Amcor Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Hello, and welcome to the Amcor Fiscal Year '24 Results Conference Call. All lines have been placed on-mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]

I would now like to turn the conference over to Tracey Whitehead, Head of Investor Relations. Please go-ahead.

[Tracey Whitehead, Head, Investor Relations at Amcor]

Thank you, operator. And thank you, everyone for joining Amcor's fiscal 2024 fourth quarter and full year earnings call. Joining today is Peter Konieczny, Interim Chief Executive Officer; and Michael Casamento, Chief Financial Officer.

On our website, amcor.com, under the Investors section, you'll find today's press release and presentation, which we will discuss on this call. Please be aware that we'll also discuss non-GAAP financial measures and related reconciliations can be found in that 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. 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 then rejoin the queue if you have any additional follow-ups.

With that, over to you, PK.

[Peter Konieczny, Interim Chief Executive Officer at Amcor]

Thank you, Tracey. And thank you to all who have joined us for today's call. I want to open the call with a big thank you to our Amcor colleagues around the world, all of whom demonstrated tremendous focus in fiscal '24. Their hard work and dedication enabled us to improve our financial performance through the year and to finish the year strong. And I want to publicly recognize their efforts.

In terms of Q4, we start as always with safety on Slide 3. Safety is our number-one priority and our efforts to provide a safe and healthy work environment for our teams resulted in another year of improved performance, which reinforces our industry leadership when it comes to safety. 73% of our sites have remained injury-free for 12 months or longer and overall, Amcor experienced a 12% reduction in injuries compared to fiscal '23. Our commitment to our people and to their safety remains our most important value, and we continue to aspire to achieve our ultimate goal of zero injuries.

Turning to Slide 4. Amcor's near-term priorities remain consistent with those I shared on our Q3 earnings call, and I'm happy to report we are successfully delivering against these and against these priorities. As I just mentioned, providing a safe and healthy work environment for our global workforce will always be number one. Second is to stay close to our key stakeholders, including employees and customers, which helped us finish the fiscal '24 year strongly. Our teams continued to execute well in the fourth quarter, maintaining cost discipline as volume trends continued to improve sequentially with a return to volume growth in Q4. As a result, we delivered another quarter of solid margin expansion and earnings per share growth above the expectations we set-out in April.

Third is to build-on the progress we have worked hard to deliver across the business and ensure we maintain momentum in fiscal '25. We expect our earnings and volume performance to continue to improve, and this is reflected in our fiscal '25 guidance. And fourth, I and our senior leaders continue to focus on providing stability for the business and helping our teams deliver for all our stakeholders. We're executing well and winning with our customers as we continue to reinforce that Amcor strategy, agenda and priorities have not changed.

Moving to our key messages for today on Slide 5. First, Amcor reported strong financial results for the fourth quarter, driven by solid performance in the underlying business and a return to volume growth, resulting in both segments delivering adjusted EBIT growth on a comparable basis. Second, volumes, EPS growth and free-cash flow were ahead of expectations we set-out in April. Overall volumes increased 1% in the quarter compared to last year, which exceeded the low single-digit decline we were anticipating. Earnings per share also outperformed expectations up 9%, which was above our guidance for mid-single-digit growth.

Third, we expect to build further momentum and deliver annual EPS growth through continued strong performance from the underlying business. At the midpoint of our fiscal '25 EPS guidance range of growth of 3% to 8%, we expect total annual value generated to once again be consistent with the 10% to 15% outlined on our shareholder value-creation model, assuming a dividend yield aligned with historical average. It is important to point out that we expect the underlying business to continue to deliver strong growth in-line with the high single-digit earnings growth experienced in Q4, considering our guidance includes an EPS headwind of approximately 4 percentage points related to normalization of incentives.

Michael will step through the components embedded in our guidance range in more detail broadly.

Our final key message is that our capital allocation priorities and strategies for long-term growth have not changed. We continue to invest in organic growth across the business, including in higher-value priority categories in emerging markets. Strategic M&A also remains an important source of incremental growth and value-creation. We believe the strength of our market positions, our opportunities to invest for growth, our execution capabilities and our commitment to a compelling and growing dividend and to maintaining an investment grade credit rating sums up to a convincing investment case for Amcor.

Moving to Slide 6 for a summary of our financial results. We finished fiscal '24 on a strong note as customer demand continued to improve off second quarter lows and our teams did an excellent job leveraging our differentiated value proposition to support our customers and drive volumes higher. At the same time, our unwavering focus on proactive cost management through the year resulted in four consecutive quarters of strong margin expansion.

Overall volumes returned to growth earlier than we anticipated and were up 1% in Q4, our second consecutive quarter of strong sequential volume improvement. As expected, volumes across Healthcare categories and in the North-America Beverage business remained soft through the fourth-quarter. Combined, these two businesses, which represent approximately 25% of sales in Q4, unfavorably impacted overall volumes by approximately 2%.

Across the balance of the business, overall volumes were approximately 3% higher than the June quarter last year. This reflects broad-based improvements in customer demand across many end-markets and what we believe is the end of destocking in all categories other than healthcare. Price-mix had an unfavorable impact on-sales of approximately 3%, primarily driven by continued destocking in high-margin healthcare categories.

Cost reduction and productivity initiatives remained a focus and we delivered another quarter of significant cost savings totaling more than $110 million, including an additional $20 million of benefits from structural cost initiatives in Q4. This builds on the outstanding efforts by all our teams across the businesses through the first three quarters, bringing the total cost-savings for the year to more than $40 million, including structural savings of $35 million.

The result of improving volume trends and our focus on cost and productivity actions was another quarter of strong urgings leveraged as momentum and underlying business continued. Fourth quarter adjusted earnings per share of $21.1 grew by 9% on a comparable constant-currency basis, above our April guidance for mid-single-digit growth and adjusted EBIT was up 4% compared with last year.

Overall, for fiscal '24, we delivered adjusted EPS toward the top-end of our guidance range we provided last August and our ongoing focus on cash conversion was rewarded with adjusted free cash flow of $952 million, up more than $100 million of last year and just above the top-end of our guidance range. We also continued to return significant cash to shareholders through a compelling and growing dividend in addition to share repurchase, which combined totaled approximately $750 million for fiscal '24.

I'll turn it over to Michael now to provide some further color on the financials and our outlook. Michael?

[Michael Casamento, Chief Financial Officer at Amcor]

Thanks, Peter. And hello, everyone. Beginning with the Flexibles segment on Slide 7 and focusing on our fiscal Q4 performance. Q4 volumes increased by 3%, which represented a significant sequential improvement of 5 percentage points compared with the March quarter. Net sales, however, were down 1% on a comparable constant-currency basis, volume growth was offset by unfavorable price-mix of approximately 4%, primarily related to lower healthcare sales, which we anticipated. Destocking in Healthcare categories continued in North-America and Europe and this resulted in a headwind of approximately 2% on overall segment volumes.

Across the balance of our Flexibles portfolio, Amcor experienced very solid growth with volumes increasing by approximately 5% in the quarter. The improved customer demand we saw in the third quarter continued as customers increased their focus on growing volumes and returned to more normalized order patterns now that destocking has ended. This led to broad-based growth across most geographies with volumes increasing in several categories, including meat, cheese, home and personal care and unconverted film and foil.

Across North-America and Europe, fourth quarter demand improved across many end-markets, resulting in a return to overall volume growth in the low-to mid-single-digit range in both regions despite continued softness in healthcare. In North-America, volumes were higher in meat, cheese and snacks categories. And in Europe, the business delivered particularly strong volume growth in meat, home and personal care and unconverted film and foil.

Emerging market volumes were up mid-single digits in Q4. Most countries experienced solid growth with volumes in China increasing for the fourth consecutive quarter and strength continuing in India, Thailand, Brazil and Mexico, to name a few.

Adjusted EBIT for the quarter of $403 million was 5% higher than last year on a comparable constant-currency basis. Higher volumes combined with strong cost performance through the quarter, including from restructuring initiatives, led to another quarter of margin expansion with EBIT margins up 110 basis-points to 15%.

Turning to Rigid Packaging on Slide 8. Volumes and earnings trajectory for Rigid continued to improve in the fourth quarter with the business delivering consecutive quarters of earnings growth in the second half. As anticipated, overall volume performance for the business improved sequentially as the 5% volume decline in Q4 was 3 percentage points better than the March quarter. As expected, the Q4 decline was driven by lower volumes in the North-America beverage business, across the balance of the Rigid packaging portfolio, volumes were in-line with the fourth quarter last year and favorable price-mix benefits of approximately 3% resulted in a 2% decline in net sales on a comparable constant-currency basis.

In North-America, beverage volumes were down 8%, reflecting lower consumer demand in Amcor's key end-markets and unfavorable customer mix. Volumes improved by 3 percentage points on a sequential basis as destocking ended and warmer weather resulted in modest improvement in consumer consumption versus the March quarter.

In Latin-America, volumes increased in the low single-digit range compared with last year, driven by continued growth in Brazil and in Colombia. And from an earnings perspective, the business delivered another quarter of earnings growth and margin expansion through an ongoing focus on cost-reduction and productivity measures and the realization of benefits from restructuring initiatives. Adjusted EBIT increased by 2% in Q4 with EBIT margin increasing by 70 basis-points to 8.8%.

Moving to cash on the balance sheet on Slide 9. Adjusted free-cash flow for fiscal '24 was just above the top-end of our guidance range at $952 million, up more than $100 million or 12% compared with last year. Cash generation was strong through the fourth quarter and we delivered good cash conversion by remaining laser-focused on improving working capital performance with inventories reducing for the sixth consecutive quarter. The timing of spend on capex projects was also a modest tailwind in the year, which we expect to unwind in fiscal '25. Leverage of 3.1 times was down 0.3 of a turn from the March quarter and was in-line with our expectations for year end.

This brings me to the outlook on Slide 10. For fiscal '25, we expect to continue building on the volume and earnings momentum we achieved through the second half of fiscal '24. Adjusted earnings are expected to be in the range of $0.72 to $0.76 per share on a reported basis, representing comparable constant-currency growth of 3% to 8%. As PK noted earlier, we expect the growth in the underlying business will remain strong in fiscal '25.

However, it's important to note that our guidance includes an EPS headwind of approximately 4% related to more normalized levels of incentive compensation based on our expectations for improved annual financial results. Excluding this incentive normalization, our guidance range implies expected growth from the underlying business in the high single to low double-digit range.

Our guidance range assumes an expected volume increase in the low-to mid-single-digit range for the year with trading performance in July aligned with this expectation. Interest expense is expected to be between $290 million and $305 million and the effective tax-rate is estimated to be in the range of 19% to 20%. When combining interest and tax in absolute terms, the expectation is for a modest headwind to earnings when compared with fiscal '24.

In terms of phasing, we anticipate this will be broadly aligned with historical average of approximately 45% of earnings being delivered in the first-half of the year and 55% in the second-half with the fourth quarter typically the strongest of the year. And finally, we expect to continue to generate strong adjusted free-cash flow in the range of $900 million to $1 billion, even as we fund an increase in capital expenditure of approximately $40 million to $60 million from a lower base in '24, which I mentioned earlier. And we expect to exit the year with leverage back within our 2.5 to 3 times management range. We are pleased with the finish to fiscal '24 and look-forward to delivering strong financial results in '25 and beyond.

So, with that, I'll hand it back to you, PK.

[Peter Konieczny, Interim Chief Executive Officer at Amcor]

Thank you, Michael. In closing on Slide 11, we finished '24 on a strong note and we are encouraged by the broad-based improvement in volumes we're seeing across most geographies and end-markets. Earnings both -- earnings growth in both segments in the second-half of fiscal '24, combined with a return to volume growth in the fourth quarter and the trends experienced in the first several weeks of fiscal '25 give us confidence that momentum will continue to build-in the underlying business.

We expect overall volumes to continue to grow in fiscal '25 and we will maintain a sharp focus on cost-control and productivity initiatives to drive solid earnings growth. And importantly, assuming a dividend yield aligned with historical average, at the midpoint of our EPS guidance range, we are well-positioned to deliver annual value generated in fiscal '25 to be in-line with the 10% to 15% outlined in our shareholder value-creation model. We will continue to capitalize on opportunities to grow the business by staying close to our customers, providing the support and the differentiated more sustainable packaging solutions they need to protect, preserve and promote their products as they drive their own volume growth.

We continue to invest in organic growth, including in higher-value priority categories and emerging markets. Strategic M&A is an important source for incremental growth and value creation and we are committed to a compelling dividend which grows annually. We're confident in our execution capabilities and in the opportunities we have to continue delivering profitable growth from the underlying business and to create strong free cash flow in fiscal '25 and beyond.

Operator, we're now ready to turn the line over to questions.

Questions and Answers

[Operator]

Thank you. [Operator Instructions]

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

[Ghansham Panjabi, Analyst at Robert W. Baird]

Thank you. Hello, everybody. Can you just give us a sense as to what you're seeing as it relates to true market conditions? I mean, obviously, you're cycling over easier comparisons from a year-ago, just given inventory destocking, et-cetera. But what is your characterization of the actual end-market in context of what we read about with consumer affordability issues and so on? And I guess, I'm asking because last year, your volumes were down 5% in fiscal year '24 and your guidance is, I think it was low-to mid-single-digit volumes. So, just trying to get a sense as to what you're actually seeing in the market?

[Peter Konieczny, Interim Chief Executive Officer at Amcor]

Yeah, thanks, Ghansham. Let me take that question here and then see if Michael wants to build if needed or required. Look, first of all, we've been very pleased with the performance of the volumes with a sequential improvement from Q3 to Q4, which was even better than what we expected. And we went back to volume growth, which was again better than the low-single digit decline that we had indicated after Q3. And we've been pleased with that being pretty much broadband across the different regions and categories. So, it was a broad momentum that was building here and we're very pleased to see that too.

Then if I double-click on where the 1% comes from and I try to depict that into the different drivers. The first thing that I would say is it's not necessarily consumer demand. Consumer demand continues to be muted. We would consider that to be low-single digit down still and also when we go into '25 with our expectations, we wouldn't assume that that necessarily improves. And what we're seeing is that our customers are starting to do better, our customers when we talked about this also in the last earnings call and where we pointed out that our customers are looking for a better balance between volumes and price. And you also see that when you go through some of the announcements that have come out lately.

So, that's better and we're demonstrating an ability to win with those customers. And that is through what we have to offer and I would just call that on a headline, the value profit proposition that we can bring to the customer. So that's encouraging and that's really the driver of the improvement to a large extent.

Of course, we are seeing some benefits from cycling out of the destocking that we had last year. In the fourth quarter to give you a feel that would have been not really much maybe a couple of percentage points, but also remember that we're still seeing destocking in the Healthcare business that pretty much goes against us. And those would be the major drivers and they're very consistent with sort of what we're seeing when we look to '25. I hope that sort of answers the question.

[Operator]

Your next question comes from the line of Keith Chau of MST Financial Services. Your line is open.

[Keith Chau, Analyst at MST Marquee]

Hi, Peter and Michael. Just want to maybe actually reflect back on that question. So, what you're saying is that the consumer is still weak at the moment. So, the growth was not consumer demand, still low-single digit down. Your volumes in FY '25, it feels like part of that is the unwinded destocking, which is a couple of percent that you're expecting kind of low-to mid-single digits. So, there is maybe some slight improvement in your underlying volumes. So, I'm just trying to work out what the difference is between those two factors like who do you think is losing? Are you taking share? I'm just trying to square up the numbers from the first question. Thank you.

[Peter Konieczny, Interim Chief Executive Officer at Amcor]

Yeah, Keith, I'd -- so first of all, I would say it's not really a share story here. It comes down to, again, the things that I've mentioned before, the consumer demand we would hope to improve going-forward, but we're careful in terms of our expectations for the next year. We're not banking much on that to happen. If it comes, that would be great and that would be providing further tailwinds for us.

And again, what you're seeing is on a comparative basis to prior periods, you would see destocking sort of cycling off, that gets us a better volume performance in terms of what we report. And a little more color on that, you know in the first-half of '25, we would be comping a pretty broad range destocking versus prior-period. However, we said that pretty much came to an end after the first-half last year. So, that won't be there in the second-half anymore.

And in the first-half, we will still continue to see destocking in the healthcare -- in the Healthcare category, which is pretty much a quarter longer than what we guided towards in Q3 in the earnings call after Q3, but that will abate in the back-half of the year. And then, we continue to believe that our customers and to a large extent, we have good exposure to big global customers but they will continue to drive their volume performance, which is very consistent with what you're hearing and we have -- we're partnering up with them, like we have built a good relationship with them over the past. We always have been very close to the big customers. And as their volumes are coming back, we take advantage of that. So, you pull all that together and that sort of results to -- into the volume guidance of low-single digit to mid-single digit next year.

[Operator]

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

[Adam Samuelson, Analyst at The Goldman Sachs Group]

Yes, thank you. Good evening, everyone. I guess maybe continuing along that line of discussion, maybe I'd like to dig in a little more on the healthcare end-market, which is still your most challenged. And if I was doing the algebra right, it seems like you're implying that was down near high single-digit volumes in the fiscal fourth quarter. It sounds like destocking continuing for at least one more quarter. Can you talk about the confidence that you have of that ending by the end of this calendar year and maybe a little bit more clarity on what the assumptions are for the Healthcare business for volumes in fiscal '25 because obviously it has important implications on mix as we move through the year? Thank you.

[Peter Konieczny, Interim Chief Executive Officer at Amcor]

Yeah, good question, Adam. I mean, first of all, I'd say that healthcare is -- as far as I'm concerned, a real gem in our portfolio. Let's start right there. And if we're challenged with the Healthcare category, it would really just be on the back of the normalization that the category is seeing after a major dislocation that the category has gone through in the more recent past. And that dislocation is now coming to an end with the category essentially rightsizing their inventories. That's what we're seeing.

So, you know, we don't have any concerns overall in the stability and the attractiveness of this category to start right there. But what we're going through until the end-of-the calendar on the back of what we know right now is really just continued destocking. I can confirm that the high-level estimates that you're doing on volumes is correct in terms of -- in terms of high-single-digits being down in the more recent past. I think that the destocking that we've seen in Q4 is probably slightly better than what we've seen in Q3.

And again, on the back of everything that we know, the destocking will come to an end by the end-of-the calendar. And that would be based on various conversations that we have with our customers and what they are confirming currently is happening in their business.

Now in the back-half then, you know when the destocking has to come in -- has come to an end, we're expecting a better volume performance with the business as you would -- as you would imagine. And we would definitely have no concerns to believe that healthcare can return to growth rates that you know, are in-line with the historical averages of sort of mid-single digits growth.

The final point that I'd like to make maybe on healthcare is as I'm thinking through it how to best answer your question. You know the destocking that we're seeing in healthcare is actually when you look at the numbers, quite similar to some other categories that we've seen beforehand. It's just that healthcare started later and pretty much in Q2 last year and has started mostly with medical on the medical side, which we've cycled through right now. And then, with the face delay, we've seen some impacts on the pharma side, which we're now crunching through and that will come to an end by the end-of-the calendar, as I've said before.

[Michael Casamento, Chief Financial Officer at Amcor]

And maybe, Adam, just to pick up on the mix point, yes, you're quite right. Obviously, the mix is unfavorable in Q4. And with the destocking continuing, if we think about our guidance assumptions for the FY '25, we would expect that negative mix to continue in the first-half, but then as we head into the second-half, it will obviously improve as we're through the destocking. So, on a full-year basis, we probably expect the mix to be more neutral.

[Operator]

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

[Daniel Kang, Analyst at CLSA]

Good morning, everyone. Just a quick question on capital management. I noticed that the Board has chosen to refrain from share buyback at this point. Can you talk us through the decision there? Is it a reflection of wanting to see leverage ratios lower or is it a reflection of more confidence in the M&A pipeline?

[Michael Casamento, Chief Financial Officer at Amcor]

Yeah, thanks, Daniel. It's Michael. I can take that one for you. Look, we've still got a little bit more to go over a buyback that was approved earlier on. So, we didn't do that in Q4. And that's really a function of -- we have a good M&A pipeline and there's opportunities there as always. So, we elected to not do the buyback.

From a capital allocation standpoint, I mean the buyback is just one element of that. Clearly, the strong cash-flow, we direct capex first to grow the business organically. We continue to pay a dividend and you saw us increase the dividend again. And then, with the free-cash flow left over, you know, clearly, we'd like to invest that first and foremost in M&A because that's where we get the greatest return. And if that's not available, then the buyback is really the next alternative. So the buyback is -- and obviously, it's a function of the cash-flow performance as well.

So for now, we haven't called out a buyback to '25. We've still got to finish a little bit left over there to do. But we've got a good pipeline of M&A activity. We're expecting the cash-flow in the business to be solid through the year as we've guided to $900 billion to $1 billion. So, we'll see how things play-out as we work our way through the year. And if there's capacity to do the buyback, we'll do it.

[Operator]

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

[Anthony Pettinari, Analyst at Smith Barney Citigroup]

Good evening. We've come off two, three years of pretty sharp cost inflation that you had to absorb and pass-on to your customers. Just wondering, as you look at the '25 guidance, what kind of cost inflation, raw-material inflation, resin assumptions are baked into the full year guidance? And how might it be different or not different than what you've kind of experienced over the last couple of years?

[Michael Casamento, Chief Financial Officer at Amcor]

Yeah, you're quite right. I mean, we've been in a highly inflationary environment. Clearly inflation is abating though is still elevated levels, but clearly abating. I think, from where we sit today, the main area of inflation now is really in the labor -- in the labor side of things, you know, and that's probably in that kind of mid-single-digit range and we'd expect that again in FY '25. But our cost inflation in the Quarter 4 was about $35 million or $190 million for the year versus $340 million in the prior year. So, you can see that it is abating. And I think, the main area really now is just on the labor side as we look-forward.

From a raw-material standpoint, look, it's a pretty benign environment at the moment. I think in Q4, probably overall -- and you know, we buy a broad basket of raw materials and across you know, multiple geographies across the globe. If I think about Q4, probably in general, it was up kind of low-single digit, I would say and -- but it was a bit mixed by raw-material type. So, resins up a little, aluminum up probably more mid to-high, but then you know films and liquids were down. So, on-balance, not a material impact to the business and from an EBIT standpoint, we really for the year were pretty neutral on the raw-material side.

As we look into '25, really we -- as we look into the first-quarter, again, we're seeing a pretty benign environment. If I think about North-America and Europe, raw materials typically look pretty flat in the first-quarter. Perhaps Asia is the one area where we might see some slight increases in raw materials. But again, generally, I'd say the basket of goods is pretty benign across the globe. So, that's what we factored into our guidance assumptions.

And of course, we've given you a range of growth in the guidance assumptions kind of 3% to 8%. Obviously, raw materials is a factor within that. I mean we pass-through raw materials contractually, but there can be a lag. So, that's just one element that could get us to the bottom or upper end of that range.

[Operator]

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

[George Staphos, Analyst at Bank of America]

Hi, everyone. Thanks for taking my question. Hope you can hear me. Can you comment on the outlook for beverage in North-America? And when you expect the volumes to turn more positive? Thank you so much.

[Peter Konieczny, Interim Chief Executive Officer at Amcor]

Hey, George, it's PK here. I'll take that question. Look, Beverage North-America is a little more discretionary than many of the other categories that we serve. Think about the Isotonix category as such, we're seeing the current environment. If you just look at scanner data, sort of low-single digit to mid-single-digit decline in that category. And that's what we're facing in the market right now.

On-top of that, I would say that our performance is also somewhat impacted by our exposure to customers that are in their totality underperforming the market and sort of some low-single digit, if you want and that sort of rolls up to our own volume performance.

And on your question, how do we expect that to continue? I think, as we're looking at '25, you know it will to a large extent come down to the question of how consumer demand is developing in that category going forward. I think, we got to be realistic here. We got to say that we're not -- we're not overly ambitious in terms of expecting the volumes to turn-around in the near-future. We would hope that that's the case. But as we're looking into the next year, I think we're being realistic about that and it has mostly to do with the discretionary sort of nature of the category that we're exposed to. So, that's how I would answer that question. I hope that helps.

[Operator]

Your next question comes from the line of James Wilson with Jarden Australia. Your line is open.

[James Wilson, Analyst at Jarden Australia]

Good morning, guys. Just heading into FY '25, can you give us a bit of a sense of the quantum of the $400 million of cost out that you've managed to do over FY '24 that will have to come back into the business as volumes pick-up?

[Michael Casamento, Chief Financial Officer at Amcor]

Yeah, sure, James, it's Michael here. I can take that one. As you said, we've been pretty focused on cost in '24 and pleased with where we ended-up. We've generated savings in excess of $440 million, which includes $35 million of benefits from the structural program that we put in-place as well. And if you think about where that's coming from, there's two elements to it, obviously, the operating performance of the business, we've been laser-focused on managing our shifts patterns, taking whole shifts out where we can and flexing the operational cost of the business to the lower volumes.

Procurement has been a big driver in this environment. Obviously, we've been working hard through our global reach and scale on that front. And discretionary spend has been managed quite tightly. Obviously, we've had a strong year in '24 and we'll be lapping some of that. But as we look into '25, you know, the structural benefits of $35 million, there'll be a further $15 million in '25. So, that completes that program where we -- we were going to invest $170 million in cash and get the $50 million out. So, we're well down the path of that and confident in that space.

And then on the balance, I mean, we continue to get procurement benefits. We'll continue to manage the operations, but clearly as the volumes increase, which is what we saw in Q4, you know, we'll have to flex the labor back up to manage those higher volumes that we're anticipating. That said, it won't be linear. So, we'll be able -- we're more efficient today. We'll continue to see benefits from the cost takeout that we've had just in the efficiency as we deal with those increasing volumes working through the next year. So, hopefully that helps.

[Operator]

Your next question comes from the line of Brooke Campbell Crawford with Barrenjoey. Your line is open.

[Brooke Campbell Crawford, Analyst at Barrenjoey]

Yeah, good evening. Thanks for taking my question. Just a quick one for you, Michael, please. Just around the D&A charge in the fourth quarter was quite a bit lower than we were thinking and it was down about 8% year-over-year or 6% quarter-on-quarter. Do you mind just commenting on what sort of drove that reduction in D&A in the quarter? And do we -- should we really just be annualizing that fourth quarter D&A charge when thinking about FY '25 or is there other adjustments we need to think about? Thanks.

[Michael Casamento, Chief Financial Officer at Amcor]

Yeah, thanks. Brooke, I can help you there. Look, in the quarter -- well, for the year, as you said, D&A was down kind of $7 million or thereabouts, not material. I mean, it's really a factor of a couple of things. Obviously, we reduced capex spend. So, you've got a little less there. And also with the restructuring we've been doing, we've closed seven plants for restructures as well. So clearly, some assets have come out-of-the business from that front. And there's been some other minor adjustments here and there.

So, as I look-forward, I'd still expect depreciation to be in that kind of $400 million to $420 million range on an annual basis, which is again as we build capex spend in '25, as I mentioned in my speaking notes, we are expecting to increase capex again in '25 as we work our way through higher volumes. So, that will normalize some of that depreciation.

[Operator]

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

[Richard Johnson, Analyst at Jefferies Financial Group]

Thanks very much. PK, I've been thinking a little bit about the business kind of beyond the volume normalization process and in the nearer-term, the benefits your profitability is getting from the structural -- the restructuring program that you've put in-place. And is it possible to get a sense from you when you look across your portfolio, which of course is very broad from both a category, but a geographic perspective, are there areas that you think that could do with a bit of refreshing on the one-hand or on the other hand, maybe structurally challenged and long-term might actually be a drag on the growth that you think the business could ultimately produce? Thanks.

[Peter Konieczny, Interim Chief Executive Officer at Amcor]

Yeah. Hi, Richard. I wonder how I can best sort of answer that question. You're asking about refreshing certain areas of the portfolio and seeing potential drags on the performance of the business going-forward. I got to -- first of all, I got to remind everyone here that the position that I'm in it's hard for me right now as an interim to sort of formulate views on the long-term strategy of the company, which that sort of touches on when you go to the portfolio. But in essence, having said that, I believe that the business should continue to focus on categories that are more attractive than others. And that would be a starting point. You know that we feel strongly about focusing the business on certain areas that are, you know, potentially value-driven, therefore higher margins and offering better growth than others.

In Flexibles, the problem is always or the challenge is you can be everything to everybody and that has never really played out. I'm a big fan of focusing the business of those areas that are more attractive to us. Now and the ones that I would call-out here just as examples is the protein category that we've talked about in the past, which breaks out into meat and to dairy or cheese to be a little more specific. We do like coffee or particularly premium coffee. We do like healthcare, while I did say that we're going through the short-term normalization of the business. We like Pet food and so on and so forth.

So, that's a good starting point. When you sort of go through the -- through the portfolio, you may find other categories that are less attractive and that is something that we sort of need to need to strategically think through.

In terms of geographies, I like the exposure of the business between developed and emerging markets and there we would want to continue the journey that we've been on. You've seen us make acquisitions also in the past. If I just look at the Healthcare business that we acquired in China and the Flexibles business in India, we made an acquisition in Eastern Europe, which is positive, just to mention a few examples.

So, I think that's what we're doing. This is the way how we're thinking about it and we need to continue to think about it. And I hope that provides a bit of color to the questions.

[Operator]

Your next question comes from the line of John Purtell with Macquarie. Your line is open.

[John Purtell, Analyst at Macquarie]

Good day, Peter and Michael. Hope you're both well. Look, just a question regarding the flow of volumes through the quarter. Where did the exit-rate end at? And if you're able to make any comment on developed markets and emerging markets within that?

[Peter Konieczny, Interim Chief Executive Officer at Amcor]

Yeah, I'm happy to take that question. Look, I'll start out by saying, I'm not a big believer in commenting on monthly volume performances, you know, because you have big swings in there and you can't really read too much into it. And I think, that a quarter is better of an indicator for actual performance. And I would like to stay on that level. So, 1% overall growth in the fourth quarter is a good indication for the momentum that we carry-forward into fiscal '25.

Now to the second part of the question, developed markets versus emerging markets, we have in the past quarter seen growth in the emerging markets like you would expect, the developed markets were a little more muted. And what's been encouraging in the fourth quarter is that the developed markets also returned back to growth. And I say that I'm particularly encouraged by the fact that they also have the large exposure to healthcare where we have seen continued destocking. So, that's quite encouraging for us. So again, developed markets performing better despite the healthcare destocking, emerging markets continue to grow and that's the momentum that we carry forward. I hope that helps.

[Operator]

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

[Cameron McDonald, Analyst at E&P]

Good morning, guys. Just going back to sort of the structural questions that were asked before. We're seeing some changes in preference shift around substrate towards your aluminum cans particularly. Is that providing any sort of headwind to the beverages segment that you've got? And then -- and/or any of the regulatory changes in the European market that could also be providing a bit of a challenge going forward? If you can comment on those, please.

[Peter Konieczny, Interim Chief Executive Officer at Amcor]

Yeah, happy to do that. I mean, these are two big questions or one big question, maybe another one that I can take first that's a little easier to answer. And let me go to the beverage question first. You know, substrates in the beverage side of the business, they do coexist, particularly between aluminum and PET and they both have their place.

PET typically is -- you see that, you know in on-the-go consumption resealable and that's where PET sort of finds its home. So, in the different categories on beverage, you find PET or cans coexist or aluminum coexist. There is one category where they both sort of compete with each other and that would be in the sub-segment of CSD on the beverage side.

Now over long periods of time, we have seen pretty much a constant share between the two substrates in that category. And in the more recent past, given the more discretionary environment that we're looking at, and consumers are shifting to the better value option. And those tend to be aluminum cans, which are sold in multi-packs through the big-box stores and the channel. And because when you take a look at the price points, they seem to be more attractive.

So, in the more recent times, we've seen a bit of a share shift to cans on that end and we'll have to see how that plays out as the environment normalizes. But it's not been a big trend for us that significantly impacts the volumes because it's really just this one subcategory.

So, that said, to the second part of the question, regulatory developments, which is a different animal, but likewise really important for our business. Look, we've seen in Europe, particularly the packaging and packaging waste regulations come through and we are obviously taking a close look at that. This is a regulatory development that we -- to be honest with you, welcome, because at the end-of-the day, all these initiatives try to do one thing and try to accomplish one thing, which is trying to keep plastic waste out-of-the environment. And that's very much aligned with our targets here as a company and comes back to our efforts in terms of the sustainability or on the sustainability side.

The developments there, they help us essentially move the industry faster to an endpoint that we're more than happy to support and that we feel we're very well-placed to support. We have made great progress on developing more sustainable products, which are designed to be recyclable and the regulation that we've seen essentially moves the whole industry to the concept of circularity that we want to support and that we want to get in place. So, we're supportive of the regulatory developments there in Europe, but also elsewhere and we welcome it.

[Operator]

Your next question comes from the line of Keith Chau with MST Financial Services. Your line is open.

[Keith Chau, Analyst at MST Marquee]

Hi, there. Thanks for taking my follow-up. One for Michael. Just the restructuring costs seem to have subsided a touch in the fourth quarter. I think there are some restructuring costs to go in FY '25 below-the-line. Just wondering if you can give us a sense, Michael, on what the drag on that will be on cash-flow, please? Thank you.

[Michael Casamento, Chief Financial Officer at Amcor]

Yeah, sure, Keith. Look, we're -- the program was going to be around $170 million in cash out. We've spent net today around $110 million. So we've got FY '25 will pretty much finish the program. So, it's another $60 odd million to go, which you'd expect to see in the adjusted hourly cash-flow.

[Keith Chau, Analyst at MST Marquee]

Okay. Thank you.

[Operator]

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

[Nathan Reilly, Analyst at UBS Group]

Pete, I'm just curious how much spare capacity do you have in the existing manufacturing footprint to respond to demand growth? Really just in terms of managing your ship flexibility?

[Peter Konieczny, Interim Chief Executive Officer at Amcor]

It's a great question, Nathan. You know you got to -- you got to distinguish between sort of manned capacity and sort of machine capacity that we have in place. That's the way how sort of we think about it. And on the manned capacity side, we're challenging ourselves in the business really hard to sort of balance that with the actual demand profile as you would expect, right? So, from a manned capacity side, that we were pretty much balanced and that's what we flex, right? When we say we flex, that's what we're flexing.

Now if you -- and when you look at the volume development over the more recent past and you know that we've gone through a pretty tough patch here. Obviously, volumes overall have come down and therefore, the machine capacity offers up some headroom for additional volumes, which is encouraging for the future when the volumes come back. But where we do have a challenge as a business then is to flex up again and operationalize essentially the additional machine capacity that we require.

Now, there is always -- and that's going to be my last comment on that question. There is always a challenge because the reality is you never have the capacity where you need it. So that's -- that never plays out in a perfect world and particularly where we're well-positioned with a compelling value proposition, we are full in terms of our capacity, very oftentimes also from a machine capacity standpoint, but that's something that we need to manage on a tactical day-to-day business.

[Operator]

Ladies and gentlemen, that's all-the-time we have for the question-and-answer session. I will now turn the call-back to management for closing remarks.

[Peter Konieczny, Interim Chief Executive Officer at Amcor]

Well, look, thanks everybody for the interest in the company and for joining the call. I think the most important thing for me is to really just go back and to go back to the key messages for the call. We really had a strong quarter and we got good questions, but overall, the company is I think in a good spot with the momentum that we have developed in the fourth quarter to go into '25. We are pretty good about where we stand and where we sit and pretty good about the guidance that we have out there and we're looking at a good year to come. So, thanks very much for the interest in the call and talk to you soon.

[Operator]

[Operator Closing Remarks]

Participants

Corporate Executives

• Tracey Whitehead, Head, Investor Relations
• Peter Konieczny, Interim Chief Executive Officer
• Michael Casamento, Chief Financial Officer

Analysts

• Ghansham Panjabi, Robert W. Baird
• Keith Chau, MST Marquee
• Adam Samuelson, The Goldman Sachs Group, Inc.
• Daniel Kang, CLSA
• Anthony Pettinari, Smith Barney Citigroup
• George Staphos, Bank of America Co.
• James Wilson, Jarden Australia
• Brooke Campbell Crawford, Barrenjoey
• Richard Johnson, Jefferies Financial Group Inc.
• John Purtell, Macquarie
• Cameron McDonald, E&P
• Nathan Reilly, UBS Group AG