Amcor Plc (AMCR) — Q3 2022 Earnings Call Transcript

Thank you, Operator, and welcome everyone to our March quarter earnings call for fiscal 2022. Joining today is Ron Delia, Chief Executive Officer; and Michael Casamento, Chief Financial Officer. Before I hand over to them, let me note a few items. On our website amcor.com under the Investors section, you'll find today's press release and presentation, which will be discussed on the call. Please be aware that we'll discuss non-GAAP financial measures and related reconciliations can be found in the press release and the presentation. Remarks will also include forward-looking statements that are based on management's current views and assumptions. The second slide in today's presentation lists several factors that could cause future results to differ from current estimates. Please refer to our filings on the SEC website or on our own website for further details. During the question-and-answer session, we request that participants ask their question and then rejoin the queue for any additional questions. With that I'll hand over to Ron.

Thanks Tracey and thanks everyone for joining Michael and myself today to discuss Amcor's financial performance at the end of the third quarter. We'll begin with some prepared remarks before opening for Q&A. And since safety is our first and most important value we'll start on slide 3 with safety as we do in every meeting at Amcor. We believe our ultimate goal of zero injuries is absolutely possible and we continue to make good progress. So far in fiscal 2022, we reduced the number of injuries across the company by 5% compared to the prior year and more than half of our sites have been injury-free for at least 12 months. Now of course this quarter our attention has turned to the tragic and devastating war in Ukraine. We moved quickly to close our Ukraine site in Kharkiv before the start of the invasion to protect our local team. We continue to support those coworkers and their families in any way we can, including through direct financial support and by assisting those who've been displaced. All up, we've contributed more than $1 million to vital humanitarian relief efforts. We also announced our decision to scale down our operations in our three Russian sites and to explore all strategic options for those plants. As always, our path forward will continue to be guided by our values and by our responsibilities to all of our stakeholders. I'd like to publicly thank all of my Amcor colleagues who are contributing from near and far to this challenging and upsetting situation. Your commitment, caring, and generosity have been an inspiration. Turning to our key messages for the quarter on slide 4. First, the business delivered another strong result with the March quarter representing our strongest period of sales and earnings growth for the fiscal year so far. Second, our teams have continued to demonstrate an exceptional ability to remain focused on managing sales mix and inflation while delivering for our customers. Third, given the strong execution and consistently strong earnings growth through the year, we've raised our guidance for fiscal 2022 EPS growth. Finally, Amcor has established a strong foundation for growth and value creation over the last several years and we're increasing capital investments in priority segments and geographies as well as in our innovation capabilities. Turning to the financial highlights on slide 5. March quarter performance was strong across the board and I'll start with a few highlights. Net sales grew 16% in the third quarter including more than $450 million of incremental price increases related to the pass-through of higher raw material costs. Excluding this pass-through, organic sales growth was 5% in both the Flexibles and Rigid Packaging segments. Consistent with the first half, we continue to benefit from favorable mix as well as actions to anticipate and recover higher levels of inflation than we've seen for many years. This top line growth converted into adjusted EBIT growth of 9% in the quarter. The Flexibles segment delivered EBIT growth of 10% and in line with our expectations Rigid Packaging returned to earnings growth after experiencing a unique set of supply chain challenges in the first half. As you see on the bottom of the slide, this strong March quarter builds on a solid first half, so that on a year-to-date basis, net sales have increased 13%, adjusted EBIT has increased 6% and adjusted EPS is up 11%. Our financial profile remains strong and we continue to increase cash returns to shareholders. We expect to repurchase $600 million of shares this year, which when combined with our annual dividend, means we anticipate returning around $1.3 billion of cash to shareholders in fiscal '22. Before I hand over to Michael, I want to come back to a slide we presented last quarter, which touches on our priority segments. Amcor has a leading position in each of these categories, which collectively generate over $4 billion in annual sales and share a few common features, including large addressable markets, higher-than-average growth rates, and significant room for Amcor to grow and differentiate. By making deliberate choices to focus on these high-value, higher-growth categories over time, they represent a higher proportion of our sales mix, contribute to consistent margin expansion, and become an increasingly relevant driver of earnings growth for Amcor. We've seen this trend so far this year in both Flexibles and Rigid Packaging including in the March quarter and we expect this will continue as we allocate more capital and resources to these segments. You'll hear more about these mix benefits from Michael, as he provides some more detail on our financial performance.

Thanks, Ron. So I'll begin with the Flexibles segment on slide 7. The business continued to perform very well through the year, executing to recover higher raw material costs, manage general inflation, improve cost performance, and deliver increasing mix benefits. Reported year-to-date sales grew 11% and 14% in the March quarter. This includes significant recoveries of higher raw material costs which increased to $330 million in the March quarter, representing 13% of growth and $1.3 billion on an annualized basis. The overall price cost impact has remained a manageable headwind through this inflationary cycle given the diversity of materials we buy, the multiple regions in which we consume those materials, and the implementation of a range of pricing actions across the business. Excluding this raw material impact, sales grew 3% year-to-date and 5% in the March quarter. As Ron mentioned, this performance reflects our continued focus on managing mix to drive growth, particularly in priority segments like health care, pet food, and premium coffee where we have seen mid-single-digit growth year-to-date. Supply chain disruptions have had a dampening effect on our volumes in certain high-value categories through the year. In parts of the business, we have taken action to direct constrained materials to their highest value use, which further enhances mix. As a result, year-to-date and March quarter volumes across the Flexibles business were in line with last year. In terms of earnings, adjusted EBIT growth of 8% on a year-to-date basis and 10% for the March quarter reflects strong price/mix benefits and favorable cost performance. Margins also remained strong at 13.1% despite an adverse impact of 140 basis points from the mathematical impact of pass-through pricing for higher raw material costs. Turning to Rigid Packaging on slide 8. The key messages today are the underlying demand remains elevated and the business returned to earnings growth in the March quarter in line with our expectations. Year-to-date, sales grew by 19%, which includes favorable pricing to recover higher raw material costs of 14% and organic sales growth reflects 3% higher volumes and price/mix benefits of 2%. In North America, year-to-date beverage volumes were up 2%. Hot fill container volumes increased 6% in the March quarter and 2% on a year-to-date basis, which reflects continued growth in key categories like isotonics and juice. Hot fill containers is a high-value priority segment for Amcor, where we see significant opportunities to differentiate. Over a multiyear period, our ability to leverage technology, design, and PCR handling capabilities has enabled us to deliver compound volume growth of 4% and consistently improved mix. Specialty container volumes improved sequentially in the quarter but remained below last year on a year-to-date basis with the prior year benefiting from a strong first half in the home and personal care category. In Latin America, the business delivered strong double-digit volume growth on a year-to-date basis, reflecting strength in Argentina, Mexico, Colombia, and Peru. In terms of earnings, the North America business was adversely impacted in the first half by inefficiencies and higher costs resulting from industry-wide supply chain complexity and disruptions as well as capacity constraints. However, operating conditions and financial performance improved in the March quarter, where the Rigid Packaging business delivered adjusted EBIT growth of 4%. We expect this improved performance to continue through the balance of fiscal year '22. Moving to cash on the balance sheet on slide nine. Free cash flow in the March quarter was $75 million higher than last year, which was a pleasing outcome in the context of continued raw material inflation. On a year-to-date basis, cash flow of $263 million is below last year, primarily due to unfavorable working capital outflows, relating to higher raw material costs, as well as some planned inventory increases across the business. We continue to maintain a strong focus on working capital performance, which is even more critical in an inflationary environment and our rolling working capital to sales ratio remains below 8% and in line with last year. Notwithstanding current high working capital requirements, we have ample capacity to increase capital investment in strategic growth initiatives. Ron will provide some more color on this shortly, but for fiscal 2022 we expect capital expenditure will be approximately 15% higher than the prior year. And year-to-date we are tracking in line with that expectation. Our financial profile remains strong with leverage at 3 times on a trailing 12-month EBITDA basis, which is where we'd expect to be at this time of the year, given the seasonality of cash flows. We continue to increase our cash returns to shareholders. So far this year we've repurchased $423 million worth of shares and expect this will reach $600 million by year-end and our quarterly dividend per share of $0.12 is also higher than last year's dividend. Taking us to the outlook on slide 10. Given our strong March quarter and year-to-date performance, we are raising our outlook for adjusted EPS growth to 9.5% to 11% on a comparable constant currency basis. This represents an EPS guidance range of approximately $0.795 to $0.81 per share on a reported basis, assuming current exchange rates prevail for the balance of the year. We expect significant free cash flow for the year of approximately $1.1 billion, which includes the adverse impact of higher raw material costs on working capital. It is also important to note our fiscal 2022 guidance assumes no further earnings from the business in Ukraine in the final quarter and takes into account a range of possible outcomes in Russia. As a reminder, the four sites in Ukraine and Russia combined represent approximately 2% to 3% of Amcor's annual sales, approximately 4% to 5% of annual EBIT and approximately $200 million to $300 million on the balance sheet.

So in summary from me today, the business has delivered another strong result as we remain focused on driving value by delivering for our customers, managing mix and recovering general inflation and higher raw material costs. This strong execution gives us the confidence to raise our guidance for the 2022 fiscal year. So with that, I'll hand back to Ron. Thanks, Michael. Before we move to the Q&A session, I'd like to take a few minutes to discuss the long-term vision, starting with our investment case. We've adhered to a consistent strategy that has shaped the evolution of our portfolio over the years, ensuring we remain the clear global leader in most areas within the primary packaging sector for fast-moving consumer goods and healthcare products. We possess both absolute and relative scale advantages and a proven record of earnings growth, margin enhancement, and significant, increasing free cash flow exceeding $1 billion annually, while sustaining a solid investment-grade balance sheet. This strength in cash flow and balance sheet allows us to enhance our growth investments and boost business momentum. Simultaneously, we are positioned to return a substantial amount of cash to shareholders through regular share buybacks and a growing dividend, which currently offers a yield of around 4%, double the average for the S&P 500. We continue to identify numerous high-quality organic growth opportunities in the key segments we have mentioned in prior quarters. As highlighted in Michael's comments, the mix benefits are crucial for earnings growth. We also have a robust and diverse emerging markets portfolio that we anticipate will grow at mid-single-digit rates over the long term. Innovation increasingly sets Amcor apart and serves as a growth catalyst, especially regarding the development of more sustainable packaging, as illustrated by our groundbreaking global product platforms, including AmLite, AmSky, and AmFiber. And slide 13 is a double-click on AmPrima, another example of a global product platform that sets us up as the partner of choice for customers as we work together to meet our mutual sustainability goals. AmPrima is a family of packaging solutions that are designed to be recycled and deliver significant sustainability benefits without compromising critical performance features, including heat resistance, high barrier, transparency, and run speed. Over time, we've introduced second and third generations of AmPrima, expanding the number of end market applications and adding recycled content options for certain products, and the material structure is now pre-qualified by the How2Recycle program in the United States. Volume growth is now increasing rapidly as some of the most recognizable global brands begin to move from qualification and trial into commercialization. AmPrima is also a great example of a revenue synergy unlocked by the Bemis acquisition. Moving to Slide 14 and to dimension the increasing investment we've referred to a few times and to bring it to life with some more examples. We've been stepping up CapEx by around 15% per year including in the current 2022 fiscal year, as Michael mentioned and we expect this will take our CapEx to sales ratio from the 3% to 4% range historically to 4% to 5% on an ongoing basis. We have a number of projects already underway or nearing completion, which will generate attractive returns and drive organic growth going forward. This slide showcases a few examples. In Brazil and in the United Kingdom, we're adding multilayer film capacity to serve growth in the priority health care and meat segments. In Ireland, we're adding new state-of-the-art thermoforming capabilities to strengthen our leadership position in medical packaging. In Italy, we're adding production capacity for one of our global product platforms, AmLite Heatflex. Since launching this recycle-ready pouch for retortable applications, we've seen significant interest from a long list of customers and the majority of this new capacity is already sold out. Just a few words on our broader sustainability agenda on Slide 15. Better package design like AmLite and AmPrima which takes into account the full product life cycle is a critical element of responsible packaging. Achieving the type of lasting large-scale impact we envision requires broad cooperation with expert partners from across the value chain. One way we've been most impactful is by bringing our capabilities to the table as standards are developed to make circularity the norm. Through the consumer goods form, Amcor recently contributed to the development of principles for advanced recycling technologies which can play a critical role in reducing the environmental impact of hard-to-recycle plastic waste. We're also actively contributing to the changes needed in waste management and recycling infrastructure by creating demand. In April, we announced a partnership with ExxonMobil providing us access to their advanced recycled materials which can be used in health care and food packaging applications. We have similar agreements in place with multiple suppliers and as we increase our use of recycled materials, the carbon footprint of our products is also reduced. That reduction combined with ongoing efforts to make our own operations less energy-intensive sets us up to achieve our net zero ambitions which we announced earlier this year. To summarize on Slide 16, Amcor delivered another strong result with the March quarter representing the strongest period of sales and earnings growth for the year. We continue to manage well through inflation and improvements in our sales mix while delivering for our customers. With strong year-to-date performance and good momentum, we've raised our guidance for fiscal 2022 EPS growth. Looking over the longer term, we've built a strong foundation for value creation and we're stepping up our investments to drive growth, margin expansion, and long-term value for shareholders. That concludes our opening remarks. Operator, we'll now open the line for questions.

Hi. This is actually Bryan Burgmeier sitting in for Anthony. So you raised the EPS guidance, but free cash flow guidance moves towards the lower end of your range. Is that delta driven by working capital impacts from resin costs? And is there anything else that we should be mindful of in regards to your updated free cash flow guidance such as CapEx or payables or receivables?

It's Michael here. The main issue is related to working capital. We're at the lower end of our range due to the ongoing increase in raw materials that we didn't anticipate at the start of the year. This has continued throughout the year, but we are successfully managing our working capital to sales ratio, which has been encouraging. In terms of annualized sales revenue growth, we expect it to be around $1.5 billion, resulting in a $120 million impact on working capital outflow from the increase in raw materials. Other than that, everything else is as we anticipated.

Hi Ron and Michael. Just a question with respect to guidance on the Russian-Ukraine issue. Ron, you mentioned the range of outcomes for what could happen in Russia. Can you give us a bit more detail in that respect? Also, if you could address some of your peers or at least customers are saying that they would forgo profitability in the region given what's happened. Is that part of the range of outcomes that you're exploring at the moment for Russia? Thank you.

Yes, just to dimension the Ukrainian position and Russian business, as Michael alluded to, we've got four sites in that region, one in Ukraine and three in Russia. We've got about a thousand people working in those four sites. The Russian and Ukrainian businesses combined generated about 2% to 3% of sales, 4% to 5% of EBIT and as Michael pointed out, $200 million to $300 million of balance sheet. The Ukrainian site has been closed. Obviously, our first priority has been keeping our people safe as it always would be you'd expect. We closed the site in Ukraine just before the invasion started and we were able to get our people safely out of that area. The Russian plants are continuing to operate. We're well aware there's a number of public announcements that customers have made. I would remind you that our business in Russia is focused exclusively on a very small number of multinational customers, all of whom despite whatever the public announcements have been, continue to operate there. We continue to support them while we explore our own options. Our options range from continuing to run the business to every other possible extreme that you can imagine. Our tendency and our history has never been to be overly prescriptive about strategic moves like that. I think we'd ask you to wait and see and view our actions more so than anything that we might say in advance. As far as the guidance impact, clearly, the Ukrainian site is not running, the Russian plants are running at different degrees of utilization and that's all factored into the EPS range that Michael outlined.

Thanks very much. Hi everyone. Good day. Thanks for the details and congratulations on the quarter. Ron I was hoping you could talk a little bit about the Flexibles business and go through a bit more of the drivers in the quarter. Overall, I think you said volumes were relatively flat even though it looks like European Flexibles accelerated in the quarter, while North America stayed in a low single-digit range. If I'm correct what drove the European acceleration? And it looks like Asia decelerated to maybe flat or down, LatAm remained down, even though the mix was good. Can you say whether that was in fact the case and talk about the drivers in some of the end markets in those regions and countries as well? Thanks very much.

Yes, I believe the business is performing exceptionally well. We achieved 5% organic sales growth across the business with relatively stable volumes, resulting in a 10% increase in EBIT across the segment. We're very pleased with the profit conversion. The North American business continues to grow, with organic sales growth in the mid-single digits and some volume growth in the low single-digit range. In Europe, the organic sales growth was slightly higher, still in the mid-single digits, although volumes were somewhat down, which I will address later. Both of our emerging markets businesses saw an increase in organic sales growth. Regarding North America and Europe, we are particularly satisfied with the performance of these two larger businesses this quarter, especially due to their management of product mix. As you know, mix has been a crucial driver of profit expansion for Amcor over the years by directing our portfolio more towards higher-value segments and products, which was evident this quarter. In Europe, we shifted away from lower-margin products that are more intermediate in nature to other converters, utilizing constrained raw materials to bolster our higher-margin segments in pharmaceuticals, medical device packaging, pet food, coffee, and other focus areas for us over the years. That encapsulates the story of the quarter, which was largely driven by product mix.

Good day, Ron and Mike how are you.

Hi, John.

Hi, John.

Just in terms of raw materials and any impacts on demand. I mean you continue to do a good job of recovering higher raw material costs and I think that's true of the sector as well. A lot of this has been passed on to the customer and now we've got another up leg in commodities. So just be interested in any demand disruption that you're seeing in end markets? And are you concerned about that type of event?

Well listen, John, we're concerned about inflation generally like everyone else. In our space, given that we're exposed to consumer staples and health care products historically, we've not seen a high degree of demand elasticity. So far, if you take the comments from other public companies through the quarter, there hasn't been much demand impact from the prices that have been taken across the segments we're exposed to. Most customers that have reported and have commented on the topic have said that they've seen less demand elasticity than they expected and also less than they've seen historically. So far we've not seen a demand impact.

Thank you, good evening, everyone. I would like to explore the benefits of the product mix during this period. Ron, you mentioned that you are prioritizing certain customers in the healthcare segment. How do you assess the sustainability of those benefits? If raw material availability improves in the coming year, do you expect to see continued net margin benefits from the volume you would regain? How should we view the margin tailwinds or headwinds that might emerge in fiscal 2023, given the significant shift in your product mix during this period?

Yes. Look Adam, it's a good question. If you go back and look over a long period of time at Amcor, the margin expansion period-on-period has been very consistent. I’m talking about a five or 10-year view. You'd see consistent margin expansion regardless of the raw material cycle anywhere from 10 to 30 basis points in a given period when we're in a more steady-state environment absent any major M&A. A big part of that margin expansion story has been the strategy we've had in place for a long time to constantly optimize the mix both the product mix, the segment mix, and the customer mix. That's been the focus for our commercial teams for a long period of time and that's going to continue going forward. As far as where to from here, we don't expect that mix improvement impact to slow. What we do hope is that raw materials become more plentiful and more available and we can satisfy all of the demand that we have. I mean we're still in an environment where certain materials are constrained and we still have probably forgone in the low single-digits of volume growth for lack of raw materials. So if we look forward, we would hope that that normalizes and the mix improvements will continue as they have for a number of years now.

Hi, thanks, everyone. My question is about the capital expenditure guidance, Ron. I believe you mentioned it is 3% to 4%, or was it 4% to 5% for the foreseeable future? Given that you are currently building several factories, I can see why it might be at 4% to 5% now. However, I'm curious whether you believe the business needs to invest more organically, and if you anticipate that the acquisition pipeline may be less active for some time.

Yes. Look, Larry, just to be clear, we've pointed to the historical range of 3% to 4% of sales. What we've said is that we expect that that will be more in the 4% to 5% of sales range going forward. It's a function of a couple of things. Firstly, the opportunity set is rich. As the portfolio has evolved and a lot of it is through what we picked up in the Bemis acquisition in Flexibles and as the Rigid portfolio has evolved into the more specialty space, we just have more organic opportunities than we've probably ever had. So that's the starting point. Secondly, the business is generating more and more cash flow. It's increasing its cash generation capacity, especially as we come through the integration era, if you will. As we look at alternative uses of that capital, we believe we have an ability to balance funding the organic growth that we see continuing, pursuing acquisitions, buying back shares in the absence of acquisitions, and then obviously maintaining a pretty healthy attractive dividend. We just feel like the cash generation is sufficient now to support all of those potential drivers of shareholder returns and the organic growth opportunity set has just never been more robust.

Thanks very much. Hi, Ron, Mike, Tracey, congrats on the quarter. Just one quick question regarding volume growth. Given the material constraints, which obviously negatively impacted volume, can you comment on any potential reengineering or reformulation of your products to get the necessary finished products or revise these products qualified into customers? Anything that you pursued to or reformulated during the quarter or have been doing through year-to-date to adjust or to account for this material constraint?

Yes. It's a great question, a great observation. You can rest assured we are doing everything we can to find viable alternatives when materials are just constrained. We have an advantage in that we're a large-scale buyer and we're buying materials in multiple regions. The first thing we do when we run into any kind of a constraint is we look to source the material from another region. We've been able to tap into our global network and our global footprint to navigate the situation quite well. But there are times when there's just no material available globally. In parallel, we're also looking at reformulations wherever possible. Those typically do not happen quickly. I can't point to anything in the quarter that's material enough, but there is plenty of activity in terms of qualifying alternative materials and looking to reformulate away from materials that have been more prone to outages.

Yes, thanks for taking my questions. I'm just interested Ron, how much headroom have you got in terms of your plant capacity utilization at the moment? Obviously, I appreciate you've been somewhat volume-constrained as well recently. But I'm also just curious to understand what type of volume uplift you'd be expecting to see from the increased investment in CapEx that you're planning going forward?

Look, Nathan, it's a broad network and the capacity utilization will vary across the business quite dramatically. So in the extreme, you have our Rigid Packaging business in the beverage space, which has been sold out for a long period of time now for several quarters and we're adding capacity there which is just to satisfy the continued elevated demand we see in PET and beverages. In the Flexibles segment, we see very high utilization for the assets that are directed to the more sustainable products that we make some of the global product platforms that I alluded to in the prepared remarks. But we will be adding capacity and that capacity will help support the volume growth expectations that we have going forward which have traditionally been in the low single-digit range.

Thank you. Good day, everybody. Just as a follow-up to some of the earlier questions, maybe you can give us a sense as to which specific raw materials you're still short on. How do you see that evolving over the next couple of quarters? And then just bigger picture, I mean the current environment is obviously extraordinary for the entire supply chain and no one really knows how the consumer is ultimately going to react to all these inflationary inputs and so on. Just curious, Ron, in terms of how you service your customers and how you go to market, is there anything that you noticed that's different in terms of what your customers are asking you with now versus in years past just given the nature of the current environment? Thank you.

Yes. Look on the materials that are short, it's been a bit of a whac-a-mole game to be honest with you in terms of where we're short which material and which region in which month or which week, I guess you could say. More often than not, it's been some of the specialty materials in Flexibles and Rigids which are additive to the primary material. To a large extent for quite some time now, it's not been the base polymers that we buy the big commodities like polyethylene or polypropylene. We did have some shortages in PET for a while but those have abated. It's been more the specialty materials that are added to provide barrier or some other property that's required to deliver the full functionality of the package which have really been highly volatile. Aluminum to some extent, I guess, would be the other main commodity that at times has been in short supply. Look, I think this too shall pass. There's no reason to expect indefinite outages. But at the moment it's just been continued volatility.

Thank you very much. Ron, my question is about rigid plastics. One of your major competitors in the US mentions that resin constitutes over 40% of the cost of sales. Is that the case for you as well? Additionally, could you discuss the 60% of non-raw material costs and provide any details you can regarding the inflationary pressures affecting that portion of your costs?

Yes. I'll talk about the COGS in Rigid Packaging and maybe Michael can talk about the inflation we've seen generally because we've talked a lot about raw materials but inflation more generally is obviously front and center. Look the Rigid Packaging business I'm not sure who the competitor is but the resin component of COGS is actually higher in rigids than it is in Flexibles. I would have said it's probably in the 60% to 70% range. As you know, that's a straight pass-through that's linked to the commodity index either PET or one of the olefins. As far as general inflation goes Michael why don't you comment on what we're seeing.

Yes. Look, I think the general inflation across the globe, where we're seeing increases is predominantly in energy and freight and it varies by region. We’re seeing inflation there in the range of about 15% to 20% but the point to remember is that those elements of our COGS are quite small, in low single-digits. So we're out in front of that. Some of that we can pass through to customers. Other parts of that we've got to take price. We're out in front across the globe working our way through that to recover those increases that we're seeing in general inflation on those two items. In terms of labor, it's been more supply than labor wage rates for us. We've had disruption in labor particularly in North America and Europe around COVID and the like which we've had to deal with. We've seen some elevated over time and other labor costs associated with that. Again, it's been manageable and we haven't seen the rate increases although we are expecting some of those to start to come through.

Hey, thanks for taking the question. I know your exposure to China is relatively limited, but just curious what impact you've seen from the lockdown situation there on your production and demand in that region. What did you assume in your outlook going forward from that situation?

China is an important market for us, making up about 5% of our sales and representing our largest business in emerging markets. We manage the Flexible packaging segment there, as Rigid Packaging does not operate in China. This segment has been experiencing healthy growth over the past few years. In the first half, we achieved mid-single-digit growth in both revenue and profit. It is also a highly profitable segment, supported by a national presence with about 10 or 11 factories across the country. Notably, our operations are primarily for the domestic market, with minimal importing or exporting involved. The third quarter saw a slight slowdown, largely due to the comparison with an exceptionally strong third quarter last year, which was likely influenced by the timing of the Chinese New Year. Our results were flat to slightly down during this period. We noticed a significant slowdown in April, attributed more to the lockdowns affecting some of our customers' facilities rather than our own operations. It's challenging to predict the implications of March or June at this stage. Our earnings guidance incorporates various potential outcomes for China, but we are aware that we only have two months of data to analyze for April. Overall, we are comfortable with our projections considering the market dynamics in China.