Amcor PLC (AMCR) 2022 Q1 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Amcor First Quarter 2022 Results. (Operator Instructions)

Without further ado, I would like to welcome your host for today, Ms. Tracey Whitehead, Head of Investor Relations. The floor is yours.

Thank you, operator, and welcome, everyone, to Amcor's First Quarter (inaudible). Joining 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 will find our press release and presentation, which will be discussed on the call. We'll also discuss non-GAAP financial measures and related reconciliations (inaudible).

Also a reminder that the call today including forward-looking statements, which remain subject to certain risks and uncertainties. Please refer to our SEC filings, including our statements on Form10-K and 10-Q to review the factors that could cause actual results to differ from what we're discussing today. (Operator Instructions)

With that, I'll turn it over to Ron.

Okay. Thanks, everyone, for joining us to discuss Amcor's fiscal 2022 first quarter results. Joining me today is Michael Casamento, Amcor's Chief Financial Officer, and we'll begin with some brief prepared remarks and then open the line for Q&A.

We start with safety because it's the first and most important of our values and the highest priority for every one of our 46,000 people around the world. And Amcor has been on a long-term journey towards our goal of no injuries, and our safety performance remains a real highlight.

Across the group, we reduced the number of injuries by 16% compared to the prior year, and 62% of our sites have remained injury-free for at least 12 months. As we continue to make strong progress, it reinforces our conviction that an objective of no injuries is absolutely possible, and we continue striving towards that goal.

We have 4 key messages today that sit here on Slide 4. First, Amcor is navigating well through challenging external conditions that we highlighted in August. And like the rest of our industry, including our customers and suppliers, we're experiencing unprecedented complexity across the supply chain, but we're performing well, and we remain on track to deliver on our expectations for the year. We're able to say that confidently because we're leveraging our scale and global reach, we are relying on the capabilities and experience of our management teams, and we're maintaining an unwavering focus on the right priorities, in particular, security of supply for our customers, recovery of higher input costs, and managing the sales mix.

The second message today is that Amcor delivered a solid first quarter. While sales were tempered by supply chain challenges in some parts of the business, we delivered another solid quarter of double-digit earnings growth, which was in line with our expectations.

Third, we're reaffirming fiscal '22 guidance, and we remain on track to meet the fiscal '22 earnings growth and cash flow objectives that we provided in August.

And finally, we've built a strong foundation over the last several years. And today, Amcor is better positioned strategically than ever. In addition to delivering against short-term priorities, we remain focused on our long-term strategy and track record of growth and value creation.

Turning to the financial highlights on Slide 5. The business delivered a solid start to the fiscal year. Our 10% reported net sales growth includes approximately $285 million of price increases related to the pass-through of higher raw material costs. We're incredibly proud of the way our teams have continued to successfully steer us through this environment of ongoing inflation, achieving significant recovery over the last several quarters, and we'll continue to manage this dynamic going forward. Excluding this pass-through impact, organic sales grew 1%. In this environment, we're maintaining focus on our long-term strategy of optimizing mix, and it's clear that volume performance in both segments would have been higher in an unconstrained environment.

Overall, EBIT increased 7% in comparable constant currency terms, which was right in line with expectations. The Flexibles segment had a strong quarter, generating earnings growth of 8%, driven by favorable mix and outstanding management of costs.

In Rigid Packaging, the business in North America experienced a particularly challenging environment, including elevated demand, combined with full capacity utilization and constraints of critical inputs which resulted in operating inefficiencies and higher costs.

Net income and EPS were both up at double-digit rates, increasing by 10% and 12%, respectively. And our financial profile remains strong. We increased cash returns to shareholders during the quarter, including repurchases of $64 million of shares, and the Board declared an increased quarterly dividend of $0.12 per share. So the key message here is that the business remains focused and continues to execute well.

And with that, I'll hand over to Michael.

Thanks, Ron. Hello, everyone. Turning to Slide 6. The Flexibles business performed very well during the period, delivering growth in high-value end markets, executing well to recover inflation and demonstrating strong cost performance.

Reported sales growth of 10% includes recovery of higher raw material costs, which increased through the quarter. Actions we have taken to pass through those high costs drove sales up by approximately $210 million, which, on an annual basis, is well over $800 million and represented growth of 9% in the quarter compared with last year. The overall price/cost impact was unfavorable, but has remained manageable given the diversity of materials we'll buy, the multiple regions in which we consume those materials and the implementation of inflation-driven pricing actions. This is once again evident in our margins, which remained at a level equal to the prior year despite the impact of higher raw material costs and related pricing recovery.

Excluding this raw material impact, organic revenue growth of 1% was driven by favorable price/mix of approximately 2%. Consistent with our long-term strategy, the business has remained focused on mix with continued growth in higher-value end markets, including pet food, premium coffee and medical. This growth more than offset the sales impact of lower volumes in segments such as home and personal care and across Southeast Asia. In addition, shortages of certain raw materials, including aluminum and specialty resins, had a dampening effect on volume performance in some categories, including health care and protein-related products.

Adjusted EBIT was up 8% in comparable constant currency terms for the quarter and reflects a favorable mix, strong productivity and cost improvements.

Turning to the Rigid Packaging business on Slide 7. We delivered reported sales growth of 13%, reflecting the pass-through of higher raw material costs. Comparable constant currency sales growth of 1% was driven by higher overall volumes. In North America, beverage volumes were marginally ahead of the same period last year. Hot fill beverage container volumes were 1% lower against a strong comparative period of double-digit growth, and higher demand in juice categories was offset by lower sports drinks volumes. Specialty container volumes were lower against the prior year, which benefited from strong volumes in the home and personal care category.

In Latin America, double-digit volume growth reflects strong performance in Argentina, Brazil and Colombia, and earnings were higher in the region. In constant currency terms, segment earnings were adversely impacted by inefficiencies and higher costs in North America, resulting from unprecedented industry-wide supply chain complexity and disruptions.

Overall demand remained elevated and increasingly volatile in the beverage segment. At the same time, the business continued to operate at full capacity and we put historically low levels of inventory. This, coupled with further inflation and shortages for key inputs, including PET and certain specialty resins, resulted in operating efficiencies and higher costs in order to service customer demand. While we expect these dynamics to persist in the second quarter, we anticipate current challenges will improve through the second half of fiscal 2022.

Moving to cash on the balance sheet on Slide 8. As a reminder, our cash flow is seasonally weaker in the first half of the fiscal year. And for the current quarter, adjusted free cash outflow of $242 million compares with an outflow of $190 million last year. The increased outflow mainly reflects higher uses of cash related to working capital with the adverse impact related to timing of higher raw material costs cycling through the business. We continue to maintain a strong focus on working capital performance. And our rolling 12-month average working capital to sales ratio at the end of September remains below 8%.

As planned, capital expenditure is tracking higher than last year as we have stepped up organic investments in key high-growth segments and geographies. Amcor's financial profile remains solid with leverage at 2.9x on a trailing 12-month EBITDA basis, which is in line with our expectations for this time of year. And cash returns to shareholders in the first quarter were higher than the prior year, which reflects $64 million of share repurchases mentioned earlier and an increase in dividend per share.

Taking us to the outlook on Slide 9. A solid first quarter of double-digit EPS growth, in line with our expectations, enables us to reaffirm the 2022 guidance we outlined in August. We continue to expect adjusted EPS growth of 7% to 11% on a comparable constant currency basis, which represents an EPS guidance range of approximately $0.79 to $0.81 per share on a reported basis assuming current exchange rates prevail for the balance of the year.

Free cash flow is expected to be $1.1 billion to $1.2 billion, and the growing cash flow enables us to continue to pay a compelling growing dividend and allocate cash to share repurchases, which we expect will be around $400 million in fiscal '22, while retaining the flexibility to fund acquisitive growth when needed.

So with that, I'll hand back to Ron.

Okay. Thanks, Michael. Before closing and turning it over to Q&A, I'd like to spend a few minutes on the longer term, starting on Slide 10, which summarizes the investment case for Amcor.

Over the last several years, we've continued to execute against our strategy, strengthen our capabilities and establish a stronger foundation for growth and value creation. And as a result, we believe Amcor is better positioned strategically and our investment case is as strong as ever.

In simple terms, that investment case starts with our market positions. We're the global leader in most of our chosen segments with relative and absolute scale advantages in every region and significant exposure to attractive high-value end markets across food, beverage and health care. We have a proven track record of consistent earnings growth and margin expansion, and we generate significant free cash flow every year, including between the $1.1 billion and $1.2 billion in this 2022 fiscal year. With a strong balance sheet, that cash flow provides substantial capacity to invest in the long-term potential of our business and also to deliver a significant and growing amount of cash to shareholders.

We use our shareholder value creation framework, which is shown here on Slide 11, to describe how we allocate cash flow every year and how that translates into value for shareholders.

Through the combination of reinvestment in the base business, M&A and share repurchases, we expect to generate 5% to 10% constant currency EPS growth each year. Our dividend has historically yielded around 4% and continues to be especially compelling in such a low interest rate environment. But through economic and commodity cycle, the outcome of allocating capital in this way has resulted in average value creation through a combined EPS growth and dividend yield of about 13.5% each year, in line with the 10% to 15% you see here on this slide, and we're very well positioned to continue that trend.

The strategic choices we've made guide how we prioritize investments back into the business, and we're investing now in several areas that will continue to drive long-term organic growth, and those are highlighted on Slide 12.

First, our business mix is increasingly oriented towards the most attractive segments, which offer greater potential for differentiation and growth like health care, pet food, premium coffee and hot fill beverages. Our results this quarter provide strong evidence of how the considered choices we make every day lead to these attractive segments, representing an increasing percentage of our sales mix, which contributes to consistent margin expansion over time even while navigating complex environments like the one we're in now.

Second, we continue to invest to expand our leading emerging market positions. We had another quarter of double-digit growth in both China and India, for example, and we're actively investing in these markets where we expect to see demand remain a tailwind for the foreseeable future.

And third, we remain uniquely positioned to launch a steady stream of innovative new packaging solutions. We're investing in our innovation capabilities and network of global innovation centers so we can capitalize on what we believe is our greatest opportunity for growth and differentiation, and that is the demand for more sustainable packaging.

Slide 13 highlights what we see as the 3 requirements for responsible packaging, and we're seeing clear progress on each of the 3: package design; waste management infrastructure; and consumer participation. In the past, we've highlighted examples of groundbreaking new product platforms like AmLite, AmPrima and AmSky, but we're also actively collaborating with others to develop solutions that address infrastructure and consumer participation. Most of these initiatives start small, but all have the benefit of demonstrating working models that can be scaled and leveraged across markets and customers.

In Colombia, as an example, we partnered with one of our key customers and others across the value chain to achieve a fully circular bottle-to-bottle solution for amber-colored beverage containers where the color is critical for this particular brand. In Australia, we've enabled an iconic brand to transition confectionery packaging to a structure which incorporates 30% chemically recycled material. And finally, an example which is already functioning at scale globally, we've worked with the global market leader for single-serve premium coffee to increase the use of recycled aluminum, which is now at 80% for our core product line.

In the next few weeks, we'll be releasing our 2021 sustainability report, which will describe our sustainability strategy and agenda more fully, and we'll provide more data in case studies to illustrate the strong progress we've made over the last 12 months.

And finally, on Slide 14, a summary for today. Amcor delivered a solid first quarter results in line with expectations as we navigated well through a challenging external environment. This leaves us on track to meet our 2022 fiscal year guidance. And looking further ahead, we're better positioned strategically than ever before with a strong foundation for continued growth and value creation.

So with that, operator, we'll close our opening remarks and open the line for questions. Thanks.

(Operator Instructions) Our first question comes from the line of Ghansham Panjabi of Baird.

I guess first off, maybe you can update your view -- update us with your views on volumes for fiscal year '22. First quarter is obviously flat. You have tough comps in rigids as well as the year unfolds. Just curious as to how you think the rest of the quarters will evolve. And I guess I'm asking because a lot of your customers are going to be passing on pretty significant price increases to consumers calendar year '22 onwards, and there is some level of elasticity in those categories, at least historically. So I'm just curious as to what you have baked in for volumes.

Yes. It's a good question, Ghansham. Look, the guidance that we just put out -- remember, it's only 90 days because we're coming through the first quarter. So our guidance is just from August, and factors in pretty much the volume growth that you would expect from us in any given year. We're sort of low single digits, a little slower this first quarter. But predominantly because of some of the constraints we had in the supply chain, we would expect through the rest of the year, those will abate over time.

And as it relates to the pricing, we haven't historically seen a lot of elasticity in the demand for the products that we're providing packaging for. Considering that these are defensive consumer staples on the food side, even the more premium products have been pretty resilient to price. There's been a lot of price taken already in many of those segments. And then obviously, on the health care side, it's probably even less so.

Got it. And then in terms of the raw material shortages you cited, just give us a bit more color in terms of which specific raw materials you had some constraints in, if I read that correctly. How are you managing also with labor issues in the U.S. and Europe? A lot of your peers have called that out. And do you see any residual impact on the second quarter as well?

Yes. Look, the labor has not been a major issue for us, certainly not from an inflationary perspective. There are times when labor is hard to come by. That's definitely true. But more -- for us, it's been a supply situation on the raw material side that's been limiting. And it's predominantly been in some specialty resins that affect the Flexibles business and also the Specialty Container part of Rigid Plastics. These are resins that are not used in large quantities, but provide some particular feature, barrier or otherwise that have been on particularly short supply and have put us on allocation and we, in turn, have put customers in allocation in several segments across the business, including medical, where we had a rebound and had some growth, but not as much as we could have had. So specialty resins is 1 area.

In PET, which is a predominant raw material in our Rigid Packaging business, we've been searching for resin for much of the quarter. In fact, probably back into the fourth quarter of the last fiscal year as a number of our suppliers have had disruptions of a variety of different sorts and have encountered force majeure. And then even for some of the aluminum grades that we use in pharmaceutical packaging, we've had limitations. And so again, we've had customers on allocation in the pharma space as well. So that's where we're seeing it.

Now I think there's reasons to believe that there's relief in sight. Many of those specialty resins, we're starting to get some increased allocations. PET, over the next quarter or 2, should start to normalize as well. But certainly, in the first quarter, it provided a bit of a headwind.

Your next question comes from the line of Anthony Pettinari from Citi.

Ron, you saw Europe Flexibles volumes down year-over-year. And I'm just wondering, was that driven by a tough comp or maybe some broader consumer weakness in the region? Just wondering if you could provide any more color on what you're seeing in Europe.

Yes. Look, Anthony, that's driven fully by limitations on raw materials and us having to make choices. And so really, the story in the Flexibles segment overall, and especially in Europe, has been around proactively managing the mix and making choices to allocate materials that are on limited supply to the highest margin uses. We saw that have an impact, as I just described for Ghansham, in some of the more attractive spaces that we're in, including pharma and some of the protein segments as well. And we just had to make some choices on what to do with the material that was in scarce supply. So that's the predominant driver there.

Okay. That's very helpful. And then we've heard about some virgin resin taxes being considered in Europe. I think during the quarter, France issued some restrictions on plastic packaging for some fruits and vegetables. Do you see any commercial impact from those taxes and maybe that restriction specifically? Just wondering if you could talk a little bit about the regulatory environment in Europe, and maybe more broadly, how you're positioned with ESG.

Yes. Look, as it relates to the resin taxes, virgin resin reductions, et cetera, I think these dynamics, which are evolving in pretty rapid -- in a pretty rapid way, pretty dynamic environment, they just create opportunities. And in many cases, there's an opportunity for us to help take cost out of the customers' supply chain, inclusive of some of these potential taxes by taking weight out of the package, or innovating around some of the materials of concern. So from an innovation perspective, this is generally favorable for Amcor. I think -- and generally speaking, as it relates to package design regulations, we continue to have a seat at the table as those are debated and discussed, both as an individual company and also through the industry associations that we're participating in.

The next question comes from the line of George Staphos of Bank of America.

This is [Kashan Keeler] on behalf of George Staphos here. Just going back to your comments on the beverage business given the low levels of inventory there. Can you just give us a sense as to when you might be able to have a better ability to rebuild inventories? Will that be as kind of the supply chain bottleneck results? And additionally, is there a need to take downtime in that business given you've been running full out?

Yes. Look, thanks for the question. Let me just step back and describe the situation in Rigid Packaging at large. And firstly, I would point out, this is a North American set of circumstances. The Latin American business has performed quite well with strong volume growth and higher earnings.

In North America, we've got a unique set of circumstances. So firstly, the demand has remained elevated for quite some time, particularly in the beverage space. That has led to a depletion of inventories. We've been running with historically low inventories pretty much for the whole calendar year, and we're running flat out at pretty much full capacity utilization. On top of which then, we've had some supply disruptions, as I just alluded to on the PET side, which is the primary input.

So all of those things conspiring at once have led to some inefficiencies and, therefore, higher cost in the business. Now as we look forward, we see these conditions abating certainly through the second half. I think we're going to wear much of that continuing through Q2. But in the second half, we believe these will ease. And that's for a few reasons.

Firstly, we've got more capacity coming on stream. And we've had capacity coming on through this calendar year as well, but it's been consumed through the year, but there's more coming on stream, as we've called out in previous calls. Secondly, we will start to build inventory now through the fiscal second quarter, the calendar fourth quarter that is -- tends to be the low season where inventories get built and we will be building through this quarter. And then thirdly, on the raw material side, some of the dislocations there are easing. So the allocation level that we are living with from a PET perspective are starting to increase, and some of the capacity upstream with the PET resin suppliers is starting to come back to more normal levels. So we do see reasons to be optimistic, particularly around the second half, but we're going to wear these conditions now for the next few months for sure.

Great. Great. And then just going back to the volume discussion as well, I guess, just as we look at your medical exposure given noncritical doctor visits are down during COVID, can you give us a sense as to when you might expect to see more normal demand in volume patterns in that end market?

Yes. Look, I think let me comment on health care more generally. And health care for us is, broadly speaking, medical device packaging, which you alluded to, and then pharmaceutical packaging as well. And both of those segments have been impacted through COVID and have had demand at much lower levels than we would historically see. We would typically see mid-single-digit growth each year in both of those segments. And it's -- these are 2 attractive segments, high margins, high levels of differentiation, lots of innovation. So they are about as good places you can play in flexible packaging.

Medical has started to come back a bit. Demand conditions improved in the first quarter. We did see a bit of an uptick in some of the elective procedures that you referred to, which drive consumption of medical device packaging. So we saw some improvement through the quarter, but again, we were limited with some of the specialty resins that go into those products, and we ended up having to put some customers on allocation and not capturing the full rebound in demand. We would only anticipate demand to continue to build and get back to more normalized levels and some of the raw material challenges to ease, although we know we're not out of the woods yet on at least a couple of particular resins.

On the pharmaceutical side, we've seen a very, very modest improvement in demand, not to the same extent as medical. And in particular, in that business in Europe, it's predominantly foil-based set of products. We've had some limitations on foil supply as well, which has held us back. But we would expect that, over time, as COVID recedes a bit and people get back to normal, these normal behavioral patterns that pharmaceutical consumption will return back to the levels it was prepandemic as well. So we're pretty bullish on these 2 segments long term, and there's just some, I guess, another couple of rigs here as we get back to normal.

The next question comes from the line of John Purtell of Macquarie.

Just had a couple of questions. Look, just in terms of raw materials, obviously you had a much bigger sort of impact on your sales line this period in terms of pass-through. You haven't called out any material impacts on earnings from raw mats at least on the Flexibles side. Can you just provide a bit of color around how you sort of manage raw materials overall through the quarter? And any sort of nuances there to call out?

Yes. Sure, John, it's Michael here. I can take that one for you. Yes. So look, we continue to see raw materials increase in the quarter through the basket of currencies that we have kind of mid-single digit, which was probably a slightly slower increase than we've seen in the first 6 months of the calendar year, but albeit continue to increase. And as Ron mentioned in the earlier comments, the teams have been really focused, not only on securing supply for us and making sure we've got as much as we can to service customers, but also getting that raw material recovery through the marketplace. And we were really pleased with where we got to in the quarter.

You might recall at the end of Q4 last year, we had $100 million roughly flow through the sales line this quarter, all up around $280 million with $210 million of that in Flexibles. So pretty significant recovery. We did see some headwinds, particularly in Flexibles from that so -- but it was manageable. And outside of that, you saw that in our margins, where, year-on-year, the Flexibles margins actually were maintained at 13%. So we were pretty pleased with that result because if you take the raw material recovery out of the mix, margins in effect would have been about 100 basis points higher, so closer to 14% without that raw material recovery pass-through.

So we're pretty pleased with where we got to in the quarter. We'd expect that there's still further recovery to come, obviously. And in Q2, we are contemplating still some lag in that price cost recovery as we work through the next quarter. And -- but the indices are quite mixed. Some indices are suggesting that the raw materials are perhaps tailing off a little and have reached their peak. In other areas and certain geographies around the world, still looking at some increases. So a little bit of a mixed position there as well, John. But that's all factored into our guidance range that we put out there for the full year.

Got it. And just a second question there. You might have touched on this earlier, but just can you remind us of the timing of your North American PET capacity expansion? And also more generally, what do you see as the potential for further capacity expansion, say, on the Flexibles side? I know you sort of flagged a couple there in the last sort of year, but particularly given that you're seeing pretty robust growth in emerging markets in Asia, for example.

Yes. Look, on the PET side in North America, which supports the Rigid Packaging segment and the beverage subsegment within that, we've been adding capacity through the year. And we're going to continue to add capacity through the first part of calendar '22 so that we hit the high season next year, the high beverage season being fiscal fourth quarter for us, second calendar quarter with materially more structural capacity than we had over the past 12 months. So that's been an ongoing journey. We've got some capacity that's come on stream -- coming out stream this quarter and will continue in the next couple of quarters.

As it relates to Flexibles, we have flagged a number of investments, including a new plant in China, which is midway through its construction. It's in the south of China, in the Guangdong province, which is going to add capacity for the health care business there as well as some of the other segments that we service in that area. We've been expanding and adding capacity on some of the sustainability platforms. There's more sustainable platforms that we've flagged. So we've talked about AmLite in the past and AmPrima. We're putting capital to work in both of those -- for both of those products as 2 examples. So I'd say the Flexibles capacity is targeted at those areas where we have the most differentiation, predominantly in emerging markets and also the more sustainable structures.

The next question comes from the line of Keith Chau of MST.

My first question is just around the supply chain issues and the complexities within the North American supply chain. You talked to potentially some of the resin issues easing, still having an issue in the next quarter, but certainly easing going into the second half. Just wondering what indications you're seeing from both suppliers and customers as it relates to supply chain complexity that things will ease. We talked about raw materials, but -- from the supply side, but can you talk about how your customers are responding to some of the supply chain complexities as well?

Yes. Well, they have the same issues, as you can imagine. And in some cases, their businesses might be more labor intensive or energy intensive, and then they've got more acute impacts from those areas. And that has a ripple effect back up the chain. If the customers are not running their plant, we are limited in how much material we can ship. I think that particularly in North America, labor has been an issue. There's a lot of theories as to why that is. But our customers and Amcor are doing everything we can to keep our plants fully staffed.

Transport, at times, has been a constraint as well. But we would expect that with investments that are being made, not by Amcor necessarily, but throughout the value chain and the supporting industries adjacent to it, that, that eventually will subside. I mean I don't think that we're going to adapt -- we're going to certainly adapt the supply chain to such pronounced shortages. I'm just not sure that's -- where this is all going to head.

No, indeed. But are there any indications from your customers rather than the suppliers that their issues will ease by the second half?

Yes, look, in many cases, our customers are adding capacity. And in the businesses that are more seasonal, they're also taking shutdowns and building inventories or allowing inventories to build. So if we think about our issues and our constraints, they've been more in the upstream side than on the downstream side. Demand will continue to normalize. To the extent that it's been volatile, we would expect it to continue to normalize. And on the upstream side, for the reasons I outlined, particularly in PET, we would expect more availability and material.

Flexibles is a little bit mixed, and it's a bit of -- it's a story of individual materials, as I said, but there's more reasons for optimism than concern as it relates to Flexibles going forward as some of these materials ramp up and return to more normal production levels.

Indeed. Okay. And then the second question just relates to your customer relationships. I mean obviously, given these issues, you've had to put some customers on the allocation. Do you expect there to be any issues with customer relationships going forward or any degree of permanency given some of these allocation issues that the business is seeing at the moment? What feedback have you had with customers in that respect?

Well, look, the worst thing for everybody is when we have to put customers on allocation. But I would say that there's just as many examples of us being able to use our scale and reach and capabilities to help customers out of a bind. I mean we've got examples in -- back in the beverage business where some of the resin, as told by the customers, they've been unable to secure enough supply. We are a net bigger buyer than any 1 customer, and we've been able to get resin to keep some of those beverage customers supplied.

We've got a couple of other examples in Flexibles. In the medical space, we've taken share at a customer in the medical device area by being able to supply material that our competitors could not supply. So I think that no one likes to be on allocation. And certainly, that's not where we want to be. But I think that the benefits we've been able to deliver for our customer base, because of some of the things that make us unique, have outweighed any of the constraints and the allocation impact.

So it sounds like, Ron, that Amcor, even though it has to find necessity for customers on allocation may, in fact, be doing better than competitors?

I think in some cases, that would be true. We're competing head-to-head and using the exact same materials, then I think that we would expect we have an advantage there.

Okay. Can I ask a quick question to Michael? Michael, your corporate costs were $10 million lower than the PCP and $15 million lower than the June quarter. Can you just give us an understanding of why that's the case? And with respect to the free cash flow guidance for the year, given the start of the year, can you give us a sense of what the seasonality of cash flows would look like and what the risks are? And whether you need to see raw materials prices come down to be able to get to that $1.1 billion to $1.2 billion guidance number?

Sure. So on the corporate cost side, yes, there's definitely some phasing element in there, more so in the prior year. In Q1, we had and an insurance claim we had to provide for in Q1 last year, and that's really the key difference in the corporate costs. We'd expect by the half, the phasing there more normalizes to be more in line with the corporate costs position at the half last year. So that's kind of the impact on that front. And corporate costs, generally, in the first half is lighter than the second half just as we share our provisions and accruals and things like employee incentives and how they tend to happen in the second half as we progress through the year. So that's really the key difference there from the June quarter.

In relation to the cash flow and the seasonality, yes, I mean our cash flow is seasonally stronger in the second half, definitely. And that's really on the back of several areas. Firstly, second half earnings are typically stronger and in particular Q4. So our Q4 earnings are our biggest quarter for the year. And typically, they're $100 million more than any other quarter in EBITDA. So you're getting stronger cash flow there. From a working capital standpoint, we tend to -- we tend to build working capital as we head through the year, getting into the summer period in Northern Hemisphere. And then you start to see some release of that as we head into the Q4 period. We clearly have a stronger focus on working capital as we close out the year, and we have some commercial terms that are favorable in the back half of the year. So when you put all that together, we've consistently delivered a stronger cash flow in the second half. And that's pretty -- where we are today is right in line with where we expect it to be.

On the working capital front, we've obviously had some headwind from the raw material pass-through as that gets through the cycling of the business. But that's more a timing situation than anything, and we expect that to improve as we head through the year. So from where we sit here today, the $1.1 billion to $1.2 billion outlook, we feel really confident in. And that's -- we're in the normal cycle of the business cash flow seasonality.

The next question comes from the line of Kyle White of Deutsche Bank.

Can you just talk about some of the moving parts with your outlook? And I realize it's still early days in terms of the fiscal year. But since you first gave it last quarter, cost inflation has gone up. Supply chain issues have really ramped up. What would you say is going better than initial expectations to offset some of these headwinds in order to maintain the outlook?

Yes. Look, I can take that one. I mean when we issued the outlook, that full year guidance, you recall, we did that back in August. And at that time, we contemplated a range of external factors, including the continuing raw material inflation and general inflation. We were already experiencing supply chain constraints and raw material shortages at that time, and the demand was volatile. So that was -- some of that was already factored into the guidance that we put out there back in August. As we said, Q1 actually was pretty well right in line with where we expect it to be at the end of Q1. Some puts and takes in the result, but generally, the double-digit EPS growth was right where we expected it to be. And that gave us the confidence to reaffirm the guidance today around that 7% to 11% comparable constant currency growth. And that's just taking into account that range of factors that we've talked about.

So to be at the upper end of that range, we'd expect things like a quicker recovery in the health care and medical and pharmaceutical business that we've touched on during the call, perhaps a quicker recovery in the raw material pricing or abatement sooner than we're anticipating and perhaps less prolonged supply constraints. So that would get us to the upper end and the opposite is true for the lower end. If we see prolonged supply constraints further into the second half, then we anticipate then that could get us to the lower end as to if raw materials continue to increase. So that's all factored into our guidance that we gave back in August. And as I said, we are on track at the end of Q1, which gave us the confidence to reaffirm.

Got it. That makes sense. And apologies to go back to Rigid Packaging, but just trying to understand, earnings down 15% year-over-year despite volumes being up. You touched on the supply chain issues quite a bit. But is it possible to break out how much of the earnings decline was driven by cost inflation that is expected to kind of stay throughout the year versus the supply chain headwinds that you expect to kind of get better? Just trying to understand kind of the earnings cadence throughout the year for that segment.

Look, Kyle, to keep it really simple, the earnings impact in the segment is really around the inefficiencies much more so than inflation. I mean there are clearly inflationary pressures, but those will get recovered over time through pricing. And the inefficiencies will sort themselves out, as we've discussed. So it's probably 70% or 80% the supply chain constraints and 20% or 30% just the lag in passing through pricing to cover the inflationary factors as well.

The next question comes from the line of Anojja Shah from BMO Capital Management.

I just wanted to ask about that North American Rigid business as well. Do you think you're getting some benefit there from the tight markets for glass bottles and aluminum beverage cans?

Typically, the substrates are not interchangeable, and we don't really see customers going back and forth. The different package formats have different places through different distribution channels. And so we really don't see a whole lot of shifting. We have picked up some volume in a more permanent sense. We've gained some share at the expense of glass. As a good example, there's a picture in one of our slides of a big piece of business that we've won. And that business has gone from traditionally glass containers to PET containers for a couple of reasons, and it's all about the environmental footprint of the package, and they've gone all the way to 100% recycled material as the spec. And I think we won that business because of our ability to source that material and process it efficiently. That's more of a share shift that's related to a value proposition that's just different and provide some benefits to the consumer and to the customer in this case that the legacy container just couldn't. That's more typical of what we would see than any kind of periodic shifts between 1 substrate or the next.

Okay. And then now with economies reopening, how do you sort of estimate the shift to more eating away from home? How do you think that's going to impact Amcor? I mean it seems your medical portfolio benefited, some other businesses will also benefit. But you'll also have some businesses that don't. Could you estimate the net impact of that overall?

I mean, look, over the last several quarters, when we've tried to parse out the impact of COVID or the impacts of COVID, we really don't believe that it's had a material effect on our sales. I mean we've had some segments that had been very depressed. Health care would be one, others that had a little bit higher growth. And so if we go back over the last 15, 18 months, there's not much difference between the growth rates that we've experienced and the growth rates that we would expect to experience going forward. It's kind of low single digits. This is also not a business that has a lot of exposure to food service or away-from-home consumption. So we benefited from that portfolio mix when food service was shut. And on the other hand, we're not going to benefit from a big rebound because we're not very levered to that channel.

You are next, Larry Gandler from Credit Suisse.

Ron, I'd like to continue my questioning from the last quarter. I feel like I'm having correspondence by a snail mail. I asked you about your major growth initiatives. You pointed to your 5 focus areas, with protein as #1 in your mind. And then we talked about the harmonization of protein sales between North America and Europe. So I've been looking at that, but still learning. And I'm just wondering, first -- so can I just ask a short list of questions relating to that initiative?

One is as you expand your protein business in Europe, do you have that managed by a sort of single person or area? Is that an initiative that's encapsulated from a managerial point of view? Second, are there particular subsegments you're targeting there? I'm learning that proximity to customers is important for that business, so do you need new plants? And are there any products like an EVOH sort of based film that I'm not sure if you have or need? And how many years is it going to take to achieve the harmonization of sales between these North America and Europe?

So a list of questions there, but as I said, I want to delve into this growth opportunity, so if you can help me out.

Yes. Okay. Look, it is one of the biggest growth opportunities we have. So I'm glad you asked the question. I might just start by talking about the approach globally, and firstly, why we like this space and then our approach globally.

The reason we like this space is because there is a lot of technology and a lot of material science required to package protein in a way that provides barrier protection and shelf life and also provides a consumer with an aesthetically pleasing option and something that stands out on the shelf. So there's a number of things required here. And some of these films, 9, 11 layers of different materials, all providing some sort of functionality and playing some sort of role. So this is a material science-based segment for the most part. That's common across the segments. In some segments, there are some other things required as well, including the right product format, whether it's bags or roll stock and sometimes a machinery offering as well to supplement it.

So that's why we like the space. There's a lot to do there, and there's a lot of value to be created for our customers as they provide value to their consumers. And it's also not a space that everybody can play in because of the technology requirements. And so there's a couple of global player or players that compete in -- around the globe in this area, but there's not a very long list. So that's where we like it.

Now as far as how we're managing it internally, our businesses generally decentralized, and a lot of the action happens on the ground in the different regions. But in this space, there is global coordination occurring in a couple of ways. Firstly, the product development agenda is global already. So we're not developing 1 product for a certain application in North America and then doing something different in Europe. There's a global product development, a road map, to support the protein space.

And secondly, as it relates to capital, as we think about deploying capital in this space, we're going to do that in a coordinated way as well. And so we have a global capital plan to support the protein space.

And maybe just a last point on -- as it relates to capital because you asked about plants. There's not any need that we can see for new factories, per se. The material will ship. Proximity is always important to a certain extent, but these are high-value products. So we don't anticipate new plants necessarily, but we will be expanding our capacity in the conversion assets. Did I cover all of that?

Sure. Well, most. Last one is used to -- do you think closing the gap between Europe and North American in sort of sales, is that obviously going to be many years? Is that a 10-year process? Or a 3-year process? What do you sort of -- [seeing] there?

Well, look, the markets are different in structure. There's more national -- there's a collection of national markets in Europe versus a bit more of a homogeneous backdrop in North America. So that creates a little bit more complexity, which means things evolve generally more slowly in that -- on that continent.

Look, I think these are medium-term growth opportunities. Protein would fall into the medium-term bucket. And what does that mean? That's the sort of 3- to 4-year range. And some of that is because the qualification periods are fairly lengthy. Some of it is because in certain subsegments, there's a system [cell] that's required, which creates a bit more lead time. And then there's just the pounding of the pavement and getting out in front of customers. So I would say it's more of a medium term. It's not necessarily a this year thing, although this segment is growing for us and has actually -- right through the pandemic, we've had mid-single-digit growth in protein around the world and some quarters higher than that. So it is growing. But before you see a step change, it will take a few years.

Okay. Great. And your growth comments just now, does that pertain to this most recent quarter?

Yes. And they're a [healthy]...

(inaudible) growth as well.

Yes. No, absolutely. We were held back a little bit in this quarter by some of those barrier materials that you mentioned, but we are continuing to grow.

The next question comes from the line of Adam Samuelson of Goldman Sachs.

A lot of ground has been covered. I was hoping you could just help quantify where supply chain disruptions and logistics issues and material shortages did cause some lost sales as you quantify what you think the revenue impact of that was in the fiscal first quarter.

Yes. That's a good question. I think best we can do is give you an estimate. We'd say it was a couple of percentage points overall and, basically, have kept us from getting to the growth rates that we would expect in this business, which is low single digit.

In Flexibles, best we could estimate, it probably was 1% to 2%. And again, that's in some of the segments we've already talked about, including medical, where we did have good growth. But we're not as much as we would have liked, including protein and meat, back to Larry's question, to name 2, and certainly, in pharma. And then in Rigid Packaging, it's almost hard to quantify, but there would have been at least 2% to 3% as we could estimate. And that probably doesn't take into account the full demand in beverage. And the beverage space in liquid refreshment beverages packaged in PET containers has continued to just grow very, very well. And so that 2% to 3% is probably understating what the real demand is. That's probably a constrained view of demand as our customers would express it.

So I think put all that together, Adam, and we would say it's probably about 2%, low single digits, which is where the business typically is from a top line perspective.

All right. That's helpful. And then there was a [section] in the press release that says lower sales in Southeast Asia. Presuming that was related to some of the incremental COVID lockdowns that was happening there, but what was the impact of that on the business or in Flexibles specifically?

Yes. Look, it's exactly the driver that you just mentioned, persistent lockdowns and stops and starts through that region, Indonesia and Thailand, in particular, over the quarter. It's an important business for us. It's a growing business. And most of our big, global customers are there, but it's not a very large driver. And I'd say it would be behind the list of the raw material limitations and also just some home and personal care comps that were tough to cycle. So I think that will normalize as well. That region has a lot of intrinsic growth and has demonstrated that over the years.

The next question comes from the line of Jakob Cakarnis from Jarden Australia.

Just wanted to follow up on the PET issue for the rigids business. Can you just let us know the phasing of those supply issues as they relate to the end of the fourth quarter of fiscal '21 and maybe how they are accentuated in the first quarter of fiscal '22, please?

Yes. Look, Jakob, they go back probably to the start of the calendar year, and this is on the input side, this is on the upstream side. So first of all, demand is high up through the value chain, including on the resin producers. We had winter storms here in North America in, I think, in February, which led to some plant outages and some plant damage, and some of the shutdowns go back all the way to that period in time. And we were wearing some of that through the end of the third quarter and fourth quarter of the fiscal year, last year, and then that's continued. We've had a couple of suppliers with real issues. One, in particular, in North America related to that winter storm and then taking some preventative downtime during hurricane season. Just a litany of issues leading to us being at less than 100% allocation.

And we also had another supplier that we source from in South America. And we also time source up in North America to supplement who had a plant going fire in Brazil and take that plant down for quite some period of time. That actually happened in this most recent quarter. So in one way, shape or form, we've had supply disruptions on the PET resin side from -- early in this calendar year.

Okay. And then if we think about the dynamic then clearly, by the time you comp the elevated activity by the second half, there's a clearer runway for you. Are you seeing higher commitments from your suppliers moving into the second half or even the back end of the second quarter?

Yes, we're seeing a gradual increase in the output from upstream across the supply base. And I would say it's gradual. We're not off allocation. We're still not -- we're still not able to source all of the resin that we would like to source. We know that our customers, when they toll resin or buy directly, we know that they also cannot get all of the resins they would like. And that's continued, but it does seem to be easing. And because we can point to the underlying drivers of the constraints, you can get some clarity on when that will start to come back on as we -- if these plants get fixed up and come back to 100%.

The next question comes from the line of Richard Johnson of Jefferies.

Ron, I'm just wondering if you could talk a little bit about the challenges that are posed by customer consolidation. And what I reminded me is this was the photograph is used of BodyArmor in the presentation. And I know in the past, when challenger brands, which have always been a source of good growth for you, have been absorbed by the majors, the price/volume issue or the price/volume scales kind of doesn't help you. So I was just sort of wondering how to think about that.

Yes. Look, we have broad exposure, as you would know, across the beverage space. And we've got a good track record of growing with some of the upstart brands, as you pointed out. It's not so much the upstarts, but also the regional players that generate good growth in pockets of the U.S. in particular, but maybe aren't national. We've been through it. It all goes in cycles. These brands need bottles. They need innovation and help with their branding. So there's always moving parts in terms of the participation in the ownership structure. But at the end of the day, the market demand for the PET format and increasing innovations at lighter weight is still there.

Great. That's helpful. And then just one for Michael. Can you help me understand the adjustments you've made for property and other losses? Obviously, you disclosed that it's a plant that has been down in South Africa. I'm just trying to understand, the number looks very high. Are those all trading losses? What are -- I was just trying to understand what it is, the $28 million.

So yes, Richard, I can help you with that one. So the plant actually in South Africa was burnt down to the ground. So we had a full write-off there. And that included inventory and impairment of all the assets at the site as well as some redundancy requirements that we have to make in that marketplace. So that was really the cost with that. Obviously, against that, we put some insurance recovery to date. So we've provided for some insurance recovery, and we continue to work with our insurers to get the balance of -- or to get further recovery against that loss. So you'll see that progress over time as we get more indications of the level of recovery. But unfortunately, we lost the plant in the (inaudible). And thankfully, our -- we had no coworkers injured. So that was a key item for us.

Great. And then just quickly, cash tax looks very low in the quarter. Is that just a timing issue?

Yes. You might recall last year, we had the CARES Act delay, so we had a delay from the prior year where we paid the tax in the first quarter last year. So that's really the movement year-on-year.

The next question comes from the line of Salvator Tiano from Seaport Research.

So firstly, on sustainability, a couple of clarifications. Firstly, before there was a question about Europe and some new restrictions or some considerations about the future. But in the here and now, they did start, I think, in June or July, major markets, including France and Germany, banning a new number of single-use plastics or restricting them, essentially putting in effect the directive from 2018. So did you see any volume impact from these movements?

And related to sustainability, before you mentioned protein, you like the complexity of the material science and protein films, the multilayer, different types of materials there. But isn't this exactly what you're trying to change and simplify to make actually your films more sustainable to get away from this structure?

Yes, exactly. Salvator, that's a good question. I mentioned that in response to Larry's questions. It's not so much the number of layers, it's the composition of the layers. And we've got a number of innovations that are going to help us compete on the basis of better products in the protein space. We launched one last year called Eco-Tite, which is a recycle-ready PVDC-free shrink bag. So it becomes recyclable, not because it eliminates multiple layers. In fact, on the contrary, we'll continue to have multiple layers, but they will all be of the same chemistry so they're consistent with existing recycling streams. So that is a really important part of the protein opportunity for us is to innovate against the sustainability requirements that are now out there as compared to some of the legacy structures that haven't had those features in mind. So that's that one.

On the first point, look, any of these single-use plastic bans that have been put in place around the world don't affect us because they're predominantly focused on food service items, shopping carrier bags, not the primary packaging that we're making for consumer food and health care products.

Okay. Perfect. And my second question is just trying to understand a little bit the demand profile in beverage. Generally, if I remember correctly, hot fill has been driving the growth last year. But now, it was actually down in North America. So presumably, cold fill was up. What is driving this change in the trend? Was it just the restrictions in the type of resins you needed? Or was it a different demand pattern here?

Yes. No, absolutely. It's just the limitations in the supply chain. So the hot fill business has grown kind of low to mid-single digits for a long time. It can be a little bit lumpy at times, but it's been a consistent grower over more than a decade. We would be the leader in that space by a long margin. We've got a lot of patents and a lot of intellectual property in that space.

This period, volumes were down, I think, 1%, more or less flat. Bear in mind, last year, in the comparable quarter, we had very, very strong growth. And we have, over the last several years, our volumes in that business, in hot fill, are almost 25% higher than they were 3 years ago. And so there's just a bit of a timing issue with the last 90 days, but that will continue to grow well for us going forward.

Our last question comes from the line of Andrew Scott from Morgan Stanley.

Just want to step back to get a bit of a bigger picture question. For as long as I can remember, we've talked about a more direct mechanism for cost recovery in PET and a slower one where you lag in Flexibles. If we roll forward to today, you've done a (inaudible) material, you created 1,000-pound gorilla. As you said, I think your answer to Keith's question is, no one buys better than you. Is there a chance, given the supply kind of chain backdrop, everyone's feeling it, is there a chance, as the industry leader, to really lead the industry and changed the way that you write your contracts in the Flexibles business and take out some of that lag and make it a much more direct mechanism, if you like?

That is -- it's a really good question. And I think the short answer is, as an industry leader, we have -- we certainly have a role to play. I think out of necessity, the lags are shortening. I think we've got contracts and structural mechanisms. We've also had to put surcharges out in certain places. We've also had to add riders or surcharges for certain cost items that maybe traditionally have been covered. So absolutely. I don't know that in Flexibles you get to a monthly price change. It's a little bit complicated to even assess that at that cadence. But certainly, we're getting closer to quarterly on average. And we're going to continue to put prices up.

As Michael said, we're just there on about $200 million for the quarter in Flexibles alone, almost $300 million for the quarter overall. That's a run rate of $1 billion in price, and we're going to continue to put price up as the inflationary costs persist. And that's all part of just maintaining our margins and maintaining the discipline that we've -- that you should come to expect from us.

Okay. Understood. And just a quick one, just interested, over the period, how have you seen the recycled resin price behave? Obviously, it doesn't necessarily have the same input pressures, but I imagine it's tracked similarly. Is it center premium sort of blow out? Or is it coming a little bit versus the main commodity resin?

Firstly, I would say that we're continuing to increase the amount of recycled resin that we're processing. So in Rigid Packaging, we ended last fiscal year at about 10% of the resin we converted was recycled. At the end of the first quarter, we were closer to 13%. So that's a reasonable increase in a 90-day period. The pricing premium has actually expanded. It's somewhere between 30% and 50%, depending on the week and the month, and it's probably at the higher end of that range now.

I think that it's, in some ways, linked to virgin, but I think it's almost decoupled from that, Andrew. I think it's more the supply versus the demand for recycled content. And as it relates to rigid containers which can be made from 100% recycled material, the demand continues to strengthen as brand owners look to feature that as part of their marketing. And I mentioned one of the examples earlier where we took a bunch of share out of a glass format straight to recycled PET. And a lot of that was on the basis of the brand owner marketing, the container is made with 100% recycled material.

Ladies and gentlemen, this is all the time we have for question-and-answer session. We will now conclude the question-and-answer session. I will now turn the call over back to Mr. Ron Delia for closing remarks.

Thanks, operator, and thanks for everyone on the call today. Just to quickly summarize, we're navigating well in the environment that has created a lot of challenges. The first quarter, in line with our expectations, and we're reaffirming guidance for the full year. And we continue to be excited about the future for growth and value creation from Amcor. So thanks very much, and we'll talk to you next quarter.

Thank you again for participating. This concludes today's conference call. You may now disconnect.