Amcor ‘transformed’ by Alcan and Ball takeovers as profits soar

By Rory Harrington

- Last updated on GMT

Related tags Raw material costs Packaging and labeling Unit load

Amcor said its profits soared 55 per cent to €197m (A$267m) in the six months ending 31 December thanks to significant savings in the wake of the Alcan takeover and steady sales volumes.

The Australia-based packaging giant said it managed to post the positive results despite rising raw material costs, the negative impact from a stronger Australian dollar and an estimated A$20m bill after its domestic packaging distribution operations were hit by the devastating floods in Brisbane, Queensland.

The firm said it had closed three flexible packaging sites during the period and cautioned other facilities would follow later in the year.

“The outlook for the second half is good with overall earnings expected to be well ahead of the same period last year”,​ said the CEO. “The Alcan Packaging and Ball Plastic Packaging acquisitions have transformed Amcor’s ability to deliver sustainable growth in shareholder value​.”

Synergies and plant closures

Amcor highlighted synergies resulting from plant closures, a reduction in overheads and procurement economies as saving the company €37.6m (A$51m) in H1 and promised more was to come in the second half of the year.

“The integration of the recent acquisition of Alcan Packaging is proceeding very well and synergy benefits for the half were consistent with expectations,”​ said Amcor managing director and CEO Ken MacKenzie. “We expect the positive impact of realised cost synergies in the full year result to be between A$100m (€74m) and A$120m (€89m).

The Amcor chief indicated that most of the cost savings had been made in the flexible segment which saw its year-on-year profits jump by 145 per cent to €198m. This included a €32m boost from synergies realised partly from closing three plants in the UK, Russia and Italy.

The company warned there were “likely to be further plant closures”​ in its Flexibles Europe and Americas operations in 2011 as the “business takes the opportunity to exit unprofitable commodity segments and to remove capacity”.

The firm said it remained confident that synergy savings from the Alcan purchase would hit its initial A$200-250m target by the third year of ownership – which given the stronger Australian currency were expected to top A$300m.

The flexible business had also been hit by rising raw material costs - with PET film prices alone soaring by 80 per cent during the period, particularly in Q2. The company said it was passing on price rises to its customers but that the lag in this taking effect had cost it €14m in H1, with a similar amount forecast for the second half of the year.

Other segments

Its rigid plastics business posted a 23 per cent leap in profits to $US101m – with the 33 per cent volume jump boosted by the Alcan takeover and the recent Ball Plastics Packaging acquisition. The latter transaction in September 2010 was the main driver behind the company’s debt increasing US$583m to US$3.2bn.

“The integration of the Ball Plastic Packaging acquisition has proceeded as planned and higher earnings are expected from this business in the second half,”​ said MacKenzie

Volumes in the North American Custom Beverage Containers and Carbonated and Soft Drink and Water (CSDW) operation jumped 41 per cent. Increase in volumes from the Amcor and Ball ‘legacy business’ reached 28 per cent thanks to good summer weather, significant promotional activity and “one-off volume gains due to competitors’ inability to supply”,​ said Amcor.

Diversified Product substantial change

The company said its Diversified Products segment, consisting of rigid plastic containers mainly for the alcoholic beverage, food, personal care and pharmaceutical markets, has been growing faster than Gross Domestic Product (GDP) because of the ongoing substitution from glass to plastic as well as the underlying higher growth rates for some of these segments.

“The Diversified Products business unit is in the process of undergoing substantial change as a result of the acquisitions of the former Alcan Packaging and Ball PPA businesses,”​ said Amcor. “These acquisitions are complementary in terms of market segments, technologies and materials. In particular, there is an increased presence in the pharmaceutical and food markets as well as an entry into small wine bottles.”

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