Amcor Half Year Financial Report 2007
Key Points

Financial Results
  • Amcor announces a profit after tax and before significant items of $185.0 million.
  • Profit before interest and tax up 10.3% for continuing businesses in local currency terms.
  • Operating cash flow, including the cash component of significant items and movement in working capital, of a positive $92.9 million. Free cash flow, after the payment of the dividend, of $(61.9) million.
  • The interim dividend remains steady at 17 cents per share.
  • Returns measured as profit before interest and tax (PBIT) to average funds employed, increased from 10.7% to 11.8%.
  • Profit after tax and significant items up 30.8% to $154.0 million.
  • Profit after tax and before significant items was negatively impacted by $16 million due to the translation of overseas earnings into Australian dollars at a higher exchange rate than for the first half of the 2006/07 year.

Highlights
  • PET Packaging achieved an 18.2% increase in PBIT, for the continuing businesses expressed in local currency terms, primarily due to the benefits from the new custom container plant at Wytheville, Virginia and ongoing improvements in the Mexican operations. Returns increased from 9.1% to 10.6%.
  • Amcor Flexibles achieved a 0.8% increase in PBIT in local currency terms, with ongoing improvements in the food and healthcare operations, partially offset by lower earnings in the tobacco packaging business.
  • Amcor Australasia achieved a 4.1% increase in earnings on a continuing business basis, with solid performance in the non-fibre businesses and the fibre operations continuing to progress the turnaround plan. A new 345,000 tonne per annum recycled paper mill will be constructed at Botany, New South Wales. The net cost of the new mill is $230 million.
  • Amcor Sunclipse, the North American distribution business, increased PBIT by 13.3% in local currency terms.
  • Amcor Asia had a solid first half with earnings up 25.0% in local currency terms.
For the 2007/08 year, the sensitivity of profit after tax to the movement in the Australian dollar, due to the translation of overseas earnings into Australian dollars for reporting purposes, is approximately $3 million for every one cent movement against the US dollar and approximately $2 million for every one cent movement against the euro.

The US dollar to Australian dollar exchange rate in the first half of the 2006/07 year averaged 76.6 cents and for the first half of the 2007/08 year averaged 86.77 cents.

The euro to Australian dollar exchange rate in the first half of the 2006/07 year averaged 59.6 cents and for the first half of the 2007/08 year averaged 61.5 cents.

‘The Way Forward’ Agenda
A key component of ‘The Way Forward’ agenda announced in August 2005, was a review of the businesses to identify growth opportunities and create a more focussed portfolio. Progress over the past six months included:

Grow
The targeted growth segments are the custom PET business in North America, flexibles and tobacco packaging in emerging markets and some select segments in Australasia.

Specific projects include the following:

  • A new €30 million flexibles packaging plant will be established in Poland, dedicated to PepsiCo for the production of snack food packaging. The plant will be operational in the second quarter of the 2008 calendar year.
  • A new €12 million tobacco packaging plant in the Ukraine recently commenced operations.
  • The tobacco packaging business investing €22 million at the plants in Russia and Poland to increase capacity and enable additional value-add production at those sites. In Russia, a new printing press and hot foil stamping machine will be installed and, in Poland, new offset capacity and additional cutting and creasing equipment is being installed.
  • A second press at the flexibles plant in Russia commenced operations in August 2007.
  • AMVIG, the Hong Kong publicly-listed company, in which Amcor had a 33.5% shareholding on 31st December, completed the acquisition of Brilliant Circle in October. AMVIG is now the largest tobacco packaging manufacturer in China, with approximately 19% market share.
  • On 6 February, Amcor purchased 18.756 million AMVIG shares at a price of HK$9.50. This represented 1.9% of AMVIG’s share capital and increased Amcor’s shareholding in AMVIG from 33.5% to 35.4%.

Fix/Sell/Close
  • The sale of the European PET and Australasian Food Can and Aerosol operations reduced PBIT for the first half by A$22.5 million for the European PET operations and A$5.6 million for the sale of the Australasian Food Can and Aerosol businesses.
  • The second phase of the restructuring of Amcor Flexibles business in Europe has commenced with the announcement of:
  • The closure of a flexographic plant in the UK and the relocation of its volumes to a nearby facility;
  • The relocation of the extrusion operations at the plant at Ledbury in the UK to a nearby facility; and
  • The closure of a film extrusion plant in Denmark.
  • The second year of the US$16 million turnaround program in the Mexican PET operations continues on schedule.
  • The fibre business in Australasia is undertaking a comprehensive turnaround program. The execution of the footprint changes has now been completed and the focus for the current year is to optimise benefits through improved operating efficiency.
  • A new recycled paper mill will be constructed at Botany, NSW for a net cost of $230 million. The new mill will be a low-cost manufacturer of recycled paper in the Australasian market and reduce the carbon footprint for the paper manufacturing operations by 35%.