Amcor eyes $3 billion in acquisitions

Five years after its transformational $1.9 billion acquisition of Alcan's packaging assets, Amcor is eyeing potential acquisitions worth $3 billion as the global packaging giant seeks further growth in both emerging and developed markets.

Amcor chief executive Ken MacKenzie said the pipeline for potential acquisitions had grown from about $2 billion a year ago as the group identified new targets and as vendors took advantage of historically high asset valuations.

However, Mr MacKenzie said Amcor, which made four bolt-on acquisitions last year, would maintain a disciplined approach to growth.

"We have a 20 per cent pre-tax return on investment hurdle and we have to make sure the acquisitions we make are going to create solid returns for shareholders," Mr MacKenzie told The Australian Financial Review after reporting a 24.6 per cent increase in underlying net profit from continuing operations to $737 million for the 12 months ending June.

"If asset values are going up, we need to work harder at finding the right opportunities for Amcor," he said.

Earlier this month major rival Reynolds Group announced plans to explore the sale of three businesses worth $10 billion, and Huhtamaki recently outlaid $US336 million ($360 million) for privately held flexible packaging producer Positive Packaging, which has plants in India and the Middle East.

Analysts believe Positive Packaging would have been a good fit for Amcor and have questioned whether the company is favouring capital management over acquisitions.

Mr MacKenzie said Amcor was keeping its powder dry so it was ready to move when the right opportunities came along.

Emerging markets were growing 10 times faster than developed markets and Amcor was keen to increase its market share, either through greenfield developments - such as a new tobacco packaging plant it plans to build in Indonesia - or through acquisitions.

At the same time, Amcor will continue to invest in new product development and innovation to differentiate its offer from rivals, tap changing consumer trends and develop new income streams.

"Innovation is central to our strategy," Mr MacKenzie said.

For example, Amcor has developed an aluminium-based coffee capsule for Nestle's new Virtuo coffee machines, which make long blacks instead of espresso coffees.

It has also started selling development kits for its LiquiForm bottle technology, which combines bottle forming and filling in one step by using the contents of the bottle to blow the bottle shape.

"This is genuine breakthrough technology - the addressable market is about 800 new machines a year and we are hoping we will be able to target a large quantity of those machines and generate revenues through licences and royalties," he said.

Mr MacKenzie said 2014 had been a good year for Amcor, with higher earnings, margins and returns across the group.

He forecast further earnings growth from flexible packaging and rigid plastics in 2015, with strong growth from emerging markets such as China, India and South America expected to augment lower rates of growth from Australia, North America and Europe.

Amcor shares posted their biggest gains for 12 months, jumping 4 per cent to $10.70, the highest since February.

The net result of $737 million, which compared with consensus forecasts around $727 million, was underpinned by currency movements, lower net interest and tax charges and one-off gains.

The weaker Australian dollar boosted translated earnings from Europe, the Americas and Asia, adding about $91 million to the bottom line.

Sales from continuing operations rose 14.4 per cent to $10.85 billion, buoyed by a series of acquisitions including the flexible packaging operations of Jiangsu Shenda in China in July last year, Detmold Group's Australian flexible packaging operations in November, and Bella Prima, an Indonesian flexible packaging business in May.

"Topline organic growth looks challenging with guidance for growth likely to be driven by acquisitions," said broker UBS.

Amcor spun off its Australian paper and packaging distribution assets into a separately listed company, Orora, last December. As a result, Australian dollar sales now represent only 5 per cent of the group.

Amcor plans to report earnings in US dollars this year to reduce the impact of exchange rate movements on reported earnings.

Amcor increased its final dividend by 3¢ a share to 23.5¢, unfranked, taking the full-year payout to 43¢.