Full Year 2023 Amcor PLC Earnings Call
Participants
Michael John Casamento; Executive VP of Finance & CFO; Amcor plc
Ronald Stephen Delia; MD, CEO & Executive Director; Amcor plc
Tracey Whitehead; Head of IR; Amcor plc
Adam Samuelson; Equity Analyst; Goldman Sachs Group, Inc., Research Division
Brook Campbell-Crawford; Head of Cyclical Industrials Research; Barrenjoey Markets Pty Limited, Research Division
Cameron McDonald; MD & Head of Research; Evans & Partners Pty. Ltd., Research Division
Daniel Kang; Research Analyst; CLSA Limited, Research Division
George Leon Staphos; MD and Co-Sector Head in Equity Research; BofA Securities, Research Division
Ghansham Panjabi; Senior Research Analyst; Robert W. Baird & Co. Incorporated, Research Division
James Wilson; Associate; Jarden Limited, Research Division
John Purtell; Analyst; Macquarie Research
Nathan Reilly; Executive Director & Research Analyst of Industrial Materials; UBS Investment Bank, Research Division
Richard Johnson; Equity Analyst; Jefferies LLC, Research Division
Samuel Seow; VP; Citigroup Inc., Research Division
Scott Ryall; Principal; Rimor Equity Research Pty Ltd
Presentation
Operator
Ladies and gentlemen, thanks for standing by, and welcome to the Amcor Full Year 2023 Results Call. I would now like to turn the call over to Tracey Whitehead, Head of Investor Relations. Please go ahead.
Tracey Whitehead
Thank you, Mandeep, and thanks, everyone, for joining Amcor's Fiscal '23 Earnings Call. Joining today is Ron Delia, our Chief Executive Officer; and Michael Casamento, Chief Financial Officer.
Before I hand over, 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 we will discuss on this call. Please be aware that we will 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 be different than current estimates. Reference can be made to Amcor's SEC filings, including our statement on Form 10-K and 10-Q for further details.
(Operator Instructions) Over to you, Ron.
Ronald Stephen Delia
Thanks, Tracey, and thanks, everyone, for joining, Michael and myself today to discuss Amcor's fiscal 2023 and June quarter results. We'll begin with some prepared remarks, starting as we always do with safety on Slide 3.
Safety is our most important value at Amcor, and throughout fiscal 2023, we again made strong progress on our journey for continuous safety improvement across the company. 69% of our sites remained injury free for at least 12 months, and we reduced injuries globally by 31%. While we're pleased with these results, ultimately, it's not just the number of injuries we're focused on but also the severity of the injuries that do occur. Tragically, in June, a contractor's employee lost his life at our Pondicherry site in India after falling from a roof.
We immediately conducted a detailed investigation, and we're deploying the learnings across all Amcor sites with the goal of eliminating the risk of similar accidents in the future. We are relentlessly focused on safety globally, and this tragic incident is a stark reminder of the importance of those efforts.
Moving to our key messages on Slide 4. First, Amcor delivered solid operating performance for the 2023 fiscal year. Adjusted EBIT was up 1%, and we returned $1.2 billion to shareholders through share repurchases and our industry-leading dividend. Across the organization, our teams demonstrated agility by taking action to navigate highly challenging and volatile market dynamics characterized by ongoing inflation, softening consumer demand and customer destocking, particularly in the second half of the fiscal year.
Our ability to modestly grow adjusted EBIT under these circumstances was the result of proactive and decisive actions to effectively manage the areas under our control, which is our second key message. Our teams did an excellent job prioritizing pricing to recover increases in raw materials and general inflation. And as we entered the 2023 calendar year, we stepped up the intensity of our cost reduction efforts to drive productivity benefits. Additionally, we invested in structural initiatives, including strategic plant closures that will deliver meaningful cost savings in fiscal '24 and '25.
Third, as a result of these comprehensive actions, Amcor is well positioned to return to solid mid-single-digit earnings growth in the second half of fiscal '24, which also leaves us well placed to grow at our long-term trend of high single-digit rates thereafter. While we expect current market conditions to persist over the near term for the entire industry, we'll continue to recover inflation and are confident the benefits from our cost reduction and productivity initiatives will have a sustainable positive impact on earnings leverage.
Additionally, we'll be cycling weaker volume comparatives in the second half and the headwinds we faced from the sale of our Russian plants and significantly higher interest expense are largely limited to the first half of fiscal '24. All these known benefits are largely within our control and underpin our expectation of a return to solid earnings growth in the second half without having to rely on a significant change in the demand environment. And finally, as we and the entire CPG industry continue to navigate a dynamic operating environment, Amcor remains laser focused on executing against our long-term growth and value creation strategy.
We're well positioned as a recognized industry leader, and we continue to pursue opportunities to invest in our strong underlying business, particularly through innovation and sustainability initiatives in faster-growing, higher-value markets. We're also actively pursuing value-creating M&A, such as the deal announced last week to acquire Phoenix Flexible Packaging in the high-growth Indian market, and we're committed to returning cash to shareholders through a compelling and growing dividend and share repurchases.
Moving to Slide 5 for a summary of our financial results. Fiscal '23 and June quarter financial performance was well within our May guidance range as proactive cost and price actions helped counter ongoing inflation and increasingly soft and more volatile volumes as we progress through the year. Reported net sales for the year were up 1%, which includes an unfavorable currency impact of 3% and approximately $775 million of pricing to recover higher raw material costs. Organic sales were flat on a comparable constant currency basis as volumes were 3% lower, offsetting a price/mix benefit of around 3%.
Full year adjusted EBIT of $1.6 billion was up 1% on a comparable constant currency basis, benefiting from strong operating leverage in the first half of the year and accelerated cost actions in the second half. Adjusted EPS of USD 0.733 per share was down 2% on a comparable constant currency basis.
For the June quarter, sales were down 5%. Positive price and mix of approximately 2% included recovery of $100 million of general inflation, and volumes were at the lower end of our expected range, down 7%. Last quarter, we referenced accelerated demand weakness in March and April, and this persisted broadly through the June quarter due to a combination of lower consumer demand and continued customer destocking including in priority categories, which also impacted mix compared with last year. While earnings were in line with our guidance, the June quarter is historically Amcor's strongest of the year, making it more difficult to flex costs. As a result, weaker volumes had a more pronounced impact on earnings and adjusted EBITDA of $436 million was 7% lower than the prior year on a comparable basis.
We continue to execute well on our capital allocation priorities, returning approximately $1.2 billion of cash to shareholders during the year through a combination of dividends, which the Board increased to $0.49 per share and the repurchase of approximately 41 million shares or 3% of shares outstanding for a total cost of $431 million. Since 2020, we've repurchased approximately 11% of our outstanding shares, and our industry-leading dividend currently yields around 5%. Our overall financial profile also remains robust with return on average funds employed of 15.4%.
Slide 6 highlights the proactive actions we continue to take to manage the areas under our control. We've been successful in pricing for inflation throughout the year, passing through a total of $1.1 billion to compensate for higher raw materials and general inflation, including labor, energy and freight. We also delivered more than $200 million in annual cost savings through productivity initiatives including a reduction of more than 1,200 full-time employees. And we're investing in structural initiatives that will deliver approximately $35 million in savings, primarily in the second half of fiscal '24, with an incremental $15 million benefit in fiscal '25. And importantly, we expect the benefits from these fiscal '23 cost actions and structural initiatives to have an ongoing favorable impact on earnings leverage.
I'll turn it over now to Michael to cover more of the financials.
Michael John Casamento
Thanks, Ron, and hi, everyone. Beginning with the Flexibles segment on Slide 7. Fiscal '23 reported sales were in line with last year, which included recovery of higher raw material costs of approximately $515 million, accounting for 5% sales growth. Excluding the raw material impact and negative currency movements, sales grew 1% for the year, driven by price/mix benefits of 4%, reflecting our ability to continue to price to recover inflation across all Flexibles business groups. This was partly offset by 3% lower volumes.
And while volumes in all regions were impacted by slower demand and destocking, particularly in the second half of the year, our strategic focus on higher-value priority categories continue to drive solid sales growth for the year. Volumes in the pharmaceutical and pet care categories were especially strong, helping to limit the impact of broad-based lower volumes in other categories. As Ron mentioned, throughout the year, the business did a good job aligning operating costs with challenging market conditions, while pricing to recover inflation. This focus resulted in a 1% increase in adjusted EBIT for the year on a comparable constant currency basis. Margins remained strong at 12.8% despite 100 basis point dilution related to increased sales dollars from passing through higher raw material costs and general inflation.
In terms of the fourth quarter, net sales on a comparable constant currency basis were down 5% with positive price/mix of 2% more than offset by a 7% decline in volumes. This represents an accelerated volume decline compared with the March quarter and was consistent trend across most regions. The greatest sequential declines continue to be seen in the North America and European markets. Our overall June quarter volumes were lower by high single digits, consistent with softer retail scanner data and with categories such as premium coffee, protein and health care also being incrementally impacted by customer destocking. Adjusted EBIT for the quarter of $387 million was 7% lower than the prior year on a comparable constant currency basis, reflecting the impact of lower volumes, unfavorable mix and ongoing inflation partly offset by benefits from continued pricing and cost actions.
Turning to Rigid Packaging on Slide 8. Fiscal '23 reported net sales were 4% higher than the same period last year, including approximately $260 million or 8% of sales related to the pass-through of higher raw material costs.
Organic sales declined 3%, reflecting 4% lower volumes, partly offset by a price/mix benefit of 1%. In North America, overall beverage volumes for the year were down 6%. Hot fill volumes were in line with the prior year as new business wins in key categories offset unfavorable consumer demand and customer destocking.
In specialty containers, volumes were lower than last year, with growth in the health care, dairy and nutrition categories offset by weaker volumes in food, home and personal care. And in Latin America, volumes were down low single digits versus last year, which reflects challenging macroeconomic conditions across the region.
Fiscal '23 adjusted EBIT was down 7%, and strong earnings growth in the first half was more than offset by challenging market conditions that accelerated through the second half of the year. Adjusted EBIT margin of 7.5% includes an adverse impact of approximately 80 basis points from the increased sales dollars related to passing through higher raw material costs and general inflation.
Looking at the June quarter. Comparable constant currency net sales were down 4%. Price/mix benefits of 2% were more than offset by a 6% volume decline as lower consumer demand and customer destocking continued to impact the business, particularly in North America. On a comparable currency basis, adjusted EBIT for the quarter of $73 million was down $22 million against the strong comparative period. As Ron mentioned earlier, the June quarter is typically the seasonally strongest of the year, and together with volatility in customer order patterns, this limits the ability to fully flex costs. In an environment where production volumes are weaker, fixed cost absorption is also significantly lower, and the combination of these factors amplifies the impact on earnings.
The team continued to manage the cost under their control well with additional head count reduction as in more plant shutdown days. And we continue to focus on cost actions as we manage through this cycle of softer demand and destocking. Looking ahead to the September quarter, we do not anticipate market challenges to materially improve, which will have an unfavorable impact on earnings compared with the same quarter last year.
Moving to cash on the balance sheet on Slide 9. Our financial profile and investment-grade balance sheet remains strong. Leverage of 3x on a trailing 12-month EBITDA basis is modestly up from last year but is aligned with our expectations given the softer demand and broad-based destocking through the supply chain.
Adjusted free cash flow of $848 million was in line with our updated outlook now below last year. This reduction mostly reflects lower accounts payable balances as we moderated our purchasing activities partly to reduce inventories but also in response to the soft demand environment. This is a timing impact, which we expect will abate as we progress through fiscal '24. And whilst we have made good progress bringing down our inventory balances with a reduction of more than $400 million from the peak levels in November 22, we will continue to focus on reducing overall working capital to support increasing cash flow.
Turning now to the outlook for fiscal 2024 on Slide 10. For the '24 fiscal year, we expect adjusted EPS of approximately $0.67 to $0.71 per share. This includes expectations that organic growth from the underlying business will be in the plus or minus low single-digit range as volumes are expected to remain weak particularly in the first half. Share repurchases will result in a benefit of approximately 2%, and currency translation is expected to add a further benefit of 2%, assuming current exchange rates prevail for the balance of the fiscal year. This is expected to be offset by a negative impact of approximately 3% related to the sale of our 3 plants in Russia in December 2022 and a negative impact of approximately 6% from higher interest and tax expense.
As U.S. dollar renewal interest rates have continued to rise, we expect interest expense for fiscal '24 to be in the range of $320 million to $340 million. In terms of cash flow, we expect to generate significant adjusted free cash flow in the range of $850 million to $950 million in fiscal '24, which represents growth of up to $100 million over fiscal 2023.
We have planned to repurchase at least $70 million of Amcor shares in '24, and we have been active on the acquisition front, and we'll continue to pursue M&A opportunities. And as always, we'll evaluate our uses of cash as we progress through the year.
Slide 11 shows that Amcor has a long history of delivering solid and consistent earnings growth, and the phasing of the earnings across the year has also been relatively consistent year-to-year. For fiscal '24, it's important to call out that phasing of comparable earnings growth is not expected to align with historical trends. We do not expect the challenging market dynamics we've seen in the last 2 quarters to meaningfully improve in the near term, and in the first half, we assume mid- to high single-digit volume declines. Given this demand outlook and the unfavorable impact related to higher interest expense, which is expected to moderate in the second half, we anticipate adjusted EPS in the first half of fiscal '24 to be down in the high single-digit to low double-digit range on a comparable constant currency basis when compared to the prior year.
While it's more difficult to predict consumer demand, we do expect customer inventories will have largely normalized by the time we enter the second half of the fiscal year. Additionally, we have a number of tailwinds in the second half, all of which are within our control, including the benefit of approximately $35 million from structural cost saving initiatives building through the year, increased earnings leverage resulting from ongoing benefits from price and cost actions, a reduced interest headwind, and favorable prior year volume comparatives. The combination of these known factors supports our expectation that adjusted EPS rose mid-single digits in the second half of fiscal '24 on a comparable constant currency basis. It also gives us confidence in resuming our long-term trend of high single-digit earnings growth shortly thereafter. It's also important to highlight here that we do not need to see a significant change in the demand environment to return to solid earnings growth in the second half and beyond.
So in summary, we believe the current industry and Amcor specific challenges will primarily be limited to the 2023 calendar year. We remain laser focused on doing all we can to mitigate the impacts of these challenging conditions while continuing to execute our long-term shareholder value creation strategy. And we expect to return to our historic high single-digit organic growth trajectory as we progress through calendar year 2024.
So with that, I'll turn the call back to Ron to provide some longer-term comments.
Ronald Stephen Delia
Thanks, Michael. Turning to our long-term commentary. Slide 12 highlights our strategic areas for investment where we see faster-growing, higher-value opportunities to drive sustainable growth. On prior calls, we've covered opportunities in health care and in M&A, and today, I'll take a few minutes to talk about protein and the opportunities we see to deliver strong growth in the high-value protein category.
Moving to Slide 13. The protein category for Amcor includes packaging solutions for processed and fresh beef, pork, poultry and seafood. And we like this category because it's a large addressable market, which historically has grown globally at attractive rates, driven mainly by an increasing percentage of the world's population able to afford to add protein to their diet. We also like the fact that there are many ways to differentiate and add value for customers since protein packaging requires specialized, more sophisticated and increasingly more sustainable solutions to preserve and protect these premium products.
Amcor's unique product offerings have enabled us to successfully grow our participation in the meat category over several years. Annual revenue from the sale of processed and fresh meat packaging now exceeds $1 billion. While inflationary impacts are currently creating challenging market conditions, looking forward, there are several reasons we believe Amcor can drive growth at a mid-single-digit CAGR over the medium term with margins accretive to our overall average.
First, Amcor is well positioned with a comprehensive product portfolio for processed and fresh meat applications, underpinning our development of better products, our strong capabilities and significant investments in innovation, sustainability and technical service. These are critical in an industry that relies on durable, high barrier solutions to preserve shelf life while providing convenience for the consumer in environmentally friendly formats.
Second, we have a strong presence in North America, but our global scale and reach enables us to leverage our R&D network and installed capacity to transfer technical and process knowledge across regions as we actively pursue global growth opportunities.
And third, there's a unique go-to-market model in some parts of the world where equipment purchases drive the subsequent sales of packaging films and technical services. Our recent acquisition of Moda positions us well because we're now able to provide a wholly owned turnkey equipment solution aligned with this model, where efficiency and the ability to automate are some of the highest priorities for customers. With the recent investments to enhance our offering and go-to-market strategy, we're well positioned to grow in this high-value market, and we're excited with the many opportunities to firmly establish Amcor as a preferred provider of fresh and processed meat packaging solutions globally.
I just want to spend a minute on sustainability on Slide 14. We continue to make excellent progress supporting the development of circular systems through the 3 pillars of our responsible packaging strategy: package design, waste management infrastructure and consumer participation. And we've made significant advances -- advancements on the innovation and design front by developing more sustainable packaging solutions and increasing our use of recycled materials. We'll provide a more detailed update in our sustainability report, which is expected to be published in October.
And we've continued to collaborate with other industry leaders in various ways across the value chain to help support the development of the infrastructure required for a circular economy. For example, in May, Amcor, Delterra, P&G and Mars formed a strategic partnership to help reduce plastic waste in the Global South by providing access to waste management and recycling systems and by enhancing consumer education.
We're also partnering with Licella and Mondelez to help promote a circular economy by bringing onstream one of Australia's first chemical recycling facilities. This is an exciting development in a market where Amcor's portfolio of recycle-ready flexible packaging solutions is already well above 90% and will provide local access to food-grade recycled material.
So closing on Slide 15, our teams are doing a good job navigating challenging industry dynamics by continuing to recover inflation and proactively taking actions to align costs with market conditions. We're confident in our long-term growth strategy. We have good visibility to factors well within our control that will see us returning to earnings growth aligned with our historic performance and our shareholder value creation model.
And operator, with those opening comments, we're now ready to open the line for questions.
Question and Answer Session
Operator
(Operator Instructions) Our first question comes from the line of Ghansham Panjabi from Baird.
Ghansham Panjabi
You mentioned that volumes for the first half of fiscal year '24 will be down mid- to high single digits on a year-over-year basis. I think Michael mentioned that. But what are you assuming at this point for fiscal year '24 in context of the 3% decline that you reported in fiscal year '23?
Ronald Stephen Delia
Yes. So look, we're setting the business up to assume that the current market conditions essentially continue through the first half, so we're expecting first half to look a bit like the fourth quarter with volumes down mid- to high single digits. That's continued softening of demand and continued destocking pretty broadly across the geographies and segments that we participate in. But the second half, we're expecting more normal rates of volumes, more like flat to up single -- low single digits.
And that's really -- just assumes no more destocking and the fact that we'll be cycling easier comps. So we're not baking in any big improvement in demand. And so all up, that would see volumes for the full year down sort of flat to down mid-single digits. That's the sort of midpoint of our guidance range, would see us down kind of low single digits for the full 12 months.
Ghansham Panjabi
Got it. That's helpful. And then in terms of the destocking, maybe you can just give us some insight as to the micro nuances between the major regions you have exposure to. And the categories that first started to see destocking, are you starting to see any sort of green shoots if you will?
Ronald Stephen Delia
Yes. Look, the destocking has been relatively broad, and it's -- we've been at it now -- we've been living with it for a couple of quarters. The earliest categories where we started to see some signs of excess inventory in the system were those that were impacted the most acutely by the supply chain challenges over the last 12 to 18 months. So we saw -- we've seen destocking in the meat space. We've seen it in the premium coffee space in particular. More recently in the fourth quarter, we started to see a little bit of destocking in the medical packaging space. And then certainly, in North America, in the beverage part of our Rigid Packaging business, we've seen pretty pronounced destocking at a point -- at a seasonal high point in the year.
Now we don't have a crystal ball, but we do anticipate that the destocking will be largely behind us by the time we exit this calendar year. And certainly, it will have a less meaningful impact as we head into calendar '24. If you think about it, our volumes for the quarter were down 7%. We would estimate that about 2/3 of that volume decline is the market and our customer performance, and the remaining 1/3 is -- we would attribute to destocking. So certainly, as we move forward and destocking starts to abate through the rest of this calendar year, certainly, that will have less of a negative headwind on our growth rates going forward.
Operator
Our next question comes from the line of George Staphos from Bank of America.
George Leon Staphos
Good day, everybody. Hope you're doing well. Thanks for the details. I guess the first question is just a quick one on net interest. And I know qualitatively, what you said, higher global rates, foreign exchange and the like, but the step-up even from the fourth quarter rate, which was $70 million, so $280 million run rate to the -- I think you're saying $320 million to $340 million for fiscal '24 is pretty steep. And so is there anything specific we should be understanding in terms of what's behind that, Michael.
Michael John Casamento
Yes, sure. No, look, I think, overall, interest rates have continued to rise from this time last year, all through the year. So we will be lapping higher rates as we exit. Using Q4 as a proxy is not the best quarter to use as a proxy for interest because that's our highest cash flow quarter obviously. So our interest expense is lower in that quarter typically in comparison to the rest of the quarter as the cash flow comes through. So that's really what we see. We are lapping some higher interest just by the way the rates increased as the year progressed. And there may be 1 or 2 further rate increases that we've factored into the range. So that's where we get to that $320 million to $340 range.
George Leon Staphos
Understood. That's helpful, Michael. And Ron, back to demand and the consumer. To the extent that Amcor produces high-value, high-quality packaging for -- maybe one could argue, sure, they're staples but more like affordable luxuries, if you will, premium coffee, protein, premium pet. I think we've talked about it in the past. But do you think there's maybe a little bit more of a negative effect for your customers and therefore, for you given the environment we've been going through with inflation? Why? Why not? And are you seeing any signs at all from your customers now asking you to somehow find cost reductions, give back so that they in turn can maybe be a little bit more competitive at retail and drive their volume.
Ronald Stephen Delia
Yes. Look, George, I think that we still believe the portfolio is really defensive and the categories are, for the most part, consumer staples. Now there are subsegments within segments where things might be a little bit more discretionary because of the premium attached to things like single-serve coffee systems or some of the premium pet food. But overall, across the portfolio, we still believe these categories are defensive. They've proven that out over a number of economic cycles.
But I think that we've got a dislocation here that we haven't seen in 40 years around inflation, and we convince ourselves of the defensiveness of the portfolio at large by looking at the scanner data. And it's very broad-based, the weakness, in particular, in Europe and in North America in the food business, where you see mid-single-digit declines. And I think generally speaking, others who've reported publicly have experienced the same sort of volume effects that we have.
So I think, yes, we do aspire to play at the high end of the market, and many of our products are at the premium end. But generally, we're in stable segments that will grow consistently through economic cycles.
Operator
Our next question comes from the line of Brook Campbell from Barrenjoey.
Brook Campbell-Crawford
Just one on the buyback. Obviously, there's $70 million left on the existing program. But what's the thinking about potentially a new program at some point through FY '24? Is that the priority once you get through the $70 million? Or are you leaving some cash flow there for M&A? Or is the priority to sort of pay down some debt and reduce that leverage ratio?
Michael John Casamento
Yes. Thanks, Brook. Appreciate the question. Look, I think if you look at what we've done over the last couple of years, we bought back over $1 billion of shares. And in addition to that, we've certainly started to get back on the M&A approach as well. So we've done 3 deals this year and in '23 and also announced another deal just recently.
We're planning to do the $70 million this year, so we'll close out that buyback. And I think if you think about our capital allocation approach, I mean, clearly, the priority is to invest back in the business through the CapEx for organic growth, which we've stepped that up over the years, and we'll continue to do that this year. We grew the CapEx, and we'll have a similar amount as we head into '24, taking into account the demand environment.
Next year, we obviously pay the dividend, and then that grows over time. And then we've got $300 million or $400 million left over for -- ideally to put to work on M&A or buyback. And so think about the last couple of years. We've certainly covered that capital allocation on the buyback side and now putting a little bit more into M&A. So we've got $70 million in the outlook for '24. As always, we'll continue to model the cash flow as we work through the year, and we'll get back to you if that changes.
Brook Campbell-Crawford
And just a question on espresso. Your customer there seems pretty keen to move product into, I guess, fiber compostable pods. Could you just confirm if you have the capability and products to perhaps offer that format as well given, I guess, you've got already a lot of capital put into those plants that are co-located, I believe? And if that's the way that, that customer goes, can you sort of participate and offer a different format?
Ronald Stephen Delia
Yes. Look, we have a broad offering of fiber-based options for a number of different categories. And so I think we're going to be well covered as products move between substrates, whether it's aluminum or plastic or plastic to fiber or whichever direction the segment evolves. But I would say that, that is a niche at the moment. It's about expanding the pie. Not every consumer will be willing or capable or interested in composting.
And we know as well as our customer that the sustainability profile of the aluminum capsule is as attractive as any. It's a product -- it's a capsule that can be made with 100% recycled aluminum and can be recycled over and over again. And there's been a lot of investment in the recycling loop for that particular format. So we're not concerned about the long-term viability of that format.
Operator
Our next question comes from the line of Cameron McDonald from E&P.
Cameron McDonald
Can I just ask a question around the destocking that you're talking about? And my understanding is also that not only are we getting destocking in -- and consumer weakness, but we're also seeing down trading in -- from sort of more premium products to more home brand type products. Is that having an impact on the packaging demand profile as well and the -- either the price or margin that you generate from that premium product in more of the home brand space?
Ronald Stephen Delia
Yes. Look, thanks for the question. It's a different story in North America from Europe. So the private label, in general, has picked up a few percentage points of share broadly across the European market. It's been -- it's just slightly now ahead of where the share for private label was in 2019.
In North America, we're not -- we're still not quite back to the share that private label had in 2019 at large. And ultimately, as products or as sales migrate to private label from branded or vice versa, we're pretty well exposed. And so we've got a reasonably broad participation in the store brand side of the business, such that those share shifts are not really going to have a material impact on our volumes. And the packaging is essentially the same. That's part of the private label formula. And so from a margin profile perspective or a differentiation perspective, we're sort of indifferent.
Cameron McDonald
Okay. Great. And just coming back to the previous question on sustainability of packaging. There seems to also be a move to potentially be sort of fiber-based and alternative packaging for beverages. What work are you doing around that, please?
Ronald Stephen Delia
Yes. We have a pretty extensive platform that we call AmFiber, which is a fiber-based packaging for a range of product categories. We see the opportunity, particularly in the confectionery space, to move from plastic-based products to fiber-based products, culinary, some formats like spices and food additives. So our work on the fiber side is pretty extensive. There's a little less activity in the beverage space to be quite honest. But generally speaking, AmFiber is a big platform for us, and we're optimistic about the growth outlook.
Operator
Our next question comes from Adam Samuelson from Goldman Sachs.
Adam Samuelson
I guess the first question is if we think about the quarter and then moving into '24. Just wanted to ask a question on mix. And I look at it in the Flexibles segment, and mix is still a 2% positive contributor in the quarter, less than it had been earlier in the year but still positive year-on-year, although I look at kind of some of the parts of Flexibles that I've historically thought had contributed to that mix in terms of health care and protein and pad and premium coffee and those all were down kind of consistent with the overall segment volumetrically. So just help us maybe dissect kind of what's happening in mix and kind of where you see that trending through fiscal '24.
Ronald Stephen Delia
Yes. Look, we had unfavorable mix in both segments in the fourth quarter as you -- and you pointed out the reasons why. I mean some of the categories that you would expect to be positive contributors to mix were softer in the fourth quarter, meat. In particular, pet care even slowed a bit in the fourth quarter as did medical. What you're referring to is price and mix together. And I think you've got to bear in mind that we're still experiencing reasonably high levels of inflation, and we still have been and continue to be actively pricing to recover inflation.
So for the fiscal year, we priced up about $1.1 billion between raw materials and general inflation. About $300 million to $340 million of that was general inflation. And so you're seeing price and mix combined. So you've got positive price offset by (inaudible).
Adam Samuelson
Okay. That's really helpful. And if I could just ask a follow-up on your -- kind of the move or just the focus on protein and the investments in equipment, I mean, you've got some pretty large incumbents when you think about that market, especially on the fresh meat side with equipment. I mean what do you think the business needs to do to scale and grow more significantly there where you've got -- you do have a competitor who has a pretty significant incumbent position?
Ronald Stephen Delia
Yes. Look, that's clear, and most of our markets are pretty competitive, including that one. What we needed as a starting point was a full system offering, which we didn't have. And so the Moda acquisition allows us to offer the primary packaging equipment. It will offer -- will allow us to offer technical services and parts. And that all combines with what we believe is industry-leading film technology, including in that space.
And the films in the protein space are amongst the most demanding of any that we produce. If you think about the functional requirements for meat packaging, there's obviously a barrier that's required to preserve shelf life. There also tends to be the need for puncture resistance. You got to run these packages through the lines, the packaging lines at high speed, so the processing requirement is quite high.
And we believe we've got some advantaged film technology, and the ability to now go to market with a full solution including equipment and aftermarket service just completes the puzzle for us. So we're really excited about the market. It's also one that we can leverage over our global footprint. And it really represents a pretty visible revenue synergy from the Bemis acquisition of several years ago now. So we're pretty -- we're excited about it. And look, every segment is competitive, and we just have to -- we have to compete and earn the business obviously, but we're pretty optimistic we'll be able to do that.
Operator
Our next question comes from the line of Sam Seow from Citibank.
Samuel Seow
Just I wanted to follow up on some earlier comments that you've got the mix and volume growth assumed in the second half of '24 kind of growth expectations. So just to confirm, you're saying, if volume growth starts to come back, you'd expect upside to the mid-single to high single digits in the second half?
Ronald Stephen Delia
Yes. We're not banking on a much improved demand picture. We think it's more prudent for us to set the business up to assume that volumes are going to be challenged through the year. So for the first half of the year, we're expecting volumes to continue to be down mid-single digits, mid- to high single digits.
Second half of the year, we would expect volumes to be flat to maybe up low single digits. And we believe that's possible without much of an improvement in the underlying demand profile because we are pretty confident that we'll be through the other end of the destocking cycle by the time we get to calendar year of 2024. So yes, there's no expectation of a dramatic improvement in the overall demand environment that's baked into our guidance.
Samuel Seow
That's helpful. And just a follow-up on potential volume growth. Looking through the year, it looks like rigids were the first to decline followed by flexibles as we think about the potential (inaudible), is it logical to expect rigids to come back quicker than flexibles? Or is there something to call out there?
Ronald Stephen Delia
Look, we would expect the volume trajectory to be roughly comparable. Now rigids has got another strong -- another seasonally strong quarter to get through, and we're not expecting the business to be all the way back from a demand perspective in the fiscal first quarter. In fact, we expect continued softness and continued destocking in the North American beverage business in particular.
But generally speaking, if we take a 12-month view, our expectation is that the volume trajectory would be similar across the 2 segments. And look, as you pointed out, this is the swing factor in our guidance range. So to the extent that the volume picture improves, that would be a driver of us getting to the higher end of our range or beyond. We're just not setting the business up to expect that. We're taking the cost actions that you'd expect us to take, and we're going to be really prudent before we anticipate demand coming back.
Operator
Our next question comes from Daniel Kang from CLSA.
Daniel Kang
First one, maybe to Mike, just in regards to your FY '24 guidance. Can you talk us through your assumptions and maybe expectations on price mix and any input cost tailwinds?
Michael John Casamento
Yes, sure. I think if I take the raw material side first, we experienced -- in Q4, we saw raw materials pretty well across the board come down in that mid-single-digit range after a pretty benign Q3. And in Q4, we saw -- we just saw a modest tailwind as we're still cycling through the higher inventories and also reduced purchases.
So as we look forward on the raw materials side, what we see into the first quarter really is a pretty benign environment, basically flat raw material, maybe slightly down, but that would translate into a relatively modest tailwind in the first quarter. After that, we'll see where things go on the raw material side.
Look, on the price mix, we'll continue to price for inflation. So as we've said in the remarks throughout, we expect to continue along the price and cost initiatives that we've already been taking. So inflation -- albeit we're still expecting inflation perhaps maybe at slightly lower levels than we've been experiencing, but we will continue to see inflation as we work through '24. So we'd expect to see some price to offset that as well as cost.
And then on the mix side, look, I think, initially, we would expect some negative mix really as we saw in Q4, which we touched on the call already today, so things like health care, pet food, coffee, et cetera. As we're just cycling some stronger [comparatives] on that front, we would expect mix to be perhaps a negative particularly as we start the year.
Operator
Our next question comes from Richard Johnson from Jefferies.
Richard Johnson
Ron, one of the things we're hearing quite consistently now from a lot of your major customers is some very significant SKU rationalization programs that they're having. In particular, I believe I'm right in saying that Unilever had taken their SKUs down by 25%, which is a huge number. I was just interested in getting your opinion on what that means, if anything, for yourselves.
Ronald Stephen Delia
Yes. Look, it's maybe not as pervasive as it might seem from some of the public comments, but to the extent that SKUs can get rationalized, it's generally a good thing for us. There's 2 things going on. There is a bit of SKU rationalization. The other thing that's happening is the continued evolution towards more sustainable formats and more sustainable SKUs.
And I think SKUs have proliferated across all the categories that we service. You think about the variety of a store shelf certainly here in the U.S., it's really been explosive growth over a long period of time and the number of SKUs that are available. So anything that simplifies the business and takes out unnecessary or non-value-adding complexity is generally a good thing. And then at the same time, helping that process along by introducing more sustainable formats is also advantageous to us, too. So I think we're in lockstep with the customers that you probably have in mind and on that journey or both of those journeys at the same time.
Richard Johnson
That's helpful. And then just finally, you referred to your volume pressures being more skewed to developed rather than emerging markets, which, of course, is perfectly understandable. I was just interested if we get a bit more detail on where you sit in EM because others -- and there are reports that there's been significant down trading in emerging markets as well away from multinationals to local brands in particular, and then obviously for many large packaging company or global packaging companies, that might be unhelpful. So I'm just trying to get a sense of why you may have outperformed an EM relative to others.
Ronald Stephen Delia
Yes. Look, it's a good question. It feels more like the underperformance in the DMs relative to the EMs is the thing that's not easy to understand. I mean we saw volume declines in Europe and North America kind of high single digits in the fourth quarter, again, entirely consistent with what others have reported and the scanner data, et cetera. But the EM business has held up, but we had volumes in Asia in the emerging part of Asia, basically flat in the quarter. Latin America was down mid-single digits. So both of those regions had better volume performance than the 2 big developed markets.
Look, I don't know. I think we have a pretty compelling value proposition in emerging markets generally as an innovation leader and a sustainability leader. And then our participation in our customer mix generally looks like the market. So if I take a business like China, we actually have more of our sales to local customers than to multinationals. And basically, that reflects the market shares of those respective customer groups. So I think we're well balanced for the differential growth rates that you're referring to.
Operator
Our next question comes from the line of John Purtell from Macquarie.
John Purtell
Just had a couple of questions. Just first one for Michael just in terms of interest expense. What percentage is fixed and floating now? And are you looking to fix more to essentially kind of lock in your interest expense?
Michael John Casamento
Yes. Look, John, so we -- traditionally, we've been in that 50-50 fixed floating mix but more recently, so over '23 and looking into '24 in more 70-30, so would take a bit of the volatility out of the mix there on that front. So that's where we sit today, on that 70-30 range fixed floating.
John Purtell
So that is pretty stable.
Michael John Casamento
Yes.
John Purtell
And just a second question, Ron, on acquisitions. Are you seeing more opportunities now that fit your criteria? I know, obviously, valuations are generally coming down. And will you sort of naturally play at the smaller to medium end? Obviously, we saw Constantia recently sold to private equity.
Ronald Stephen Delia
Yes. Look, we have been more active. So we've done 4 deals in the last 12 months. They're all of the small variety and single plant deals. So the first comment I would make is, yes, there are more things that seem to be coming to market. I mean we went through a period of pretty pronounced market dislocation through COVID and then the supply chain constraints and now some softer volumes, but I think sellers are more likely to bring things to market now than they would have been, let's say, 2 years ago. So the pipeline is relatively robust, and we've been able to convert for small deals in the last 12 months.
The second part of your question about the size really just reflects the nature of the participants in our space. There's just, by number, and I hold a lot more smaller single plant businesses than there are large multibillion-dollar businesses like the one that you mentioned. So I think just generally, you're going to see us execute more smaller deals.
It doesn't mean for a second that we would not love to deploy bigger amounts of capital. So we would be on the lookout for medium- and larger-sized deals as well. I just think by -- the law of numbers will suggest that most of the deals will be of the smaller variety.
Operator
Our next question comes from the line of Nathan Reilly from UBS.
Nathan Reilly
Question about just the cost out program. How much flexibility you might have around that just in terms of whether that destocking trend continues a little bit longer than, I guess, what you've currently forecast, how much flexibility you might have just to sort of go a little bit harder around the cost base?
Ronald Stephen Delia
Yes. Look, we're getting after it pretty good would be the first thing I would say. So we're going after it reasonably hard. You have to remember also that the business has been optimized through the last several years. I mean through the Bemis integration, we took a number of plants out of the network. A couple of years before that, we took a few out of the rigids network as well. So the business is reasonably well optimized.
But that being said, there's more opportunity. And we've announced 3.5 plant closures already. There'll be more. The common with demand remains depressed. Then, there is the opportunity to do a little bit more, although I would also point out that the ultimate path to value creation for the company is to grow, and we want to make sure that we've got the productive assets available when demand normalizes.
We don't see any of the demand challenges that we're experiencing right at the moment. We don't see a secular. We believe this is a cycle, and we believe it's an inflation-induced cycle and that volumes will return. And I mean, certainly, the destocking impact will abate. But we do preserve the flexibility here. If we need to go after it harder on the cost side, we certainly will do that.
Nathan Reilly
And I guess, just following through in terms of, historically, you've managed cost inflation quite well. But I guess -- and I'm talking about the general cost inflation in terms of being able to pass that through to customers with higher pricing. But in a period that's characterized by a high level of destocking and lower demand, can you give us an update on how you're going just in terms of recovering the general cost inflation and just around that, maybe just a comment around just how that sort of inflation has been trending recently?
Ronald Stephen Delia
Yes. Well, as far as the trend, I think we are starting to see inflation moderate. I'm not sure that we're seeing prices fall anywhere, but we're seeing the rate of increase certainly decline across most of the cost buckets. I'd say labor still increase in kind of mid-single digits. We still have higher energy costs than we had a couple of years ago. Freight might be one area where we've seen some declines off of the peaks.
So it's still a real fact of life, number one. Number two, I think we have been successful in pricing to recover. We remain kind of fully recovered if you will. Last year, the general inflation running through the business was over $300 million, and we offset that with price. We'll expect to continue to do that as we go into fiscal '24.
We also reset prices with new contracts and as you expect, that probably 2/3 of the business is contracted. Maybe 3/4 of the business is contracted. The average duration is 2 to 3 years, maybe 4 years. So every year, you're turning over a portion of the revenue base and having an opportunity to reset pricing to reflect the current dynamics in the current inflation conditions. So it remains a fact of life, but I certainly feel like we're coming out the other end of the inflationary cycle.
Operator
Our next question comes from the line of James Wilson from Jarden Australia.
James Wilson
I was just wondering if you could give us maybe a little bit more color firstly on how your inventory and working capital management is progressing heading into '24.
Michael John Casamento
Yes, sure. I can take that one there. Look, we were obviously building inventory this time last year, and that was back on -- there were supply constraints in the marketplace, a lot of different activity happening, and we certainly built inventory during that period as well as putting through -- over the last 2 years, put $3 billion roughly through the top line in terms of price to recover raw material and inflation. So both of those factors have impacted working capital.
But from November, we really worked down our inventory levels. And from the peak in November, we've taken nearly $400 million out, and $200 million of that was in -- was just in Q4. We haven't seen the full benefit of that really come through from a cash flow standpoint yet because, at the same time in this -- particularly in the second half of the year, we've seen a much lower payables position. So our -- although our inventory has come down kind of point-to-point over the year around $200 million, our payables have also actually come down about $500 million.
So if you look at our working capital performance during the year, we had a cash outflow of around $230 million. Really, that's the payables impact. So as we've seen the lower demand signals, we've started to reduce our purchasing in addition to that, taking inventory out of the system. And so we did see a negative impact on working capital as a cash outflow in the year.
As we look forward, we've still got work to do on the inventory side, and we'll continue to focus on that. And I think the payables side will start to normalize as we work through some of this softer demand. So as we work through '24, certainly not anticipating a cash outflow at the level that we had in FY '23. And we hope to be able to get to a more neutral position by the year-end.
From a working capital to sales standpoint, we're about 9.5% working capital to sales at the moment. Typically, we would be more in the 8% to 9% range. So I think we've certainly got some opportunity now there as well as you look forward over the next couple of years.
James Wilson
And guys, just in terms of how much of that is sort of baked into your free cash flow guidance for next year, am I right in seeing that it's sort of a buffer on the downside? Or is that potentially already baked into what you've come out with today as guidance?
Michael John Casamento
Yes. So the cash flow guidance for '24 is $850 million to $950 million, so it's a $100 million range, which is really the working capital range in there. So at the midpoint, probably still going to see a little bit of cash outflow, but we've obviously got some opportunity to do better than that, and that's really the working capital is the key factor there.
Operator
Our next question comes from the line of Scott Ryall from Rimor.
Scott Ryall
Hopefully, mine are quite quick questions. I was wondering if you could comment on what you've seen in terms of the changes of your customers in terms of their price expectations around responsible, sustainable packaging, please and the willingness to pay a premium, I guess, over virgin products. How that's changed over the last 12 months, that's what I'm asking, sorry.
Ronald Stephen Delia
Yes. Look, I don't know that it's changed much. I mean I think customers understand that there's more value to be ascribed to a product that's got a better sustainability profile. And I think consumers understand that as well. It's another element of functionality that is now expected in consumer products. And that is the environmental profile is at least neutral, if not, positive overall. And there's value associated with that.
And so most of these products do have a premium. There's also the scale curve that we need to work through. We're introducing new products, and like any new product with less volume and less scale benefits, they typically tend to start out at a higher price point and will evolve over time. But I think as brand owners look to meet their own commitments and you take the full range of different costs, including regulatory costs, into consideration, the more sustainable products offer higher value and therefore, they tend to carry a bit higher price, particularly at the outset.
Scott Ryall
And then secondly, I just wanted to ask a bit more about the Licella plant in Australia and just for a bit more detail. Am I right, firstly, that you've invested directly in Licella? Then, can you just give us a few stage gates or timings around when that plant will come into operation? And I guess, thirdly, just discuss again in the U.S. market where we've got a lot of advanced recycling facilities being built or already built. They tend to be linked with one of the major petrochemical companies. How do you think about the risk around using effectively the solution with a start-up, please?
Ronald Stephen Delia
Yes. Look, there's a lot there, and it's a pretty exciting project. So I'm glad you asked. I mean the investment we've made, firstly, I would just make sure it's clear. It's a modest investment, several million dollars. It's in the single digits of millions of dollars. We're co-investing with Mondelez, and we're investing in Licella as the technology provider for this particular plant that's going to be built in the western suburbs of Melbourne and Altona.
We're pretty excited because it will bring recycled content -- chemically recycled material to the Australian market with local production, which is great because the collection of soft plastics, as they're referred to in Australia, through the red cycle program needs an outlet. This plant will be a perfect outlet for the recycled plastics that are collected.
And then the brand owners in Australia are differentiating and are really advocates for more sustainable packaging, including packaging made with recycled content. So there's a captive supply of the primary input, which is waste plastic. And there's a captive market, which is the brand owner and the Australian consumer looking for more sustainable packaging. So we're really excited about this.
In terms of stage gates, look, it's a pretty extensive build as you'd imagine. It's -- the site has been selected. If -- there's a chance that the plant could be operational by the end of calendar '24, but it's really an 18- to 24-month project.
Operator
Our final question comes from the line of George Staphos from Bank of America.
George Leon Staphos
Ron, I was asking earlier, just are you seeing any signs from your customers at all as they're trying to find ways to stimulate growth. Maybe they're considering more promotional activity at the request of their customers that they're now coming back to their packaging suppliers and looking for your and other companies' support perhaps with givebacks, cost reductions, productivity. What's happening there, if anything, on that front?
Ronald Stephen Delia
Yes. Thanks, George. Look, others have talked about potentially increased promotional activity. We really haven't seen much of that of any great consequence. I mean you see it a little bit more in the beverage space in the summer season. But really, I mean -- and there are pockets of promotions here and there, but nothing that's pervasive enough that we would point to that's got a material impact on our volume outlook.
I mean it would be great if it happens. That would be upside. We're certainly not banking on increased promotional activity leading to higher volumes for Amcor. If it happens, as I said, it would be great. And the pricing dynamic is, as we've discussed on this call, I mean, there's continued inflation recovery that's necessary. And while it's moderating, it's still a fact of life that we've got to recover continued inflation through our cost base, and that's what we're busy doing.
Operator
I would now like to turn the call over to Ron Delia for closing remarks.
Ronald Stephen Delia
Thanks, operator, and thanks for everyone's interest in Amcor and for joining our call today. We appreciate it, and we'll speak to you at the end of the first quarter. And we'll end the call there. Thank you.
Operator
Ladies and gentlemen, this does conclude our -- today's call. Please disconnect.
