AMCOR PLC
Management's Discussion and Analysis ("M,D&A") should be read in conjunction
with the Financial Statements and Notes to Condensed Consolidated Financial
Statements. Throughout the M,D&A, amounts and percentages may not recalculate
due to rounding.
Summary of Financial Results
Three Months Ended September 30,
($ in millions) 2020 2019
Net sales $ 3,097 100.0 % $ 3,141 100.0 %
Cost of Sales (2,443) (78.9 %) (2,594) (82.6 %)
Gross profit 654 21.1 % 547 17.4 %
Operating expenses:
Selling, general, and administrative expenses (329) (10.6 %) (371) (11.8 %)
Research and development expenses (26) (0.8 %) (26) (0.8 %)
Restructuring and related expenses (23) (0.7 %) (18) (0.6 %)
Other income, net - - % 9 0.3 %
Operating income 276 8.9 % 141 4.5 %
Interest income 3 0.1 % 7 0.2 %
Interest expense (40) (1.3 %) (60) (1.9 %)
Other non-operating income (loss), net 3 0.1 % 8 0.3 %
Income from continuing operations before income taxes and equity in income (loss) of affiliated companies
242 7.8 % 96 3.1 %
Income tax expense (61) (2.0 %) (22) (0.7 %)
Equity in income (loss) of affiliated companies 19 0.6 % 2 0.1 %
Income from continuing operations 200 6.5 % 76 2.4 %
Income (loss) from discontinued operations - - % (8) (0.3 %)
Net income $ 200 6.5 % $ 68 2.2 %
Net (income) loss attributable to non-controlling
interests (2) (0.1 %) (2) (0.1 %)
Net income attributable to Amcor plc $ 198 6.4 % $ 66 2.1 %
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Overview
Amcor is a global packaging company with total sales of approximately$12.5 billion in fiscal year 2020. We employ approximately 47,000 people across approximately 230 principal manufacturing 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 2020, 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 resulted in 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 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. Our
priorities during the COVID-19 pandemic continue to be protecting the health and
safety of our employees and effectively managing our operations and supply
chains to meet the needs of our customers.
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 continued volatility in customer order patterns and could continue to experience significant volatility in the demand for our products in the future. Our facilities have largely been exempt from government mandated closure orders. While governmental measures may be modified, we expect that our facilities 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.
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$90 million in employee related expenses,$25 million in fixed asset related expenses,$20 million in other restructuring and$30 million in restructuring related expenses. The Company estimates that approximately$150 million of the$200 million total integration costs will result in cash expenditures, of which$115 million relate to restructuring and related expenditures. Cash payments for the three months endedSeptember 30, 2020 were$18 million , of which$14 million were payments related to restructuring and related expenditures. Cash payments of approximately$50 million to$55 million are expected for the balance of the fiscal year with$40 million to$45 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. 30 -------------------------------------------------------------------------------- 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
OnAugust 21, 2018 , the Company announced a restructuring plan inAmcor 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$110 million with the main component being the cost to exit manufacturing facilities and employee related costs. The Company estimates that approximately$70 million of the$110 million total costs will result in cash expenditures. Cash payments for the three months endedSeptember 30, 2020 were$10 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 substantially completed during fiscal 2021.
For more information about our restructuring plans, refer to Note 4, "Restructuring Plans" of "Item 1. Financial Statements - Notes to Condensed Consolidated Financial Statements".
High Inflation Accounting
We have subsidiaries inArgentina that historically had a functional currency of the Argentine Peso. As ofJune 30, 2018 , the Argentine economy was designated as highly inflationary for accounting purposes. Accordingly, beginningJuly 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 theU.S. dollar. Highly inflationary accounting in the three months endedSeptember 30, 2020 and 2019 resulted in a negative impact of$4 million and$15 million , respectively, in foreign currency transaction losses that was reflected on the unaudited condensed consolidated statement of income. 31
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