a weaker August, and probably a stronger September. It's a little early to talk about the second quarter, but things haven't really changed dramatically. Where we ended – mid-single-digits is pretty indicative of the exit run rate if you will. On the unfavorable mix comment, you picked up on the comment on healthcare. Healthcare volumes in North America are more weighted towards medical than pharmaceutical, and medical sales have been slow; a lot of that material goes into the operating theater for elective procedures or just general healthcare consumption, which are sometimes a bit more discretionary. So you're not really surprised to see that, but that's a negative mix impact for us.

Okay. And then second question for the – in terms of your outlook for resin and just raw material prices more broadly specific to Q2 and possibly Q3, there have been some substantial resin increases that have been implemented, for example, in North America, less so in Europe, and also freight has picked up. A lot of your peers are calling that out in terms of incremental costs. So just help us think through the margin paradigm for North America excluding the Bemis synergies, which are, of course, very specific to you. Thanks.

Yeah. Look, I mean, maybe I'll just take the freight part, that's the easier one. Freight – most freight is passed through to the customer in this business. That's really a pretty benign input cost for us. I wouldn't expect any material impact on freight in any parts of our business. Raw materials is obviously a big part of the cost of sales. It's 50% to 60% depending on the business of the sales line. And no question, we've seen relatively strong increases in several categories, particularly in North America. The outlook is for moderation of those increases and more stability going forward. We could have a little bit of a lag impact in the quarter coming in the second quarter, but it's nothing that we would project to be material for the full year. We've factored in our outlook on raw materials around the world into the upgraded guidance today.

Thanks so much, Ron.

All good. Hi Ron and Michael.

Hey John.

I just had a couple of questions, thank you. Look, just in terms of emerging markets, it looks like things are starting to – particularly in Asia starting to get back to traditional growth after some challenges. Obviously, you sort of saw some decent growth in Asia and also in LatAm; just in terms of the drivers of that, Ron.

Yeah, look it's a good pickup. We're pretty excited about the growth particularly in Asia. China seems to be tracking along at kind of mid-single-digits, and India, which is a smaller base, is up in the double digits. I think we're performing well in the market. I certainly don't think we're getting any help from the market. Those businesses especially India still – those economies are somewhat constrained a bit by COVID, and in Southeast Asia, some of the smaller businesses for us continue to be constrained from COVID impacts. Generally speaking, I think we're executing well, and the value proposition in those markets for Amcor as a blue-chip global supplier with good technology, good business practices, product safety, and all the things that have helped us grow over the last several decades, I think are true as much today as ever. I think we're executing well.

Thank you. And just in Europe, obviously so marginally lower volumes there, just to sort of understand the drivers of that, was healthcare also affected there? You also talked to lower closure volumes.

Yeah. Look, again, pretty consistent with the peers and customers that we track in that part of the world. Healthcare, a bit soft for the reasons that I referred to in North America; the same applies in Europe. Closure businesses, or the capsules business there is really levered to the champagne and spirits and wine segments, which have been a bit soft. Nothing particularly out of the ordinary, but just for the 90-day period, we had softer volumes in some of those segments.

Okay. So would you expect that some of this starts to normalize out through the course of the year? It's probably hard to call, but do you see some cyclicality there?

Look, I think it's a short period of time. Part of it is the summer months, which are hard to read. What's very encouraging about our European business is the positive mix due to the growth in the higher margin segments. We had really strong growth in cheese, snacks, pet food, and ready meals, and so those segments created mixed benefits for us. We did have a positive mix in Europe benefiting the bottom line in the quarter.

Got it. Just last one if I can, in terms of the buyback, I mean is there anything to read into that as far as M&A opportunities in the near-term? Still pretty full.

No, definitely not. I mean, multiples are certainly full. That's a separate topic. We'd expect us to be acquisitive. But we monetize investments we had and realized some proceeds, and we've simply redeployed those proceeds or simply announced an intention to redeploy those proceeds into share repurchases.

Got it. Thank you.

Thanks, John.

Yeah. Hi, Ron, Michael, and Tracey. First thing I wanted to clarify is if you can provide a little bit more color on beverage strength? And in North America, the volume growth you saw was very strong. I would have thought that even with lockdowns, people are not going out as much, and I know a lot of that beverage packaging you make is for on-the-go consumption. So was there some inventory restocking there, some pent-up demand from the prior quarter? Generally, any color would be very helpful.

Yeah. Look, the business did have a good quarter. It's had volume growth like that before, so it's not unprecedented, but it certainly was strong. Longer term, we would expect low-single-digit growth across that beverage space. That's what we've been seeing for several years and what we expect to continue. I would say we've benefited from good customer mix; some of our hot fill business in particular grew quite well due to strength from specific customers. Has there been any inventory restocking? It's possible. I don't know that that would be a material driver. When we look at retail sales in the period against our sales by segment, we see pretty close to a match; it is possible there's a bit of inventory in there, though, because that number in hot fill of 12% is not what we would typically expect, although not unprecedented.

Yeah. Okay. Perfect. My second question is a little bit on the M&A front. During the Investor Day, you said you are looking actively; obviously, your leverage allows that. You're over one year into the Bemis acquisition, and I was wondering, would you consider expanding into areas beyond the traditional plastics? I know it's a little unusual given that you spun out everything for Orora, but you did talk a lot about paper, for example. So does something in the folding carton space make sense to you at this point?

First of all, yes, we are on the lookout for acquisitions, and we have been acquisitive over the journey. I think we've done 25 or 30 deals in the last 10 years. The first priority, just to be crystal clear, is to complete the integration of Bemis in the flexibles businesses, which is a substantial part of Amcor. We're about 16, 17 months into that, and we're not declaring victory yet, so that's the first priority. We will keep our eyes out for deals. I wouldn't expect us to go outside of our current segment participation; to the extent that we can build out the flexibles portfolio in Asia and bolt on in some of the bigger markets. The rigid business in North America outside of beverage is a place that we find pretty attractive, and we've been on the diversification path of our rigid business for the last five to seven years. So I'd like to be more active there. The big constraint is likely to be valuations, which are quite high and that doesn't seem to be abating. We'll continue to be on the lookout. We'll be active; we have the balance sheet, as you suggested. We'll have that management bandwidth in flexibles; I would say we have it already in rigids, and we hope to be active.

Thank you very much.

Thank you.

Hey, good morning. Thanks for taking my question. I just had one range – the targeted synergies for this financial year. The range there – just trying to understand the focus of cost to sort of explain that range and trying to understand really what needs to happen to get to the top end there for FY 2021?

Yeah, Brook, it's Ron. Let me try and, I'm not sure I heard the question completely, but let me see if I've gotten it. So the question was about synergies this year, the composition of the synergy benefits, and what would it take to get to the upper end of the range? The range for the year is $50 million to $70 million of the EBIT benefit. We've hit $20 million in the first quarter, so a little bit ahead, I guess, of pace. The composition through the quarter is a bit balanced between continued G&A reductions and procurement and a little bit of footprint. If we look out over the remainder of the financial year, we'd expect – we went into the year expecting footprint to be a bigger component of that $50 million to $70 million. Those footprint initiatives often depend on our ability to execute and get to the sites that need to be rationalized, get OEMs, contractors, and technicians out to those sites. Some of those things can be impeded with mobility restrictions and other implications of COVID. We've been a bit cautious regarding that source of synergies. For us to get to the top end of that range, it will require us to be able to execute unimpeded. So that's the focus there.

That's very clear. Thank you for that. And then, my second question just on – I might have missed this in the release. But any guidance you can provide on corporate expense and interest for the full FY 2021 period would be great.

Yeah. Hi, Brook. It's Michael here. Look, we're not giving any specific guidance on those items; they're all covered in the EPS range that we put out there. I guess what I can tell you is if there was something materially different, we'd let you know, but I think for corporate expenses, we're on track and will be similar to the prior year, perhaps a little higher. As for interest, I think you've got to look at interest and tax on a combined basis. You saw in the quarter we had some interest benefits year-on-year with an offsetting tax. That's going to be similar as we head our way through the year. So you'd expect that on an absolute basis, spend in interest and taxes is going to be similar, perhaps slightly higher than last year. Overall, that's all factored into our EPS guidance range.

Thank you.

Hi everyone. Good day. Thanks for all the details. I wanted to drill into rigid packaging a little bit if we can go back to slide 8. You mentioned very strong volumes in North American beverage, hot fill up 12%, specialty up; you mentioned good mix. The volume growth and the mix considerations you mentioned would have normally led me to believe you'd see a bit more incremental margin 1Q versus 1Q. I think you said there was some absorption issue as well. Can you help me go from what was real good volume and good mix to 4% EBIT growth at the reported level? And then I had a follow-on.

Yeah. Look, first of all, the EBIT growth as we would look at it was 7% of the 4% volume, and I mean really simply – really simply stated, you pretty much called out the drivers. We had good mix in North America and good volume growth, although the profit impact of that was tampered a bit by drawing out of inventories given the strength of those volumes. When you pull out of inventory, you have a bit of a negative impact there. We would say that normalizes over time.

What was that inventory factor if you could comment on that?

George, I mean in the grand scheme of the whole financial year, it's not material. It would have held back the growth by a couple of percentage points potentially. You have to remember we also had negative volume growth in Latin America; we were down 3%. So those are the building blocks. The headline here, though, is this is a – this business is performing really well, it's very healthy and it's growing in the right segments.

Okay. Appreciate that. My other question is on sustainability, and it's kind of a two-parter if I could, and I'll turn it over. First of all, from the work that you've done, what do you think or what are your customers telling you is most resonating with the consumer in terms of sustainability? Is it footprint? Is it recyclability? Is it lightweight? I know it's going to be all of the above. But if you had to pick one thing that is most resonating with the consumer, what is it on sustainability? And on the AmLite, when that comes back – what's the end-of-life story? Is it going back into polypropylene, recycling structure, and how is that ultimately recyclable positively? Thanks, guys, and good luck in the quarter.

Yeah. Thanks, George. Two really good questions. The first one is an excellent question because we have to remember that the consumer ultimately has a massive role to play in this. They've got to participate at the end, whether it's reusing something or composting it or recycling it. There's an expansive narrative in the space that covers a lot of different things. What seems pretty clear to us and to our customers, and we have good insights here through several organizations and associations that we engage with the big brand owners, is that the consumer gravitates more towards recycling. I think it's because it's the easiest thing for the consumer to get their head around. The idea to recycle something, if the infrastructure exists, is the easiest thing for the consumer to embrace. Composting can have a place, but that also requires infrastructure, which is just less ubiquitous around the world and is a little complicated, if you think about the science of it. Reuse systems, while they have a place and will have a role and there's a lot of buzz about these reusable systems, we've not seen a lot of consumer take-up at scale on reusable systems. We've done a bit of primary research on this ourselves. We would say recyclability is the outcome that resonates most with the consumer. On AmLite HeatFlex, really quickly, that's a multilayered structure constructed with basically the same base polymers, which are compatible with the polyethylene recycling stream that exists in places in Europe where that pouch has hit the market. So hopefully that answers the question on AmLite.

Thank you very much. Just a quick one to start with. Michael, could you clarify whether any of the $20 million incremental synergy was in the corporate line, please?

No, it was all in flexibles, Richard.

Fantastic. And then just on the topic of restructuring, if I look at your reconciliation table for adjusted EBIT and I look at the material restructuring and related costs, I was wondering if you could clarify whether the number in flexible is all Bemis related? And then talk a little about what's going on in rigid packaging because that number has obviously gone up a lot year-on-year. I'm just interested to know as well whether there's any footprint reduction across the group that's outside of the two effective restructuring programs we know about, which is obviously Bemis synergies and the rigids restructuring? Thank you.

Yeah, so I can take that one, Richard. So under flexibles, yes, that's all Bemis related. Under rigid packaging, it's just a timing point around some of the actions we've taken relating to the G&A and plant work that we've been doing. We'll finish that program this year. We've only got one site left to close on that front, so that'll be finished this year with full run rate by the end of the year as we exit the year, so that's covered off. And then, we had one plant closure during the period which we took in the EBIT line; it was about $9 million of cost that is reflected in the result.

And what was that?

It's a plant in Switzerland.

Fantastic, great. Thanks very much.

Hi, Ron and Mike.

Hey there, Mark.

First question. I wondered if you could just give us a little color on the strength that you had called out in the specialty carton business this quarter, and kind of related to that, whether tobacco packaging is an issue at all for any of the ESG investors?

Yeah. The specialty cartons business had a really good first quarter. Volumes were essentially flat; we had strength in the Americas, some softness in Asia, and Southeast Asia in particular, slightly flat in Europe. We had a pretty good top line, and the business executed really well, continuing to drive costs out and optimize its operations. We're pleased with that business. It's a good margin business and a big cash generator with a leadership position in each of the markets around the world. The second part of the question, the short answer is no. I think investors realize we're not actually in that end market. We're printing a carton board and shaping it, and then it gets filled with a product that sometimes creates issues from an ESG perspective, but we're not an active participant in that end market any more than the bank who finances those companies and those customers. So the short answer on the ESG-related point is no, no issue.

Okay. And then I wanted to just toggle over to Brazil. That was a big business for Bemis historically. We've seen in a number of other packaging products a pretty marked pickup over the last two or three months. It sounds like you didn't get any of that in the first quarter, but I wonder if you're seeing any pickup right now in Brazil?

Yeah. Look, we actually had a good quarter in Brazil. We had higher volumes in rigid packaging in Brazil; our flexible business, our core flexible business in Brazil also grew. The offset somewhat was we have a disposable business there, which is one of the old Dixie Toga businesses. That's really impaired because there's no food service and not much action happening from the disposables perspective. These are paper plates, poly plates, and cups and things. So there was some softness in that segment in Brazil; however, the core of what we're doing there long-term, rigid packaging and flexibles and thermoforming has grown and did grow in the quarter.

Okay. And then if I just slip one other thing in here. You raised guidance; I think you've held the free cash flow number for the year. Any thoughts on being able to bump that up at all?

Look, it's Michael here. The free cash flow number has a reasonable range in it, so it's $1 billion to $1.1 billion. The guidance increase fits within that range. We have left it there for the moment. If we think that number is going to change over the year, we'll update you as we progress through.

All right. We'll stay tuned. Thanks, Michael.

Thanks, Mark.

Thanks, guys, for taking my question. Ron, my question is about the synergies. Is it possible to think that as you guys close the Bemis deal, or after, you went to your largest customers in North America and said, look, we have some gross synergy that will develop out of the merger. Can we work on an arrangement where we share some of this synergy, but it's a win-win for both, so we can get a larger part of your business? Have those sort of conversations happened with your larger customers? Can you kind of maybe describe some of that and how that's influencing these more recent results?

Yeah, no problem. I don't know that we're seeing material impact on our top-line yet from those discussions, but there is no question that good things are happening from a commercial perspective that are coming from this acquisition. The most obvious is the ability to engage with some of these big brand owners to help satisfy their needs around the world, not just from a supply perspective, but back to the sustainability agenda and the joint development programs we have on R&D and product development. That's started really from the beginning. There are examples where we've been able to secure business in certain parts of the world due to our strength and value proposition in other parts of the world. I think that will continue and the benefits will accrue over time. The other part of the commercial story for us is leveraging the commercial capabilities that Amcor's refined over the years around margin management and mix management and layering those onto the legacy Bemis portfolio. We're getting more active in that regard. That will take some time to see real top-line benefit. I'm not sure you're seeing it in this result, and I don't expect you'll see it this financial year. But we expect to have commercial benefits over time.

Yeah, that was meat that particularly picked my curiosity because you do seem to be bucking the performance of many companies participating in that space. Even Kraft Heinz, your largest customer in the first quarter called out, I think weaker meat volumes.

Yeah.

You had COVID impacting that sector with difficulty getting people to abattoirs – labor to abattoirs.

Yeah, I think in that segment you're right; there is some disruption in the supply chain, and some of the meat packing plants have been constrained a little bit. Despite that, I think we're performing pretty well. We'll probably be taking some share and probably outgrowing the market in that space as we believe we should do and we've got great products.

And that's not related to constructive conversations with customers around sharing synergy?

All of our conversations are constructive, but just on the back of the value proposition, that starts with the product.

Okay. Great. And a financial question for Michael. Just on AMVIG, there's some associate income or equity accounted income reported. Is that AMVIG, and will that zero out for the rest of the financial year?

That's exactly right, Larry. So we had $3 million for the first quarter and then from now on, it will be zero versus the prior year where we had $11 million for the full year.

I think equity accounted line was $19 million in the quarter.

Yeah, that includes the gain on sale.

Okay. Yeah.

So the underlying which fell out if you look at the table with the adjustments where the gain on sale was taken out of the result. So it was just the base $3 million that was in the base result.

Okay. Thanks, operator, and thanks everyone for joining the call. And I think we'll close it there. Thank you.