Amcor has joined a growing list of global companies to take a big hit from the slow collapse of the Venezuelan economy.
Australia’s global packaging giant yesterday told the ASX that it will take a $US350 million impairment loss on its Venezuelan business, as well as a major restructure of its flexibles segment that will see some manufacturing operations shut down and massive write downs taken in the next couple of years of close to $US200 million.
CEO Ron Delia said the two announcements and the $550 million or so in losses would not impact the firm’s ability to deliver dividends to shareholders.
The news was a major shock for local investors who have been big supporters of Amcor’s global push, especially its move to deepen its involvement in the fast growing flexible packaging sector.
More than $1 billion was wiped off the company’s market capitalisation as investors fled the stock, with its shares closing down 8.05 per cent at $14.85 on Thursday. Amcor said economic conditions in Venezuela — which has been hard hit by the slump in oil prices and growing political unrest and thuggery— had deteriorated to a point it would be required to take a one-off charge of $US350 million ($A467 million) relating to cumulative foreign exchange translation losses and the value of the Venezuelan business.
In taking this hit, it joins a mostly American list of companies to have been hit by the slide in Venezuela.The list includes Procter and Gamble, Pepsi Co, American Airlines, Coca Cola, Ford, Clorox (which was exited the country) and Goodyear. Other companies in the US and Europe are expected to reveal losses and possible exits when the second quarter reporting season starts in early July.
Amcor’s impairment will be recognised in its 2016 earnings, although group operating earnings for this year are said to be unaffected. However, the move, which relates to its otherwise well-performing rigid plastics business, will hurt next year’s pre-tax profit to the tune of $US40million, with a $US20 million impact after tax.
“After taking this one-off charge there will be no material exposure on the Amcor balance sheet related to Venezuela,” Amcor said yesterday. Amcor chief executive Ron Delia said the decision did not reflect poorly on the potential for growth in emerging markets, with Venezuela a one-off issue in a long-term growth strategy.
“This will eliminate risk and allow us to focus on the many opportunities we have within emerging markets including in the Latin American region,” Mr Delia said in yesterday’s statement.
“For the local operations our priorities remain to ensure co-workers are safe and customers are well supported.” Meanwhile, the group said it would shut factories in some developed markets as part of a restructure designed to improve its flexibles segment, which includes its crucial tobacco packaging operations. The move will see cash investment of $US120 million to $US150 million, with Amcor predicting a pre-tax return of $US40 million-$US50 million within three years.
In the meantime, pre-tax profit will be negatively impacted by $US170 million to $US200 million, with $US90 million to $US100 million to be incurred in the 2016 financial year and the remainder of next year.
The move comes on the heels of the $US435 million acquisition of South American packaging group Alusa in April, with Alusa’s facilities in Colombia, Peru, Chile and Argentina likely a factor in Amcor’s decision to shut some operations in developed markets. “Amcor has strong flexible and tobacco packaging businesses in the developed markets with leading market positions which provide a solid platform for future growth,” Mr Delia said.
“To build on that strong foundation, it is critical we continue to take decisive steps to align the organisation with market growth opportunities and customer needs.”