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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by, and welcome to the Amcor Half Year 2020 Results Conference Call [Operator Instructions]. I would now like to hand the conference over to your speaker today, Tracey Whitehead, Head of Investor Relations. Please go ahead.
Thank you. And welcome to Amcor's First Half Earnings Call. Good evening to those of you in the U.S., and good morning in Australia. Joining me on the call today is Ron Delia, Chief Executive Officer and Michael Casamento, Chief Financial Officer.
At this time, I'll direct you to our Web site, amcor.com under the Investors section, where you'll find our press release and presentation which will be discussed on the call today. We'll also discuss non-GAAP financial measures as we talk about performance against combined comparative information. Reconciliations of these non-GAAP measures can be found in the press release and presentation on our Web site.
Also I’ll remind you that statements regarding future performance of the company made during this call are forward-looking and subject to certain risks and uncertainties. Actual results may differ from historical, expected or predicted results due to a variety of factors. Please refer to Amcor's SEC filings, including our statement on Form 10-K to review these factors.
With that, I'll turn it over to Ron.
Thanks, Tracey. And thanks, everyone, for joining us to discuss Amcor's first half results for the 2020 financial year. As Tracey mentioned, with me here today is Michael Casamento, Amcor's Chief Financial Officer. And we'll begin with some brief prepared remarks and then open the line for Q&A.
Let's start with Slide 3 in the presentation pack. Everything we do at Amcor starts with safety and so safety is where we begin these calls as well. For some time now, our role has been no injuries and we're not there yet. But we continue to believe it's possible and we see evidence of that with over 150 of our sites injury free for six months or more. And our overall recordable case frequency rate for the half was 3.2 per million man hours’ work. The rates related to Amcor business during that period was 2.1. And we know from past experience that acquired businesses typically have higher numbers of injuries, and this is no different with Bemis.
So our primary focus this year remains on aligning the Amcor's safety practices across all of our sites, and on building on the progress we made in the first six months where we had a 6% reduction in injuries across the company. We look forward to providing updates throughout the year as we drive towards eliminating all injuries.
Moving to the five key messages we have for today on Slide 4. First, we've had a good first half with the business delivering solid earnings growth and strong cash flow. Second, taking into account the good first half performance, organic growth expectations for the rest of the year and faster delivery of synergies, our outlook for constant currency EPS growth has improved to a range of 7% to 10% for the year. Third, integration of the Bemis business is progressing well, not only in relation to synergies but also in terms of the organic earnings growth delivered by the business, as well as the opportunities we see to leverage our customer value proposition, which has been improved as a result of the combination.
Fourth, we're continuing to lead the way on sustainability. We're uniquely positioned, fully committed and taking action on multiple fronts. And then finally, our market positions and our exposure to defensive consumer segments leave us very well positioned to continue generating consistent returns for shareholders, regardless of macroeconomic conditions.
Slide 5 provides a summary of the first half results where we delivered strong overall earnings growth, synergies at a faster pace than we had initially expected. And we returned a significant amount of cash to shareholders. Sales were generally consistent with what we saw in the first quarter. Sales revenue down 1.4% in constant currency terms and excluding the negative impact related to pass through of lower input costs. Volumes grew modestly in our larger flexible packaging businesses in Europe and North America, and there is no volume impact on sales in Rigid packaging. However, sales were lower in Flexibles Latin America, and especially cartons.
EBIT was up 4.4% in constant currency terms with 8% EBIT growth in the Flexibles segment, driven by mid single-digit organic growth, plus synergy benefits of approximately $20 million. Earnings were lower in the Rigid Packaging segment as we highlighted would be the case on our first quarter earnings call.
EPS increased by 11% in constant currency terms, and the Board declared a quarterly dividend of $0.115 per share. Free cash flow before dividends was strong and we returned more than $600 million to shareholders through dividends and share repurchases during the half.
Before handing over to Michael, who will cover financials in some more detail, just a few words on the Bemis acquisition, I would go to next slide, Slide 6. First of all, the integration of the two businesses is progressing very well. The two legacy companies are functioning as one, and the excitement and the focus demonstrated by our employees has enabled the Flexibles business to simultaneously grow organically and to surpass the synergy targets we originally set for the first six months of the year. The response from customers has been very positive, given Amcor’s enhanced global value proposition, which includes a broader and more sustainable product offering.
Now, in terms of synergies, we delivered $30 million overall in the first half, which was ahead of our initial expectations and are mainly coming from overhead reductions and procurement benefits. We've increased our guidance for the current fiscal year from $65 million to $80 million in synergies, and we feel very confident in our ability to deliver the full $180 million by the end of fiscal 2022. So the key takeaway today is that we feel very good about where we're at in terms of the integration and the delivery of synergies.
I'll hand over to Michael, and then I'll come back and talk about some of Amcor’s longer-term opportunities.
Thanks Ron. Good morning, everyone. Starting with the Flexibles segment on slide 7. Sales of 1.4% were lower than the prior period and constant currency terms and excluding a negative impact related to pass through of our input costs. This reflects the continuation of the volume trends experienced in the first quarter, which Ron just mentioned.
Adjusted EBIT was up 8% in constant currency terms and in addition to delivering synergy benefits, the base business performed very well with organic growth of 5%, driven by strong cost of funds across the businesses and benefit for the normal time lag in recovering more material costs. Overall, we're really pleased with the way the Flexibles business did performed, and we’re excited about the long-term opportunities for the newly combined business.
In the last since months, we've secured a number of long-term commitments in North America based on the strength of Amcor’s enhanced value proposition, and we continue to improve the cost base in Latin America, as well as taking steps to reduce the complexity in that business.
Turning to Rigid Packaging on Slide 8. Sales of 1.6% than the prior period in constant currency terms after excluding 2.4% favorable impact to revenue from passing on lower raw material costs, and this was driven by unfavorable product mix given the sales volumes were flat during the period. I think in the second quarter we’re in constant currency terms, which was expected given the business cycle the particularly strong comparing period.
In North America, overall mix was unfavorable in both beverage and specialty containers, which also made some higher costs in some of our plants. This compares to the prior period, which benefited from exceptionally strong mix. Beverage volumes were flat compared with last year with the hot fill container volumes 4% higher, supported by market growth and share gains as a range of customers launch new products in PET format.
In Latin American, volumes were 2% higher, however, earnings were lower than the prior period as mix was unfavorable and the business benefited from early recovery of cost inflation in Argentina in the second quarter of last year. Most importantly, for the Rigid Packaging business, we expect to return to profit growth in the second half of the year and this is taking into account in our full EPS guidance.
On Slide 9, adjusted free cash flow of $310 million was in line with our expectations, and keeps us on track to generate more than billion dollars for the year. One of the consistent highlights for the business has been our working capital performance. And on a like-for-like basis, the working capital to sales ratio is improved by 30 basis points in the half to 10.4%. And we will maintain our focus in these areas to reduce this ratio further overtime.
Free cash flow and proceeds from assets divested to complete the Bemis acquisition enable us to return more than $600 million in cash to shareholders during the half. Of this, $391 million was through dividend payments. Amcor has a strong track record of cash return through a competitive dividend, and it was great to enter the prestigious S&P 500 dividend aristocrats on February 1st issue. The remaining $223 million was returned by reposting nearly 22 million in shares through to the end of December. We’re roughly halfway through the 500 million share buyback program that we announced in August of 2019, and we're on track to complete it by the end of June 2020.
On Slide 10, we have provided some balance sheet highlights. In simple terms, the balance sheet remains strong with leverage at 2.9 times, and we continue to be in a very comfortable position with access to a diverse range of funding sources at very competitive rates. Combined with our ability to generate significant free cash flow, the balance sheet provides flexibility and capacity to simultaneously invest in the core business, pay a compelling dividend, buyback shares and growth through acquisitions.
Finally, moving to our outlook on Slide 11. The business is delivering good first half results and we mentioned building in relation to the delivery of synergy benefits, and lower expectations for our interest costs. Our outlook for adjusted EPS increased to a range of 7% to 10% in constant currency terms. This is now inclusive of $80 million of pretax synergy assets, an increase of $15 million from previous guidance, and assumes net interest costs for the year will fall in the range of $210 million to $230 million, which is $20 million lower than previous guidance.
Corporate costs, tax and cash flow were all in line with our expectations for the first half and as a result, we have reconfirmed guidance to each of these metrics. All guidance is in constant currency terms and assuming average exchange rates for the first half of 2020 prevail for the balance of the year, currency headwinds would have an unfavorable impact to reported EPS of approximately $0.01 per share.
So with that I'll hand back over to Ron.
Thanks, Michael. Before we turn the call over to you for questions, we're going to lift out of the details for a few minutes and focus on the longer term. And Slide 12 recast Amcor strategy, which has not changed we've described it many times before.
We have actively managed our way through a focused portfolio of businesses in four product segments. And each of those businesses benefit from a small number of differentiated capabilities, which we call the Amcor way and which provide real competitive advantage. And then finally, our aspiration is to win four key stakeholders. And for investors specifically what it means, taking the strong cash flow we generate and deploy that in several ways to generate value, which I'll describe on the next slide.
Slide 13. This is Amcor's capital allocation framework, and it provides a perspective on how we think about generating value for shareholders overtime. And over the last six years, the outcome of allocating our cash and the capital in this way has resulted in average value creation of about 4% per year through combined EPS growth and dividend yield.
And looking forward over the next few years at a time when uncertainty and volatility are high, we have clear visibility to controllable sources of value through continued organic growth and $180 million of cost synergies from the Bemis acquisition, along with continued strong cash flow to fund the compelling dividend and to complete the $500 million buyback we announced in August of last year.
As we did in the first quarter, I want to touch on sustainability, which remains the most exciting organic growth opportunity we have at Amcor, and it's not a new topic for us. And we've been fully committed to making a positive difference here for several years now. In fact, made our first public aspirations in January of 2018 over two years ago with our 2025 pledge and in August last year, we demonstrated that conviction again by committing another $50 million of investment to accelerate our sustainability agenda.
And over the course of our journey, we've developed some particular points of view, which are outlined on Slide 15. Firstly, Amcor makes primary consumer packaging that actually touches and holds food and medicine, and other consumer products. And as world population and consumer needs grow, we believe there will always be a role for that type of packaging.
First and foremost, to reduce food waste which is around 30% globally and contributes, by itself, 8% of global greenhouse gas emissions. Second, we know that consumers have come to expect a lot from packaging, and they want packaging that works well, is lightweight, convenient, easy-to-use, cost-effective, great looking and the list goes on. And now they have expectations that the packaging has a responsible end of life solution as well that doesn't result in more waste in landfill or the ocean. And the third point is, we believe that's possible and the way to get there is through responsible packaging. And lastly and most importantly, Amcor is uniquely-positioned and taking action on that front.
When it comes to responsible consumer packaging and elimination of waste, we believe a total system solution is required across three elements. First, smart packaging design that takes into account environmental impacts throughout the product life cycle and that means packaging that's recyclable, reusable or compostable, made from recycled materials and that uses less material in the first place.
And second is the right waste management infrastructure needs to be in place, whether that's recycling, or composting facilities, or returnable systems. And finally, consumer participation is critical to properly dispose of packaging in an inappropriate way, either by recycling, or composting or in fact reusing.
There are couple of other important things we believe when it comes to responsible packaging. Responsible packaging also does not mean no plastic. In fact, our customers continue to use and believe in plastic, because it provides great functionality, it's fully recyclable and it's clearly advantaged versus other packaging materials from an overall environmental footprint. And the benefits of plastic relative to other materials will grow over time as waste management infrastructure increases and consumer participation grows as well.
When it comes to making responsible packaging a reality, Amcor is uniquely-positioned starting with package design through our innovation capabilities. On Slide 17 I think it’s evident, Amcor is already offering customers a broad range of responsible packaging options to help them accelerate their own sustainability agendas, including packaging made from recycled or bio-based materials, packaging that's recyclable, reusable, or compostable and of course, lighter waste packaging that results in a lower carbon footprint.
In making these products available, we're addressing the materials that go into the package, the environmental effects of manufacturing and distributing the product, as well as how the package will flow back into a circular economy rather than becoming waste. And these options are available today in both flexible and rigid formats, and there's a continuous flow of new product introductions.
In flexible packaging, recent examples include the first recyclable stand-up pouch for liquid products in Thailand, which is also a multilayer material, multilayer structure and a lighter weight recyclable tray with a recyclable barrier for protein applications, both of which you can see here on Slide 17.
And Slide 18 includes examples in the Rigid packaging business, which includes converting the existing products to 100% recycled PET, converting from other package formats to PET and re-launches of iconic brands in the PET format. And by evolving to these more responsible packaging options, Amcor will have reduced our annual consumption of virgin resins by more than 200,000 tons by 2025. And in that process of doing so, we will have supported the development of an effective and more sustainable market for recycled resin by creating cumulative demands of more than a million tons over that time period.
And finally, as the industry leader, we're actively sharing our expertise and perspectives, directly with consumers through our podcasts and social media channels, with customers through bilateral sustainability summits and with participants across the entire supply chain through our partnership network. We've had a number of strong long-term partnerships for some time now and we'll add others to maximize our reach and impact.
As a recent example, Amcor joined the World Economic Forum this year and had a seat at the table with leaders from the world's largest companies, many of whom are Amcor customers and suppliers. And by contributing in a number of discussions, which were focused on redesign of the plastic’s value chain and the new plastic’s economy global commitment, two things became even more clear; one, we're fully aligned with our customers and our suppliers in our perspectives and our goals; and two, there's a shared determination to develop a waste free future and to do that with pace.
When we announced our 2025 pledge, we knew Amcor have the opportunity to make a positive impact on the world, and to lead the industry through better packaging. And we're more confident today than ever that Amcor is uniquely positioned to capture that opportunity and to deliver on our commitments.
Summarized on Slide 20, we're pleased with our first half results and confident of delivering against the increased financial outlook we have for this year. Capitalizing on the value and the potential of Bemis acquisition is one of our top priorities, and that integration is going very well with momentum building every day. We're acting with confidence and conviction to drive change as we progress towards our 2025 sustainability goals. And we're excited about the many other opportunities we have to drive long term growth and maximize shareholder value.
With that, we'll be happy to take questions.
[Operator instructions] Your first question comes from Anthony Pettinari with Citi. Please go ahead, your line is open.
You raised the full year guidance, I think by about a half a cent at the middle of the range. And I think the benefit from the higher synergies and lower interest cost expenses maybe a bit more than that if my math is right. I'm just wondering when you think about organic EPS growth. Has anything changed versus three months ago? And how do you think, just generally, about upside or downside to the full year guidance for the remainder of the year?
We feel really good about the first half. I think that point has been clear, and so we increased our guidance for the year, as you pointed out. I think what I would remind you is it is a range. We've given a range again today of 7% to 10% in constant currency terms, up from 5% to 10%. And what that suggests is that we feel pretty good about the full year. I don't think we see anything markedly changing about the business organically or otherwise in the second half.
If we think about where the opportunities may come from to hit the high end of that range, obviously, better top-line growth would help, maybe a more favorable raw material environment and certainly, continued acceleration of synergy benefits would help us to get there. And obviously on the inverse, the inverse would be true as we think about the bottom of the range. Although, I think what you can take away from today is that we've minimized the downside risk on the financial year, which is why we've raised the bottom end of the EPS growth range.
And then just switching gears, are you seeing or do you anticipate any impact from the corona virus disruptions? And can you just maybe remind us Amcor's footprint in China and any regions that are impacted?
Yes, it's an evolving topic. Obviously, it changes by the day. But just to contextualize it, Amcor has got a big flexible packaging business in China. We have about 12 plants spread across the country, although, none in the Hebei provice, which was the epicenter of the virus. We have about 3,000 people and it represents roughly 4% of sales. So it's a big important business for us.
Firstly and most importantly, as far as we know, as of today, none of our employees have been stricken by the virus. And our plants are actually all operating, which is great. Many operated right through the New Year period, because we're supplying health care products. Others came back online last week and this week. They're not all running at full tilt, because we don't have all the employees back and our customers are not all operating, but our businesses are functioning.
Now the impact on the business in the second half will remain to be seen. Obviously, we didn't have any impact in the first half. Any impact on the business would be in front of us. And while it's an important business for us and it's going to be a real big part of our story going forward, it's not ultimately material in the grand scheme of Amcor's about 4% of sales, as I said.
Your next question comes from Ghansham Panjabi with Baird. Please go ahead. Your line is open.
I guess, first off on the comments of the long-term commitment secured in North American Flexibles. Can you just give us more color on this dynamic? Is this incremental business or is it purely just extending contract terms? And if it's incremental, how should we think about layering this in as it relates to the next few quarters?
Yes, it's a good pickup because we feel really good about that. I mean one of the highlights of the integration so far, has been the customer reaction. You know as we talked about, this is a deal that should be exciting for customers. It should not be threatening in any way, because there's not a great degree of overlap in similar regions with similar products around the world. So I think the customers are rightly seeing it as a complimentary combination of two companies. And that's manifesting itself in wealth in a number of commitments, which we highlighted today.
I think what I would say is, it's a combination of business that's been locked down and secured with a little bit of incremental share of wallet gain at some of these customers. I wouldn't think that, there's a material impact that needs to be layered in, because we're talking about four or five deals with customers all of whom are important, but out of hundreds and in fact thousands of customers in this business. So I think what it says to us is that we are avoiding any substantial negative synergies. And if anything, we're getting some, let's say positive revenue benefits in the form of locking up business and maybe picking up a little incremental share over time.
And just in terms of EBIT for Flexibles, it looks like it was up about $38 million for the first half versus the previous first half, plenty of which was from synergy. And so of the remaining $18 million, how much of it came from the timing lag you referenced of raw material cost recovery?
We had about $5 million in the first quarter. We had a similar type number in the second quarter. So all up we had about 5% organic growth, part of that would have been from the raw material lag, or the recovery, I guess, you could say of the raw materials. But we're pretty happy with the organic growth of 5% generally.
And will that continue into the second half the way you see it right now?
Look, it remains to be seen. I think the pace of raw material movements is relatively benign overall if you look across the global portfolio of spend, and you might have a little bit of a benefit in the quarter that we're in. But beyond that, it's difficult for us to say, it looks more benign than anything.
Your next question comes from Larry Gandler with Credit Suisse. Please go ahead. Your line is open.
Ron, just a question on North America following onto that. The statement here says North America volumes grew in high value protein. First question is, did volumes in North America overall grow. And one of the things that challenges, I think, us analysts is the external data is showing some pretty weak food and personal care volume performance in North America. Just wondering if you could talk about where you guys maybe picking up pockets of growth. You mentioned a few here. So first question is did overall volumes grow? And two, can you talk about where you're capturing that growth?
First, simple answer to your first question, yes. Volumes grew overall both in North America and in Europe, which is really pleasing, because those are our two engines in Flexibles. Those are two big businesses, neither of which are in dynamic growth markets as you pointed out. So if we can get a little bit of growth through volume in those businesses, it's good to see, so absolute volume grew in both North America and Europe. In fact, in similar end markets in both regions, protein, healthcare, liquid products, which are coming out of cans and into big pouches, particularly in the back of food service outlets, coffee, pet care. So a number of the higher value add segments, we're seeing good growth.
Generally, if you were to aggravate the whole FMCG space, I think it's no surprise that volumes grow generally with population, maybe 1% or 2% and then you have all kinds of mixed impacts in there between different types of customers in different types of segments. I don't think that's going to change much from period-to-period. And then it's up to us to migrate our mix towards the higher value add part of that overall space.
With regards to your customer mix, are you picking up volume at the small end of town or are the large customers also contributing to your volume growth?
It's a little bit of both. In some of the segments I just mentioned, those are driven -- as some of that growth is driven more by the larger customers. We also see some of the larger customers in certain discrete segments, I can think of dairy or cheese is one where some of the larger customers are losing share. But we know that we're picking up the share that they're losing at retail with some of their smaller competitors. So it's a combination. Obviously, the big engine in these businesses is the MNCs, but the incremental growth is disproportionately coming from the smaller companies that we're also serving.
And last question from me, perhaps for Mike on the finance side. Looking at the cash flow target, a $1 billion adjusted free cash flow, maybe less $100 million for one-off, so call it $900 million, that's a big jump in the second half and same thing with the free cash flow after dividends going from minus $81 million, to $300 million to $400 million. When you look at the line items above in that Slide 9, are you anticipating significant reductions in some of those items like interest and tax and CapEx, and maybe even comment on working capital, how that's going to evolve into the second half?
Typically, our cash flow is much stronger in the second half, and we do get higher rate in the second half, so there’s seasonality there. We expect there’ll be some working capital improvements as we’re standing in the first half that will continue to flow in the second. So generally speaking, that's the normal trend we see and that's what we expect in the second half more around the seasonality.
So simply seasonality earnings and working capital will get you to that $900 million?
Yes, correct.
Your next question comes from John Patel with Macquarie. Please go ahead. Your line is open.
Just had a couple of questions, just in terms of Rigid, obviously, flagging second half improvement there. Appreciate the sort of comps movement. But you sort of -- in terms of what's driving that, you’re getting some restructuring cost benefit flowing through and the likes of Pepsi recapturing share? Is that part of this too?
It's a good question, John. I mean, we did flag, we had growth in the first quarter, first of all and we were pretty pleased with first quarter. We did flag that the second quarter would be tough, which has a lot more to do with last year than this year. We're okay with this year's performance. It's really cycling at pretty difficult 90 day period when you look at it on that sort of basis versus last year. It's a combination of things.
Last year in North America, we had particularly strong mix, not just in product segments because we obviously have had hot fill growth again this year, but with our customer mix and to some extent our end markets in specialty containers. And in Latin America, we had a better mix of outcome last year. We also had an early recovery of inflation in Argentina last year, which benefited. So those two things really made it a difficult 90 day comparative period in Q2 for Rigid. But we do expect the business to get back to growth in the second half from a profit perspective.
The good thing is that volumes have continued to be robust so overall volumes were pretty much flat with hot fill going up 4.5%. Latin America, we had couple of percentage points of growth too. So now it's just about profit conversion and cycling a better competitive period in second half, which we expect will lead to profit growth.
And just second question, in terms of sustainability impacts in this result, it appears relatively steady state, but in terms of where you're seeing the benefits in this result and also where you're seeing the negative impacts, I know you've called out, continue to call out North American order. But where are you seeing the positives and negatives, I think perhaps in this result and looking forward?
John, I think it's becoming more and more of an opportunity for us as we get into it further. So I would say that we don't see any negatives in the result at all. In fact, the positives that you can take out of the result related to our sustainability agenda would come from some of the comments we made about the customer commitments.
The reason that we've re-upped with most of these customers that we referred to and someone asked about earlier, is largely because of our shared sustainability agendas and our innovation developments. Customers are more inclined to want to work with us now than ever before. And not just because of the Bemis acquisition in the bigger footprint, but also because we're completely aligned on the innovation required for sustainability.
I think the other thing that we highlighted today is there's been a number of new product launches in PET and plastic, which suggests to us that the format is alive and well and customers are doubling down on that format more than anything. And then I guess the third thing, which I don't know if it's in our materials. But over the last six months, there has been an increasingly balanced dialog externally, including some very supportive comments from our customers who have been very supportive of plastic packaging generally and its role in reducing greenhouse gases and reducing food waste.
And then in PET, in particular, we've had basically the two major brand owners come out in very, fairly vocally, or fairly strong language support to the PET format. So I'd say, John, if you took the six months view no negative impacts at all, but two or three real positive indicators, maybe not financial, but generally, about the environment we’re in.
Your next question comes from Debbie Jones with Deutsche Bank. Please go ahead, your line is open.
First, I wanted to see if we can get some more detail about fixing -- the comment you made about fixing the cost base in Latin America. What do you still need to do there? And then is that the really the only thing that you're focused on to get to where you want to be, or are there other things?
Debbie, the last part of your question I missed. The first part was about the cost base in Latin America and whether there's anything else that we need to do there. And you tailed off at the end there. Can you repeat the end of the question please?
It was basically what you just said. Is that it, or are there other things that you might still address in the region as well?
Yes, this relates to the Flexibles business in Latin America and then particularly the legacy BMS business, which we flagged a few times now. First of all, what we are doing, well, let's set the context first. So before the acquisition closed, the business was performing at a very high level in the quarter or two before it closed, it had deteriorated a bit, lost some sales and ended up in the fiscal fourth quarter last year losing money, which we've flagged. And we get a hold of the business in mid-June last year and the first thing that happened was we took a lot of costs out and we've taken headcount way down, we're looking at the footprint as well.
So those actions were taken very early on. And the business is improving from a profit perspective with each month. So it's absolutely improved quarter-over-quarter, it's actually improving month-over-month from a profit perspective. Despite the fact that the presales take longer to regenerate, it always takes a lot longer to regain sales and it does to lose them. And so in addition to the cost actions we've taken, we're working hard on getting the top line back to where it can and should be and has been in the past. So that would be the other thing.
And then the third thing I would point out is we probably flagged this before, but it's a fairly complicated portfolio as we see it. We try to keep things even more focused and more simple. And that business functions, when I say the business, the legacy Bemis business, in particular, in a number of segments that we haven't historically been in. And so we're taking a close look at that as well. We took one step in the first half. We sold out of a joint venture we had to produce tube laminates in Brazil, it’s a small business, good business, very good business, which is not a one that we're in anywhere else in the world. And so we sold out of that JV as a step towards simplifying that portfolio a little bit further. So it’s combination of costs and getting the top line going again and making sure we're focused from a portfolio perspective.
And then my second question, not really sure if it's something you can answer. But I'm curious on the target for less virgin resin, the 200,000 tons by 2025. What is that implication for you in terms of volume and mix if you hit that? Is this just people cycling into at this type of recycled resin versus virgin, or do you plan on acquiring new customers? And then on that just below it’d be on Slide 18, the effect of market of 1 million tons. Out of curiosity, where does that come from? How do you identify what that market is? And kind of regionally or by end market, what is the addressable market there?
Yes, and I'm glad you asked about it, because it's an important topic which we spend a little more time on it. So this is all about the rigid plastics space in North America, in particular and Latin America. So in the Americas where we make rigid containers out of PET primarily, that's what we're referring to there. And as far as the reduction of virgin resin 200,000 tons a year, that's the house number based on the current glide path.
We are actually kind of putting an inflection point now where we're seeing the percentage of recycled material that we're processing it's pretty much double this year. And assuming we kind of continue at that new level, we'd be reducing our virgin resin by about 200,000 tons a year. Now I think it's fairly conservative. There's no reason for us to be, anything other than conservative, in that number. But I think it's more likely that one that’s using more over time rather than less.
But nevertheless, we're on a glide path to see us replace 200,000 tons of virgin resin with recycled PET all in the next five or six years. And then still doing -- and that's with existing customers, as well as just the normal mix of business that we have today, and that's just where we're at. As we do that over that five or six year period, we will have been out in the market sourcing that 200,000 tons plus of recycled material, over five or six years, that's over a million tons of a cumulative demand.
And we think that's going to be important, because it helps underwrite the much needed investment that's required to not only fund waste management infrastructure but also to fund the processing capacity that will be required to actually convert recovery bottles into post consumer recycled resin, and so we're just flagging that. One role we can play here is as a demand creator and we'll be active in that market for those who are seeking to invest and deploy capital in that space.
Your next question comes from Brian McGuire with Goldman Sachs. Please go ahead, your line is open.
Just wanted to piggyback on that last question and your response there Ron. Just interested to see over the last couple of months, what progress you've seen in the supply chain along the waste collection and processing side, that's going to lead to an increase in our PET supply. Actually you and a lot of others have targets to use a lot more recycled PET in the next couple of years, and a lot of the companies have made commitments to buy it. I'm just wondering if you've seen the infrastructure already start to be put into place to actually make that supply available for you.
Brian, it's a good question and that is the challenge, right? I mean, everyone's got great aspirations and expectations but now the capital and the infrastructure has to follow. I think it's hard to assess over a short period of time. I think generally the momentum is there.
I think you see that momentum in the form of increased commitments. You see companies like Amcor talking about, I know our willingness and readiness to buy every pound of recycled material we can get our hands on. You can see the big brand owners making similar comments. You can see Coke and Pepsi teaming up to launch an initiative called every bottle back, which is helping on the front end to drive collections. You see Nestle making public commitments about putting money behind buying recycled material, so I think it’s coming.
I don't know that we could point to specific investments over the last 90 days that would meaningfully move the needle on supply. But I think all the momentum is headed in the right direction and all the components of what's going to be required are falling into place.
And just a question on the outlook. I think previously you talked about D&A being similar to CapEx in the kind of $450 million range. It looks like after stripping out the amortization from deals, it was only $96 million in 2Q and kind of ran just a little bit north of $200 million in the first half. Just wondering if that $450 million is still a good number for the year, or if it's maybe going to be coming in a little bit lower than what you thought initially?
Typically, we would spend CapEx kind of in line with depreciation, so around that $450 million mark. We were a little behind that in the first half just slightly behind. I think that's pretty typical when you're doing an integration of the size that we’re doing with payments. We expected we got to be there and thereabout by the full year. At this stage, might be slightly low but that's what you should expect to see.
And then just last one for me, just trying to kind of bridge from the first half EBITDA to the second half outlook. I think the EBITDA was $911 million in the first half, it sounds like maybe $10 million of that was some timing benefits that may not recover -- recur in the second half. So maybe $900 million is the starting point if we could pick up $20 million for increased synergy capture, then seasonality, seems like it maybe adds $50 million or so. So is that directionally about right, something in the kind of nine high $900 million in EBITDA through the back half of the year?
Brian, we're giving our guidance on an EPS basis. I mean, you can get there a lot of different ways. I think the key for us is that we're going to get to 7% to 10% constant currency EPS for the year.
Your next question comes from Richard Johnson with Jefferies. Please go ahead, your line is open.
Ron, just returning to the commentary you made around the long term contracts you signed in Flexibles in North America. I was just trying to put that in the context of all the longer term arrangements that Bemis themselves have put in place prior to you acquiring the business, which I seem to remember involve pretty significant price incentives. So I'm just sort of trying to understand how I should think about what you've done relative to what they have done? Is it completely separate or is it sort of one and the same thing as part of the same process?
No, it's separate. I mean look the business has thousands of customers and dozens of large FMCG customers to go with a thousands of small customers that it has. Any contracts that were in place when we bought the business are still in place. We're just referring to positive momentum that we've had with customers where there is a contract, let's say that's up where that matures where we've made really good progress in terms of just re-upping that business, none of which are material on an individual basis. In fact, they’re probably not material in aggregate other than to suggest that the momentum is very positive on the commercial side of the business.
And then just on raw material, I was hoping you might be able to give me a feel for how what the, on Rigids, what the contribution in the first half was from your restructuring program?
Not a whole lot in the first half as we flagged. We've got $20 million to $25 million of total benefits come through that program. We had about $10 million so far. We didn't do much at the end of the last fiscal year that would have benefited the first six months of this fiscal year. We're going to get back on with several plant closures later this calendar year, which will deliver the remaining $10 million to $15 million benefits that we expect.
And then just to confirm that your plant closures net, net don't result in any overall capacity reduction in the system that you've got in North America. Is that right?
Not in any meaningful way. I mean, there might be on the margin in certain types of products, but that's not really the intention. The intention is to lower the fixed cost base, the structural cost base and to consolidate essentially similar and in fact growing volumes in fewer number of facilities.
And I just want to reconcile what you're doing with your business, which obviously makes perfect sense was the common share your get out of the beverage can producers who are all in full expansion mode and adding capacity, it seemingly way but that kind of -- in fact, they sold out. So I'm just trying to sort of understand, the same to you all the color you put to your growth opportunities in that business when you are effectively taking out capacity and they grind very aggressively?
No Richard, just to clarify. I think I just said that we're not taking out capacity, where we do see a number of plants that are [Multiple Speakers]. No, we're retiring older assets and putting the assets and the capacity in a smaller number of factories. But our business is expecting to grow, it has been growing. If we take a step back around the package formats and the mix and what's happening there, particularly in cans, we see an overall liquid beverage market, non-alcoholic beverage market growing about 2% and this is just based on scanner data. So it's not anything proprietary.
We see the market growing about 2% in the back half of the calendar year, which lines up with our fiscal year. We see the PET portion of that market also growing at 2%. And we would see canned volume growing at about 3%. So what it says to us is that plastic format continues to grow at least with market, cans have grown well as well and there's enough growth for both. I think where the can growth has been extraordinary, has been in the alcoholic space. And I think the industry data would suggest this as much, and beer in particular and hard seltzers and things like that, it's been outstanding growth. But that's not a part of the market that we've been participating in or are interested in.
And then just finally on sustainability, I was just interested to get your view on, if you look at the consumer packaging industry across the entire value chain. I mean, what part of that chain actually holds the key to solving this issue right from raw material producers through to the converter to the customer, and particularly the seasonal markets as well? And the reason I asked the question is, if you think about the numbers that Nestle had talking about, they’re obviously significantly higher than the numbers or investment they’re make in this process than the converters are doing. So I'm just trying to understand when you stand back in that and look at the problem in its entirety, or look at the issue and all the solution in its entirety. And who really holds the key, is it the customer or is it actually the raw material producer?
I actually think its equal parts converter, brand owner, waste management provider be that a regulator or private enterprise and consumer. So I actually think it's an equal parts those three. I think it's less about the retailers and probably a little less about the raw material suppliers. I think it's more about those other actors. And I think that's why we feel really good about our position, because ultimately you need a combination of materials and you need other functionality design into packaging, which no raw material supplier provides today and we don’t envision in the future will provide. So the converter has a critical, critical role there.
I think the brand owner has a role in making sure things move quickly and with the right set of tradeoffs in mind. I mean these products are not going to be cheaper initially and the brand owners are going to have to kind of live with that in the early days. Waste management infrastructure is mission critical, because it's not in place everywhere and it's a fragmented landscape depending on the jurisdiction we were to focus on.
And then I don't think we can underestimate the role of the consumer, because whether the answer here is recycling, or even reusing, or composting, the consumers have to do something different than what they've been doing and what do today. They have to use -- make use of their compost facility, or their reuse system, or their recycling. And that's not an insignificant shift. So I genuinely believe its equal parts those four part, the equal contribution from those four parts of the value chain.
Do you have any formal sort of corporate agreements with any of your key customers to develop particular products? And the reason why I asked question, and you might well do is that sort of I just don't know what they are. Whereas I do know and your customers talk very loudly about the arrangements and development project cycle of material producers and reusable packaging systems and so on and so forth. So it's so easy to find those out. So I've thought of NGOs. Is there anything particularly you can point to that would help us sort of understand what the converter is doing in conjunction with any customers?
Well, the clearest manifestation is the new products we launched. Those don’t come by our own activity in isolation. We do have several what are called joint business development agreements or joint product development agreements with customers that are typically separate from commercial contracts where you've got almost like a product development contract, if you will, in a number of segments. In fact, across our entire business, we don't have all customer names associated with those. But that's where the innovation and the new product development comes from that leads to the examples that we've highlighted today and kind of highlighted before.
Your question comes from Scott Ryall with Rimor Equity Research. Please go ahead your line is open.
I have been thought some specific questions around the sustainability slides, Ron. On Slide 17, you've shown a recyclable stand-up pouch in the context of that pouch being multilayer and all of that. How do you define recyclability in this respect please?
Yes, it's a good point that -- it's a good pick up that it’s a multilayer materials, because recyclable doesn't have to be in single layer or monolayer. And in this particular case, it's a combination of different polyolefin materials that are brought together to provide the functionality that's required for this home care product line, which is set of generation, it’s I think the laundry -- so laundry detergent that's pictured here.
As far as the definition of recyclability, there are industry standards out there that are facilitated and being developed by NGOs, and particularly Ellen MacArthur Foundation, which is the leading authority on the space and has gotten signatures from 450 companies behind what's called the new plastics economy global commitment around certain definitions. And so, there is a specific definition of what means recyclable has to be recycled today someplace at scale, and this particular product would meet that definition.
So you'll come -- so that was where I was really getting through with the recyclability at scale. I had thought they talked to that also at scale in the market. Are you comfortable in -- I think you said Thailand, is that recyclable in Thailand?
I don't know that it is recyclable in Thailand. But the definition at this stage is recyclable at an industrial scale, because the infrastructure has to be developed in different parts of the world. And so it's also a guide to what the infrastructure agenda should be in different markets around the world.
And then a quick question on your next slide, which you -- on 18, which you clarified the less virgin resin and what you want to signal as your demand creation? Can you just confirm for me how much of your virgin resin in North American Rigid that would represent please?
I don't think we break it out publicly. We're one on the larger buyers [Multiple Speakers]…
But are you getting up to a material proportion, I guess, of like you said a material proportion of the 200,000 tons?
Let me help a little bit there. This year, we're going to exit the financial year, converting more than 10% of the resin in our Rigid Packaging -- in our PET resin and our Rigid Packaging business will be recycled resin. So that's why I referred earlier to an inflection point. We're accelerating at very rapid pace the proportion of the resin we convert as recycled and this year we're going to exit at over 10%.
There are no further questions at this time. I'll turn the call back to management for closing remarks.
Okay. Thanks everyone for joining us today. And on the call there, operator, thank you.
This concludes today's conference call. Thank you very much for joining me. You may now disconnect.