Ron Delia: Yes. Look, Michael can talk about maybe the accounting that you referenced. But from just a business perspective, first thing I would say is we’ve been in Argentina for the mid-90s, over 30 years. It’s a business that’s about 2% of sales and about 2% of EBIT. And we have five plants there actually across the two segments as you alluded to. And having been there for 30-odd years, we’ve been there through multiple economic cycles and crises, I guess. And the business is relatively local. And we have maintained total control over the business. So, it’s still a business that’s functioning more or less normally. But in terms of how we manage it, we continue to drive localization. It’s essentially a local business. Already, there’s no exports, but to the extent there’s anything imported by way of raw materials, we’re continuing to drive more localization of the key inputs.
Most importantly, probably, we continue to price ahead of inflation. It’s always been a hallmark of that business in that country and continues to be. And then we continue to focus on cost because our expectations are that demand will continue to slow as consumers adjust to the new macroeconomic realities in that country. So, that’s a little bit about the business and how we manage it. Michael, do you want to talk a bit about the accounting that Adam–
Michael Casamento: Yes. Yes. Just on the accounting are you referred to, obviously, Argentina has been designated a hyperinflation economy since 2018. So, consistently, since that time, we’ve been — if there’s been a devaluation that we see that impacts the monetary assets on hand, and that’s being created at NSI. We — this quarter, there was a change of government, clearly. And in December, we saw a 55% devaluation. And you see the chart of $34 million to the P&L in the quarter in the SI bucket, and that’s really the outcome of that on our monetary assets only and that followed Q1 where there was a 20% devaluation. So, really, that’s the treatment of the accounting. It’s been consistent all the way through into the 2018 approach.
Operator: Your next question comes from the line of Richard Johnson from Jefferies. Please go ahead.
Richard Johnson: Thanks very much. Ron, I just wanted to ask a question about Rigid Packaging and how you’re thinking about the business now strategically. I was just trying to remember whether I’ve seen volume declines in the December quarter in the past, anything like that we saw in the December quarter, particularly in hot fill, and that’s even if you adjust out destocking. So, just interested to get your view on how you think the business is placed at the moment?
Ron Delia: Well, yes, listen, Richard, you don’t remember seeing volume declines at that level because you haven’t seen them at that level. I mean it’s just the reality of it. It’s a business that’s — it’s been a good business for a long period of time. It suffered really from a volume perspective, from the same drivers as the rest of the company, right, so — although with higher impacts. So, we’ve had market impacts that we would say, attributed to a high single-digit decline in volumes. That’s inclusive of consumer demand down kind of low to mid-single-digits in some segments that are important to us, maybe down some more, some customers lagging the market. And that all wraps up to kind of a high single-digit impact on volumes for both North American beverage at large and hot fill, specifically that we would attribute to market impacts.
Then the bigger impact actually for us in the quarter was the destocking. And the destocking is really being driven by a couple of things here, which are working in opposite directions. First is that traditionally, in this business, you’d have some inventory prebuild in what is our fiscal second and fiscal third quarters in advance of the high season, the beverage season in North America. There’s historically a bit of inventory buildup, that’s not happening this year. So, there’s no prebuild this year. And at the same time, we have some customers and big customers with very, very aggressive inventory reduction targets. So, rather than building, we’re reducing. And there was a significant acceleration in that activity to reduce inventories in the month of December, which ultimately led to a high single-digit impact on North American beverage at large, but a high teens impact in hot fill.
And while we saw some modest improvement in January, we do believe that we’re going to continue to see a destocking impact in the third quarter. So, that’s really what’s going on there. That’s unprecedented. We still believe in the business. The business is well-positioned in terms of its market stature. It operates in a in a reasonably well-structured market. It has world-leading technology. Its footprint is reasonably optimized. We are taking a couple of small lands out as part of the restructuring program, but it’s reasonably well optimized. It needs to just weather the storm. And that’s on the beverage side. And then let’s not forget that outside of beverage, we have a reasonably sized specialty container business which looks and feels almost like a Flexibles business because of its end market exposure and that business has room to grow.
And Latin America also is — continues to be a very good business, including in the first half and in the second quarter, where we saw volume growth new business wins in Latin America, too. So, it’s a portfolio of businesses. At its core, it’s a beverage business in North America that gets a lot of attention to shouldn’t forget about the other parts as well.
Operator: Your next question comes from the line of Brook Campbell from Barrenjoey. Please go ahead.
Brook Campbell: Yes, good evening. Thanks for taking my question. Can you just confirm what the level of volume growth or decline was in January? And then as a follow-up to that, is there not a risk here that you sort of extrapolate January volumes for the rest of the quarter when perhaps there was a benefit in Jan because Costco has effectively delayed orders in December and push it into January. Therefore, January might not be a good indicator for the rest of the quarter? That’s the question. Thanks.
Ron Delia: Yes. We won’t give a number on January other than to say it was an improvement over December and an improvement, not everywhere, but in most parts of our business. We did have some parts of the business even that grew modestly. So, — that’s probably as much as I would say in terms of trying to dimension January. I understand the nature of your question is particularly the second part as to whether or not we’re being overly optimistic on the back of one month. It is one month, and we’re well aware that it’s one month. We are flagging that we will see continued destocking impacts in healthcare globally and in North America beverage. That no matter what happened in January, we know it will be the case certainly in Q3 and potentially into Q4.
And we’re also not banking on any improvement in the consumer. So, I think that we’re being relatively conservative and not reading too much into one month, but it is a month, and it does suggest as we sort of expected that the low point for us from a volume point of view and earnings growth as well was the second quarter.
Operator: Your next question comes from the line of Jakob Cakarnis from Jarden Australia. Please go ahead.
Jakob Cakarnis: Hi Ron, hi Michael. I just want to build on Brook’s question there, though. Obviously, December was significantly weak. So, January improvement might not necessarily move you guys back to increase. So, I just want to square some of the commentary still where you’re saying that you’ll see a mid-single-digit volume decline in the third quarter and then low single-digit in the fourth quarter. Can you just help us the commentary around the January improvement, is that relative to the negative or the decline that you saw through the month of December specifically?
Ron Delia: Yes, it’s relative to the performance in the whole first half and in the second quarter and in December. So, when we — we’re talking about improvements in January in most parts of the business, where that’s relative to the first half. That’s the first part. I think the other thing to keep in mind is as we work our way through the balance of the fiscal year, a couple of things will also underpin those growth assumptions that we’ve outlined. One is that we do expect outside of healthcare and North American beverage, we do expect the year-end destocking that we saw in December to not repeat. And some continued abatement or continued destocking runoff or reduction in much of the rest of the business. That’s the first thing.
And the second thing is, particularly as we get to the fourth quarter, the prior period comp gets a little bit easier. Our volume challenges really started in a of last fiscal year. And so as we get to Q4 this year, we’ve got the benefit of a comparative period, which wasn’t so strong.
