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16 Oct 2003
MOODY'S REVISES AMCOR'S RATINGS OUTLOOK TO STABLE FROM NEGATIVE
Approximately US$650 million in debt securities affected
Sydney, October 16, 2003 -- Moody's Investors Service today affirmed Amcor Limited's (Amcor)
Baa1 senior unsecured issuer, Baa2 subordinated debt, and
Prime-2 short-term ratings. At the same time,
Moody's revised the ratings outlook to stable from negative. The
change in outlook recognises the progress Amcor has achieved in integrating
the operations of Schmalbach-Lubeca, acquired in 2002.
Moody's appreciates that ongoing acquisitions, over and above
recently purchased Rexam Healthcare, are likely. Amcor has
now established, however, a sound track record for effectively
integrating acquired operations and for maintaining a sound financial
Moody's notes that Amcor's ratings reflect its  Strong operating
risk diversity, given its geographic, product category,
and customer spread;  Leading marketing positions,
either as No. 1 or No. 2 in its major areas of operation,
specifically Australian packaging, global PET, and European
flexibles;  High exposure (roughly 80% of revenue)
to the stable growth end-markets for food and beverage packaging;
and  Management's proven track record in effectively integrating
The ratings also consider challenges associated with  Sustaining
margins, given potential market fragmentation in several areas of
operation, risk of increasing customer turnover, and price
pass-through risk;  Maintaining product development
capabilities to meet customer needs; and  Potential for short-term
increase in integration risk, given ongoing acquisitions.
Amcor's Baa1 rating reflects its leading position in the Australasian
packaging industry, which generates stable operating cash flow to
fund the company's expansion overseas. The rating also recognizes
Amcor's strengths post-acquisition of German-based
packaging company Schmalbach-Lubeca AG (SML), its diversified
product mix and geographic operations, together with its leading
positions in the global PET and European flexible packaging industry.
The rating incorporates Moody's expectation that Amcor will continue
to look for new investment opportunities in the overseas packaging business,
as demonstrated by its recent investment in health packaging. Moody's
takes comfort in management's demonstrated prudent financial approach
in the funding of its new investments. We also take comfort in
its financial policy of maintaining a net debt/capital ratio which does
not exceed 45%, as well as EBITDA/ Interest of over 6x,
and its commitment to convert hybrids into equity.
Its 1,725mm (roughly A$2.8bn) acquisition of
SML was completed in July 2002, funded by a mix of equity/ cash
(60%) and debt/ hybrid (40%) and was in line with Amcor's
core business growth strategy. Amcor management estimates that
synergy benefits from the acquisition exceeded expectations for the first
12 months. As a result of the acquisition, the company has
become a global leader in the manufacture of PET containers, with
dominant positions in North America, Europe and Latin America.
In October 2003, Amcor bought out minority shareholders, Danisco
and Ahlstrom, from its European flexible operation for A$173mm.
On August 21, 2003 Amcor announced it would acquire the flexible
packaging operations of Rexam Healthcare (UK) for A$330mm.
The business is expected to be integrated with Amcor's existing
European healthcare operations. The acquisition will allow Amcor
to position itself as a global leader in flexible packaging materials
for the healthcare industry and with a global market share of 15%.
The rating outlook is stable. Amcor's rating continues to
be supported by its broad operating profile and strong management.
SML's successful integration has enhanced the group's profile.
The stable outlook encompasses Moody's expectation that Amcor will successfully
issue medium-term debt before June 2004, improving its debt
maturity profile, which currently evidences a material amount maturing
within 12 months.
The rating may be pressured if Amcor undertakes a large debt-funded
acquisition or disposes of a major section of its business. Upward
rating pressure may be evident with meaningful improvements in operating
margins -- reflecting both better internal efficiencies and external
market structures -- together with more strength and consistency
in free cash flow generation, leading to lower financial leverage,
as measured by debt/capitalisation and cash flow-to-debt
Amcor Limited, based in Melbourne, Australia, is a leading
global packaging concern.
Charles F. Macgregor
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Pty Ltd
612 9270 8100
Corporate Finance Group
Moody's Investors Service Pty Ltd
612 9270 8100
No Related Data.
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