Growth Synergies for Packaging Giant, Amcor

Over the last five years, the packaging services industry has performed relatively well despite poor upstream demand. In this period, the upstream manufacturing companies have incurred challenges against increasing import penetration from lost cost economies.

During 2013-2018, the packaging industry has grown by approximately 7 per cent, and the major chunk of growth came from the less developed markets as more and more consumers were noticed moving to urban areas and adopting the western culture. Consequently, this increased the demand for packed goods and was accelerated by the e-commerce industry.

Australian Packaging Strategic Plan

As part of the country’s strategic plan, the Ministers (comprising of Australia’s Commonwealth, state and territory environment ministers, and the President of the Australian Local Government Association) target to make 100 per cent of packaging in Australia reusable, recyclable or compostable by 2025 or earlier. The strategic plan for the 2025 National Packaging Targets has been developed in the context of increased attention on waste policy in Australia and internationally.

Let us discuss ASX-listed Amcor PLC from the packaging industry, its growth synergies and recent updates-

Amcor PLC (ASX: AMC)

Amcor PLC is a leading global packaging company. The company employs ~50,000 people across ~250 sites in more than 40 countries. Amcor provides a broad range of packaging products including flexible and rigid packaging services, specialty cartons and closure.

During FY19, most of the sales of the company were made to the defensive food sector, pharmaceutical, beverages, personal care, medical device and other consumer goods end markets.

Growth Synergies for Amcor

Amcor was successful in implementing and restructuring its plans, for efficient and effective growth. Acquisitions were another icing on the cake, enacting the growth synergies. Let us look at the catalysts that have taken AMC on its current growth trajectory, and are likely to be integral for its future growth:

• Amcor acquired Bemis Company Inc

On 11 June 2019, the company announced the 100 per cent acquisition of the outstanding shares of Bemis Company, Inc, which is the global manufacturer of flexible packaging products based in the United States, for the purchase price of $5.2 billion in an all-stock transaction. In the transaction, the company assumed $1.4 billion of debt.

• Integration Plan

In connection with the Bemis acquisition, the company commenced restructuring activities in Q4 2019 with aim of integrating and optimizing the combined organisation. The company is targeting approximately $180 million of pre-tax synergies driven by procurement, supply chain, and general and administrative savings by the end of fiscal year 2022.

• Restructuring Plan

On 21 August 2018, the company announced the restructuring plan in Amcor Rigid Packaging. The Plan includes the closures of manufacturing facilities and headcount reductions to achieve manufacturing footprint optimization and productivity improvements as well as overhead cost reductions. The Plan comprises the closures of manufacturing facilities and headcount reductions to achieve manufacturing footprint optimisation and productivity improvements as well as overhead cost reductions.

Section 303A Written Affirmation

On 21 November 2019, the company declared the information for each director serving the company’s board of director, audit committee, compensation committee and corporate governance committee, in accordance to the required compliance requirement for companies listed with the NYSE.

The snapshot below depicts a brief information about the company’s Board:

Results of Annual General meeting

On 11 November 2019, the company released results for Annual General Meeting of shareholders held on 5 November 2019. In the AGM there were 1,614,957,968 ordinary shares entitled to vote, of which the holders of 1,153,274,041 shares were represented in person or by proxy at the Annual Meeting. Below are the results of AGM:

• The company’s shareholders elected ten director-nominee for a one-year term.
• The shareholders approved the appointment of PwC as its independent registered public accounting firm for FY20.
• The shareholders approved, by non-binding advisory vote, casting an advisory vote on the company’s executive compensation on an annual basis.

Dividend

On 7 November 2019, the company declared a quarterly cash dividend of 11.5 cents per ordinary share, which is payable on December 17, 2019 to shareholders (of record as on November 28, 2019).

Adjusted EBIT soared by 84.4 per cent during Q1 2020

On 8 November 2019, AMC announced the financial results of the first quarter of the 2020 period, ended 30 September 2019. A few highlights of the results are:

• The company’s net sales were increased by 38 per cent to US$3,140.7 million compared to the previous year corresponding period (PCP).
• Adjusted EBIT of the company rose by 84.4 per cent to US$290.5 million.
• AMC’s diluted earning dipped to US$0.04 from US$0.08 in the PCP.
• Net income attributable to the company decreased by 32.9 per cent to US$32.4 million compare to PCP.
• Cash and cash equivalent of the company stood at US$480.2 million

The FY 2019 financial highlights of the company can be seen here

Stock Performance

On 1 December 2019, the S&P/ASX 200 Index last traded settled higher at 6,862.3 points, up by 0.2 per cent from its previous close. The S&P/ASX 200 Material sector closed the market session, inching by 0.17 per cent from the previous close to 13,632.9 points.

AMC, however, did not built the investor sentiment positively and traded lower at $15.200, down by 0.32 per cent from its previous close. The company has approximately 1.62 billion outstanding shares and a market cap of $24.71 billion. The 52-week low and high value of the stock is $12.830 and $16.740, respectively. The stock has generated a negative return of 5.28 per cent in the last six months and a positive return of 14.92 per cent on year to date basis.

Given the growth synergies which are likely to work in favour of AMC’s business in the days to come, it will be interesting to watch this stock unfold its potential, as 2020 rightly seems to be a significant year for the company.

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