Good day. My name is Savannah and I will be your conference operator for today. At this time I would like to welcome everyone to the Amcor Third Quarter 2022 results. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise, and after the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. And I would now like to turn the conference over to Tracey Whitehead, Global Head of Investor Relations. Please go ahead.

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. And 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 the Ukraine. We moved quickly to close our Ukraine site in Kharkiv before the start of the invasion to protect our local team. And 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 has 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…

Thanks, Ron. So I'll begin with the Flexibles segment on slide 7. The businesses 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. And 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. And 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…

Thanks, Michael. Before turning over to Q&A, I'd like to spend a few minutes on the longer term starting with our investment case on slide 11. We've maintained a consistent strategy that's guided how we've evolved our portfolio over the years, so that we're the clear global leader in most of our chosen segments within the primary packaging space for fast-moving consumer goods and health care products. We have absolute and relative scale advantages and a strong track record of earnings growth, margin expansion, significant and growing free cash flow of over $1 billion each year and maintaining a strong investment-grade balance sheet. And that cash flow and balance sheet strength enable us to step up investments for growth to drive increased momentum in the business. At the same time we have the capacity to return a significant amount of cash to shareholders in the form of regular share repurchases and a growing dividend, which currently yields around 4% or double the average of the S&P 500. We continue to see no shortage of high-quality organic growth opportunities across the three areas that we've highlighted in previous quarters and which are shown on slide 12. I already mentioned priority segments and Michael's comments highlighted the mix benefits that are important -- are an important driver of earnings growth. We also have a leading and well-diversified emerging markets portfolio, which we expect will grow at mid-single-digit rates over the long term. And innovation is increasingly a clear differentiator and growth driver for Amcor, particularly as it relates to the development of more sustainable packaging, such as the groundbreaking global product platforms shown on this slide, 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…

[Operator Instructions] And our first question will come from Anthony Pessina with Citi. Please go ahead.

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?

Yeah. I'll take that one. It's Michael here. Look the bottom line is it's all working capital related. And the impact -- the reason we're at the lower end of the range there and still holding to the range is really around the continued escalation in raw materials that we didn't see at the beginning of the year. And so through the year, we've seen that continue -- we're holding our working capital to sales ratio. So that's been really pleasing through the year, as we're managing working capital in a great way to some extent. But just from a pure sales revenue increase and an annualized basis, it's going to be like in that $1.5 billion range. That just means you've got $120 million impact on working capital outflow from that raw material increase. Other than that nothing else of note. Everything else is in line as we expected.

And our next question will come from Keith Chau of MST. Please go ahead.

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? And 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 the Ukraine and three in Russia. We've got about 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. And so we closed the site in the Ukraine just before the invasion started and we're 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. And 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. And so we continue to support them while we explore our own options and look 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. So, I think we'd ask you to wait and see and view our actions more so than anything that we might say in advance. And 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.

Our next question will come from George Staphos with Bank of America. Please go ahead.

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 a flat or down, LatAm remained down, even 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. Look, I think the business is performing really well. So, we had 5% organic growth -- sales growth across the business on relatively flat volumes and then converted that to 10% EBIT growth across the segment. So, we're really pleased with the profit conversion. North American business continues to grow. The sale organic sales growth is mid-single-digits with some volume growth in the low single-digit range. The European business in the quarter had a slightly higher organic sales number still in the mid-single-digits though on volumes that were modestly down which I'll come back to. And then the organic sales growth in the two emerging markets businesses was up. Now, with regard to North America and Europe, we're particularly pleased with the performance of both of those businesses, the two larger businesses in the quarter and in particular, because of their management of mix. Mix, as you know, from a long period of time in Amcor has been a key driver of profit expansion over many, many years. And it's a function of orienting our portfolio more and more towards higher-value segments and higher-value products and that's exactly what we've seen in the quarter. So, in Europe, we saw a trade out of lower-margin products that are more intermediate in nature into other converters and we used constrained raw materials to support some of our higher-margin segments in pharmaceuticals medical device packaging, pet food, coffee and some of the segments that have been focal points for us for many years. That's really the story of the quarter. It was really very much about mix.

And our next question will come from John Purtell with Macquarie. Please go ahead.

Good day, Ron and Mike how are you. A – Ron Delia: 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? A – Ron Delia: 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. And I think, so far if you take the comments from other public companies through this quarter, there hasn't been very much demand impact from the prices that have been taken across the segments we're exposed to. I think 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. And so far we've not seen a demand impact.

And our next question will come from Adam Samuelson with Goldman Sachs.

Yes. Thank you, good evening, everyone. I maybe hoping to dig a bit more on the mix benefits in the period. And Ron you talked -- just kind of alluded to prioritizing certain customers in the health care segment in particular. And just how do you think about the durability of those benefits? And if we -- raw material availability improves over the next year, do you think there's still net margin benefits from the volume you'd be recapturing, or how do we think about the margin tailwinds or headwinds that might present into fiscal 2023? Because you seemingly had a pretty notable shift in your product mix in the period. A – Ron Delia: 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. And this -- 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. And 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 focal point 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.

And our next question will come from Larry Gandler with Credit Suisse. Please go ahead.

Hi, thanks, guys. My question is on the CapEx guidance Ron. I think you said 3% to 4% for the – was it 4% to 5% for the foreseeable future. And I can understand at the current point you're building quite a few factories there that it's 4% to 5% now. But I'm just wondering are you thinking that philosophically, the business needs to invest more organically and maybe you can roll up into that perhaps the acquisition pipeline for quite some time might be something you're thinking won't be too active.

Yes. Look, Larry, just to be clear we've pointed to the historical range of 3% to 4% of sales. And what we've said is that expect that that will be more in the 4% to 5% of sales range going forward. And 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 rigids 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. And when I say good organic opportunities, I mean those where we could deploy capital and generate an attractive return for shareholders. 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. And as we look at alternative uses of that capital, we have, we believe an ability to balance funding the organic growth that we see continuing to pursue acquisitions, buying back shares in the absence of acquisitions and then obviously maintaining a pretty healthy attractive dividend. So 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.

Our next question will come from Mike Roxland with Truist Securities. Please go ahead.

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. I mean you can rest assured we are doing everything we can to find viable alternatives when materials are just constrained. I think that – we have an advantage in that we're a large-scale buyer and we're buying materials in multiple regions. So the first thing we do when we run into any kind of a constraint is we look to source the material from another region. And so we've been able to tap into our global network and our global footprint to I think navigate the situation quite well. But there are times when there's just no material available globally. And that's why in parallel we're looking at reformulations wherever possible. Those typically do not happen quickly. And I think there's nothing I could point to 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.

And our next question will come from Nathan Reilly with UBS. Please go ahead.

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 playing 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.

And our next question will come from Ghansham Panjabi from with Baird. Please go ahead.

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. And how do you see that sort of 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 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 sort of 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, I mean, 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. And more often than not it's been some of the specialty materials in Flexibles and rigids which are additive to the primary material. So it's not been -- 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 which at times has been in short supply. Look, I think, this too shall pass. I mean there's no reason why we should expect indefinite outages. But at the moment it's just been continued volatility.

And our next question will come from Richard Johnson with Jefferies. Please go ahead.

Thanks very much. Ron, my question is on rigid plastics. One of your major -- in fact your major competitor in the US talks about resin being something over 40% of the cost of sales. Is that the same for you? And probably more pertinently can you talk please about the 60% of non-raw material cost and give -- and provide whatever detail you can on the inflationary pressures in that part of your cost basket please?

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. And I would have said it's probably in the 60% to 70% range. And that's as you know a straight pass-through that's linked to the commodity index either PET or one of the olefins. But 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 I mean where we're seeing increases is predominantly in energy and freight and it varies by region. But in -- we're seeing inflation there in the range of kind of 15% to 20% but the point to remember is that those elements of our COGS are quite small 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. And 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 I guess labor wage rates for us. So we've had disruption in labor particularly in North America and Europe around COVID and the like which we've had to deal with. And we've seen some elevated over time and other labor costs associated with that. But it's again been manageable and we haven't seen the rate increases although we are expecting some of those to start to come through.

And our next question will come from Kyle White with Deutsche Bank. Please go ahead.

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. And what did you assume in your outlook going forward from that situation?

Yes. Look China is a big important business for us about 5% of sales. It's a business -- it's our largest emerging markets business. We operate the Flexible packaging segment there. So there's not -- Rigid Packaging doesn't participate in China. And it's a business that's been growing at a pretty healthy rate for the last several years. First half as well we had kind of mid single-digit top and bottom-line growth. It's also a very profitable business. We have a national footprint there with 10 or 11 factories across the country. But importantly it's essentially a China for China business so we do very little importing or exporting in and out of China. The third quarter was a little bit slower I think primarily because we're cycling an incredibly strong third quarter last year, which probably had to do with the timing of Chinese New Year as much as anything else. But our business was flat to modestly down in the third quarter. April definitely slowed. In April, I would say is, where we started to see some impacts of the lockdowns and not so much on our operations. But in some of our customers' plants, where they weren't able to operate for periods of time we definitely saw a slowdown in April. And honestly, it's very difficult to tell what March or June portends. So our guidance range from an EPS perspective, includes a range of outcomes on China although bear in mind, we're down to two months we know the outcome for April. So I think we feel pretty comfortable with the range and the consideration we've given to the dynamics in China.

[Operator Instructions] Our next question will come from James Wilson with Jarden Australia. Please go ahead.

Hi, guys. Thanks for taking my questions. It's James Wilson standing for Jakob Cakarnis from Jarden. If we back out the $120 million of raw material impacts from your $200 million working capital field over the quarter beyond seasonality what's giving you confidence that this will unwind in the fourth quarter, especially given that your guidance remains unchanged? And also just on that, are you able to tell us what this inventory spill up is occurring more in recent or in Flexibles?

Yeah. Hi, James, thanks for the question. I'll take that one. Yeah, look what we've seen actually year-to-date in working capital is about a $200 million outflow versus prior year and about half of that is price. The other half is building raw material and finished goods. This year, particularly, we've been able to build some inventory in the Rigid Packaging space, which we weren't able to do last year and that's ahead of the heavy season in Q4 which is typically what we would normally see. We would normally see inventories build leading into Q4. So that's part of it. In addition to that in the Flexibles space and across the board we've also conservatively increased in inventory particularly in some of the products we've had shortage of supply on. So we'd expect that that is going to unwind that component of the – the inventory increase. It's going to unwind in Q4 as we cycle through our busiest quarter of the year. So that's how we factored that into the full year guidance.

And next we have a follow-up from George Staphos with Bank of America. Please go ahead.

Hi, guys. Thank you. Thank you very much. Thanks for taking the follow-on guys. You had talked about increasing your growth investments and you cited regionally where you're putting various products. Ron given some – and Michael some of the volatility that we've seen over the last couple of years would that perhaps change where you'll put the next growth investments in high-value investments, or really it doesn't really affect where you might put either a coffee line or a high-barrier line or personal care line? And are you at all raising the required rates of return given the volatility that we've seen in some of these markets again either for geopolitical or from macro reasons? Thanks guys and good luck in the quarter.

Yeah. Thanks George. It's a really good question. I mean, you're throwing intellectual property protection into the mix. And we've always had different criteria, or differentiated criteria I should say for where we put capital and differentiated return expectations for any capital project. The good thing about our business is that, the incremental capacity is small as a percentage of the total capital that we'll deploy in a given year. So if you can imagine that our capital spend will be $500 million, $550 million or something like that. A new – even a new plant to produce one of the platforms that I've talked about might be in the $20 million, $30 million range. So none of the projects that, I was alluding to earlier with the exception of the new plant we built in China, which is a little bit more none of them are a really substantial portion of our overall capital spend in any one year. And so what that does is creates a portfolio effect across the different investments that we make which in and of itself is a risk mitigation methodology, if you could think about it that way.

And our next question will come from Larry Gandler with Credit Suisse. Please go ahead.

Hi, Ron. Thanks guys. I'll ask my obligatory ESG question. But, Ron, the US the European Union is, I think reviewing the waste and packaging directives looking to table a new bill into the European Parliament. And I think it's going to involve end producer or end user recycling schemes like container deposit similar to that, but for Flexibles. I'm just wondering if you guys are sort of reviewing that situation. And what would those sort of schemes mean for a converter?

Yes. There's a lot of legislation in play in Europe and in the United States and elsewhere in the world. We're across all of it, Larry, as you could expect, where we provide comments. We're often consulted for perspectives, which we provide both directly and through the various associations and affiliations that we have. Generally speaking, we see these regulations as innovation opportunities and ways to further differentiate and add and create value to our customers. In many cases where there's an extended producer responsibility, regime or plastics tax or something of that nature, there's an eco modulation component, which means the fee that the brand owner ultimately the consumer will pay can be reduced if the package or the product overall has a lower environmental footprint. So that creates an opportunity for us to add more value to our customers as they deal with these regulations. And generally speaking, if it's a well-constructed EPR where the industry has some control over the framework and where the funding goes back to the waste management infrastructure, we're supportive. We're certainly not supportive of general revenue raising taxes and things like that, but where well structured frameworks are in place we're certainly supportive.

And our next question will come from Andrew Scott with Morgan Stanley. Please go ahead.

Thank you. Thank you. Hi, Ron. Just a question on the Flexibles business. You've spoken about targeting or focusing your capacity towards your higher value customers, which obviously, perfect sense. Just interested as we go forward and capacity comes back, do you see all of those customers coming back into the mix, or do you for want of a better word see yourselves doing some bottom-slicing which is something you've done historically very well.

Yes. Look, I think, to the extent that we'll have better differentiated products then we'll be able to capture any portion of the market that we've not been able to satisfy more recently. There is an element of bottom-slicing in the mix outcomes that you've seen even in the most recent result albeit out of necessity for lack of raw materials. But look I think we're in the business to sell and sell more units than rather than less. And at the moment the limiting factor has been raw materials. That will ease over time.

And that will conclude today's question-and-answer session. And I would now like to turn the call back over to Ron Delia for closing remarks.

Okay. Thank you operator. Thanks everyone for joining today and for your interest in Amcor. We've had a strong quarter. We've had a strong first nine months of the fiscal year and have increased our expectations for the run home to the finish. And again, thanks for your interest, and we'll speak to you all next quarter.

And this will conclude today's conference. Thank you for your participation and you may now disconnect.