OREANDA-NEWS. Fitch Ratings has affirmed Amcor Limited's Long-Term Issuer Default Rating at 'BBB+'. The agency has also affirmed Amcor's senior unsecured rating at 'BBB+' as well as the 'BBB+' ratings on the company's outstanding CHF150m 2.125% senior notes due in 2018 and EUR550m 4.625% senior notes due in 2019. The Outlook is Stable.

KEY RATING DRIVERS

Robust Business Profile: Amcor's ratings reflect its strong global market position in food, tobacco and pharmaceutical packaging (which account for over 90% of its revenue), its cost leadership, the strong defensive business characteristics, and its geographic diversification. Amcor also has the ability to pass-through input cost volatility to its end-customers. Amcor has more than 190 plants in 43 countries, and North America, Western Europe, and Emerging Markets each account for about a third of Amcor's sales. This geographical diversity supports the company's ability to withstand economic downturns in individual regions.

Diversity and Cost Management: Emerging markets in Asia and Latin America account for roughly 30% of Amcor's revenue and are key growth drivers. In the financial year ended 30 June 2015 (FY15), however, revenue growth from emerging markets slowed to 2% from an average of 10% over the previous three years. Amcor also faced currency and demand weakness in Western Europe (which accounts for another 30% of Amcor's revenue). The company was able to offset most of the impact from the lower revenue on EBITDA through better cost control. We do not foresee a significant downside to Amcor's earnings given its exposure to multiple markets, although risks remain.

Acquisitions and Shareholder Returns: Acquisitions are a key component of Amcor's corporate strategy to expand in emerging markets and improve its market position in developed ones. This, along with Amcor's objective to provide shareholder returns of more than 10% a year, is a key credit risk. Amcor has nonetheless spelled out a target of 20% ROI within three years for its acquisitions. Its track record of value-accretive acquisitions and its target gearing range (measured as net debt/EBITDA) of 2.25-2.75x mitigate risks that Amcor's credit profile would be adversely impacted by acquisition spending.

KEY ASSUMPTIONS

Fitch's key assumptions within our rating case for the issuer include:
- Flat revenue for developed markets and high single-digit growth in revenue for emerging markets in constant currency terms.
- Weaker currencies against the US dollar in FY16 based on depreciation so far during the fiscal year. For emerging markets, we assume their currencies will depreciate by 5% annually from FY17.
- EBITDA margin to stay flat.
- Share buyback expenditure of USD220m in FY16 to complete its buyback programme.

RATING SENSITIVITIES

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:
- Lease adjusted FFO net leverage sustained above 3x (end-FY15: 2.8x). This has been revised from a gross measure to reflect the good match between its debt and revenue-generating asset composition by currency.
- A sustained weakening in EBITDA margins

Positive: No positive rating action is anticipated over the next 24 months given the risk of large acquisitions or shareholder-friendly action, which could result in an increase in leverage.

In accordance with Fitch's policies the issuer appealed and provided additional information to Fitch that resulted in a rating action that is different than the original rating committee outcome.