AMCOR PLC Management's Discussion and Analysis should be read in conjunction with the Financial Statements and Notes to Condensed Consolidated Financial Statements.
Summary of Financial Results
Three Months Ended March 31 , Nine Months Ended March 31 ,
($ in millions, except per
share amounts) 2020 2019 2020 2019
Net sales $ 3,141.0 100.0 % $ 2,309.9 100.0 % $ 9,324.8 100.0 % $ 6,855.3 100.0 %
Cost of Sales (2,489.0) (79.2 %) (1,890.1) (81.8 %) (7,508.8) (80.5 %) (5,591.1) (81.6 %)
Gross profit 652.0 20.8 % 419.8 18.2 % 1,816.0 19.5 % 1,264.2 18.4 %
Operating expenses:
Selling, general, and
administrative expenses (353.2) (11.2 %) (220.6) (9.6 %) (1,033.4) (11.1 %) (624.2) (9.1 %)
Research and development
expenses (24.9) (0.8 %) (15.8) (0.7 %) (74.3) (0.8 %) (47.3) (0.7 %)
Restructuring and related
expenses (20.1) (0.6 %) (8.5) (0.4 %) (61.8) (0.7 %) (60.9) (0.9 %)
Other income, net 17.4 0.6 % 6.4 0.3 % 37.6 0.4 % 48.3 0.7 %
Operating income 271.2 8.6 % 181.3 7.8 % 684.1 7.3 % 580.1 8.5 %
Interest income 5.3 0.2 % 3.5 0.2 % 18.3 0.2 % 11.6 0.2 %
Interest expense (45.8) (1.5 %) (51.1) (2.2 %) (157.8) (1.7 %) (159.3) (2.3 %)
Other non-operating income
(loss), net 5.4 0.2 % 1.1 - % 17.4 0.2 % 4.2 0.1 %
Income from continuing
operations before income
taxes and equity in income
(loss) of affiliated
companies 236.1 7.5 % 134.8 5.8 % 562.0 6.0 % 436.6 6.4 %
Income tax expense (56.1) (1.8 %) (28.0) (1.2 %) (123.0) (1.3 %) (80.8) (1.2 %)Equity in income (loss) of affiliated companies 3.6 0.1 % 5.6 0.2 % 8.1 0.1 % (1.3) - % Income from continuing operations 183.6 5.8 % 112.4 4.9 % 447.1 4.8 % 354.5 5.2 % Income (loss) from discontinued operations - - % - - % (7.7) (0.1 %) - - % Net income$ 183.6 5.8 %$ 112.4 4.9 %$ 439.4 4.7 %$ 354.5 5.2 % Net (income) loss attributable to non-controlling interests (2.1) (0.1 %) 0.2 - % (6.3) (0.1 %) (4.9) (0.1 %) Net income attributable to Amcor plc$ 181.5 5.8 %$ 112.6 4.9 %$ 433.1 4.6 %$ 349.6 5.1 % 35
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Overview
Amcor is a global packaging company with total sales of approximately $9.5
billion in fiscal year 2019. We employ approximately 50,000 people across
approximately 250 sites in more than 40 countries, and are a leader in
developing and producing a broad range of packaging products including flexible
and rigid packaging, specialty cartons and closures. In fiscal year 2019, the
majority of sales were made to the defensive food, beverage, pharmaceutical,
medical device, home and personal care, and other consumer goods end markets.
Significant Items Affecting the Periods Presented
Impact of COVID-19
The 2019 Novel Coronavirus ("COVID-19") has introduced a period of unprecedented
uncertainty and challenge. Amcor's business is almost entirely exposed to
defensive end markets which have demonstrated the same resilience experienced
through past economic cycles. Our scale and global footprint has enabled us to
collaborate with customers and suppliers to meet volatile changes in demand and
continue to service our customers. We believe we are well-positioned to meet the
challenges of the COVID-19 pandemic. However, we cannot reasonably estimate the
duration and severity of this pandemic or its ultimate impact on the global
economy and our operations and financial results. The ultimate near-term impact
of the pandemic on our business, including on our fiscal fourth quarter, will
depend on the extent and nature of any future disruptions across the supply
chain, the duration of social distancing measures and other government imposed
restrictions and the nature and pace of macroeconomic recovery in key global
economies.
Health and Safety
Amcor's commitment to the health and safety of its employees remains our first
priority. Our rigorous precautionary measures include the formation of global
and regional response teams that maintain contact with authorities and experts
to actively manage the situation, restrictions on company travel, quarantine
protocols for employees who may have had exposure or have symptoms, frequent
disinfecting of Amcor locations and other measures designed to help protect
employees, customers and suppliers. We expect to continue these measures until
the COVID-19 pandemic is adequately contained for our business.
Operations and Supply Chain
We have experienced minimal disruptions to our operations to date as we have largely been deemed as providing essential services. However, we have experienced volatility in customer order patterns in the third fiscal quarter and could continue to experience significant volatility in the demand for our products in the future. For instance, in April, our Rigid Packaging Segment sales volumes inNorth America andLatin America have been adversely impacted as a result of a decrease in foot traffic in the convenience and on the go channels. Our facilities have largely been exempt from government mandated closure orders. While governmental measures may be modified, we expect that our operations will remain operational given the essential products we supply. However, despite our best efforts to contain the impact in our facilities, it remains possible that significant disruptions could occur as a result of the pandemic, including temporary closures of our facilities.
We have not experienced any significant disruptions in our supply chain to date and continue to monitor the risk of customer, raw material and other supply chain disruptions.
The Acquisition of
On June 11, 2019 , we completed the acquisition of 100% of the outstanding
shares of Bemis Company, Inc. ("Bemis"), a 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 connection with the Bemis transaction,
we assumed $1.4 billion of debt.
2019 Bemis Integration Plan
In connection with the acquisition of Bemis, the Company initiated
restructuring activities in the fourth quarter of 2019 aimed at integrating and
optimizing the combined organization. As previously announced, the Company
continues to target realizing approximately $180 million of pre-tax synergies
driven by procurement, supply chain, and general and administrative savings by
the end of fiscal year 2022.
The Company's total 2019 Bemis Integration Plan pre-tax integration costs
are expected to be approximately $200 million . The total 2019 Bemis Integration
Plan costs include $165 million of restructuring and related expenses and $35
million of general integration expenses. The restructuring and related expenses
are comprised of approximately $100 million in employee related expenses, $30
million in fixed asset related expenses, $15 million in other restructuring and
$20 million in restructuring related expenses. The Company estimates that
approximately $150 million of the $200 million total integration
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costs will result in cash expenditures, of which $115 million relate to
restructuring and related expenditures. Cash payments for the nine months ended
March 31, 2020 were $69.3 million , of which $38.3 million were payments related
to restructuring and related expenditures. Cash payments of approximately $20
million to $30 million are expected for the balance of the fiscal year with $10
million to $20 million representing payments for restructuring and related
expenses. The 2019 Bemis Integration Plan relates to the Flexibles segment and
Corporate and is expected to be completed by the end of fiscal year 2022.
Restructuring related costs are directly attributable to restructuring
activities; however, they do not qualify for special accounting treatment as
exit or disposal activities. General integration costs are not linked to
restructuring. The Company believes the disclosure of restructuring related
costs provides more information on the total cost of our 2019 Bemis Integration
Plan. The restructuring related costs relate primarily to the closure of
facilities and include costs to replace graphics, train new employees on
relocated equipment and anticipated loss on sale of closed facilities.
2018 Rigid Packaging Restructuring Plan
On August 21, 2018 , the Company announced a restructuring plan in Amcor
Rigid Packaging ("2018 Rigid Packaging Restructuring Plan") aimed at reducing
structural costs and optimizing the footprint. 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 Company's total 2018 Rigid Packaging Restructuring Plan pre-tax
restructuring costs are expected to be approximately $95 million with the main
component being the cost to exit manufacturing facilities and employee related
costs. The Company estimates that approximately $65 million of the $95 million
total costs will result in cash expenditures. Cash payments for the nine months
ended March 31, 2020 were $12.2 million , with approximately $5 million to $10
million expected during the remainder of the fiscal year. The 2018 Rigid
Packaging Restructuring Plan is expected to be completed during fiscal 2021.
For more information about our restructuring plans, refer to Note 5, "Restructuring Plans" of "Item 1. Financial Statements - Notes to Condensed Consolidated Financial Statements".
High Inflation Accounting
We have subsidiaries in Argentina that historically had a functional
currency of the Argentine Peso. As of June 30, 2018 , the Argentine economy was
designated as highly inflationary for accounting purposes. Accordingly,
beginning July 1, 2018 , we began reporting the financial results of our
Argentinean subsidiaries with a functional currency of the Argentine Peso at the
functional currency of the parent, which is the U.S. dollar. Highly inflationary
accounting in the three months ended March 31, 2020 and 2019 resulted in a
negative impact of $4.9 million and $10.5 million , respectively, and
$23.4 million and $29.5 million in the nine months ended March 31, 2020 and
2019, respectively, in foreign currency transaction losses that was reflected on
the unaudited condensed consolidated statement of income.
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