Bemis : to Combine With Amcor - Investor Call 2

AMCOR LTD AND BEMIS COMPANY INC CONFERENCE CALL

Tuesday, 7thAugust 2018 10.00 AEST / Monday 6thAugust 2018 20.00 EST

CORPORATE PARTICIPANTS

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

Operator:(Operator Instructions) I would now like to hand the conference over to your speaker today, Mr Ron Delia. Thank you, and please go ahead, sir.

Ron Delia, Amcor Limited - MD, CEO & Executive Director

Thank you, operator, and thanks to those of you on the line, who are able to join us today. It's an exciting moment for both Amcor and Bemis, and we're looking forward to talking about the opportunity this creates for all of our key stakeholders. And I say we because joining me on the call today is Bill Austen, President and CEO of Bemis.

Bill and I are both in the US but in different places today. So, there may be a delay at times as we hand off between each other. And Bill and I'd be happy to take your questions. But before we do that, I'd like to spend a few minutes covering some of the key highlights outlined in the presentation slides which can be downloaded from the Amcor and Bemis websites.

We start with slides 2 and 3. They cover some important disclaimers which you should read and be familiar with. And while not pointed out here, I'd like to mention Amcor will be announcing its full-year results on August 21, which is about two weeks from now. And in the meantime, today we'll focus on the transaction that's been announced and we'll not be discussing current trading or financial performance which I know that you'll understand. I've also chosen to be in the US this week to be close to employees and customers and I'll be in Australia as per normal in about two weeks' time, and see many of you for our FY18 results release.

We start on slide 4 with the key messages today. 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. Anyone in the packaging industry would agree that Bemis is clearly one of the iconic companies in our space and has been for decades. And Bemis gets very high marks from our peers around the world, especially for its technology amongst several other things. And respecting recognition from your peers is really about as high a complement as you can get.

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 with Bemis, Amcor takes a big step towards becoming the global leader in consumer packaging at a moment in time when the opportunities for leading packaging companies have never been greater.

Holding the two companies together results in the footprint, scale, talent and capabilities to offer 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, value which would not be achievable in the same timeframe by either company independently.

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 Austen, Bemis Company, Inc. - President, CEO & Director

Thank you, Ron. I am pleased and excited to be here with you today announcing this combination. As Ron described, we 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 the footprint, scale, talent and capabilities to better 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 key 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 to talk more specifically about what this means for Bemis shareholders.

Ron Delia

Thanks Bill. Considering we're bringing together two companies that have each been around over 150 years with strong values and cultures, this is a really historic day in the proud and successful histories of those companies and the start of a great future together.

An overview of the transaction terms and the key dates is included on slide 5 and of course in the press release that accompanies the slide pack. The main point is that 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 the definitive agreement which has been unanimously approved by the Boards of Directors of both companies. And subject to the timing of shareholder meetings and other approvals, the transaction is targeted to close in the first quarter of calendar 2019.

Turning to slide 6, in the highly compelling strategic rationale. I'll go into more detail on some of these points later but the headlines are clear on slide 6. First, there is the resulting global footprint, which is a comprehensive global footprint in the flexible packaging business by bringing 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 an increased 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 is the combination of capabilities and management talent from both companies, which Bill also mentioned. This will 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 products. And although we've not taken this into account in the transaction metrics, this stronger value proposition and greater weighting for attractive segments should ultimately lead to higher growth than either company would achieve independently.

Slide 7 summarises the financial rationale. Firstly, the financial metrics of the transaction itself are very compelling. There is 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 or 4% to 5% of Bemis's sales, with these benefits expected to be achieved by the end of the third year of ownership. And it will deliver double-digit pro forma EPS accretion for all shareholders.

Secondly, the financial profile of Amcor will be even stronger going forward with the higher margins that come from the delivery of the cost synergies and annual cash flow after CAPEX and before dividends in excess of $1 billion. And importantly, we will maintain an investment grade balance sheet conservatively geared with immediate capacity for further investment.

Third, the transaction structure will result in the stock being listed on two major global exchanges, the NYSE and the ASX. And through these listings, we expect there will be greater liquidity for investors as the market capitalisation of the combined company, which we estimate at US$17 billion, is expected to qualify for inclusion in the US S&P500 index, while the Australian listed shares will also continue to be included in the ASX 200 index. And finally, these financial benefits will be achieved with no cash outlays required and under a tax-free exchange for shareholders.

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

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 polymer-based packager with strong presence in the Americas. Our innovative products are leading and emerging customers in food, consumer products, healthcare and other industries.

Our commitment to the 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 past year-and-a-half, Bemis has driven much change. We have launched Agility, our plan to fix, strengthen and grow our business. The Agility mindset has permeated our thinking and actions and we are continuously finding new ways to improve all areas of our business. It is 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 are 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 give my perspective on why this is a 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 of where our stock has been trading, the all-stock nature of the transaction gives our shareholders the ability to participate in the upside potential of a more diversified global company with greater scale and resources. We 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 to the customers we serve. I have every confidence that after this transaction closes, our teams will contribute their full effort, energy, leadership and professionalism into creating an even stronger combined company.

I am proud of our employees in 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. With that, I'll turn the call back to Ron.

Ron Delia

Thanks Bill. Slide 9 is a quick snapshot of Amcor. Amcor, as many of you know, has also been around for over 150 years. Our origins date back to the 1860s where we started as an Australian forest products and paper company but have transformed over the last several decades into a truly global company with sales of about $9 billion and a market capitalisation of around US$13 billion or AUD$18 billion as the slide shows here.

And Amcor today is about as global as you can get. The pie chart on the bottom left-hand side of slide 9, breaks out our sales by geography, and you can see it's very evenly distributed. And we have scale and leadership positions in many geographic regions and a long history of profitable participation in a wide range of emerging markets. In fact, today we are in 27 emerging markets around the world.

And our strategy is 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. And the common denominator on most of these segments is we have either scale or a distinct element of differentiation, which includes the strong relationships we have with many global customers and the commercial and operating capability to profitability service thousands of small customers at the same time.

And finally, we have a long track record of consistently delivering earnings growth through both commercial and operational productivity, which has driven consistent margin expansion; and we also have extensive experience in successfully integrating acquisitions. In fact, we've completed over 20 acquisitions at Amcor recently. So, this is a core capability of ours. There is some additional information about Amcor in the appendix and I'd encourage you to have a look at those slides as well.

Slide 10 shows the outcome of this deal for our flexible packaging business and how our scale in the global flexible space increases significantly and our geographic participation becomes much more balanced. Greater scale means we will be far better placed with the resources required to serve customers in every region. We'll be well-positioned to benefit from the increased economiesof scale and resources that come from a combination of Amcor's 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. And as a result of this transaction, Amcor will gain increased scale in an absolute sense in flexible packaging in the Americas, with regional revenues increasing from $1 billion to $4 billion. Now this is a region within our flexible packaging business we identified as a key growth priority sometime ago and this transaction delivers a step-change in that region. Bemis also transitions from a more regional North American-focused business with a very strong position in Brazil 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 we believe, is one of the most exciting outcomes of this combination. Both companies have strength in different areas and the benefits from leveraging those strengths across the 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 enjoy seeing the creativity and commitment from our teams around the world to achieve more and to outperform and drive further margin expansion year-after-year. We also believe we have something special in our in-house M&A capabilities including our ability to integrate acquisitions.

I'm also 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 more on that in the next slide.

We're confident these capabilities will resonate with all Bemis employees and empower them to excel in different areas and contribute to the overall company. I've spent many hours over the last few months getting to know the Bemis business and team in more detail. And as I mentioned earlier, I'm deeply impressed by Bemis's technical and its material sciences capabilities and the centres of excellence they have created in the Wisconsin area in particular. And I believe that what Bemis has created in the North American market can be shared around the world and value creation will be a natural outcome of that.

I want to pause on sustainability referring to slide 13. Sustainability is emerging as one of the most important consumer trends around the world and it is the most consistently relevant conversation we're having with our customers every day in every part of the world. In January, as many would know, Amcor became the first global packaging company to pledge to develop all of our packaging to be recyclable or reusable by 2025. And we're also committed to significantly increasing our use of recycled materials and to help drive greater recycling of packaging around the world.

As the first packaging company that makes 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. 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 captures more sustainable packaging opportunities going forward.