Bemis : to Combine With Amcor - Investor Call 1

AMCOR LTD AND BEMIS COMPANY INC CONFERENCE CALLMonday, 6thAugust 2018 23.30 AEST / 09.30 EST

CORPORATE PARTICIPANTS

Ron S. DeliaAmcor Limited - MD, CEO & Executive DirectorWilliam F. AustenBemis Company, Inc. - President, CEO & Director

Operator:Ladies and gentlemen thank you for standing by. Welcome to the Amcor and Bemis combination conference call. (Operator Instructions). I would now like to hand the conference over to your first speaker for today, Mr Ron Delia, Amcor's Managing Director and Chief Executive Officer. Please go-ahead, sir.

Ron Delia Amcor Limited - MD, CEO & Executive Director

Thank you operator and thanks to everyone on the line who's been able to join us here today at short notice to talk about the compelling transaction we've announced. This is a really exciting moment for both Amcor and Bemis and we're looking forward to talking about it today and the opportunity this creates for all our key stakeholders.

And I say we because joining me on the call today is Bill Austen, President and Chief Executive Officer of Bemis company. Now, Bill and I are both in the US but we're in different places today so there might be a delay at times between us. Bill and I will be happy to take your questions, but before we do that we'd like to spend a few minutes covering some of the key highlights that we've outlined in a set of presentation slides which can be downloaded from both the Amcor and Bemis websites in the investor sections.

I'm going to refer to those slides throughout the opening remarks here. Starting with slides 2 and 3 which cover some important disclaimers which you should read and be familiar with.

Now, while not pointed out here I would like to mention that Amcor will be announcing its full year financial results for fiscal 2018 on 21stAugust, which is about two weeks from now. I've chosen to be in the US this week to be close to employees and customers. I'll be in Australia at that time as per normal in two weeks to go through our FY18 results. In the meantime, today is about the transaction and we will not discuss current trading or financial performance which I know that you'll understand.

Starting on slide 4 with the key messages - and before I get started I just wanted to say that I and, in fact all of Amcor and our leadership team have always had an enormous amount of respect for Bemis. I think it's fair to say that anyone competing in the packaging industry would agree that Bemis has been and is one of the iconic companies in our space, has been for decades. And Bemis would get very high marks from its peers - our peers, in the industry around the world especially for this technology amongst several other things. And respect and recognition from your peers in an industry is about as high a form of compliment as you can get. So, I wanted to make that clear that's our sentiment towards Bemis and we look forward to working collaboratively as we have with the company going forward.

Now of course we also think Amcor is a very strong company and a leader in its own right, and so that makes today's announcement all the more exciting because by combining Bemis, Amcor takes a big step toward being the global leading consumer packaging company at a moment in time when the opportunities for a leading packaging company have never been greater. And putting the two companies together results in the footprint, scale, talent and capabilities tooffer the most compelling value proposition to our key stakeholders, including our customers employees and the environment. And for both sets of shareholders this transaction delivers a unique opportunity to benefit from significant value creation, and value which would not have been achievable in the same timeframe by either company independently. And after the transaction, the financial profile of Amcor will be even stronger and will enable us to continue to pursue the capital allocation approach - or shareholder value creation model for those of you who know us - that we've had in place for many years.

At this point, I'd like to ask Bill to say a few words. Bill?

Bill Austen Bemis Company Inc. - president, CEO & Director

Yes, thank you Ron. I too am pleased and very excited to be announcing this combination today. As Ron described w are two very complementary organisations and we believe this transaction will drive significant value for our customers, employees, partners and shareholders. Together we will create a global leader in consumer packaging with a footprint, scale, talent and capabilities to serve customers around the world.

We're thrilled at the prospect of being able to offer a more diversified and well-balanced portfolio across all regions and segments, that is better aligned to customer footprints and needs. Bemis and Amcor are a great fit, not just geographically but also culturally, as we share a similar customer first philosophy as well as strong commitments to integrity, safety and people development. I'll come back shortly and talk more specifically about what this means for Bemis shareholders.

Ron Delia

Thanks Bill. Look, considering we're bringing together two companies that have each been around for over 150 years with strong values and cultures as Bill pointed out, this really is a historic day. In the proud and successful histories of both companies. And it's really the start of one great future together.

If I turn to slide 5 we've got an overview of the transaction terms and key dates, the details of course are in the press release. The main point here is this is an all stock acquisition of Bemis at a fixed exchange ratio of 5.1 shares for each Bemis share. As a result, Amcor and Bemis shareholders will each own 71% and 29% of the combined company respectively. And the offer on these terms has been set out in a definitive agreement which has been unanimously approved by the Boards of Directors of both companies. Subject to the timing of shareholder meetings and other approvals, the transaction is targeted to close in the first quarter of calendar year 2019.

Turning to slide 6 and the highly compelling strategic rationale, and I'll go into more detail on some of these points later, but the headlines are clear on slide 6. First there's the resulting global footprint which is a comprehensive global footprint in the flexible packaging business and brings together Amcor's leading flexible packaging businesses in Europe, Asia, and many parts of Latin America, with Bemis's leading positions in north America and Brazil.

Second, across that global footprint we'll have greater scale which will better enable us to serve our customers in every region. Third, there will be increase exposure to attractive end markets like protein and healthcare, and attractive product segments like barrier films and foils, which can be transferred across regions and leveraged across the global footprint. And of course, there's the combination of capabilities and management talent from both companies which Billalso mentioned. We're going to create a much stronger organisation with the capabilities to offer global, regional and local customers the most compelling value proposition in the industry with a broader offering of innovative and sustainable product. And although we've not taken this into account in the transaction metrics, this strong value proposition and greater weighting to attractive segments, should ultimately lead to higher growth than either company would realise independently.

Slide 7 summarises the financial rationale. Firstly, the financial metrics of the transaction itself are very compelling. There's a lot of value created by this deal for all shareholders. This is an all-stock combination at a multiple equivalent to Amcor's current trading multiple and it unlocks substantial value through pre-tax annual cost synergies of $180 million. That's about 4-5% of Bemis's sales. And we'd expect these benefits to be achieved by the end of the third year of ownership. So that will deliver double digit EPS accretion on a pro forma basis for all shareholders. And in addition to the transaction metrics, Amcor will have a stronger financial profile going forward, with higher margins after the delivery of the cost synergies, and annual cash flow after CAPEX but before dividends in excess of $1 million. And importantly, we'll maintain an investment grade balance sheet with immediate capacity for further investment.

Third, the transaction structure will result in the stock being listed on two major global exchanges, the NYSC and the ASX. And through these listings, we expect there will be greater liquidity for investors as the total market capitalisation of the combined company which we estimate at about $17 million, is expected to qualify for inclusion in the US S&P 500 index, while the Australian listed shares will also continue to be included in the S&P ASX 200 index. And finally, these financial benefits will be achieved with no cash outlays required and under a tax-free share exchange for shareholders.

And before we get into what the combined company will look like any further, it's worth a quick recap on each company to provide some context around why it makes sense for us to bring these two companies together. And to start with that I'll ask Bill to speak to Bemis first, which is shown on slide 8.

Bill Austen

Thanks Ron. A brief overview here of Bemis. The company has a rich 160-year history and has evolved to its strong position today as a $4 billion plastic packager with a strong presence in the Americas. Our innovative products serve leading and emerging customers in food, consumer products, healthcare and other industries. Our commitment to growth and success of our customers is supported by our 16,000 employees across 56 plants in 12 countries.

For Bemis, this merger is the next exciting chapter in our evolution. Over the last year and a half, Bemis has driven much change. We've launched agility, our plan to fix, strengthen, and grow our business. The agility mind-set has permeated our thinking and actions, and we're continuously finding new ways to improve all areas of our business. It's clear that agility is working. On our recent second quarter earnings call, we reported an increase in adjusted earnings per share of more than 40% compared to one year ago, with strong operating profit improvement in all of our reportable segments. We're building from a solid foundation of world class customer base, a dedicated workforce, a comprehensive and innovative product portfolio and good positions in the markets we serve.

I'll take a minute to get my perspective on why this compelling transaction for Bemis shareholders, who will become owners of 29% of the combined company on a go forward basis. In addition to the purchase price representing a premium to where the stock has been trading, the all stock nature of this transaction gives our shareholders the ability to participate in the upside potential of a more diversified global company with greater scale and resources. The identified $180 million in synergies expected to come from the transaction are incremental to each company's previously announced restructuring programmes which are well underway. Additionally, Amcor expects to maintain its current dividend which would nearly double the dividend per share for Bemis shareholders.

Before I turn the call back to Ron I'd like to thank our past and current Bemis employees around the world for their dedication and commitment to our company and the customers we serve. I have every confidence that after this transaction closes, our teams will contribute to their full effort, energy, leadership, and professionalism, in creating an even stronger combined company. I'm proud of our employees and the Bemis legacy that will carry forward as they showcase their talents, knowledge, and passion for inspired packaging solutions in the future.

I'm excited to see what the future holds. And with that, I'll turn back to Ron.

Ron Delia

Thanks Bill. Slide 9 is a quick snapshot of Amcor, especially for those in this market who might not know us as well. Amcor has also been around for more than 150 years and our origins date back to the 1860s. We started out as an Australian forest products and paper company, but we've transformed over the last several decades into a truly global company, with sales of about $9 billion and a market cap today of around US$13 billion. So, around AU$18 billion as the slide shows here and that's because our stock trades on the ASX in Australian dollars.

Amcor today is about as global as you can get. The pie chart on the bottom left of slide 9 shows our sales by geography and you can see it's very evenly distributed. We have scale on leadership positions in many geographic regions, and we've got a long history of profitable participation across a wide range of emerging markets. In fact, we're in 27 emerging markets today. Our strategy's guided by a desire to stay very focused, so as the other pie charts indicate, we focus on supplying consumer packaging for fast moving consumer goods, and we participate in only four product segments.

The common denominator in most of these segments is that we either have scale or a distinct element of differentiation, which at times includes the strong relationships we have with many global customers and the commercial and operating capabilities to profitably service thousands of smaller customers simultaneously. And finally, we have a long track record of delivering consistent earnings growth through commercial and operational productivity which has led to consistent margin expansion, and we also have extensive experience in successfully integrating acquisitions. In fact, we've completed over 20 acquisitions in Amcor recently, so this is a core capability of ours.

There's more information about Amcor in the appendix. I'd encourage you to have a look. There's three slides that tell you everything you need to know about Amcor. One is around our historical financial performance. We have our strategy on one page and importantly our capital allocation approach on another slide as well.

Slide 10 shows the outcome of this deal for our flexible packaging business and how our scale on the global flexible packaging segment will increase significantly as well as our geographic participation becoming much more balanced. Greater scale means we'll be far better placed to serve customers in every region and we'll be positioned to benefit from the increased economies of scale and resources from a combination of our leading positions in Europe, Asia, and Latin America, and Bemis's leading positions in North America and Brazil.

Slide 11 shows these highly complementary regional leadership positions very clearly. As a result of this transaction, Amcor will gain increased scale in flexible packaging in the Americas with regional revenues increasing from about $1 billion today to $4 billion. This is a region within our flexibles business that we identified as a key growth priority for some time, and it delivers a step change for us in that region. And added to this will be Bemis's leading positions in Brazil and Mexico. Bemis will transform from a North American leader with 60% of revenues in that region, into a truly global packaging company, with a balance of revenues generated from all key developed and emerging markets around the world.

Slide 12 outlines what I believe is one of the most exciting outcomes of this combination. Both companies have strengths in different and complementary areas, and the benefits from leveraging them across a combined global platform will allow us to achieve more than a one plus one outcome. We're proud of the outcomes we've delivered through our strong sales and marketing and procurement capabilities, and we've really enjoyed seeing the creativity and commitment to achieve more and to outperform and drive further improvement year after year. We also believe we have something special in our in-house M&A capabilities including our ability to integrate acquisitions. And I'm excited about the potential we have ahead of us to drive value through a laser like focus on delivering the sustainability outcomes our customers and consumers are demanding today. And I'll elaborate a bit more on that on the next slide.

I'm confident these capabilities will resonate with all Bemis employees, and empower them to excel in different areas and contribute to the overall company. We've had a chance to spend many hours over the last few months getting to know the Bemis business and team in more depth. And as I mentioned earlier I'm deeply impressed by Bemis's technical and material sciences capabilities and the centres of excellence they've created in Wisconsin in particular. And I believe what Bemis has created locally can be shared and disseminated around the world, and additional value will become an outcome of that. So, we're really excited about what these companies can achieve together with the talent and capabilities available on both sides.

I want to pause on slide 13 which is around sustainability, as it's one of the most important consumer trends emerging worldwide and it is the most consistently relevant conversation we're having with our customers every day in every part of the world. In January of this year Amcor became the first global packaging company to pledge to develop all of our packaging to be recyclable or reusable by 2025. We're also committed to significantly increasing our use of recycled materials and to held drive greater recycling of packaging around the world. As the first packaging company to make such a pledge we are aligned with major global brands, retailers, and NGOs in making a shared commitment to address the challenge of plastics in the environment. And while much of our packaging is already recyclable or reusable, we will have a stronger and broader range of innovation and technical capabilities as a result of this acquisition, which will accelerate our ability to design packaging that uses less material in the first place and capture more sustainability related packaging opportunities going forward. The team at Amcor has been enormously proud of its commitment and we're energised by the