Amcor rides work from home demand amid ‘indefinite’ COVID-19 pandemic

Demand for ready meals, coffee, home cleaning and healthcare during COVID-19 has delivered for Amcor.

Amcor cautioned the broader economic outlook remained uncertain. Picture: AFP

Global packaging giant Amcor expects the world will be forced to live with COVID-19 indefinitely, requiring companies to adapt and rethink the way they do business on a long-term basis.

Consumer products have proved resilient even in the face of the global health crisis, with Amcor delivering a 11 per cent rise in annual profit as people stocked up on ready meals, coffee, home cleaning and healthcare needs during the pandemic.

Still, the manufacturer warned of ongoing economic risks due to uncertainty over the depth and duration of the global pandemic.

“Our base scenario is that we’re going to be living with COVID-19 indefinitely,” Amcor chief executive Ron Delia told The Australian. “It means we’ve got to maintain flexibility, agility and resilience in our operations. We have 230 factories around the world and they’ve all been classified as essential by governments. Our planning scenario is continue to operate in a COVID-19 environment for the foreseeable future and the business is resilient enough to be able to manage through that successfully.”

The company in May credited “pantry loading” from US consumers during COVID-19 for boosting earnings but said that rush toward panic buying had now eased off.

Pantry loading “has definitely levelled off and we are now normalising,” Mr Delia said. “By late June and into July we’re seeing demand patterns generally normalise around the world.”

Amcor, which completed its $US6.8bn ($9.4bn) takeover of US plastic food packaging company Bemis last year, said its 2020 net profit lifted 11 per cent on a constant currency basis to $US1.03bn for the 12 months through June. That figure just beat a consensus estimate from analysts of $US1.02bn. Revenue dipped 1.8 per cent to $US12.47bn after it passed through lower raw material costs to customers.

After stripping out the impact of currency swings, earnings before interest and tax improved by 6.7 per cent to $US1.49bn, in line with a forecast by JPMorgan.

China and India recorded “particularly strong growth” towards the end of the fourth quarter while in Europe protein, dairy and coffee demand resulted in low single digit volume growth.

Overall its flexibles business delivered a $US1.34bn annual profit before interest and tax, up 9.8 per cent on a year earlier after stripping out the impact of currency swings. Still, overall net sales for flexibles went backwards, falling by 0.9 per cent in constant currency terms.

Its much smaller rigid packaging unit suffered a tougher year, with annual profit falling 4.2 per cent at constant foreign-exchange rates to $US290m, on a 4.8 per cent fall in net sales to $US2.71bn. That was mostly attributed to a hit from lower raw material costs, although Amcor noted strengthening growth in its specialty container volumes including spirits and home cleaning.

Amcor lifted its 2020 earnings per share growth by 12.9 per cent on a constant currency basis to US64.2c, compared with an expected 11-12 per cent lift. The company expects to deliver 5-10 per cent growth in earnings per share in 2021 and adjusted free cash flow of $US1-1.1bn.

However, it cautioned the broader economic outlook remained uncertain.

Amcor said earnings could be hit by “COVID-19 related factors such as the extent and nature of any future operational disruptions across the supply chain, government imposed restrictions on consumer mobility and the pace of macroeconomic recovery in key global economies. The ultimate magnitude and duration of the pandemic’s impact on the business remains uncertain at this time.”

Total dividends increased to US46c, including a US11.5c June quarter return.

The Bemis deal increased Amcor’s footprint from 30 countries to 40 and led to the company listing on the New York Stock Exchange.

Management still expects to save $US180m from integrating Bemis’s assets by 2022, with $US80m of those savings captured in the current fiscal year, ahead of a $US65m forecast.

Bemis makes flexible packaging for healthcare companies and consumer packaged goods providers like Kraft Heinz and employs around 16,000 people globally.

Amcor’s ASX-listed depositary receipts closed up 4c, to $15.72, ahead of the results.