Hello. And welcome to the Amcor First Quarter 2024 Results Conference. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator instructions] I’ll now turn the conference over to Tracey Whitehead, Head of Investor Relations. Please go ahead.

Thank you, operator, And thank you, everyone, for joining Amcor's Fiscal '24 first quarter earnings call. Joining today is Ron Delia, our Chief Executive Officer; and Michael Casamento, our Chief Financial Officer. Before I handing over, a few items to note. On our website, amcor.com, under the Investors section, you'll find today's press release and presentation, which we'll discuss on this call. Please be aware that we'll also 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 with several factors that could cause future results to be different than current estimates. Reference can be made to Amcor's SEC filings, including our statements on Form 10-K and 10-Q for further details. Please note that during the question-and-answer session, we request that you limit yourself to a single question and one follow-up and then rejoin the queue if you have additional questions. With that, over to you, Ron.

Thanks, Tracey, and thanks everyone for joining Michael and myself today to discuss Amcor’s first quarter results for fiscal 2024. We'll begin with some prepared remarks before opening for Q&A. As seen on slide 3, Amcor continues to be an industry leader in safety with a recordable case frequency rate that has trended significantly downwards over many years. In our first quarter, 65% of our sites around the world were injury-free for the past 12 months, with more than 30% injury-free for three years or more. Safety is deeply embedded in Amcor’s culture, and providing a safe and healthy working environment is the number one focus for our global teams. Turning to our key messages on slide 4, first, we delivered a first quarter result in line with our expectations despite a challenging demand environment characterized by continued weak consumer demand and ongoing customer destocking. Against this backdrop, our teams executed well and remained focused on managing the areas under their immediate control. Second, the first quarter performance puts us on track to deliver against our full-year guidance, which we are reaffirming today. Our expectations for phasing through the two halves of the fiscal year have not changed, and we continue to expect adjusted EPS for the second half of fiscal ‘24 to grow by mid-single digits over last year on a comparable constant currency basis. As a reminder, there are several reasons why we expect a stronger second half, including continued benefits and increased earnings leverage from ongoing price and cost actions, additional benefits from structural cost initiatives building through the year, a reduction in interest expense headwinds, and favorable comparisons to the prior year's volume performance. Our third key message is we're making significant strides in our sustainability efforts within our own operations and in the design of…

Thanks, Ron, and hello, everyone. Turning to our flexible segment performance on slide 6, net sales were down 8% on a reported basis, which includes a favorable impact of 3% related to movements in foreign exchange rates and an unfavorable impact of 2% related to the pass through of lower raw material costs. On a comparable constant currency basis, net sales were down 6%, reflecting 8% lower volumes, partly offset by price mixed benefits of approximately 2%, as the business continues to take pricing actions to recover inflation. First quarter volume trends remain similar to last quarter with all regions continuing to be impacted by lower consumer demand and destocking. Volumes across North America and Europe were down high single digits with Europe a little softer than North America. Volumes in Latin America were also down high single digits and in Asia volumes were broadly in line with last year as continued growth in India in a return to positive volume growth in China offset lower overall volumes in Southeast Asia. The impact of destocking across the flexible business was similar to last quarter, accounting for approximately one-third of total volume declines. By end market, we continue to see stock demand and destocking impact categories, including protein, coffee, liquid beverage and healthcare. Pet care and confectionary categories remain strong in key markets with volume growth delivered in the quarter. Adjusted EBIT was down 5%, incomparable constant currency terms for the quarter, reflecting favorable operating cost performance and price mixed benefits offset by the lower volumes. Turning to Rigid Packaging on slide 7, reported sales were 6% lower than last year, including the favorable impact of 1% related to movements in foreign exchange rates and the unfavorable impact of 1% related to the path to a lower raw material cost. On…

Thanks, Michael. Before we open the call to questions, I want to provide a few words on the building blocks that inform how we think about growth over the longer term and then finish with a brief preview of our 2023 sustainability report, which will be released in the coming days. Looking at slide 11, we have multiple drivers that have enabled us to deliver solid and sustainable earnings growth over the longer term, including opportunities in priority categories, emerging markets, and through innovation. These have not changed and collectively give us confidence in our ability to deliver future growth in line with our historic trend rates. Turning to slide 12 and some highlights from our forthcoming sustainability report, which covers the significant strides we've made in product development and operational sustainability. Sustainability provides meaningful opportunities to differentiate and drive growth and value. This is particularly important in today's landscape as consumers focus on the critical need for more sustainable, high-performance packaging solutions, and as customers increasingly look to work closely with responsible, sustainability-focused partners. Starting with our own operations, since launching Amcor’s EnviroAction program 15 years ago, we've diligently worked towards reducing our greenhouse gas emission intensity and have achieved a cumulative reduction of more than 40% against our 2006 baseline. Along the way, we've also increased our ambition and committed to net zero emissions by 2050 in line with the science-based targets initiatives. In fiscal 2023, we delivered an annual reduction in absolute emissions of 10% through a range of measures, including an increasing focus on the use of renewable electricity. In addition to carbon-related objectives, we maintain robust targets for reducing water and waste. 100% of our sites have a water management plan in place, and 143 of our sites have achieved zero waste to disposal certification,…

Your first question comes from the line of Ghansham Panjabi with Baird.

Thanks, operator. Good day, everybody. Ron, could you give us a bit of a sense as to what your base case is for volumes for fiscal year ‘24? And I'm just trying to get a sense as to the sequencing beyond the first quarter, which was down 8%. Would it be sort of 4Q before you hit that inflection point on a year-over-year basis?

Thanks for the question, Ghansham. Look, firstly, as we entered the year, we flagged that we expected volumes to be down mid-to-high single digits for the first half. And that's exactly what we saw in the first quarter. And we expect similar trajectory for the second quarter as well. As we look forward to the second half, we do expect a trajectory to improve. So we would expect that the destocking will abate as we get past yearend and as we start to cycle several quarters of inventory reductions, we would expect that impact to start to moderate. And we would expect for the second half volumes more reasonably or flat to up to plus or minus low single digits. I think it's more reasonable to expect that the trajectory will improve now exactly the rate at which that trajectory improves in the second half is difficult to predict. But certainly as we get into the fourth quarter, the comps get a lot easier. And we would expect things to be improving as we exit the year.

Okay, thanks for that, Ron. And I'm just trying to understand the divergence also between volumes which are quite a bit lower against improved price mix as you've established over the last couple of quarters and sustainability of that dynamic. And typically during periods of weaker volumes, there tends to be some sort of a trade-down and you actually are showcasing the opposite. So more color on that, please.

Well, look, mix over a longer period of time over multiple years is a major source of earnings leverage for us and has been over a long period of time. As we emphasize higher value segments, both product segments and market categories, mix is a very important part of our playbook. For this year, on a full year basis, we expect mix to be more or less neutral. We've had a reasonably good start in the first quarter with positive mix in both segments. We would expect that probably will continue in the second quarter, but for the full year, we would expect that might normalize a little bit. The reason for that is some of the segments that are higher value have declined at a lower rate than some of the lower value categories. But as we look forward into the second half, we think that the healthcare destocking will continue and ultimately that will balance out the positive first quarter. So all up relatively neutral for fiscal ‘24, but on a multi-year basis, mix is absolutely part of the earnings algorithm going forward.

Your next question comes from the line of Daniel Kang with CLSA.

Good morning, everyone. I guess the first question for me is on destocking cycle please, persist in the quarter. Are you seeing any evidence or signs of destocking easing as we walk into the second quarter? Perhaps you can comment on what you're seeing on customer stock levels as well.

Yes, look, I think we're using the term destocking. I think what we're seeing is more broadly is just inventory reductions. Destocking might imply that inventories started at a higher level. And I think that's certainly true in some categories that were subject to more of the supply chain constraints and raw material shortages over the last 12 to 18 months. There certainly were some inventory accumulations, but I think we've got a few different dynamics that are driving the inventory reduction trend. The first is for those categories that started at a high level, obviously they're working down the excess at a time when consumer demand has softened. And also carrying cost of inventory is now much higher than it's been in a long period of time. So I think that we're seeing a number of companies including Amcor try to drive inventories down to lower levels than they've been in quite some time. I know that we are certainly on that path. So I don't expect that trend to be beyond to be passed us in the second quarter, particularly as we're heading towards a yearend and cash flow at yearend becomes an important metric that companies are driving towards. So we would expect that the destocking will abate in the second half but not in the second quarter.

Got it, thanks Ron. Secondly, I'm just interested in the progress of the new packaging products AmLite, AmFiber, et cetera. Realize it's early days, but can you comment on the volume growth and customer adoption that you're seeing and the pricing premium that you're achieving?

Yes, look, we're really excited about some of those platform products that you mentioned, AmLite, which is a recyclable ready retortable structure, AmFiber, which is a paper based solution, AmSky, which eliminates PVC and PVDC from blister packaging. We think that we've got some really special products there with a really compelling value proposition for customers that are trying to drive their own sustainability agenda. It is early days. Several of those products though are generating real sales. So AmPrima which is also a recyclable-ready alternative, AmSky, AmFiber, they're all each generating sales in the tens of millions of dollars, low tens of millions of dollars, but real meaningful sales. AmSky, it's early days and it's primarily oriented to the pharma industry, so the qualification period is a bit longer. But we are in active trials with a whole range of customers on that one as well. So we continue to be really excited about those platforms that you've asked about.

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

Yes, thank you. Good afternoon. I was hoping maybe first talk about just the performance in the quarter from the difference between volume and comparable constant currency operating profit growth and this very little volume you leverage in the period and to contrast the fiscal ‘23 experience, maybe just Ron still more color kind of how are you able to now that gap and volumes on down, mid to high single digits, kind of keeping the profit declines that narrow.

Got it. Look, it's just been really aggressive pulling the cost lever really aggressively. And we continue to do that through the back end of fiscal ‘23 and into the start here in the first quarter of fiscal ‘24. So you might recall in August, we talked about the cost actions that we took in fiscal ‘23 where we reduced costs by over $200 million. We reduced headcount by over 1,200 people. We had pulled the procurement lever really hard. We cut overheads. All of that continued in the first quarter and actually accelerated. So in the first quarter coming off a year where we took $200 million of cost out, in the first quarter we took another $70 million of cost out versus the first quarter of the previous year. And so that's really resulted in improved earnings leverage and much, I'd say a much more dynamic ability to flex costs in the face of weaker volumes.

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

Hi, everyone. Good morning. Good afternoon. Thanks for taking my questions. I just want to make sure it's two questions per or one question per. I don’t want to overdo the quota here.

George, for you, it's two.

Okay. I'll try to keep them good then. So I guess the first thing I wanted to ask is, in an environment where we're still to some degree waiting for customers, your customers, to begin promoting more aggressively to try volume, if you agree with that premise, are you starting to see that? And how does that reconcile with your wanting this to push more innovative new products, new product sustainability, which are typically going to have a higher price point? Who's winning that tug of war right now as you think about it? And are we seeing more promotional activity?

Look, it's anecdotal at best, George. I mean, there's, I think a general recognition across the customer base that the price lever has been pulled really hard. And you see that from the results of a range of consumer companies that price has been a real driver of revenue growth more so than volumes. And maybe that, maybe those two variables can be brought back into better balance over time. And you do hear anecdotally, more customers talking about reprioritizing volume or balancing their mix a little bit more towards volume. We need to see it, and we haven't seen it yet. And so we're not setting the business up on the expectation that happens. In fact, our second half earnings uplift that we're expecting is not at all levered to an improved demand environment and is not at all predicated or dependent on consumers taking more active approach to promos.

Thanks Ron. And the second question, broadly, can you talk a little bit about the momentum you apparently are seeing in protein packaging? You have a new high barrier when that you highlight on one of the slides. You have your recycle ready ecotype package. Is there a way to put a quantum size? What kind of momentum you're seeing? What kind of incremental revenue you're getting and broadly why you are gaining this momentum in the market given that you're the smaller player in the market. Thanks, and I'll be back if there's time later on.

Okay. Look, I think it's the early innings of our journey on protein, in particular our journey as a full service solutions provider in meat and protein packaging, which includes the ability to offer. equipment now as a result of the acquisition that we made earlier this year in Moda. It's early innings. I think that we are picking up some modest pieces of business along the way, but I would also point out that meat sales have been weak. We're in a down part, a down cycle, or a trough, let's say, a low point of the cycle in beef in particular. And so meat sales have actually been weak across the company in the first quarter. It's a long game, and we're in the early innings. And so I would say that we're really confident in the value proposition that we have and that we're building. We think we've got some really special films, and we think we've got a really special comprehensive offering that includes now equipment and service. But it's very, very new, very recent. The Moda acquisition is only a few months old.

Your next question comes from the line of Sam Seow from Citi.

Good morning, good evening, all. Thanks for taking my question. Just a simple one on the balance sheet. Just wondering if we guide, get back second half volume stabilization. Would that result in net debt outside your range or would there be enough in the seasonality and the unwinding of working capital to bring that debt irrespective of [inaudible] continued to decline?

Yes, thanks for the question, Sam. I can take that one. Yes, look, I mean, we finished the quarter with net debt kind of $6.5 billion $6.6 billion and leveraged at 3.3 times, which was right in line with where we expected it to be. And that takes into account the relatively normal seasonality of the cash flows from fourth quarter to Q1. We typically see a tick up in leverage versus we were at 3x in June. The other factors impacting leverage are really on -- through temporary impacts. Firstly, we're lapping now three quarters of the vested Russia earnings and that's being reflected in the last 12-months EBITDA and that's ahead of us getting the benefit of the restructuring which is going to start to come through in H2. So you'll start to see that improve absolutely. And then the other one is really the higher than normal working capital levels. We've been driving inventory down but at the same time payables have come down at a faster rate really just on the back of the lower demand environment. So again we'd expect that to start to normalize as we get into the second half and we'll get the leverage back to 3x by the end of June. So that's kind of the way we see it and as we look forward from there, there'll be further opportunity for improvement particularly in the working capital as it continues to normalize and as we cycle through the full 12 months of the Russia and the benefits from the restructuring that we're going to get into the P&L. So we're on track there.

Got it. And just maybe a follow-up. You talked at length about your volume expectations of the year. Maybe thoughts on pricing kind of expires through given end mark weakness and ongoing destocking.

Well, look our pricing strategy has been first and foremost to compensate for inflation and that's our approach, simple as that, we've had inflationary pressure on the cost base for 12 to 18 months now and as a result we've taken price as a high priority from an industry leadership perspective and certainly prioritized price and inflation recovery over volume. Rates of inflation are starting to ease. We haven't seen large parts of the cost base go through experience decreases yet, but the rate of inflation has eased and so our pricing, the pace of our pricing will ease as a result and beyond that our pricing approach is really just a price for value. If we have a differentiated value proposition, there's an opportunity to generate a positive price but that's something that needs to be earned every day in the marketplace.

Your next question comes from the line of Mike Roxland with Truist Securities.

Thank you, Ron, Michael Tracey and David for taking my questions. Actually, just question just had one question really. The company has made solid progress, streamlined the portfolio, another $70 million, sub saving this quarter, closing plants, realigning production, headcount reduction. If when volumes begin to improve, should we expect to see a reversal of this and you putting more capital to work in new plants, increasing headcount? Or really does your existing footprint, as it stands today, have enough excess capacity to absorb incremental volumes without any additional investment?

Yes, it's a great question. I think the short answer is we're going to be well set up when volumes come back and I think we're going to get even stronger earnings leverage as volumes return. We're taking really two sets of actions on the cost side. So the first, the $70 million that I referred to earlier that you just referenced is really ongoing productivity oriented benefits where we're taking shifts out, reducing headcount, driving procurement, optimizing the overhead and SG&A part of the business, kind of steady state but aggressive belt tightening, I would say. That's one form of cost reduction and I don't think a lot of that, some of it will come back obviously as volumes come back you need to add. You might need to add shifts. But we will be in a much better position from a leverage perspective as volumes return. So that's on that side. The second stream of cost takeout relates to more structural initiatives, which are more of the restructuring type, which are plant closures and more permanent and more deep cutting overhead reductions. We really haven't seen the benefits yet from those initiatives. Those will start to build in the second half, as Michael referred to earlier. We expect to get about $35 million of benefits from more structural initiatives in the second half. And those also will be long lasting and sustainable, because we're going to be taking out several plants in the network that we can compensate for with the remaining footprint. And in many cases, when we close a facility, we relocate the productive assets into another facility, and we don't really take capacity out necessarily. So I think we're going to be well positioned when and if volumes return.

Your next question comes from the line of Richard Johnson with Jefferies.

Thanks very much. Ron, can I just return to the subject of price, and in particular, the US protein market? I mean, I'm interested in the comments you make, and I'm just trying to reconcile that with what others in the market are saying, and they're referring to significant overcapacity in that market, which makes sense given how weak the end market is, which is leading to acute price pressure because of that unused capacity. Just be interested to get your thoughts on that.

Yes, I don't know that the pricing pressure or the intensity of the competition is any more so at the moment in that segment than it has been in the past, or that it will be in the future. You have to remember as well that the assets that are deployed against that segment are fungible across a range of categories. So we have film assets that produce into the protein market, also produce specifications for dairy and a number of other segments as well. So it's certainly not a market that we look at as being overly capitalized or having much excess capacity.

And then as you sort of spread that through the US around the different categories, I mean, can I extrapolate from your comments around how that you think positive price makes trend, that's really across all the categories or are there any areas where price is starting to give back price, which inevitably you would expect given how far price has gone at some point that will normalize, correct?

Look I think it's going to be a function of inflation. The rate at which pricing changes in this industry I think from this point forward will be primarily a function of the rate and the direction of travel of inflation. It's not been an industry over the years that's had positive price in the absence of value, it's been an industry that is compensated for inflationary cost pressures and I think that's kind of where we're at right now.

Your next question comes from the line of Cameron McDonald with E&P.

Good morning, Ron, Michael. And can I just ask a question on slide 10? So you've got the average of high single digit of 8% from ‘14 to ‘23, but if we think about the environment, we had interest rates collapsed to zero during that period. You've had a significant transformational acquisition with Bemis. You've had the buybacks, et cetera. When you then talk about the high single digits expected long term, how do we marry that up? Or do you still think that there are significant M&A opportunities and the synergies that will create? And then but I suppose I come back to that interest rate environment; you've got a significantly higher interest rate that's going to be impacting that EPS.

Yes, look, it's a good question because it's really a segue into why we're confident that we're going to get back to kind of high single digit growth rates going forward. And we just believe in the conviction of our formula that served us well over many years and that is that volumes in a normal environment will grow sort of low single digits. We will get leverage in terms of higher rates of profit growth than that because the mix will improve over time and as we generate more productivity in our operations. So low single digit volume growth will translate into higher rates of profit growth. And then the business generates a substantial amount of cash and really excess cash, excess to the needs of the business from a CapEx perspective and to fund the dividend. And with that extra cash, our first priority will be to do acquisitions as we've done over a long period of time and short of acquisition opportunities will buy back shares. And so you go from low single digit volume growth to something higher than that mid-single digit type profit growth organically and then the cash flow and balance sheet optionality to generate further EPS growth through either acquisitions or share repurchases. So that's the formula. That's the formula that's delivered the 8% over almost a decade. And that's the formula that we'll expect to deliver the same types of earnings growth rates going forward.

Thanks. There's a follow up to that just on the M&A. When you think about the industry at the moment, you've spoken about the industry doesn't really have real price power without value. You've got a changing expectation around sustainability. We've obviously seen WestRock and Smurfit get together. Do you think the industry needs to more significantly and aggressively consolidate to change some of those industry dynamics?

Well, look, we have been big beneficiaries and we've driven a lot of consolidation over the years. I think what's important is industry structure and industry dynamics at a segment level. The fact is that there are a lot of players that are very small in the industry. So when we think about our M&A agenda, it's largely going to be bolt-on. We've been quite active even in the last 12, 15 months or so. We've done four small deals and you can continue to see, you can expect to continue to see us do that. Look, a lot of the value that comes out of those deals is cost synergies. I think that's where most of the value is going to come from in this, particularly in this type of environment and we're going to be active participants in the M&A space.

Your next question comes from the line of Nathan Reilly of UBS.

Thanks, Ron. Just a follow-up in terms of free cash allocation point. Can you talk about where deleveraging sits in the context of the allocation of excess free cash flows?

Yes, I mean obviously we're committed to an investment-grade balance sheet. And so for us, that kind of, we've had been in the range of 2.5x to 3x leverage for a long time and that's where you should expect us to sit as we move forward. So to Ron's point, as the earnings grow, the cash flow grows and we can reinvest that in the base business. So you should expect CapEx over a period of time to increase as well. So we've been increasing our level of CapEx to grow organically. That's been in that 3% to 4% range. It's now, as we look longer term, that's probably going to be more in that 4% to 5% range. That's going to drive the organic growth and we still have cash left over to invest in the M&A agenda as a priority and again grow earnings through that, create value and then do buybacks. And so as you look at all that, that we would continue to maintain that leverage in that 2 .5x to 3x range. So that's how you should think about it. The excess cash will be deployed in that way.

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

Good morning, Ron and Michael. Hi, Tracey. Just a couple of questions, if I could. The first is on BOP1, obviously there's been concerns across the sector and it's obviously all still sort of long term in terms of potential impacts on food consumption and packaging demand but still very early days but do you have any general observations, Mike?

Yes, I do, John. I think firstly I would just yes, I just want to reinforce that we have seen no impact whatsoever on demand in our segments from reduced consumption resulting from these drugs so the first point I want to make is that we've seen no impact as of yet. I think in terms of trying to estimate the future impact, I think there's some things that we, there's plenty of things we don't know and there's some things that we do know based on history. I think what we don't know is the rate of adoption of these drugs. We don't know what the impact on total consumption will be. We don't know what will happen when people go off the drugs in large numbers so there's a number of unknowns that I think totally time will tell. What we do know is the food and beverage industry over many, many years over decades has been fantastic at innovating to address consumer needs as they change and evolve over time. Think about the evolution towards lower fat, low sugar, less salt, organic. The food and beverage industry has navigated those trends really successfully through innovation and through adapting product portfolios to suit whatever consumers are prioritizing at that point in time. So we know that that's been the history and that's been the track record and I expect that would be the same going forward. And the other thing that we know is to the extent there's reduction in portion sizes or serving sizes, it tends to and has historically been very good for packaging intensity. And units of packaging have tended to go up as portions have gone down and as serving sizes have been reduced. So I think it's early days, as you said. I would lean more on the things that we know to have been true historically and probably put more emphasis or more weight on those factors than the things that we don't know at this stage.

Got it. Thank you. And just second question for Michael, if I could. Page 11 of the news release shows that reconciliation between reported and adjusted earnings. We can see that hyperinflation impacts were higher than last year and Russia-Ukraine costs were higher as well. So what were the key drivers of that? And should we expect to see those Russia-Ukraine costs reduce going forward? Thank you.

Yes, sure, John. I can take that one. Look, the Russia-Ukraine costs are really the, that's the cost of the restructuring. So we've moved into the program and Ron touched on the program earlier, the structural program where we've committed to spend about $170 million in cash from the Russia proceeds across some plant closures, so there'll be 7 to 10 plant closures, some SG&A rightsizing. And we've, so they are the restructuring costs there and they're going to continue through the year. You'll see those continue on. It's, and obviously from that restructuring, we're going to generate the $50 million in EBIT benefits, $35 million of which will come in H2 and then a further $15 million into FY25. So you should expect to see a continuation of some cost in that line. In relation to Argentina there was, Argentina is a hyperinflation economy and we have to account for Argentina certain ways and really that's just, there was a devaluation in August and that's the devaluation impact on the monetary assets, which was higher than it was in the prior year. But again that seems to have eased at the moment, but we'll see where that goes as we work through the year.

Your next question comes from the line of Brook Campbell-Crawford with Barrenjoey.

Good afternoon, thanks for taking my question. Ron, just earlier on, you mentioned about the destocking in healthcare segments likely to continue in the second half. Correct me if I'm wrong, I think you mentioned that. Just what, can you provide some color there on why you think that's going to play out and why you might have more visibility on destocking in that part of the market versus other categories that you serve? Thanks.

Yes, good question. You've got that right. I did refer to destocking accelerating really through the first quarter in health care, especially in the medical device side of the business. And it really comes down to the fact that there were some real supply constraints over the last 12 to 18 months in that segment or in these products that we supply into medical, predominantly, but also pharma in some product categories where we and the rest of the industry live through some real raw material shortages, which I think led to some stock buildup. in some segments. And so we're now on the other end of that and the raw materials are now more available. There's no longer a shortage and we can supply in real time. And so customers are sitting on a reasonable amount of inventory that needs to be worked down. And I think we started to see that in the first quarter. I think we'll see that continue into the second half fiscal year.

Okay, thanks. And just one quick follow-up on slide 13. You may just talk to some progress you're making on designing the packaging to be recycled and great progress there over the years. But in flexible packaging, there's still 11% of the portfolio that isn't designed to be recycled and there's no trials underway at the moment by the looks of that graph. So can you just talk to that part of the portfolio? What's the plan? And do you have a commitment still to have it 100% of that portfolio designed to be recycled by 2025? Thanks.

Yes, look, we're going to continue to shrink that part of the graph. So the 11% you're referring to is 6% lower than it was a year ago. And we've been making really good progress. It's substantially improved over even three, four years ago. And we're going to continue to close that gap. Look, are we going to get all the way to 100 %? I'm not sure. I think we're going to get really close. Some of the more sophisticated structures where the material is providing multiple types of functionalities, whether it's barrier or sealing strength or physical strength is a number of different components that go into some of the more sophisticated materials that we make. Those will take the longest, but we're still at it. We're hard at it and we haven't wavered in our ambition to get to 100%. And so we've got our sights on closing that gap.

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

Thanks for taking the follow on. I'll make it quick guys. So Ron, if we think about the $200 million last year of temporary savings, if that's where you framed it and then the $70 million so far this year, at in a day, how much of that truly will be temporary and how much you think will be structural? I know it's hard to say, we won't hold you to the basis point, but if you were in our seat trying to model Amcor, what would you try to bake in? And then just a minor question. I thought I heard you say, or Michael maybe with you, that 2Q in terms of earnings and EBITDA might be flat to slightly down versus 1Q. I just wanted to make sure I heard that correctly. Thanks guys and good luck in the quarter.

Yes, so I can take the second point there, George. Yes, you heard that correctly. I mean Q2, Q1 and Q2 typically are pretty similar. If you look over the history of Amcor, they're pretty similar. We're not expecting anything to be different in this dynamic. I mean, Q2 is going to be broadly in line with Q1, perhaps marginally less. But H1, as per our expectations that we've outlined, so no change there whatsoever.

Yes, look, on the cost side, George, I'm not going to parse it down and give you a number. What I would say is most of the cost that's come out is come out of the operational side. The overhead portion of the cost reduction is certainly going to stay out. On the plant side, to the extent we've driven procurement benefits, those will be sustained. And then to the extent that we've taken costs out by removing shifts, then obviously we'll put those shifts back on as volumes return. So, I would just describe it more in terms of the buckets of costs that have come out. We don't think about that whole quantum of cost as being temporary necessarily. We do think there's some that stays out of the business, even as volumes return. Ladies and gentlemen, this concludes our question and answer session. I will now turn the call back to Ron for closing remarks.

Okay, thanks again to everyone who's joined the call today. Thank you for your questions, and thanks for your interest in Amcor. And, operator, with that, we'll close the call.

Thank you. This concludes today's conference call. Thank you for joining. You may now disconnect your line.