Amcor plc

Okay, good morning. Thanks, everyone, for joining us. I'm Ron D'Elia, here to present Amcor's first half results for the 2019 financial year. And with me here today is Michael Casimeno, Amcor's CFO. Now, as we do with all meetings at Amcor, we'll start with safety. And safety, as you would have heard us talk about before, is our top priority at Amcor. We have one goal when it comes to safety, and that's no injuries. We're not at no injuries yet, but our safety performance was the highlight of the first half for our employees around the world. Through their commitment and passion for keeping each other safe, we were able to reduce the number of recordable injuries across AMCOR by 20% compared to the first six months of fiscal 2018. And we're especially proud of this performance given we're able to stay focused and vigilant at a time when the risk of distraction was arguably higher. And we know we won't see reductions of this level every six months, in every six-month period, but we're determined to continue to drive improvements across the company until we reach that goal of no injuries. Turning to slide six and a summary of the first half. Our financial performance was in line with our expectations for the half. We had sales growth across the business, and especially with multinational customers and healthcare packaging globally. And earnings growth was balanced across the flexibles and rigid plastic segments, with strong earnings growth in the emerging markets of 9%. Operating cash flow was also strong and 27% higher than last year. And with this good first half result, we're on track to deliver against the full year outlook we provided in August, which we're reconfirming today. It's clear that our value proposition is resonating with customers large and small. In the first half, we opened a new plant in India to supply Unilever. We extended our already long-term partnership with Nespresso, and we again saw growth with regional beverage customers in North America. And consumers and customers around the world are increasingly seeking sustainable packaging options, and this is a great growth opportunity for Amcor. As the industry leader, we have a differentiated value proposition when it comes to sustainability, and we're making real progress on a number of dimensions, which I'll come back to later. And finally, we've made significant progress over the last six months towards closing the Bemis transaction. We expect the deal to close in the second quarter of the 2019 calendar year, And we're excited about the substantial opportunities this combination creates for AMCOR and for our shareholders. And I'll come back again on this topic later in the presentation. Slide seven shows the key financial metrics for the half. Sales were up across all of our businesses and 4.3% higher overall. Now, approximately 2% of that sales increase came from recoveries of higher raw material costs. And excluding the impact of those higher raw materials, margins for the company were in line with last year. EPS growth of 3.4% came from recently acquired businesses, organic sales growth, restructuring benefits and strong cost performance. And strong cash flow was supported by excellent performance on working capital. And the balance sheet remains strong with leverage at 2.8 times. We're very comfortable with our financial position and that will strengthen even further following the BMS acquisition. With these results and our confidence in the outlook for the business, the board increased the interim dividend to 21.5 U.S. cents per share. Moving on to the Flexibles segment on slide eight, Flexibles PBIT was modestly higher than the prior year in constant currency terms and in line with expectations. The PBIT growth reflects contributions from both recent acquisitions and organic growth. And operating cost performance was strong across the group, as was sales growth in our healthcare business. Earnings growth in emerging markets was also higher than last year. These benefits were partly offset by the adverse impact from the normal time lag in recovering higher raw material costs. Now to the Flexibles outlook for the 2019 financial year on slide 9. The outlook has not changed from the guidance we provided in August 2018. In constant currency terms, we're expecting the flexible segment to deliver solid PBIT growth in the 2019 financial year compared with PBIT of $835 million achieved in 2018. And this takes into account the following factors. First, modest organic growth, which assumes no earnings impact related to movements in raw material costs. So this means we expect the adverse impact in H1 to reverse in H2. Second, net benefit from prior period acquisitions of approximately $10 million after deducting costs to integrate and achieve synergies. And lastly, incremental and final restructuring benefits related to initiatives announced in June 2016 of approximately $10 million. Moving to rigid plastics on slide 10, PBIT was 5.6% higher than the prior year in constant currency terms. and the business benefited from volume growth in beverage end markets and a favorable product mix. There was a modest contribution from a good start to our restructuring initiatives, and earnings from acquired businesses also increased, benefiting from lower integration costs in the first half, which will now be incurred in the June half year. In the North American beverage business, overall volumes returned to growth and mix was strong. And in Latin America, volumes were 1% higher than last year, inclusive of lower volumes in Argentina, where economic conditions have adversely impacted consumer demand. Now, excluding Argentina, volumes were 6 percent higher than last year. In terms of the outlook for rigid plastics on slide 11, there's no change to our guidance, which we provided in August 2018, and we continue to expect the rigid plastics business to deliver solid pivot growth in 2019 compared with the $312 million achieved in 2018. And this also takes into account a few factors. First, modest organic growth. Second, net benefit from prior period acquisitions of approximately $5 to $10 million after deducting costs to integrate and achieve synergies. And approximately $5 to $10 million of benefit from the restructuring initiatives. With that, I'll hand over to Michael to talk about the cash flow and balance sheet.

Thanks, Ron. Good morning. So operating cash flow for the period was strong at $115 million and up 27% on prior year. This is after deducting spend of around US$28 million of integration and restructuring related costs which have been included in underlying PIVOT-DA. Cash interest was $90 million with the increase mainly reflecting the impact of higher debt costs in the USA. During the second half of the year we start to benefit from maturities of some relatively high cost fixed rate debt and expect interest costs to be lower in the second half relative to this first half. As Ron mentioned, working capital performance was a highlight across our businesses. This has been a particular area of focus and we're very happy to see the benefits being realised. Our average working capital to sales ratio reduced to 10% from 10.4% last year and from 10.6% at June 2018. The improvements are in a range of areas including payables and receivables. Spend on restructuring initiatives relates to larger scale programs we've announced in prior years. In line with our guidance from August, we expect full year free cash flow after capital expenditure and dividends to be in the range of $200 million to $300 million. Looking at the balance sheet and debt profile, the key point on slide 13 is that AMCOR's balance sheet remains strong. Our primary objective for the balance sheet is to maintain an investment grade credit rating. To achieve this we consider a wide range of ratios with two of the main ones being leverage and interest cover. These two measures remain at robust levels and are in line with where we anticipated them to be at period end at 2.8 times and 6.8 times respectively. In terms of financing costs, we expect net interest for the 2019 financial year to be in the range of $200 million to $210 million in constant currency terms with interest cost in the second half lower than the first half as I mentioned earlier. We continue to be in a very comfortable position in relation to our debt profile with access to a diverse range of funding sources and a non-current debt maturity of five years, an appropriate combination of fixed and floating debt with a well-balanced mix of currencies. We are well advanced in our work to ensure funding arrangements for a larger combined company are in place prior to the close of the Bemis transaction and this also takes into account ANCOR's next sizeable refinancings which are a Euro 550 million bond and a USD 750 million syndicated facility, both due in April 2019. So in summary, the key message from me this morning is that Amcor remains very well positioned with strong cash generation and balance sheet capacity for growth. With that, I'll hand back over to Ron.

Thanks, Michael. For the next few minutes, as I would normally do on these calls, I'll quickly recap on Amcor's strategy and talk about the longer-term growth potential we see for the company. And I'll start with slide 15, which provides a recap of our strategy, which includes three elements, starting with a focused portfolio of businesses, a set of differentiated capabilities, and our aspiration to be the leading global packaging company and winning for all of our key stakeholders. Now, the first element is our portfolio. We've chosen to play in segments which share some important characteristics. First of all, a focus on primary packaging for fast-moving consumer products, good industry structure, and an attractive relative growth outlook. And those criteria have led us to a focused portfolio today in four product segments, flexible packaging, rigid containers, especially cartons and closures. And we have leadership positions in most of these segments and multiple paths to winning by having either a scale advantage or something unique to offer in the market. The second element of our strategy is the AMCOR way, which is how we describe the differentiated capabilities we drive in a consistent way across AMCOR. And these are the capabilities that we believe are the keys to winning in the packaging industry. And developing them in a consistent way across our businesses is how we get leverage across our portfolio. And from this portfolio of businesses, instead of differentiated capabilities, we generate strong cash flow, which we look to deploy in order to win for our shareholders. And slide 16 is a good way of depicting how we think about deploying that cash flow. It's essentially our capital allocation framework, which we've called our shareholder value creation model, and it hasn't changed for a number of years. And through paying dividends, growing the business organically, pursuing acquisitions, or returning residual cash to shareholders, Over time, value creation has been consistent and remains strong and defensive. Turn into 17, slide 17, and an update on our sustainability agenda, which is quite extensive. One of the biggest opportunities we see for Amcor going forward comes from the increasing consumer interest around the world in more sustainable and environmentally friendly packaging. And we believe packaging, especially primary packaging, will always have a critical role in protecting and delivering food and healthcare products in a convenient and functional way. And there's a great opportunity for Amcor with our scale and innovation capabilities to create differentiated products to meet those consumer needs in an environmentally friendly manner. And one year ago, we became the first global packaging company to pledge to develop all of our packaging to be recyclable or reusable by 2025, to significantly increase our use of recycled materials, and to work with others to drive greater recycling of packaging around the world. And in October, we took this commitment a step further by joining 250 other companies and governments and becoming a signatory to the new plastics economy global commitment. And this puts us in lockstep with even more of our existing and potential customers to achieve waste and pollution targets based on shared definitions and to report on progress annually. And over the last 12 months in general around sustainability, our momentum has been building. We recently decided to allocate some resources and establish a sustainability center of excellence in Europe to advance our flexible packaging R&D efforts with dedicated technical and engineering resources. And we plan on doubling those staffing levels and adding an innovation lab in the coming months. A great deal of our effort so far has been focused on product development. And we've introduced over the last several months a couple of new flexible packaging products called HeatFlex and Genesis, which are fully recyclable. And with promising results, we're also trialing films with higher and higher levels of post-consumer recycled content. You can expect us to continue to be active on the product development front. The demand for fully recyclable packaging is greater than ever, and we're partnering with our customers to fast-track commercialization of these innovations, and in some cases, looking into opportunities to co-invest in dedicated assets. And through our partnerships, we're working towards industry-wide standards for recyclability, supporting trials for curbside recycling of flexible packaging, and contributing to public investments in community programs for recycling infrastructure. It's a very exciting time in our sustainability journey, and as the industry leader, we see sustainable packaging as a unique opportunity to drive meaningful growth going forward. And we'll take another significant step forward in this journey by combining with Bemis, which brings together the two R&D leaders in our industry. And I'll provide now a quick update on that transaction. To quickly recap, we announced the all stock transaction in August 2018. And we said at the time and we believe today that Amcor is a very strong company and a leader in its own right. But by combining with Bemis, we take a big step toward being the leading player in consumer packaging. at a moment in time when the opportunities for a leading packaging company have never been greater. Putting the two companies together results in footprint, scale, talent, and capability advantages to offer the most compelling value proposition to our customers and employees, and to deliver the most sustainable innovations for the environment. From a strategic perspective, we believe the combination is highly compelling, and feedback from a range of stakeholders indicates they would agree. The combined company will have the most comprehensive global footprint for flexible packaging and will have greater scale and resources in each key region around the world. Our portfolio will benefit from increased exposure to attractive end markets and product segments, which can be transferred across regions and leveraged across that global footprint. And there's the opportunity to merge the capabilities and talent from both companies to create the industry's best team and one that will be focused on delivering for our customers around the world. The financial rationale is equally compelling, with strong transaction metrics, a stronger financial profile for Amcor going forward, greater liquidity for investors, and an all-stock structure which is cash and tax-free for shareholders. The transaction itself will deliver double-digit pro forma EPS accretion and returns well above Amcor's weighted average cost of capital by unlocking $180 million of cost synergies that would not have been available to either company independently. The teams from AMCOR and BMS continue to work together to further develop the cost synergy opportunities across general and administration costs, manufacturing footprint, and procurement. And the synergies are expected to be delivered relatively evenly over the three-year period post-close and will drive significant earnings growth in the near term over and above normal organic growth. And any revenue synergies would represent additional upside to these metrics. AMCOR has got a great track record in delivering acquisition synergies. And, of course, we aspire to outperform this target. And as we get closer and closer to the Bemis colleagues and business, we see real opportunities to do just that. Moving to slide 22, Amcor's financial profile is strengthened going forward. Shareholders will own an interest in a very well-positioned, differentiated business, generating $2.2 billion of EBITDA annually. with higher margins through the delivery of the cost synergies and the potential to grow at higher rates given a stronger customer value proposition, complementary capabilities, and increased exposure to attractive segments. And Amcor will maintain an investment-grade balance sheet with annual free cash flow exceeding $1 billion and will continue to pay a compelling and competitive dividend, which will increase over time. Importantly, there will be immediate balance sheet capacity for further investment or share buybacks. The transaction structure results in the stock being listed on two major exchanges, which creates a unique and advantaged outcome in terms of index participation. Given that Amcor shareholders will own 71% of the combined company, and taking into account the geographic mix and the investment mandates of Amcor's shareholder base, the Australian-listed shares will continue to be included in the S&P 200 index, with no significant change expected to our current index weighting. We also expect the total market cap of the combined company to qualify for inclusion in the US S&P 500 index, and this would mean the combined company would be well within the top 300 in that index, which is the largest in the world. And as a result of the all-stock structure, the transaction will close without the need for any shareholders to contribute cash, and the share-for-share exchange will be tax-free. Since the transaction was announced, we've made significant progress towards closure. including setting up an integration management office to drive planning efforts leading up to the close of the transaction and to oversee integration and synergy execution in the post-closing period. This IMO has been staffed with about 20 full-time team members from both AMCOR and BEMIS and supported by several external advisors, and joint development of detailed plans designed to enable a fast start to integration, including the delivery of synergy benefits, is well underway. And the process of securing the required antitrust clearances and regulatory consents has been completed or is progressing in line with expectations. Clearance has been secured in all jurisdictions which are conditional to closure, with the exception of Europe, the U.S., and Brazil. And in each of these regions, discussions are at an advanced stage. In fact, we expect a decision to be announced by the European Commission in the coming days. We continue to anticipate the deal will close in the second quarter of the 2019 calendar year and we look forward to building a strong future together with our new Bemis colleagues and customers. In closing, we had a good start to the 2019 financial year. Our financial performance was in line with expectations and we're on track to deliver against an unchanged full year outlook. We're also winning with customers and advancing our sustainability agenda every day and we've made significant progress towards closing the Bemis acquisition all of which sets us up for a very promising future. We're excited about the opportunities we see ahead, and we believe the growth potential of Amcor remains substantial. With that, I'm happy to take questions.