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Improving liquidity supports Amcor’s stable credit rating

By Michelle Knott , 03-Aug-2011

Fitch Ratings has maintained international packaging company Amcor’s credit rating at BBB, thanks to the group’s stable outlook and improving liquidity.

“It’s a pretty solid credit rating,” senior director at Fitch Ratings, Vicky Melbourne, told FoodProductionDaily.com. “There was some concern in the market with regard to Amcor’s liquidity last year, because the company used bridging facilities in the Alcan acquisition. But they refinanced in March this year so the liquidity has improved.”

The purchase of Alcan businesses in February 2010 cost Amcor around US$1,948 m as it acquired flexible food packaging businesses in Europe, North America and Asia, in addition to Alcan’s global businesses in pharmaceutical and tobacco packaging.

Last year also saw Amcor acquire Ball Plastics Packaging Americas for US$280 million.

Creating synergies

Those acquisitions are now bedding in and Amcor is on course to exploit synergies between the new stable-mates worth between AUD200 m and AUD250 m. “Amcor has a strong track record of meeting its targets in this respect,” said Fitch.

Fitch also said that Amcor's operating cash flows have remained stable despite “recent adverse cyclical impact to some of its businesses”, such as volatile raw material prices and the consequences of flooding in Australia: “Its diverse geographic footprint dampens the volatility of its operating cash flows from the effects of country-specific slowdowns.”

On a slightly more cautionary note, these positives are counterbalanced by Amcor's acquisitive growth strategy, relatively high dividend payout ratio and the commodity nature of its carbonated and soft drinks (CSDW) segment, which all add to the group’s overall perceived credit risk.

Legacy CSDW volumes and margins have been on the slide as customers increasingly opt for self- manufacturing.

Fitch noted that Amcor intends to disinvest the CSDW segment, which accounts for less than 15 per cent of group earnings (EBITDA), in favour of the more profitable custom packaging segment.

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