Despite rising costs of raw materials, the half year results for packaging giant Amcor show a rise in profit of US$329.7m up 3.7 per cent on a constant currency basis from $308.6m the year before.
Sales for the packaging giant were $4.5bn, up by 0.8 per cent although on a constant currency basis the sales slipped by 1.7 per cent.
Earnings per share (EPS) was up 3.7 per cent to 28.5 US cents. Profit before interest and tax (PBIT) was up 11.4 per cent. Strong returns, measured as profit before interest and tax to average funds employed of 19.7 per cent.
In Flexibles sales and revenue were higher across Asia, although below trend, while in Australia, market conditions remain subdued. Flexibles overall rose to $3.1bn from $3.09bn last time, while Rigid plastics dropped $1.37bn to $1.33bn. Speciality Cartons overall earnings were in line with the same period last year.
Ron Delia, CEO of Amcor says, “During the half year we have grown earnings, expanded margins and maintained strong returns, with good progress on key investments. Cash flow and the balance sheet remain strong which, along with our confidence in the earnings growth capacity of the business, enabled the Board to increase the interim dividend by 8 per cent to 21 US cents per share.
“The first half result was in line with the expectations we outlined at our AGM, and demonstrated the resilience and agility of Amcor in the context of short-term industry challenges related to raw material cost increases, weak volumes in one Rigid Plastics segment and mixed conditions in emerging markets.
[Related: All Amcor packaging to be recycable]
“The business has responded exceptionally well, focusing on the growth levers that are within our control, implementing pricing actions to recover higher input costs and adapting the cost base and production capacity where volumes have been weaker. Those actions helped underpin the first half result and will continue to provide further support for earnings and margins as these short-term challenges continue into the second half.”
As noted in August 2017 and November 2017, the flexible packaging industry has experienced rising raw material costs, and this continued through the balance of the December 2017 half year. These cost increases will be recovered over time through higher selling prices, however there is a normal time lag between the impact of raw material cost increases and related pricing actions.
Amcor says it is continuing to implement pricing actions to recover higher raw material costs and has taken measures to reduce costs. As a result, relative to the first half, earnings are expected to improve in the June 2018 half year.
Delia says, “Looking ahead, we expect another year of earnings growth in constant currency terms. We have continued to make progress against our strategic priorities with investments in the Alusa and Sonoco acquisitions and restructuring initiatives in the Flexibles segment, contributing more than US$30m to PBIT in the current half. Together these investments will deliver more than US$100m of PBIT growth across the three-year period ending FY2020, in addition to organic growth and further M&A.
“The long-term growth potential of Amcor remains substantial. We have a truly global business with a presence in more than 40 countries, unique market leading positions in attractive segments and a strong, differentiated value proposition for customers. This will enable continued strong cash generation, allowing us to take advantage of the significant growth opportunities, both organic and through acquisitions, across all Amcor’s businesses.”
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