Amcor (ASX:AMC)

Ron Delia
MD & CEO
Market Cap (AUD): 15.81B
Sector: Materials
Last Trade (AUD): 13.5 -0.15 (-1.1%)
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1. About

 

Amcor Limited is a global leader in developing and producing high-quality, responsible packaging for a variety of food, beverage, medical device, pharmaceutical, home, and personal care, and other products.[1]

Amcor Ltd is a Public Company that is ranked number 31 out of the top 2000 companies in Australia. The Company generates the majority of its income from the Polymer Product and Rubber Product Manufacturing in Australia industry. In 2017 Amcor Ltd had 35211 employees in Australia including employees from all subsidiaries under the company's control.

Amcor Ltd operates through the following business divisions:

  • Flexibles Packaging - Development, manufacture and supply of flexible packaging solutions and cartons. Common products include food, pharmaceutical, and medical products, liquor closures and tobacco packaging. The division is split between Europe/Middle East/Africa, the Americas and the Asia Pacific.
  • Rigid Plastics - Development and manufacture of polyethylene terephthalate (PET) and plastic resins. The division is split between North America Beverage (plastic bottling), North America Specialty Containers (pharmaceutical, food, and homeware), Latin America and Bericap (plastic closure for food and industrial containers)
  • Tobacco Packaging - Amcor holds a 47.6% interest in AMVIG, a Chinese-based manufacturer of tobacco packaging, requiring the use of flexible cardboard.
  • Discma - A Swiss-based subsidiary focused on the development and licensing of product packaging.

2. Business model

 

The Company operates the following divisions:[2]

 

Division

Revenue ($M)

% of Revenue

% of Profit (before Int,Tax, Dividend & Amort.)

Profit drivers[3]

Amcor Rigid Plastics

$2,787.5

29.9%

30.1%

  • The Rigid Plastics business delivered PBIT of USD 312.0 M during the 2018 financial year
  • Cost performance across all business units was outstanding and earnings from recently acquired businesses were higher than last year. However, these benefits were offset by weaker volumes in the North America beverage segment and unfavourable product mix

Amcor Flexibles

$6,534.6

70.1%

73.7%

  • The Flexibles segment delivered PBIT of USD 835.1 M, modestly lower than the prior period in constant currency terms
  • This reflects benefits from restructuring initiatives and organic growth, offset by an adverse impact from the normal time lag in recovering higher raw material costs, lower volumes in parts of South America and a disappointing first half in certain markets in Asia Pacific

Other/Investments

N/A

N/A

(3.8%)

N/A

3. Strategy

 

There are three consistent components to Amcor’s strategy: a focused portfolio, differentiated capabilities, and its aspiration to be the leading global packaging company. To fulfill its aspiration, the Company is determined to win for its customers, employees, shareholders and the environment.[4]

 

Focused portfolio

The Company chooses to participate in four packaging segments: flexibles packaging, specialty cartons, rigid plastic containers, and closures. These share important characteristics:

  • focus on primary packaging for fast moving consumer goods (FMCG)
  • good industry structure
  • attractive relative growth
  • multiple paths for Amcor to win from its leadership position, scale and other competitive advantages

 

Differentiated capabilities

‘The Amcor Way’ describes the capabilities deployed consistently across Amcor that enable us to win: Talent, Commercial Excellence, Operational Leadership, Innovation, and Cash and Capital Discipline

 

Shareholder value creation

Amcor generates strong cash flow and redeploys it to consistently create superior customer value. The defensive nature of Amcor’s end markets means that year-to-year volatility should be relatively low, measured on a constant currency basis. In most years, the combination of those sources of value should be 10–15 percent. A central driver of delivering shareholder value is appropriately allocating cash generated by the business, across dividends, growth investments and capital management

4. Markets

 

[5]

Industry (Australia)

Industry Revenue (2018)

 Growth Rate (Annual 13-18)

Plastic Bag and Film Manufacturing

$2 Billion

1.4%

Plastic Pipe and Plastic Packaging Material Manufacturing

$3 Billion

(5.3%)

Plastic Bottle Manufacturing

$2 Billion

2.7%

5. Competition

 

Major competitors include:[6]

 

  • Georgia-Pacific LLC
  • Silgan Holdings Inc (NASDAQ: SLGN)

6. History

 

1860s[7]

Established Victoria’s first paper mill known as Australian Paper Manufacturing

 

1969  

Listed on the ASX

 

1986  

APM became Amcor Limited

 

1989  

Amcor bought Twinpak, the largest plastics containers producer in Canada

 

1994  

Amcor also began operations at a new paper mill in Prewitt, New Mexico in the United States

 

1995  

Acquisition of Rentsch Folding Cartons, Switzerland

 

2001  

Expansion of Sunclipse in USA

 

2005  

Expansion of China tobacco packaging via share in Vision Grande Group Holdings

 

2011  

Marfred Industries acquisition

 

2012  

Aluprint Plant acquisition

 

2013  

Amcor Australasia and Packaging Distribution demerger

 

2014  

Amcor announced Indonesian Flexible Packaging Acquisition

Amcor announced Chinese Flexible Packaging Acquisition

 

2015  

Amcor announced acquisition of Encon

Amour acquired Indian Flexible Packaging Company

Amcor announced Tobacco Packaging acquisition Brazil

Amcor announced acquisition of Nampak Flexibles

 

2016  

Amcor announces acquisition of Sonoco speciality containers

Amcor Rigid Plastics Acquisition

Amcor announced agreement to acquire Alusa

Amcor announced acquisition of Deluxe

 

2017  

Amcor Announced Speciality Container Acquisition in Colombia

 

2018  

Amcor limited and Bemis Company, Inc. transaction agreement

7. Team

 

Board of Directors[8]‚Äč

 

Graeme Liebelt – Independent Non-Executive Director and Chairman

Dr. Armin Meyer – Independent Non-Executive Director and Deputy Chairman of the Board

Ron Delia – Managing Director and Chief Executive Officer

Paul Brasher – Independent Non-Executive Director

Eva Cheng – Independent Non-Executive Director

Karen Guerra – Independent Non-Executive Director

Nicholas (Tom) Long – Independent Non-Executive Director

Jeremy Sutcliffe – Independent Non-Executive Director

Julie McPherson – Company Secretary and Group General Counsel

 

Management Team

 

Ron Delia – Managing Director and Chief Executive Officer

Michael Casamento – Executive Vice President, Finance, and Chief Finance Officer

Tom Cochran – President, Amcor Flexibles Americas

Jerzy Czubak – President, Amcor Specialty Cartons

Steve Keogh – Executive Vice President, Human Resources

Peter Konieczny – President, Flexibles Europe, Middle East & Africa

Julie McPherson – Company Secretary and Group General Counsel

Michael Schmitt – President, Amcor Rigid Plastics

Tracey Whitehead – Senior Vice President, Investor Relations

Ian Wilson – Executive Vice President, Strategic Development

Michael Zacka – President, Amcor Flexibles Asia Pacific, and Chief Commercial Officer


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8. Financials

 

2018 Full Year Results Presentation

 

Financial Year 2017/18 (ended 30 June)[9]

 

Division

Revenue ($M)

% Change

Profit (before Int,Tax, Dividend & Amort.) ($M)

% Change

Amcor Rigid Plastics

$2,787.5

(3.1%)

$434.6

(7.9%)

Amcor Flexibles

$6,534.6

4.9%

$1,062.5

3.7%

Other/Investments

N/A

N/A

($55.3)

(12.2%)

Total

$9,322.1

2.4%

$1,441.8

(0.4%)

9. Risk

 

Major risks include:[10]

 

Key features of its system of risk management include:

  • Group statements on strategic priorities, purpose, value, and ethics;
  • Clear business objectives and business principles;
  • An established risk policy;
  • A continuous process for identification and evaluation of significant risks to the achievement of business objectives;
  • Management processes to mitigate significant risks to an acceptable level;
  • Continuing monitoring of significant risks and internal and external environmental factors that may change its risk profile;
  • A regular review of both the type and amount of external insurance purchased, bearing in mind the availability of cover, its cost and the likelihood and magnitude of the risks involved;
  • A process of regular reporting to the board through the audit committee on the status of the risk framework

Set out below are the principal risks and uncertainties that could have a material impact on the Company and its ability to achieve its stated objective

Plastics and the environment

  • Leakage of plastics into ecological systems
  • Potential bans or taxes to reduce the use of plastic packaging
  • Consumer backlash against plastic packaging

 

General market risk

Macroeconomic conditions specifically impacting the value chain or industries on which Amcor is dependent, could materially deteriorate and have a negative impact on Amcor’s financial performance.

 

Financial risks

Amcor faces risks relating to the cost and availability of funds to meet its business needs, including commodity or equity price risk, interest rates and foreign exchange rates.

 

Customer risks

Amcor has strong relationships with key customers for the supply of packaging products and associated packaging related services. These relationships are fundamental to Amcor’s success and the loss of a key customer may have a negative impact on Amcor’s financial performance.

 

Competitor risks

Amcor operates in a highly competitive market, with varying degrees of barriers to entry, industry structures and competitor motivational patterns. The actions of established or potential competitors may have a negative impact on Amcor’s financial performance.

 

Mergers and acquisitions (M&A) risks

Amcor’s growth opportunities are dependent in part on a disciplined selection of suitable acquisition targets in the right geographic regions with the right participation strategy. Inappropriate target selection or poor integration could affect operations and have an adverse impact on the achievement of expected financial benefits.

 

Talent retention and attraction

The operating and financial performance of Amcor is largely dependent on its ability to retain and attract key management talent. A loss of key personnel could adversely impact Amcor’s operating and financial performance.

 

Country risks

Amcor operates in over 40 countries, across a broad range of legal, regulatory or political systems, some of which could be subject to rapid change and civil unrest. The profitability of those operations and their ability to maintain and repatriate funds to Amcor, may be adversely impacted by changes in the fiscal or regulatory regimes, currency devaluation or difficulties in interpreting or complying with the local laws of those countries, reversal of current political, judicial or administrative policies.

 

Supply chain risk

Disruption to Amcor’s supply chain caused by the availability of key components or raw materials, may adversely affect the price, sales volumes, and/or customer relations, resulting in unexpected costs.

 

Business interruption and key site risk

Amcor operates from around 200 locations globally. Circumstances may arise which preclude key sites from operating, including natural disaster, fire incidents, technology failure or industrial disruption. Where this occurs Amcor’s financial performance may be negatively impacted.

 

Change in consumer preferences

Changes in consumer preferences may result in some of Amcor’s existing product range becoming obsolete, or new products not meeting sales and/or margin expectations.

 

Compliance and control risks

The risk of inadequate internal processes, or an internal control failure can potentially result in financial loss and reputational damage to the business. Examples of risks that could arise include:

  • fraud, bribery or insider trading by co-workers due to a lack of integrity or awareness;
  • failure to comply with laws (such as antitrust, competition laws and sanction regimes) and regulations. The Company’s considerable global reach and diverse activities mean that a wide range of jurisdiction-specific laws apply; and
  • cyber-attack and/or information loss. The Company relies on information technology and control systems to support its business. The Company may experience threats to the confidentiality, integrity and availability of key information systems.

 

Tax risks

Amcor operates in over 40 countries, each with unique and dynamic tax environments. The tax affairs of operations in each country may be adversely impacted by changes in the fiscal or regulatory regimes, differences in interpretation of the local tax laws of those countries, and changes to current political, judicial or administrative policies relating to tax.

 

Product safety and integrity risk

As one of the world’s largest packaging companies with over 95% of sales into food, beverage, healthcare and tobacco packaging industries, a product safety or integrity incident could have adverse consequences should it occur.

 

Liquidity risk

Nature of liquidity risk

Liquidity risk arises from the possibility that the Group might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities.

 

Liquidity risk management

Liquidity risk is managed centrally by Amcor Group Treasury and involves maintaining available funding and ensuring the Group has access to an adequate amount of committed credit facilities. Due to the dynamic nature of the business, Amcor Group Treasury aims to maintain flexibility within the funding structure through the use of bank overdrafts, bank loans, corporate bonds, unsecured notes and commercial paper. The following is used to manage the risk:

  • maintaining minimum undrawn committed liquidity of at least USD 200 million (in various currencies) that can be drawn upon at short notice;
  • regularly performing a comprehensive analysis of all cash inflows and outflows in relation to operational, investing and financing activities;
  • generally using tradeable instruments only in highly liquid markets;
  • maintaining a reputable credit profile;
  • managing credit risk related to financial assets;
  • monitoring duration of long-term debt;
  • only investing surplus cash with major financial institutions; and
  • to the extent practicable, spreading the maturity dates of long-term debt facilities

 

Interest rate risk

Nature of interest rate risk

Interest rate risk is the risk that the Group is impacted by significant changes in interest rates. Borrowings issued at or swapped to floating rates expose the Group to interest rate risk.

 

Interest rate risk management

Amcor Group Treasury manages the Group’s exposure to interest rate risk by maintaining an appropriate mix between fixed and floating rate borrowings, monitoring global interest rates and, where appropriate, hedging floating interest rate exposure or borrowings at fixed interest rates through the use of interest rate swaps and forward interest rate contracts. The Group’s policy is to hold up to 75.0% fixed debt. At 30 June 2018, approximately 49% of the Group’s debt is fixed rate (2017: 43%).

 

Credit risk

Nature of credit risk

Credit risk is the risk of loss if a counterparty fails to fulfil its obligation under a financial instrument contract. The Group is exposed to credit risk arising from financing activities including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.

 

Credit risk management

Credit risk from balances with financial institutions is managed by Amcor Group Treasury in accordance with Board approved policies. The investment of surplus funds is made only with approved counterparties and within credit limits assigned to each counterparty. Financial derivative instruments can only be entered into with high credit quality approved financial institutions with a minimum long-term credit rating of A- or better by Standard & Poor’s. The Board has approved the use of these financial institutions, and specific internal guidelines have been established with regard to limits, dealing and settlement procedures. Limits are set to minimise the concentration of risks and therefore mitigate financial loss through potential counterparty failure. The Group has no significant concentration of credit risk in relation to derivatives undertaken in accordance with the Group’s hedging and risk management activities.

 

Financial risk management

Foreign exchange risk – transaction management

There is a risk that the value of a financial commitment, recognised monetary asset or liability or cash flow will fluctuate due to changes in foreign currency rates. The Group has investments in foreign operations whose net assets are exposed to foreign currency translation risk. Currency exposure arising from the net assets of the Group’s foreign operations is managed primarily through borrowings denominated in the relevant currency.

 

Commodity price risk

The Group is exposed to commodity price risk from several commodities, including aluminium, resin and certain other raw materials. In managing commodity price risk, the Group is ordinarily able to pass on the price risk contractually to customers through rise and fall adjustments. In the case of aluminium, some hedging is undertaken using fixed price swaps on behalf of certain customers. Hedging undertaken is based on customer instructions and all related benefits and costs are passed onto the customer on maturity of the transaction. Movements in commodity hedges are recognised within equity. The cumulative amount of the hedge is recognised in the income statement when the forecast transaction is realised. However, there is no impact on profit as a result of movements in commodity prices where hedges have been put in place as the Group passes the price risk contractually through to customers through rise and fall adjustments in customer contractual arrangements. As the Group ultimately passes on the risk associated with the movements in commodity prices, no sensitivity has been performed.

 

Employee share plan risk

The Group’s employee share plans require the delivery of shares to employees in the future when rights vest or options are exercised. The Group currently acquires shares on market to deliver shares to employees to satisfy vesting or exercising commitments, this exposes the Group to cash flow risk, that is as the share price increases it costs more to acquire the shares on market.

References

  1. ^ Annual Report 2018, P. Front Page
    https://www.listcorp.com/asx/amc/amcor/news/annual-report-to-shareholders-1969500.html
    https://www.ibisworld.com.au/australian-company-research-reports/manufacturing/amcor-ltd-company.html
  2. ^ Annual Report 2018, P. 64
    https://www.listcorp.com/asx/amc/amcor/news/annual-report-to-shareholders-1969500.html
  3. ^ Annual Report 2018, P. 14, 17
    https://www.listcorp.com/asx/amc/amcor/news/annual-report-to-shareholders-1969500.html
  4. ^ Annual Report 2018, P. 12
    https://www.listcorp.com/asx/amc/amcor/news/annual-report-to-shareholders-1969500.html
  5. ^ http://www.ibisworld.com.au/industry/default.aspx?indid=200
    http://www.ibisworld.com.au/industry/default.aspx?indid=203
    http://www.ibisworld.com.au/industry/default.aspx?indid=198
  6. ^ http://www.hoovers.com/company-information/cs/competition.Amcor_Limited.a5c66dc8b4f6df87.html
  7. ^ http://heritage.darebinlibraries.vic.gov.au/article/88
    https://www.61financial.com.au/en-au/prices/hot/AMC
    https://trove.nla.gov.au/people/461311?c=people
    https://www.referenceforbusiness.com/history2/10/Amcor-Ltd.html
    https://www.referenceforbusiness.com/history2/20/Amcor-Limited.html
    http://catarina.udlap.mx/u_dl_a/tales/documentos/lni/patron_l_jo/apendiceB.pdf http://www.marketwired.com/press-release/amcors-packaging-distribution-group-expands-to-include-marfred-industries-1562210.htm https://www.risiinfo.com/industry-news/amcor-acquires-mexico-based-aluprint-tobacco-packaging-plant-for-40-million-transaction-expected-to-close-early-july/
    https://www.beveragedaily.com/Article/2013/08/01/Amcor-spins-off-packaging-distribution-business
    http://www.asx.com.au/asxpdf/20140507/pdf/42pgsfcnn3k249.pdf
    http://www.asx.com.au/asxpdf/20141217/pdf/42vjzj010lnh65.pdf
    http://www.asx.com.au/asxpdf/20151028/pdf/432g8n77nkq9f8.pdf
    http://www.asx.com.au/asxpdf/20150713/pdf/42zslkkn5tlgsv.pdf
    http://www.asx.com.au/asxpdf/20150409/pdf/42xsfm4y6kxdvx.pdf
    http://www.asx.com.au/asxpdf/20150326/pdf/42xj8lb161rmt3.pdf
    http://www.asx.com.au/asxpdf/20160902/pdf/439wsm11pdpz5f.pdf
    http://www.asx.com.au/asxpdf/20160512/pdf/43760487dstng2.pdf
    http://www.asx.com.au/asxpdf/20160418/pdf/436l8rg9ktpjls.pdf
    http://www.asx.com.au/asxpdf/20160104/pdf/4345qjw5mrhls9.pdf
    http://www.asx.com.au/asxpdf/20170503/pdf/43hzj38z0m3x4z.pdf
    https://www.listcorp.com/asx/amc/amcor/news/amcor-ltd-and-bemis-co-inc-transaction-agreement-1944596.html
  8. ^ https://www.amcor.com/investors/corporate-gov/board-of-directors
    https://www.amcor.com/about/overview/senior-executives
  9. ^ Annual Report 2018, P. 64
    https://www.listcorp.com/asx/amc/amcor/news/annual-report-to-shareholders-1969500.html
  10. ^ Annual Report 2018, P- 26-30, 84-87
    https://www.listcorp.com/asx/amc/amcor/news/annual-report-to-shareholders-1969500.html