Results of Operations - Three Months Ended December 31, 2022
Consolidated Results of Operations | | | | | | | | | | | | | | |
| | Three Months Ended December 31, |
($ in millions, except per share data) | | 2022 | | 2021 |
Net sales | | $ | 3,642 | | | $ | 3,507 | |
Operating income | | 559 | | | 322 | |
Operating income as a percentage of net sales | | 15.3 | % | | 9.2 | % |
| | | | |
Net income attributable to Amcor plc | | $ | 459 | | | $ | 225 | |
Diluted Earnings Per Share | | $ | 0.307 | | | $ | 0.148 | |
Net sales increased by $135 million, or 4%, for the three months ended December 31, 2022, compared to the three months ended December 31, 2021. Excluding the pass-through of raw material costs of $271 million, negative currency impacts of $163 million, and negative impact of acquisitions, disposed, and ceased operations of $12 million, the increase in net sales for the three months ended December 31, 2022 was $39 million, or 1%, driven by favorable price/mix of 3% and unfavorable volumes of (2%).
Net income attributable to Amcor plc increased by $234 million, or 104%, for the three months ended December 31, 2022, compared to the three months ended December 31, 2021, mainly as a result of a pre-tax net gain of $215 million on disposal of the Russian business, increased gross profit of $17 million generated by net sales improvement, partially offset by higher interest expense of $40 million.
Diluted earnings per share ("Diluted EPS") increased by $0.159, or by 107%, for the three months ended December 31, 2022, compared to the three months ended December 31, 2021, with the net income attributable to ordinary shareholders of Amcor plc increasing by 104% and the diluted weighted average number of shares outstanding decreasing by 3%. The decrease in the diluted weighted-average number of shares outstanding was due to repurchase of shares under previously announced share buyback programs.
Segment Results of Operations
Flexibles Segment
| | | | | | | | | | | | | | |
| | Three Months Ended December 31, |
($ in millions) | | 2022 | | 2021 |
Net sales | | $ | 2,812 | | | $ | 2,713 | |
Adjusted EBIT | | 353 | | | 352 | |
Adjusted EBIT as a percentage of net sales | | 12.6 | % | | 13.0 | % |
Net sales increased by $99 million, or by 4%, for the three months ended December 31, 2022, compared to the three months ended December 31, 2021. Excluding the pass-through of raw material costs of $193 million, negative currency impacts of $158 million, and negative impact of acquisitions, disposed, and ceased operations of $12 million, the increase in net sales for the three months ended December 31, 2022, was $76 million, or 3%, driven by favorable price/mix of 4%, and unfavorable volumes of (1%).
Adjusted earnings before interest and tax ("Adjusted EBIT") of $353 million for the three months ended December 31, 2022 was in line with $352 million for the three months ended December 31, 2021. Excluding negative currency impacts of $15 million and the negative net impact of acquisitions, disposed, and ceased operations of $2 million, the increase in Adjusted EBIT for the three months ended December 31, 2022, was $18 million, or 5%, driven by favorable price/mix of 16%, partially offset by unfavorable SG&A and other costs of (6%), unfavorable plant costs of (4%), both largely impacted by inflationary pressures, and unfavorable volumes of (1%).
Rigid Packaging Segment
| | | | | | | | | | | | | | |
| | Three Months Ended December 31, |
($ in millions) | | 2022 | | 2021 |
Net sales | | $ | 830 | | | $ | 794 | |
Adjusted EBIT | | 57 | | | 55 | |
Adjusted EBIT as a percentage of net sales | | 6.9 | % | | 6.9 | % |
Net sales increased by $36 million, or by 4%, for the three months ended December 31, 2022, compared to the three months ended December 31, 2021. Excluding the pass-through of raw material costs of $79 million and negative currency impacts of $6 million, the decrease in net sales for the three months ended December 31, 2022 was $37 million, or 5%, driven by unfavorable volumes.
Adjusted EBIT increased by $2 million, or by 5%, for the three months ended December 31, 2022, compared to the three months ended December 31, 2021. Excluding negative currency impacts of $1 million, the increase in Adjusted EBIT for the three months ended December 31, 2022, was $3 million, or 6%, driven primarily by favorable price/mix of 48%, partially offset by unfavorable volumes of (16%), unfavorable SG&A, and other costs of (19%) and unfavorable plant costs of (7%) driven primarily by inflation on operating costs including higher energy and labor costs.
Consolidated Gross Profit | | | | | | | | | | | | | | |
| | Three Months Ended December 31, |
($ in millions) | | 2022 | | 2021 |
Gross profit | | $ | 662 | | | $ | 645 | |
Gross profit as a percentage of net sales | | 18.2 | % | | 18.4 | % |
Gross profit increased by $17 million, or by 3%, for the three months ended December 31, 2022, compared to the three months ended December 31, 2021. The increase was primarily driven by the increase in net sales of 4% referred to above. Gross profit as a percentage of sales decreased to 18.2% for the three months ended December 31, 2022, primarily due to the impact on the calculation from the pass through of higher raw material costs during the current fiscal quarter.
Consolidated Selling, General, And Administrative Expenses
| | | | | | | | | | | | | | |
| | Three Months Ended December 31, |
($ in millions) | | 2022 | | 2021 |
Selling, general, and administrative expenses | | $ | (298) | | | $ | (303) | |
Selling, general, and administrative expenses as a percentage of net sales | | (8.2) | % | | (8.6) | % |
Selling, general, and administrative expenses decreased by $5 million, or by 2%, for the three months ended December 31, 2022, compared to the three months ended December 31, 2021. The decrease was primarily driven by positive currency impacts during the three months ended December 31, 2022, partially offset by inflationary impacts on labor costs.
Consolidated Restructuring and Related Activities, Net | | | | | | | | | | | | | | |
| | Three Months Ended December 31, |
($ in millions) | | 2022 | | 2021 |
Restructuring and related activities, net | | $ | 213 | | | $ | (10) | |
Restructuring and related activities, net, as a percentage of net sales | | 5.8 | % | | (0.3 | %) |
Restructuring and related activities, net, changed by $223 million for the three months ended December 31, 2022, compared to the three months ended December 31, 2021, mainly as a result of a pre-tax net gain of $215 million on the disposal of the Russian business.
Consolidated Interest Expense | | | | | | | | | | | | | | |
| | Three Months Ended December 31, |
($ in millions) | | 2022 | | 2021 |
Interest expense | | $ | (79) | | | $ | (39) | |
Interest expense as a percentage of net sales | | (2.2 | %) | | (1.1) | % |
Interest expense increased by $40 million, or by 103%, for the three months ended December 31, 2022, compared to the three months ended December 31, 2021, driven by increased interest rates on our variable rate debt.
Consolidated Income Tax Expense
| | | | | | | | | | | | | | |
| | Three Months Ended December 31, |
($ in millions) | | 2022 | | 2021 |
Income tax expense | | $ | (33) | | | $ | (61) | |
Effective income tax rate | | 6.7 | % | | 21.0 | % |
The provision for income taxes for the three months ended December 31, 2022 and 2021 is based on our estimated annual effective tax rate for the respective fiscal years, and is applied on income before income taxes, and adjusted for specific items that are required to be recognized in the period in which they are incurred.
The effective tax rate for the three months ended December 31, 2022 decreased by 14.3 percentage points compared to the three months ended December 31, 2021, primarily due to differences in the income mix, including higher non-taxable income in the current period, and the difference in magnitude of discrete events in both periods.
Results of Operations - Six Months Ended December 31, 2022
Consolidated Results of Operations | | | | | | | | | | | | | | |
| | Six Months Ended December 31, |
($ in millions, except per share data) | | 2022 | | 2021 |
Net sales | | $ | 7,354 | | | $ | 6,927 | |
Operating income | | $ | 901 | | | $ | 618 | |
Operating income as a percentage of net sales | | 12.3 | % | | 8.9 | % |
| | | | |
Net income attributable to Amcor plc | | $ | 691 | | | $ | 427 | |
Diluted Earnings Per Share | | $ | 0.461 | | | $ | 0.279 | |
Net sales increased by $427 million, or 6%, for the six months ended December 31, 2022, compared to the six months ended December 31, 2021. Excluding the pass-through of raw material costs of $670 million, negative currency impacts of $371 million, and negative impact of acquisitions, disposed, and ceased operations of $21 million, the increase in net sales for the six months ended December 31, 2022 was $149 million, or 2%, driven by favorable price/mix of 3% and unfavorable volumes of (1%).
Net income attributable to Amcor plc increased by $264 million, or 62%, for the six months ended December 31, 2022, compared to the six months ended December 31, 2021 mainly as a result of a pre-tax net gain of $215 million on the disposal of the Russian business, increased gross profit of $35 million and lower selling, general, and administrative expenses of $16 million, partially offset by higher interest expense of $59 million.
Diluted earnings per share increased by $0.182, or by 65%, for the six months ended December 31, 2022, compared to the six months ended December 31, 2021, with the net income attributable to ordinary shareholders of Amcor plc increasing by 62% and the diluted weighted average number of shares outstanding decreasing 3% for the six months ended December 31, 2022 compared to the six months ended December 31, 2021. The decrease in the diluted weighted average number of shares outstanding was due to the repurchase of shares under announced share buyback programs.
Segment Results of Operations
Flexibles Segment
| | | | | | | | | | | | | | |
| | Six Months Ended December 31, |
($ in millions) | | 2022 | | 2021 |
Net sales | | $ | 5,591 | | | $ | 5,347 | |
Adjusted EBIT | | $ | 706 | | | $ | 691 | |
Adjusted EBIT as a percentage of net sales | | 12.6 | % | | 12.9 | % |
Net sales increased by $244 million, or by 5%, for the six months ended December 31, 2022, compared to the six months ended December 31, 2021. Excluding the pass-through of raw material costs of $459 million, negative currency impacts of $359 million, and negative impact of acquisitions, disposed, and ceased operations of $21 million, the increase in net sales for the six months ended December 31, 2022, was $165 million, or 3%, driven by favorable price/mix of 4%, and unfavorable volumes of (1%).
Adjusted EBIT increased by $15 million, or by 2%, for the six months ended December 31, 2022, compared to the six months ended December 31, 2021. Excluding negative currency impacts of $36 million and the negative impact of acquisitions, disposed, and ceased operations of $4 million, the increase in Adjusted EBIT for the six months ended December 31, 2022, was $55 million, or 8%, driven by favorable price/mix of 18%, partially offset by unfavorable SG&A and other costs of (5%), unfavorable plant costs of (4%), both largely impacted by inflationary pressures, and unfavorable volumes of (1%).
Rigid Packaging Segment
| | | | | | | | | | | | | | |
| | Six Months Ended December 31, |
($ in millions) | | 2022 | | 2021 |
Net sales | | $ | 1,763 | | | $ | 1,580 | |
Adjusted EBIT | | $ | 123 | | | $ | 117 | |
Adjusted EBIT as a percentage of net sales | | 7.0 | % | | 7.4 | % |
Net sales increased by $183 million, or by 12%, for the six months ended December 31, 2022, compared to the six months ended December 31, 2021. Excluding the pass-through of raw material costs of $211 million and negative currency impacts of $12 million, the decrease in net sales for the six months ended December 31, 2022 was $16 million, or 1%, driven by favorable price/mix of 1% and unfavorable volumes of (2%).
Adjusted EBIT increased by $6 million, or by 5%, for the six months ended December 31, 2022, compared to the six months ended December 31, 2021. Excluding negative currency impacts of $1 million, the increase in Adjusted EBIT for the six months ended December 31, 2022, was $7 million, or 7%, driven primarily by favorable price/mix of 40%, partially offset by unfavorable volumes of (3%), unfavorable SG&A, and other costs of (12%) and unfavorable plant costs of (18%) driven primarily by inflation on operating costs including higher energy and labor costs.
Consolidated Gross Profit | | | | | | | | | | | | | | |
| | Six Months Ended December 31, |
($ in millions) | | 2022 | | 2021 |
Gross profit | | $ | 1,330 | | | $ | 1,295 | |
Gross profit as a percentage of net sales | | 18.1 | % | | 18.7 | % |
Gross profit increased by $35 million, or by 3%, for the six months ended December 31, 2022, compared to the six months ended December 31, 2021. The increase was primarily driven by the increase in net sales of 6% referred to above. Gross profit as a percentage of sales decreased to 18.1% for the six months ended December 31, 2022, primarily due to the impact on the calculation from the pass-through of higher raw material costs during the current fiscal quarter
Consolidated Selling, General, and Administrative ("SG&A") Expenses | | | | | | | | | | | | | | |
| | Six Months Ended December 31, |
($ in millions) | | 2022 | | 2021 |
SG&A expenses | | $ | (600) | | | $ | (616) | |
SG&A expenses as a percentage of net sales | | (8.2 | %) | | (8.9 | %) |
SG&A expenses decreased by $16 million, or by 3%, for the six months ended December 31, 2022, compared to the six months ended December 31, 2021. The decrease was primarily driven by currency movements during the six months ended December 31, 2022, partially offset by inflationary impacts on labor costs.
Consolidated Restructuring and Related Activities, Net | | | | | | | | | | | | | | |
| | Six Months Ended December 31, |
($ in millions) | | 2022 | | 2021 |
Restructuring and related activities, net | | $ | 212 | | | $ | (18) | |
Restructuring and related activities, net, as a percentage of net sales | | 2.9 | % | | (0.3 | %) |
Restructuring and related activities, net, changed by $230 million for the six months ended December 31, 2022, compared to the six months ended December 31, 2021. The change was mainly a result of a pre-tax net gain of $215 million on the disposal of the Russian business.
Consolidated Interest Expense | | | | | | | | | | | | | | |
| | Six Months Ended December 31, |
($ in millions) | | 2022 | | 2021 |
Interest expense | | $ | (138) | | | $ | (79) | |
Interest expense as a percentage of net sales | | (1.9 | %) | | (1.1 | %) |
Interest expense increased by $59 million, or by 75%, for the six months ended December 31, 2022, compared to the six months ended December 31, 2021, driven by increased interest rates on our variable rate debt.
Consolidated Income Tax Expense | | | | | | | | | | | | | | |
| | Six Months Ended December 31, |
($ in millions) | | 2022 | | 2021 |
Income tax expense | | $ | (91) | | | $ | (124) | |
Effective income tax rate | | 11.6 | % | | 22.3 | % |
The provision for income taxes for the six months ended December 31, 2022 and 2021 is based on our estimated annual effective tax rate for the respective fiscal years before income before income taxes and adjusted for specific items that are required to be recognized in the period in which they are incurred.
The effective tax rate for the six months ended December 31, 2022 decreased by 10.7 percentage points compared to the six months ended December 31, 2021, primarily due to differences in the income mix, including higher non-taxable income in the current period, and the difference in magnitude of discrete events in both periods.
Presentation of Non-GAAP Information
This Quarterly Report on Form 10-Q refers to non-GAAP financial measures: adjusted earnings before interest and taxes ("Adjusted EBIT"), earnings before interest and tax ("EBIT"), adjusted net income, and net debt. Such measures have not been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). These non-GAAP financial measures adjust for factors that are unusual or unpredictable. These measures exclude the impact of significant tax reforms, certain amounts related to the effect of changes in currency exchange rates, acquisitions, and restructuring, including employee-related costs, equipment relocation costs, accelerated depreciation, and the write-down of equipment. These measures also exclude gains or losses on sales of significant property and divestitures, significant property and other impairments, net of insurance recovery, certain litigation matters, significant pension settlements, impairments in goodwill and equity method investments, and certain acquisition-related expenses, including transaction expenses, due diligence expenses, professional and legal fees, purchase accounting adjustments for inventory, order backlog, intangible amortization, changes in the fair value of deferred acquisition payments and economic hedging instruments on commercial paper, and impacts related to the Russia-Ukraine conflict.
This adjusted information should not be construed as an alternative to results determined in accordance with U.S. GAAP. We use the non-GAAP measures to evaluate operating performance and believe that these non-GAAP measures are useful to enable investors and other external parties to perform comparisons of our current and historical performance.
A reconciliation of reported net income attributable to Amcor plc to EBIT, Adjusted EBIT and Adjusted net income for the three and six months ended December 31, 2022 and 2021 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended December 31, | | Six Months Ended December 31, |
($ in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
Net income attributable to Amcor plc, as reported | | $ | 459 | | | $ | 225 | | | $ | 691 | | | $ | 427 | |
Add: Net income attributable to non-controlling interests | | 2 | | | 4 | | | 4 | | | 5 | |
| | | | | | | | |
Net income | | 461 | | | 229 | | | 695 | | | 432 | |
Add: Income tax expense | | 33 | | | 61 | | | 91 | | | 124 | |
Add: Interest expense | | 79 | | | 39 | | | 138 | | | 79 | |
Less: Interest income | | (11) | | | (5) | | | (20) | | | (10) | |
EBIT | | 562 | | | 324 | | | 904 | | | 625 | |
Add: Material restructuring programs (1) | | — | | | 10 | | | — | | | 17 | |
Add: Amortization of acquired intangible assets from business combinations (2) | | 40 | | | 41 | | | 80 | | | 82 | |
Add: Impact of hyperinflation (3) | | 5 | | | 2 | | | 13 | | | 4 | |
Add: Net loss on disposals (4) | | — | | | 9 | | | — | | | 9 | |
Add/(Less): Property and other (gains)/losses, net (5) | | — | | | (1) | | | — | | | 27 | |
Add: Pension settlement (6) | | — | | | 3 | | | — | | | 3 | |
Less: Russia-Ukraine conflict impacts (7) | | (207) | | | — | | | (204) | | | — | |
Add/(Less): Other (8) | | (1) | | | — | | | (2) | | | 2 |
Adjusted EBIT | | $ | 399 | | | $ | 388 | | | $ | 791 | | | $ | 769 | |
Less: Income tax expense | | (33) | | | (61) | | | (91) | | | (124) | |
Less: Adjustments to income tax expense (9) | | (19) | | | (12) | | | (30) | | | (23) | |
Less: Interest expense | | (79) | | | (39) | | | (138) | | | (79) | |
Add: Interest income | | 11 | | | 5 | | | 20 | | | 10 | |
Less: Net income attributable to non-controlling interests | | (2) | | | (4) | | | (4) | | | (5) | |
Adjusted net income | | $ | 277 | | | $ | 277 | | | $ | 548 | | | $ | 548 | |
(1)Material restructuring programs includes restructuring and related expenses for the 2019 Bemis Integration Plan for the three and six months ended December 31, 2021.
(2)Amortization of acquired intangible assets from business combinations includes amortization expenses related to all acquired intangible assets from past acquisitions.
(3)Impact of hyperinflation includes the adverse impact of highly inflationary accounting for subsidiaries in Argentina where the functional currency was the Argentine Peso.
(4)Net loss on disposals for the three and six months ended December 31, 2021 includes an expense of $9 million triggered by a commitment to sell non-core assets. Refer to Note 8, "Fair Value Measurements" for more information.
(5)Property and other (gains)/losses, net includes property and related business losses primarily associated with the destruction of our Durban, South Africa facility during general civil unrest in July 2021, net of insurance recovery.
(6)Pension settlement for the three and six months ended December 31, 2021 relates to the purchase of a group annuity contract and transfer of pension plan assets and related benefit obligations. Refer to Note 10, "Components of Net Periodic Benefit Cost" for more information.
(7)Russia-Ukraine conflict impacts in the three and six months ended December 31, 2022 include a pre-tax net gain on sale of Russian business of $215 million (refer to Note 3, "Restructuring and Other Related Activities, Net"), and incremental costs incurred in connection with the conflict and restructuring.
(8)Other includes restructuring expenses and fair value movements on economic hedges in the three and six months ended December 31, 2022.
(9)Net tax impact on items (1) through (8) above.
Reconciliation of Net Debt
A reconciliation of total debt to net debt at December 31, 2022 and June 30, 2022 is as follows:
| | | | | | | | | | | | | | |
($ in millions) | | December 31, 2022 | | June 30, 2022 |
Current portion of long-term debt | | $ | 14 | | | $ | 14 | |
Short-term debt | | 48 | | | 136 | |
Long-term debt, less current portion | | 6,840 | | | 6,340 | |
Total debt | | 6,902 | | | 6,490 | |
Less cash and cash equivalents | | 837 | | | 775 | |
Net debt | | $ | 6,065 | | | $ | 5,715 | |
Supplemental Guarantor Information
Amcor plc, along with certain wholly owned subsidiary guarantors, guarantee the following senior notes issued by the wholly owned subsidiaries, Amcor Flexibles North America, Inc. and Amcor UK Finance plc.
• $500 million, 4.000%, Guaranteed Senior Notes due 2025 of Amcor Flexibles North America, Inc.
• $300 million, 3.100%, Guaranteed Senior Notes due 2026 of Amcor Flexibles North America, Inc.
• $600 million, 3.625%, Guaranteed Senior Notes due 2026 of Amcor Flexibles North America, Inc.
• $500 million, 4.500%, Guaranteed Senior Notes due 2028 of Amcor Flexibles North America, Inc.
• $500 million, 2.630%, Guaranteed Senior Notes due 2030 of Amcor Flexibles North America, Inc.
• $800 million, 2.690%, Guaranteed Senior Notes due 2031 of Amcor Flexibles North America, Inc.
• €500 million, 1.125%, Guaranteed Senior Notes due 2027 of Amcor UK Finance plc
The six notes issued by Amcor Flexibles North America, Inc. are guaranteed by its parent entity Amcor plc and the subsidiary guarantors Amcor Pty Ltd, Amcor Finance (USA), Inc., and Amcor UK Finance plc. The note issued by Amcor UK Finance plc is guaranteed by its parent entity, Amcor plc and the subsidiary guarantors Amcor Pty Ltd, Amcor Flexibles North America, Inc., and Amcor Finance (USA), Inc.
All guarantors fully, unconditionally, and irrevocably guarantee, on a joint and several basis, to each holder of the notes, the due and punctual payment of the principal of, and any premium and interest on, such note and all other amounts payable, when and as the same shall become due and payable, whether at stated maturity, by declaration of acceleration, call for redemption or otherwise, in accordance with the terms of the notes and related indenture. The obligations of the applicable guarantors under their guarantees will be limited as necessary to recognize certain defenses generally available to guarantors (including those that relate to fraudulent conveyance or transfer, voidable preference, financial assistance, corporate purpose, or similar laws) under applicable law. The guarantees will be unsecured and unsubordinated obligations of the guarantors and will rank equally with all existing and future unsecured and unsubordinated debt of each guarantor. None of our other subsidiaries guarantee such notes. The issuers and guarantors conduct large parts of their operations through other subsidiaries of Amcor plc.
Amcor Flexibles North America, Inc. is incorporated in Missouri in the United States, Amcor UK Finance plc is incorporated in England and Wales, United Kingdom, and the guarantors are incorporated under the laws of Jersey, Australia, the United States, and England and Wales and, therefore, insolvency proceedings with respect to the issuers and guarantors could proceed under, and be governed by, among others, Jersey, Australian, United States, or English insolvency law, as the case may be, if either issuer or any guarantor defaults on its obligations under the applicable Notes or Guarantees, respectively.
Set forth below is the summarized financial information of the combined Obligor Group made up of Amcor plc (as parent guarantor), Amcor Flexibles North America, Inc. and Amcor UK Finance plc (as subsidiary issuers of the notes and guarantors of each other’s notes), and Amcor Finance (USA), Inc. and Amcor Pty Ltd (as the remaining subsidiary guarantors).
Basis of Preparation
The following summarized financial information is presented for the parent, issuer, and guarantor subsidiaries ("Obligor Group") on a combined basis after elimination of intercompany transactions between entities in the combined group and amounts related to investments in any subsidiary that is a non-guarantor.
This information is not intended to present the financial position or results of operations of the combined group of companies in accordance with U.S. GAAP.
Statement of Income for Obligor Group | | | | | | | | |
($ in millions) | | Six Months Ended December 31, 2022 |
Net sales - external | | $ | 542 | |
Net sales - to subsidiaries outside the Obligor Group | | 3 | |
Total net sales | | 545 | |
| | |
Gross profit | | 87 | |
| | |
| | |
| | |
| | |
| | |
Net income | | $ | (244) | |
| | |
Net income attributable to non-controlling interests | | — | |
| | |
Net income attributable to Obligor Group | | $ | (244) | |
Balance Sheets for Obligor Group | | | | | | | | | | | | | | |
($ in millions) | | December 31, 2022 | | June 30, 2022 |
Assets | | | | |
Current assets - external | | $ | 859 | | | $ | 1,254 | |
Current assets - due from subsidiaries outside the Obligor Group | | 122 | | | 83 | |
Total current assets | | 981 | | | 1,337 | |
Non-current assets - external | | 1,394 | | | 1,396 | |
Non-current assets - due from subsidiaries outside the Obligor Group | | 10,179 | | | 10,978 | |
Total non-current assets | | 11,573 | | | 12,374 | |
Total assets | | $ | 12,554 | | | $ | 13,711 | |
Liabilities | | | | |
Current liabilities - external | | $ | 1,279 | | | $ | 2,014 | |
Current liabilities - due to subsidiaries outside the Obligor Group | | 30 | | | 23 | |
Total current liabilities | | 1,309 | | | 2,037 | |
Non-current liabilities - external | | 6,981 | | | 6,456 | |
Non-current liabilities - due to subsidiaries outside the Obligor Group | | 10,246 | | | 11,255 | |
Total non-current liabilities | | 17,227 | | | 17,711 | |
Total liabilities | | $ | 18,536 | | | $ | 19,748 | |
New Accounting Pronouncements
Refer to Note 2, "New Accounting Guidance," in "Item 1. Financial Statements - Notes to Condensed Consolidated Financial Statements."
Critical Accounting Estimates and Judgments
Our discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Our estimates and judgments are based on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. These critical accounting estimates are discussed in detail in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates and Judgments” in our Annual Report on Form 10-K for the year ended June 30, 2022. There have been no material changes in critical accounting estimates and judgments as of December 31, 2022 from those described in our Annual Report on Form 10-K for the year ended June 30, 2022.
Liquidity and Capital Resources
We finance our business primarily through cash flows provided by operating activities, borrowings from banks, and proceeds from issuances of debt and equity. We periodically review our capital structure and liquidity position in light of market conditions, expected future cash flows, potential funding requirements for debt refinancing, capital expenditures and acquisitions, the cost of capital, sensitivity analyses reflecting downside scenarios, the impact on our financial metrics and credit ratings, and our ease of access to funding sources.
The COVID-19 pandemic and geopolitical tensions have not materially impacted our liquidity position, current and expected cash flows from operating activities, or available cash. We believe that our cash flows provided by operating activities, together with borrowings available under our credit facilities and access to the commercial paper market, backstopped by our bank debt facilities, will continue to provide sufficient liquidity to fund our operations, capital expenditures, and other commitments, including dividends and purchases of our ordinary shares and CHESS Depositary Instruments under authorized share repurchase programs, into the foreseeable future.
Overview
| | | | | | | | | | | | | | |
| | Six Months Ended December 31, |
($ in millions) | | 2022 | | 2021 |
Net cash provided by operating activities | | $ | 145 | | | $ | 323 | |
Net cash (used in)/provided by investing activities | | 24 | | | (265) | |
Net cash used in financing activities | | (90) | | | (235) | |
Cash Flow Overview
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased by $178 million for the six months ended December 31, 2022, compared to the six months ended December 31, 2021. The decrease in cash flow is primarily driven by higher working capital outflows in the current period.
Net Cash (Used in)/Provided by Investing Activities
Net cash used in/provided by investing activities increased by $289 million for the six months ended December 31, 2022, compared to the six months ended December 31, 2021. The increase is mainly driven by the disposal proceeds collected from the sale of the Russian business in the current period, partially offset by the acquisition of DGPack s.r.o. and additional investments in affiliated companies.
Net Cash Used in Financing Activities
Net cash used in financing activities decreased by $145 million for the six months ended December 31, 2022, compared to the six months ended December 31, 2021. The change is primarily due to lower share buybacks compared to the prior period, partially offset by lower net debt drawdowns compared to the prior period.
Net Debt
We borrow from financial institutions and debt investors in the form of bank overdrafts, bank loans, corporate bonds, unsecured notes, and commercial paper. We have a mixture of fixed and floating interest rates and use interest rate swaps to provide further flexibility in managing the interest cost of borrowings. At the end of October 2022, we entered into interest rate swap contracts for a total notional amount of $1.25 billion. Under the terms of the contracts, we will pay a weighted average fixed rate of interest of 4.53% and receive a variable rate of interest, based on compound overnight SOFR, for the period from November 1, 2022, through June 30, 2023, settled monthly. The interest rate swap contracts economically hedge the SOFR component of $1.25 billion of ongoing USD commercial paper issuances at 4.53%.
Short-term debt consists of bank debt with a duration of less than 12 months and bank overdrafts which are classified as current due to the short-term nature of the borrowings, except where we have the ability and intent to refinance and as such extend the debt beyond 12 months. The current portion of long-term debt consists of debt amounts repayable within a year after the balance sheet date.
Our primary bank debt facilities and notes are unsecured and subject to negative pledge arrangements limiting the amount of secured indebtedness we can incur to 10.0% of our total tangible assets, subject to some exceptions and variations by facility. In addition, the covenants of the bank debt facilities require us to maintain a leverage ratio not higher than 3.9 times. The negative pledge arrangements and the financial covenants are defined in the related debt agreements. As of December 31, 2022, we were in compliance with all applicable covenants under our bank debt facilities.
Our net debt as of December 31, 2022 and June 30, 2022 was $6.1 billion and $5.7 billion, respectively.
Available Financing
As of December 31, 2022, we had undrawn credit facilities available in the amount of $0.9 billion. Our senior facilities are available to fund working capital, growth capital expenditures, and refinancing obligations and are provided to us by two bank syndicates. These facilities mature in April 2025 and April 2027, respectively, and the revolving tranches have two 12-month options available to management to extend the maturity date. Subject to certain conditions, we can request the total commitment level under each agreement to be increased by up to $500 million.
As of December 31, 2022, the revolving senior bank debt facilities had an aggregate limit of $3.8 billion, of which $2.9 billion had been drawn (inclusive of amounts drawn under commercial paper programs reducing the overall balance of available senior facilities).
Dividend Payments
We declared and paid a $0.12 cash dividend per ordinary share during the first fiscal quarter that ended September 30, 2022, and a $0.1225 cash dividend per ordinary share during the second fiscal quarter that ended December 31, 2022.
Credit Rating
Our capital structure and financial practices have earned us investment grade credit ratings from two internationally recognized credit rating agencies. These investment grade credit ratings are important to our ability to issue debt at favorable rates of interest, for various terms, and from a diverse range of markets that are highly liquid, including European and U.S. debt capital markets, and from global financial institutions.
Share Repurchases
On August 17, 2022, our Board of Directors approved a $400 million buyback of ordinary shares and/or CHESS Depositary Instruments ("CDIs"). During the six months ended December 31, 2022, we repurchased approximately $40 million of ordinary shares and CDIs in the aggregate, including transaction costs, or 3 million shares. The shares repurchased as part of the program were canceled upon repurchase. Further, on February 7, 2023, our Board of Directors approved an additional buyback of up to $100 million of ordinary shares and/or CHESS Depositary Instruments ("CDIs") in the following twelve months.
We had cash outflows of $221 million and $133 million for the purchase of our shares in the open market and using forward contracts to purchase our own equity during the six months ended December 31, 2022 and 2021, respectively, as treasury shares to satisfy the vesting and exercises of share-based compensation awards. As of December 31, 2022 and June 30, 2022, we held treasury shares at a cost of $18 million, representing 2 million shares.