Amcor reports fiscal 2019 full year results and provides outlook for fiscal 2020

Amcor plc reported results for the fiscal year ended 30 June 2019.     

Highlights* 

• GAAP net income of $430.2 million; Cash flow from operating activities of $776.1 million;
• Adjusted EBIT of $1,075.4 million, up 5.7% in constant currency terms;
• Adjusted net income of $729.5 million, up 9.0% in constant currency terms;
• Adjusted cash flow after dividends of $192.7 million;
• 2019 total dividend increased to 45.5 US cents per share, including 12.0 US cents per share dividend declared today;
• All-stock Bemis acquisition completed 11 June 2019 and $180 million of pre-tax cost synergies over three years reconfirmed; and
• Proceeds from required divestments to drive shareholder value through a $500 million share buy-back and $50 million in strategic investments to advance Amcor’s sustainability agenda.

Amcor CEO Mr Ron Delia said: “2019 was a transformative year for Amcor, marked by the successful completion of the Bemis acquisition and our listing on the New York Stock Exchange.  The integration of Bemis is well underway and we remain confident in our ability to deliver $180 million of pre-tax cost synergies by the end of the 2022 fiscal year.”

“The legacy Amcor business performed well during the 2019 financial year, delivering results right in line with expectations and building momentum in several areas including safety, sales and working capital.  Overall, Amcor delivered net income growth of 9% in constant currency terms with good performance in both the Rigid Packaging and Flexibles reporting segments.” 

“Our financial profile is strong and will be enhanced as we deliver financial benefits from the Bemis acquisition and continued organic growth across the business.   Amcor’s capacity to drive shareholder returns is evident in the initiatives announced today including increasing the dividend, returning $500 million to shareholders through a share buy-back and investing at least $50 million in strategic projects to accelerate our sustainability agenda.”

“Today, Amcor is the global leader in consumer packaging with a unique combination of talented people, differentiated capabilities, scale and global reach.  These are powerful competitive advantages that enable us to better serve our customers and to develop and deliver packaging that best protects the environment.”

Key financials*

GAAP results	FY18 USD  million	FY19 USD  million
Net sales	9,319.1	9,458.2
Net income	575.2	430.2
EPS (US cents)	49.4	36.3
Cash flow from operating activities	871.4	776.1
Adjusted non-GAAP results	FY18 USD  million	FY19 USD  million	Reported  var%	Currency  impact var%	Constant  Currency  var%
Sales	9,319.1	9,458.2	1.5	(4.0)	5.5
EBITDA	1,389.9	1,393.9	0.3	(3.8)	4.1
EBIT	1,056.4	1,075.4	1.8	(3.9)	5.7
Net income	697.3	729.5	4.6	(4.4)	9.0
Free cash flow (before dividends)	643.4	733.4
Cash flow after dividends	116.6	192.7

*GAAP earnings reflects earnings for the legacy Amcor business plus earnings for the legacy Bemis business since 11 June 2019. Adjusted non-GAAP measures exclude items which management considers are not representative of ongoing operations. Further details related to non-GAAP measures and reconciliations to GAAP measures can be found under “Presentation of non-GAAP financial information” and in the tables included in this release. All amounts referenced throughout this document are in US dollars unless otherwise indicated.

Bemis acquisition update

On 11 June 2019, the acquisition of Bemis Company, Inc. was completed.  Under the terms of the agreement announced on 6 August 2018, the all-stock acquisition was effected at a fixed exchange ratio of 5.1 Amcor shares for each Bemis share.

This strategic combination establishes Amcor as the global leader in consumer packaging with a comprehensive global footprint, scale in every region and industry leading R&D capabilities.  Combined, these unique characteristics provide substantial differentiation in the packaging industry and underpin a stronger value proposition for shareholders, customers, employees and the environment. 

Operating performance and contribution to earnings

During the June 2019 quarter, the legacy Bemis businesses demonstrated similar financial performance to the previous three quarters, with the exception of the business in Latin America which delivered a marginal loss in the June 2019quarter.    

Included in Amcor’s results for the 2019 fiscal year are sales of $215.4 million, adjusted EBIT of $22.7 million and adjusted net income of $14.3 million generated by the legacy Bemis business since 11 June 2019.  Sales, adjusted EBIT and adjusted net income for the legacy Amcor business were therefore $9,242.8 million, $1,052.7 million and $715.2 millionrespectively.  Cash flow after dividends for the legacy Amcor business was $206.6 million

Integration and synergies

Amcor has commenced the 2020 fiscal year on track to achieve the previously announced synergy benefits of $180 million (pre-tax) by the end of the 2022 fiscal year, with $65 million of those benefits expected in the 2020 fiscal year.  Since completion, the integration teams have been focused on capturing the cost synergies and current progress is in line with our expectations.  Given the 11 June 2019 transaction closing date, there were no material synergy benefits included in Amcor’s financial result for the 2019 fiscal year.

Total cash integration costs are expected to be $150 million, with approximately $100 million expected to be incurred in the 2020 fiscal year. 

Redeployment of proceeds from required divestments

As previously announced, Amcor was required to divest flexible packaging plants in Europe and the United States in order to secure anti-trust approval for the Bemis acquisition.  Combined after tax proceeds from the sale of these assets were approximately $550 million.

Given Amcor’s strong balance sheet and capacity to generate higher levels of free cash flow as the financial benefits from the Bemis acquisition are delivered, the Company is positioned to redeploy the proceeds from these divestments while maintaining the ability to invest in organic growth and acquisitions as well as maintaining strong investment grade credit metrics. 

The divestment proceeds will be used to drive shareholder returns through two initiatives announced today:

$500 million on-market share buy-back

The Amcor Board of Directors has approved a $500 million on-market buy-back of ordinary shares and Chess Depositary Instruments (CDIs).  Amcor intends to repurchase its ordinary shares on the New York Stock Exchange (NYSE) and CDIs on the Australian Securities Exchange (ASX) in proportion to the number of shares and CDIs currently on issue.  

Strategic investments to further advance Amcor’s sustainability agenda

Amcor has committed to invest at least $50 million in strategic projects to further advance our sustainability agenda and accelerate progress towards the company’s 2025 goals, announced in January 2018:

• to make all our packaging reusable or recyclable;
• to increase use of post consumer recycled material; and
• to collaborate with others to increase rates of recycling worldwide.

The additional strategic investments will fund a range of initiatives including research and development infrastructure,  manufacturing equipment, extensions to Amcor’s current partnership network, and investments in open innovation.  

2019 financial results

Segment information

	FY18	FY19
	Net  sales USDm	Adjusted  EBIT  USDm	Adjusted  EBIT /  Sales %	Adjusted EBIT /  average funds  employed %	Net  sales  USDm	Adjusted  EBIT  USDm	Adjusted  EBIT /  Sales %	Adjusted EBIT /  average funds  employed %
Flexibles	6,534.6	801.3	12.3	22.9	6,566.7	817.2	12.4	20.8
Rigid Packaging	2,787.5	298.3	10.7	16.2	2,892.7	308.2	10.7	16.8
Other	(3.0)	(43.2)			(1.2)	(50.0)
Total Amcor	9,319.1	1,056.4	11.3	19.5	9,458.2	1,075.4	11.4	18.7

Flexibles

	FY18 USD  million	FY19 USD  million	Reported  var%	Currency  impact var%	Constant  Currency  var%
Sales	6,534.6	6,566.7	0.5	(4.9)	5.4
Adjusted EBIT	801.3	817.2	2.0	(4.7)	6.7
Adjusted EBIT / sales %	12.3	12.4
Adjusted EBIT / average funds employed %	22.9	20.8

Net sales increased by 5.4% in constant currency terms, of which 3.3% reflects additional sales from the legacy Bemis business since 11 June 2019.   Excluding sales from the legacy Bemis business, net sales increased by 2.1% in constant currency terms which includes a 0.9% favourable impact from the pass through of higher raw material costs. 

Adjusted EBIT of $817.2 million was 6.7% higher than last year in constant currency terms, of which 3.2% reflects additional adjusted EBIT from the legacy Bemis business since 11 June 2019.  Excluding the legacy Bemis business, adjusted EBIT increased by 3.5% in constant currency terms which includes approximately $8 million of benefits from businesses acquired in prior periods net of lower full year earnings from healthcare plants divested in the United Statesin June 2019.  Organic growth primarily reflects a combination of higher sales and strong operating cost performance, the final benefits from legacy Amcor restructuring initiatives of approximately $9 million and a benefit of approximately $5 million from the normal time lag in recovering higher raw material costs.

Regional performance⁽¹⁾

Sales increased in Europe across a range of end markets including healthcare, pet care, coffee and ready meals and earnings benefited from prior period restructuring initiatives.  Product mix mainly within the snacks and confectionary and fresh food end markets was unfavourable and operating costs in healthcare plants increased in order to meet stronger than expected sales growth.

In the Americas region, sales were higher than last year in constant currency terms with continued strong growth in the healthcare business.  Earnings also benefited from additional contributions from businesses acquired in prior periods net of lower full year earnings from the plants divested in the United States in June 2019.

In the Asia Pacific region, sales were higher than last year in constant currency terms mainly driven by growth across the emerging markets.  Operating and overhead cost performance across the region was significantly better than last year and included benefits from prior period cost savings initiatives.   

Sales generated from specialty folding carton products were higher than the prior year in constant currency terms, with good growth experienced in the Asia and Americas regions.  Earnings benefited from continued growth within reduced risk product categories in Europe and Asia and strong plant cost performance.

1.  Commentary relates to the legacy Amcor business only.

Rigid Packaging

	FY18 USD  million	FY19 USD  million	Reported  var%	Currency  impact var%	Constant  Currency  var%
Sales	2,787.5	2,892.7	3.8	(1.6)	5.4
Adjusted EBIT	298.3	308.2	3.3	(1.5)	4.8
Adjusted EBIT / sales %	10.7	10.7
Adjusted EBIT / average funds employed %	16.2	16.8

Net sales increased by 5.4% in constant currency terms which includes a 3.7% favourable impact from the pass through of higher raw material costs. 

Adjusted EBIT of $308.2 million was 4.8% higher than last year in constant currency terms which reflects higher volumes, favourable product mix and benefits from restructuring initiatives of approximately $8 million. 

Adjusted EBIT margins, excluding the sales revenue impact from passing on higher raw material costs, expanded by approximately 40 bps compared with last year, driven by better mix.

In North America, beverage volumes were 1% higher than the same period last year.  Product mix was favourable with hot fill container volumes 7% higher, while combined preform and cold fill container volumes were 4% lower than the prior year.  Volume growth across smaller regional customers continued to be strong throughout the year.  Acquisition benefits in the specialty container business were offset by disappointing cost performance in two plants and the closures business was negatively impacted by start up costs at the recently commissioned plant in Mexico. 

In Latin America, volumes were 3% higher than last year, inclusive of lower volumes in Argentina where economic conditions adversely impacted consumer demand through the period.  Excluding Argentina, volumes were approximately 10% higher than last year, reflecting strong growth in Mexico, Colombia and Brazil.  The business also did an outstanding job of managing cost inflation through the year.   

Restructuring initiatives

As announced on 21 August 2018, a restructuring program in the Rigid Packaging reporting segment commenced in the 2019 fiscal year which includes investments to optimise the manufacturing footprint, improve productivity and reduce overhead costs. 

Full run rate benefits are now expected to be $20 to $25 million (previously $15 to $20 million) by the end of the 2021 fiscal year, representing a return of around 40% on the total cash investment of approximately $60 to $65 million, of which $33 million was incurred in the current fiscal year.  Excellent progress has been made, and adjusted EBIT for the year ended 30 June 2019 includes a benefit of approximately $8 million. 

Total after-tax costs are expected to be between $70 million and $80 million (pre-tax $90 million and $95 million).  Of this amount, approximately $53 million (pre-tax $64 million) was recognised in the 2019 fiscal year and is excluded from adjusted EBIT. 

Other

Adjusted EBIT	FY18 USD million	FY19 USD million
Equity earnings in affiliates, net of tax	19.0	18.1
General corporate expenses	(62.2)	(68.1)
Total Other	(43.2)	(50.0)

General corporate expenses of $68.1 million were $5.9 million higher than last year, including $2.8 million of additional costs from the legacy Bemis business since 11 June 2019. 

Net interest and income tax expense

Net interest expense for the year ended 30 June 2019 was $191.1 million, a $5.8 million decrease from the $196.9 millionincurred in the prior period.     

GAAP income tax expense for the year ended 30 June 2019 was $171.5 million and $118.8 million in the prior period.  Excluding amounts related to non-GAAP adjustments, adjusted income tax expense for the year ended 30 June 2019was $148.3 million, in line with $150.8 million in the prior period.  The adjusted effective tax rate of approximately 17% for the current year was in line with expectations and compares with approximately 17.5% last year.

Cash flow and balance sheet

Adjusted free cash flow (before dividends) was $733.4 million and $90.0 million higher than the prior year primarily due to lower capital expenditure and strong working capital performance.   The average working capital to sales performance for the legacy Amcor business was outstanding at 9.0%, compared with 10.6% last year.

Net debt was $5,502 million at 30 June 2019.  The increase of $1,274 million compared with last year was mainly driven by the addition of the legacy Bemis debt facilities.  

Leverage, measured as adjusted net debt divided by adjusted combined EBITDA, was 2.7 times at 30 June 2019.  

Dividend

The Amcor Board of Directors today declared a June 2019 quarterly cash dividend of 12.0 US cents per share.  Combined with dividends previously declared and paid in relation to the 2019 fiscal year, the total 2019 financial year dividend is 45.5 US cents per share. 

The dividend will be paid in US dollars to holders of Amcor’s ordinary shares trading on the NYSE.  Holders of CDIs trading on the ASX will receive an unfranked dividend of 17.725 Australian cents which reflects the quarterly dividend of 12.0 US cents per share converted at an average AUD:USD exchange rate of 0.6770 over the five trading days ended 13 August 2019.   

The ex-dividend date will be 10 September 2019, the record date will be 11 September 2019 and the payment date will be 8 October 2019.  Amcor has received a waiver from the ASX’s settlement operating rules, which will allow Amcor to defer processing conversions between its ordinary share and CDI registers from 10 September 2019 to 11 September 2019 inclusive.

Going forward, the Board intends to declare dividends on a quarterly basis.

Supplemental Unaudited Combined Amcor and Bemis 2019 Financial Information

The supplemental Unaudited Combined Financial Information reflects estimates for Amcor as if the Bemis acquisition took effect on 1 July 2018.    

Key combined financial measures and ratios⁽¹⁾

	Amcor(2)	Bemis(3)	Adjustments(4)	Combined results
Net sales ($ million)	9,458.2	3,798.2	(284.1)	12,972.3
Adjusted EBITDA ($ million)	1,393.9	549.9	(64.9)	1,878.9
Adjusted EBIT ($ million)	1,075.4	405.0	(47.8)	1,432.6
Adjusted Net income ($ million)	729.5	257.9	(40.3)	947.1
Adjusted EPS (US cents)				58.2
Cash flow after dividends ($ million)	192.7	101.1	(16.7)	277.1
Leverage, times (adjusted net debt(5) / Adjusted EBITDA)				2.7
Adjusted EBIT / sales %				11.0
Adjusted EBIT / average funds employed(6) %				13.0
(1)  Further details related to non-GAAP measures are presented below and reconciliations to GAAP measures can be found in the attached schedules.
(2)  Amcor adjusted financial result as presented throughout this document and includes adjusted result from the legacy Bemis business from 11 June 2019.
(3)  Adjusted financial result of the legacy Bemis business from 1 July 2018 to 10 June 2019.
(4)  Elimination of financial results attributable to flexible packaging plants in Europe and the United States which were required to be sold in order to secure anti-trust approval for the Bemis acquisition.
(5)  Net debt at 30 June 2019 reduced by $394 million of proceeds received during August 2019 related to the sale of flexible packaging plants in Europe.
(6)  Average funds employed includes shareholders equity and net debt, calculated using a four quarter average.

Unaudited Combined Segment Information

For segment reporting purposes, the legacy Bemis operating results (US Packaging, Latin America Packaging and Rest of World Packaging) are included in the Flexibles reporting segment. 

	FY19
	Net  sales  USDm	Adjusted  EBIT  USDm	Adjusted  EBIT /  Sales %
Flexibles	10,080.6	1,238.6	12.3
Rigid Packaging	2,892.7	308.2	10.7
Other(1)	(1.0)	(114.2)
Combined	12,972.3	1,432.6	11.0
(1)  Other includes equity earnings in affiliates, net of tax of $18.1 million and General Corporate expenses of $132.3 million.

Guidance for 2020 fiscal year

The company expects 2020 to be a transition year as Amcor integrates the newly acquired Bemis business.  Given the complexities related to the simultaneous acquisition, divestment of certain healthcare plants required by regulators and balance sheet refinancing that are a direct result of the transaction, the company has elected to provide additional guidance metrics for the 2020 fiscal year.

For the 2020 fiscal year, the company expects:

• Adjusted constant currency EPS growth of approximately 5 to 10% compared with adjusted combined EPS of 58.2 US cents per share in the 2019 fiscal year.   

o  Assuming 2019 average exchange rates, this implies a constant currency EPS range of 61.0 to 64.0 US cents per share. 

o  This guidance range is inclusive of pre-tax synergy benefits associated with the Bemis acquisition of $65 million.

• Cash flow after dividends of between $200 to $300 million, which is after deducting approximately $100 million of cash integration costs.
• The additional guidance metrics for the 2020 fiscal year are:

o  General corporate expenses in a range of $160 to $170 million in constant currency terms;

o  Net interest costs in a range of $230 to $250 million in constant currency terms; and

o  Adjusted effective tax rate range of 21 to 23 percent.