Amcor Ltd: A Global Leader In The Packaging Industry

Introduction to Amcor Ltd

Amcor Limited is packaging company which is operating its business at the global level and is headquartered at Southbank, Australia. It commenced its business operations in 1926. However, Amcor’s existence dates back to 1860s when a paper mill was operated by Samuel Ramsden who came to Australia in search of his fortune. Amcor came into existence as a paper making business and was formerly known as Australian Paper Manufactures Ltd.

Amcor Ltd is now operating as a leader in the packaging industry through 39 and produces a wide range of products such as corrugated boxes, cartons, plastic jars, aluminium or steel cans etc. The company operates its business through 3 major segments i.e. Amcor Rigid Plastics, Investment segment and the Amcor Flexibles. As a part of business, Amcor serves diversified markets and customer units.

It provides packaging containers for various food and beverage items such as soft-drinks, water, milk related beverages, beer and other drinks. Apart from this it provides packaging solution for various pharmaceutical, home and personal care products. However, the company operates only within the packaging industry and its business is limited to provision of packaging solution to multiple business units in different areas (Bloomberg, 2018).

As the company is operating its business through multiple countries it is clear that it is operating at an international level and not within Australia only. The details of the subsidiaries of Amcor Ltd are given in the further sections of the report.

Amcor has various subsidiaries set-up in different countries across the globe such as Amcor Packaging Ltd. based at New Zealand, Amcor Packaging Inc. based at United States, Amcor Sunclipse Inc. in North America, Amcor Europe in United Kingdom, Amcor Packaging Asia Pty. Ltd, Amcor Flexibles A/S in Denmark etc. In total there are 41 entities across the world, which are controlled by Amcor Ltd as their parent company. The main countries of company’s operations are Argentina, Australia, Spain, Poland, United States of America, China, France, Germany, New Zealand, Switzerland, Russia, Korea, Switzerland, Thailand and various other countries (Amcor Ltd, 2018).

Note: In the present all the financial are expressed in Australian Dollars

In 2017, the amount invested by Amcor Ltd in net assets is $1,158,996,360.  The balance of net assets is determined by deducting total liabilities from the total assets balance for the year 2017. In all the 3 previous years, the balances of total assets and liabilities have varied due to which the balance of net total assets has also varied in the given years. In 2015, the amount of net asset investment was $ 2,066,406,250 which had declined to the level of $ 1,138,567,196 in 2016 due to increase in total liabilities. Although the investment in total assets had also increased from 2015 to 2016 but not as much as the total liabilities increased.

However, in 2017 the balance in the net total assets increased but a small level because of increase in investment in total assets. The increase is primarily due to the business acquisitions that are partially offset by the negative effect on account of strengthening of USD against various currencies in which assets are held. The increase in liabilities is mainly due to the interest bearing liabilities which is reflected by the additional drawdowns to finance the cost of acquisitions which was partially compensated against the free cash flow during 2017 (Annual Report, 2017).

Amcor Ltd Operations and Segments

The total equity for the current year i.e. 2017 is $ 1,158,996,359. The total equity in 2015 was $ 2,066,406,250 and in 2016 it was $ 1,138,567,196. The major cause of reduction in the balance of the equity in 2016 from 2015 is the reduced balance of retained earnings. Also there were some share buy-backs undertaken in 2016. Further, the profits out of business were also reduced significantly in 2016 as compared to 2015 which contributed to decline in the balance of equity in 2016. The balance of equity was raised back in 2017 after 2016 due to increased profitability which increased the balance of retained earnings of the company in 2017 (Morning Star, 2018).

The total current assets held by Amcor Ltd in 2017 were of $ 4,272,620,904. Under the head of current assets there were various assets held by the company such as cash, accounts receivables, prepaid expenses, inventories, short-term investments, assets that were held for sale and some other miscellaneous assets.  In 2015 and 2016 the balance of current assets was $ 4,299,892,270 and $ 4,444,010,416 respectively. The balance of current assets in all the 3 years reported here under has varied slightly. Since 2015, the current assets balance has followed a declining trend (Morning Star, 2018).

Part: 2: Question 4:

The non-current liabilities of Amcor Ltd comprise accounts payable, long term debt, provision and miscellaneous non-current liabilities. No, there are no new non-current liabilities entered into in 2017. All the liabilities that are shown under the head non-current liabilities are same as that were in previous 2 years i.e. 2015 and 2016. However, before 2014, no liability was reported as other non-current liabilities (Annual Report, 2017).

The net profit (after tax and abnormal items adjustments) that was reported in 2017 was $ 798,231,929. The net profit in the preceding 3 financial years from 2014 has widely fluctuated. In 2015, an increase of $ 325,444,791 was reported in the net profit as there was no tax paid on the abnormal transactions. However, in 2016, there was a steep decline in the net profitability of the company. Total decline in net profits of $ 553,309,564 was reported. However, in 2017 the net profit was again increased back by $ 429,796,702 as a result of reduced tax expenses in respect of abnormal transactions (Morning Star, 2018).

The total revenue in 2017 is lesser than the revenues for the immediately preceding 2 years. However, they are greater than the revenue of 2014. This is due to the change in the level of sales in each year. Out of the 4 years since 2014, the lowest sales were generated in 2014 but thereafter the company experienced an increase in the demand of its products for the next two years after which the sales started declining again in 2017.

The net annual cash generated from operating activities of Amcor Ltd in 2017 was $ 1,335,673,426. The largest cash inflow was on account of increase in trade payables and it amounts USD 129.7 million. The largest cash outflow was on account of interest payment and it amounts USD 188 million. These amounts differs from the earlier 3 years where the operating cash flows had reported an inclining trend till 2016 after which there was a decline in the operating cash flows in 2017 (Annual Report, 2017).

Subsidiaries of Amcor Ltd

There was an outflow of $ 822,412,896 in 2017 on account of investing activities. Further there were no new cash flows from investing activities which were different from that of previous three years.

The net increase in the cash flows of Amcor Ltd in 2017 was $ 57,592,304. This is as a result of all the 3 main activities of cash flows: operating, investing and financing along with the adjustments for foreign exchange rate fluctuations. There has been reported wide fluctuation in the previous 3 financial years since 2014 in the net cash flows. In 2016, there was a decrease in the cash flow of $ -247,912,737. But in 2015, there was a net increase of $ 250,390,626 and in 2014 there was an increase of 169,900,000.

The profit margin ratio has slightly fluctuated over the last 3 years. However, it can be said that company has maintained a consistency in relation to its net margins. Though, there had been a decline in the profit after tax over the last 3 years but in 2017 there is an increase in net margin ratio because the same percentage of profits were earned even on the reduced level of sales.

The return on equity ratio is the measure of company’s profitability. This ratio shows how efficiently the firm is utilizing the funds of its shareholder’s investment to generate profits for them in return of their investment (Higgins, 2012). A higher ROE is the indicator of company’s sound profitability. However, in case of Amcor Ltd, the said ratio has kept on fluctuating. Out of the last 3 years, the lowest ROE was reported in 2016 due to lower profitability of the company. However, in 2017, the profitability position of Amcor increased and thus higher returns could be provided to its shareholders.

The asset turnover ratio of Amcor has kept on declining over the period of last 3 years and this shows that the company could not utilize its total assets to generate higher sales revenues. Therefore, it is not a good indicator of Amcor’s efficiency. The investment in total assets has increased continuously since the last 3 years and this might have resulted in laying some of the assets in the idle situation.

The receivable turnover ratio has reported a declining trend over the last 3 years which is not a good indicator of Amcor’s efficiency in managing its accounts receivables. The cash conversion cycle of the company had weakened as the company had taken longer durations to convert its credit sales into cash (Tracy, 2012). The declining sales revenue is a major factor of declining receivables turnover of the company.

The inventory turnover ratio has declined over the period of 3 years and this indicates the inefficiency of company to manage its inventory in its business. The declining inventory turnover ratio shows that the company is taking longer time than the previous year to convert its inventory into sales. As the investment in inventory has increased with each passing year it is becoming difficult for the company to convert it into sales in shorter cycles (Zimmerman & Yahya-Zadeh, 2011)

Net Assets and Equity of Amcor Ltd

The current ratio is the measure of company’s liquidity. This ratio has declined over the last 3 years and due to this the liquidity position of the business has worsened. In all the 3 years Amcor Ltd did not have sufficient current assets to meet its current liabilities. The reason behind the declining current ratio is the increase in current liabilities balances and at the same the balance of current assets got reduced continuously over the past 3 years.

The quick ratio has declined over the past 3 years and this is not a good indicator of a sound liquidity position of the business. This is mainly due to the reduction in the balance of quick assets such as trade receivables and short term investments over the last 3 years and also the current liabilities kept on increasing since 2015. Quick assets are those assets that can readily be converted into cash as and when required to meet the short term obligations of the business as and when they become due (Cull, Demirgu¨ ç?Kunt & Morduch, 2007).

The cash flow ratio is used to assess the operating efficiency of the company. It shows the number of times a company can repay its current debts using its cash flows from the operating activities i.e. the normal business operations (Foster, 2004). A higher ratio is preferable as the ratio less than 1 indicates that the company has not generated sufficient cash to meet its short term liabilities. In the present case of Amcor Ltd. The said ratio has experienced kept on fluctuating but it remained below 1 which indicates the operational inefficiency of the company over the period of last 3 years. Out of last 3 years Amcor had generated highest operating cash flows in 2016 which has slightly improved the cash flow ratio. However, in 2017 there is an increase in current liabilities which reduced back the said ratio.

The debt ratio has increased in the last 3 years. However, there is a slight decline in the said ratio in 2017 as compared to 2016. This ratio is also a measure of financial leverage of a company as it shows the percentage of assets financed through the external debts i.e. the money of creditors (Nissim & Penman, 2001). When higher amount debt funds are used to finance the company’s assets then its risk of insolvency increases. Therefore, a rising debt to asset ratio is not a good result for the financial health of Amcor Ltd.

The debt to equity ratio has followed an increasing trend since the last 3 financial years and this shows that company could not generate enough cash out of its operations to meet its debt obligations (Papadopoulos, 2011). Therefore, it is raising more funds through the external debt sources instead of internal sources, which is increasing its financial leverage. It is generally not a good indicator for a company as it increases its insolvency risk. The capital structure of Amcor Ltd cannot be called as adequate (Penman & Penman, 2001).

Vertical Analysis of Income Statement for the last 4 years

Keeping 2014 as the base year

	06/15	06/16	06/17
Operating Revenue	15.31%	16.89%	9.01%
Other Revenue	40.47%	-2.16%	-2.16%
Total Revenue Excluding Interest	15.60%	16.67%	8.89%
Operating Expenses	16.99%	18.13%	9.09%
EBITDA	8.33%	9.02%	7.79%
Depreciation	12.15%	14.14%	10.57%
Amortisation	22.88%	44.92%	55.83%
Depreciation and Amortisation	12.94%	16.41%	13.91%
EBIT	6.93%	6.77%	5.93%
Interest Revenue	15.41%	50.40%	-48.50%
Interest Expense	6.08%	12.33%	7.37%
Net Interest Expense	4.71%	6.76%	15.55%
Pre-Tax Profit	7.34%	6.77%	4.14%
Tax Expense	75.73%	81.64%	70.79%
Net Profit after Tax Before Abnormal items	-2.25%	-3.72%	-5.20%
Abnormal items	-69.91%	295.90%	11.04%
Abnormal items Tax	-100.00%	-219.85%	-168.85%
Net Abnormal items	-77.79%	160.85%	-36.06%
Reported NPAT After Abnormal items	54.58%	-38.21%	33.86%

Vertical Analysis of Balance Sheet for the last 4 years

	06/15	06/16	06/17
CA – Cash	69.62%	28.34%	34.91%
CA – Receivables	21.70%	21.65%	16.45%
CA – Prepaid Expenses	37.17%	23.87%	27.69%
CA – Inventories	12.02%	18.76%	20.28%
CA – Investments	78.49%	87.62%	27.08%
CA – NCA Held Sale
CA – Other	85.03%	27.57%	-23.37%
Total Current Assets	25.83%	21.75%	20.98%
NCA – Receivables	-100.00%	-100.00%	-100.00%
NCA – Inventories
NCA – Investments	9.90%	15.28%	-0.52%
NCA – PP&E	7.80%	16.88%	15.96%
NCA – Intangibles(ExGW)	16.19%	29.51%	50.78%
NCA – Goodwill	12.86%	34.29%	47.25%
NCA – Future Tax Benefit	0.43%	-36.67%	-14.15%
NCA – Other	26.65%	28.86%	-7.86%
Total NCA	8.42%	19.88%	22.23%
Total Assets	14.76%	20.56%	21.77%
CL – Account Payable	15.52%	23.18%	26.78%
CL – Short-Term Debt	138.02%	122.82%	163.93%
CL – Provisions	36.52%	38.55%	33.50%
CL – NCL Held Sale
CL – Other
Total Curr. Liabilities	36.72%	40.28%	49.07%
NCL – Account Payable	-100.00%	-100.00%	-100.00%
NCL – Long-Term Debt	5.12%	44.88%	42.24%
NCL – Provisions	24.29%	37.96%	20.65%
NCL – Other
Total NCL	8.95%	43.73%	38.36%
Total Liabilities	22.04%	42.10%	43.41%
Share Capital	-24.16%	-32.56%	-36.16%
Reserves	-35.98%	-20.51%	-15.44%
Retained Earnings	-5.87%	-70.07%	-40.40%
Other Equity
Convertible Equity
SE Held Sale
Outside Equity	35.71%	-28.43%	-21.93%
Total Equity	-9.01%	-49.87%	-48.97%

Vertical Analysis of Income Statement for the last 4 years

Statement of Profit or Loss	06/14		06/15		06/16		06/17
Operating Revenue	10,853,400,000.00	99%	12,515,364,583.00	99%	12,686,910,853.00	99%	11,831,773,270.00	99%
Other Revenue	126,900,000.00	1%	178,255,208.00	1%	124,158,362.00	1%	124,154,966.00	1%
Total Revenue Excluding Interest	10,980,300,000.00	100%	12,693,619,791.00	100%	12,811,069,216.00	100%	11,955,928,237.00	100%
Operating Expenses	-9,226,900,000.00	-84%	-10,794,140,625.00	-85%	-10,899,542,149.00	-85%	-10,065,912,636.00	-84%
EBITDA	1,753,400,000.00	16%	1,899,479,166.00	15%	1,911,527,067.00	15%	1,890,015,600.00	16%
Depreciation	-379,300,000.00	-3%	-425,390,625.00	-3%	-432,938,324.00	-3%	-419,396,775.00	-4%
Amortisation	-30,200,000.00	0%	-37,109,375.00	0%	-43,765,149.00	0%	-47,061,882.00	0%
Depreciation and Amortisation	-409,500,000.00	-4%	-462,500,000.00	-4%	-476,703,474.00	-4%	-466,458,658.00	-4%
EBIT	1,343,900,000.00	12%	1,436,979,166.00	11%	1,434,823,592.00	11%	1,423,556,942.00	12%
Interest Revenue	30,800,000.00	0%	35,546,875.00	0%	46,323,727.00	0%	15,860,634.00	0%
Interest Expense	-241,200,000.00	-2%	-255,859,375.00	-2%	-270,939,940.00	-2%	-258,970,358.00	-2%
Net Interest Expense	-210,400,000.00	-2%	-220,312,500.00	-2%	-224,616,213.00	-2%	-243,109,724.00	-2%
Pre-Tax Profit	1,133,500,000.00	10%	1,216,666,666.00	10%	1,210,207,379.00	9%	1,180,447,217.00	10%
Tax Expense	-139,300,000.00	-1%	-244,791,666.00	-2%	-253,029,894.00	-2%	-237,909,516.00	-2%
Net Profit after Tax Before Abnormal	994,200,000.00	9%	971,875,000.00	8%	957,177,484.00	7%	942,537,701.00	8%
Abnormal	-166,600,000.00	-2%	-50,130,208.00	0%	-659,574,468.00	-5%	-184,997,399.00	-2%
Abnormal Tax	-59,100,000.00	-1%	0.00	0%	70,832,211.00	1%	40,691,627.00	0%
Net Abnormal items	-225,700,000.00	-2%	-50,130,208.00	0%	-588,742,256.00	-5%	-144,305,772.00	-1%
Reported NPAT After Abnormal items	596,300,000.00	5%	921,744,791.00	7%	368,435,227.00	3%	798,231,929.00	7%

 Vertical Analysis of Balance Sheet for the last 4 years

	06/14		06/15		06/16		06/17
CA – Cash	541,100,000.00	6%	917,838,541.00	8%	694,451,925.00	6%	729,979,199.00	6%
CA – Receivables	1,482,600,000.00	15%	1,804,296,875.00	16%	1,803,528,144.00	15%	1,726,469,058.00	15%
CA – Prepaid Expenses	78,600,000.00	1%	107,812,500.00	1%	97,360,624.00	1%	100,364,014.00	1%
CA – Inventories	1,411,000,000.00	15%	1,580,598,958.00	14%	1,675,733,907.00	14%	1,697,217,888.00	14%
CA – Investments	8,900,000.00	0%	15,885,416.00	0%	16,698,087.00	0%	11,310,452.00	0%
CA – NCA Held Sale	0.00	0%	0.00	0%	0.00	0%	0.00	0%
CA – Other	9,500,000.00	0%	17,578,125.00	0%	12,119,579.00	0%	7,280,291.00	0%
Total Current Assets	3,531,700,000.00	36%	4,444,010,416.00	40%	4,299,892,270.00	37%	4,272,620,904.00	36%
NCA – Receivables	106,900,000.00	1%	0.00	0%	0.00	0%	0.00	0%
NCA – Inventories	0.00	0%	0.00	0%	0.00	0%	0.00	0%
NCA – Investments	573,300,000.00	6%	630,078,125.00	6%	660,921,088.00	6%	570,332,813.00	5%
NCA – PP&E	3,100,200,000.00	32%	3,342,057,291.00	30%	3,623,619,714.00	31%	3,595,033,801.00	30%
NCA – Intangibles(ExGW)	324,200,000.00	3%	376,692,708.00	3%	419,876,110.00	4%	488,819,552.00	4%
NCA – Goodwill	1,795,200,000.00	19%	2,026,041,666.00	18%	2,410,853,757.00	21%	2,643,395,735.00	22%
NCA – Future Tax Benefit	101,000,000.00	1%	101,432,291.00	1%	63,964,449.00	1%	86,713,468.00	1%
NCA – Other	164,800,000.00	2%	208,723,958.00	2%	212,361,971.00	2%	151,846,073.00	1%
Total NCA	6,165,600,000.00	64%	6,685,026,041.00	60%	7,391,597,091.00	63%	7,536,141,445.00	64%
Total Assets	9,697,300,000.00	100%	11,129,036,458.00	100%	11,691,489,361.00	100%	11,808,762,350.00	100%
CL – Account Payable	2,643,900,000.00	27%	3,054,296,875.00	27%	3,256,665,768.00	28%	3,351,924,076.00	28%
CL – Short-Term Debt	554,000,000.00	6%	1,318,619,791.00	12%	1,234,446,539.00	11%	1,462,168,486.00	12%
CL – Provisions	301,400,000.00	3%	411,458,333.00	4%	417,586,856.00	4%	402,366,094.00	3%
CL – NCL Held Sale	0.00	0%	0.00	0%	0.00	0%	0.00	0%
CL – Other	0.00	0%	0.00	0%	0.00	0%	-130,005.00	0%
Total Curr. Liabilities	3,499,300,000.00	36%	4,784,375,000.00	43%	4,908,699,165.00	42%	5,216,328,653.00	44%
NCL – Account Payable	5,000,000.00	0%	0.00	0%	0.00	0%	0.00	0%
NCL – Long-Term Debt	3,186,500,000.00	33%	3,349,739,583.00	30%	4,616,751,952.00	39%	4,532,501,300.00	38%
NCL – Provisions	735,400,000.00	8%	914,062,500.00	8%	1,014,543,495.00	9%	887,285,491.00	8%
NCL – Other	0.00	0%	14,453,125.00	0%	12,927,551.00	0%	13,650,546.00	0%
Total NCL	3,926,900,000.00	40%	4,278,255,208.00	38%	5,644,223,000.00	48%	5,433,437,337.00	46%
Total Liabilities	7,426,200,000.00	77%	9,062,630,208.00	81%	10,552,922,165.00	90%	10,649,765,990.00	90%
Share Capital	2,885,400,000.00	30%	2,188,281,250.00	20%	1,946,000,538.00	17%	1,842,043,681.00	16%
Reserves	-1,355,600,000.00	-14%	-867,838,541.00	-8%	-1,077,565,311.00	-9%	-1,146,255,850.00	-10%
Retained Earnings	625,400,000.00	6%	588,671,875.00	5%	187,180,177.00	2%	372,724,908.00	3%
Other Equity	0.00	0%	0.00	0%	0.00	0%	0.00	0%
Convertible Equity	0.00	0%	0.00	0%	0.00	0%	0.00	0%
SE Held Sale	0.00	0%	0.00	0%	0.00	0%	0.00	0%
Outside Equity	115,900,000.00	1%	157,291,666.00	1%	82,951,791.00	1%	90,483,619.00	1%
Total Equity	2,271,100,000.00	23%	2,066,406,250.00	19%	1,138,567,196.00	10%	1,158,996,359.00	10%
	9,697,300,000.00	100%	11,129,036,458.00	100%	11,691,489,361.00	100%	11,808,762,349.00	100%

	06/16	06/17
Total Revenue	0.93%	-5.81%
Reported NPAT After Abnormal	-60.03%	-13.40%

The revenue that the company has generated has flown in from two main sources i.e. the revenue from sales and revenue from sources other than sales. The total revenue has followed a fluctuating trend over the past 3 years. Taking 2015 as the base year, it has been found that the total revenue in 2016 had increased on account of increase in revenue from sales. However, revenue from other sources has declined in 2016. In 2017, the total revenue has declined as compared to 2015 as both the both revenue from sales as well as revenue from other sources have declined slightly which has resulted in total decline of 5.81% of revenue of 2015.

Further, the profit after tax and after adjustment of abnormal items has also experienced declining trend in the last three years. From 2015 to 2016, there has been significant decline in the profits due to which the net profit after tax and abnormal items got reduced by around 60% and by 13.40% in 2017. The abnormal transactions which are not occurred in the normal course of business of Amcor Ltd. had the prime contribution in the above variations (Morning Star, 2018).

References:

Amcor Ltd, 2017. Annual Report. 

Bloomberg, 2018. Company Overview: Amcor Ltd. 

Cull, R., Demirgu¨ ç?Kunt, A. and Morduch, J., 2007. Financial performance and outreach: A global analysis of leading microbanks. The Economic Journal, 117(517), pp.F107-F133.

Foster, G., 2004. Financial Statement Analysis, 2/e. Pearson Education India.

Higgins, R.C., 2012. Analysis for financial management. McGraw-Hill/Irwin.

Morning Star, 2017. Financial Data. Available at: https://financials.morningstar.com/income-statement/is.html?t=AMC&region=aus&culture=en-US Accessed on: 29.11.2018

Nissim, D. and Penman, S.H., 2001. Ratio analysis and equity valuation: From research to practice. Review of accounting studies, 6(1), pp.109-154.

Papadopoulos, P. 2011. Investment Report – Fundamental Analysis/ Ratio Analysis. GRIN Verlag.

Penman, S.H. and Penman, S.H., 2001. Financial statement analysis and security valuation. New York, NY: McGraw-Hill/Irwin.

Tracy, A. 2012. Ratio Analysis Fundamentals: How 17 Financial Ratios Can Allow You to Analyse Any Business on the Planet. RatioAnalysis.net.

Zimmerman, J.L. and Yahya-Zadeh, M., 2011. Accounting for decision making and control. Issues in Accounting Education, 26(1), pp.258-259.