Business News
Amcor: RESULTS FOR SIX MONTHS ENDED DECEMBER 31, 2007
Wednesday 20. February 2008 - 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 impact of translating
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; and
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 Australia 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 was 76.6 cents and for the first half of the 2007/08
year was 86.77 cents.
The Euro to Australian dollar exchange rate in the first half of the 2006/07 year was 59.6 cents and for the first half of the 2007/08 year
was 61.5 cents.
Final Dividend
The Directors declared an unfranked interim dividend of 17 cents per share. This compares with an unfranked interim dividend of 17
cents per share for the first half of 2006/07. 75% of the interim dividend is sourced from the Conduit Foreign Income Account for the
benefit of foreign shareholders. The record date is March 3, 2008 and payment date will be March 31, 2008.
Significant Items
Significant items after tax for the six months ended December 31, 2007 was a loss of $31.0 million, compared to a loss of $67.3 million
for the corresponding period last year.
Significant items after tax comprised the profit on the sale of the Australasian Food Can and Aerosol business of $11.2 million, the gain
arising from the equity issue by AMVIG of $2.2 million, net restructuring gain in Australasia, which primarily relates to the Fibre
Packaging turnaround plan, of $1.9 million and the Flexibles market sector rationalisation expense of $46.3 million.
Segmentals
During the year, the consolidated entity did not change its reportable business segments. However, the comparative information for
the half year ending December 31, 2007 and June 30, 2007, has been restated to report discontinued operations for the divestments of
the European PET packaging business in PET Packaging and the Australasian Food Can and Aerosols business.
During the half, a detailed review of the corporate costs of the consolidated entity was undertaken and it was identified that $17.0
million (2006/07: $16.7 million) of the total of $41.9 million (2006/07: $43.9 million) was properly attributable to the results of the
operating segments and as such, has been allocated based on relevant cost and service drivers.
Group
Amcor PET Packaging had a strong first half performance. Profit before interest and tax (PBIT), on a continuing business basis and
expressed in local currency terms, was up 18.2% to US$86.2 million. The business benefited from higher volumes and a favourable
product mix with the operations in both North America and Latin America improving on the first half of the 2006/07 year.
Returns, measured as PBIT over average funds employed, increased from 9.1% to 10.6%.
Capital expenditure was US$90.4 million, comprising US$54.5 million for base capital spending and US$35.9 million for growth capital
to expand capacity in the custom container market.
Working capital performance was excellent. On a continuing business basis, working capital at December 2007 was $60 million lower
than at December 2006. From June 2007 to December 2007 working capital increased by $14.1 million due to seasonal impacts.
In June 2007, the European PET business was sold. For the first half of the 2006/07 year, the European PET business made US$17.5
million.
Volumes for the half were up 6.6% to 14.1 billion units. Custom container volumes, which represent 29% of the overall product mix,
were up 29% over the prior year due largely to volumes associated with the new Wytheville plant in the United States. Carbonated soft
drink (CSD) and water volumes were down 0.6% with volumes in this segment higher in Latin America and lower in North America.
North America
The North American business had a strong first half with solid volume growth, an improved product mix and excellent operating
performance. Volumes were up 4.5% for the half, with custom containers increasing 32.6%. Custom containers represented 35.6% of
the total volumes for the half. Volumes in the carbonated soft drink (CSD) and water categories were 6.4% lower reflecting the
strategic decision to increase the focus on custom containers and be more selective in the CSD and water category.
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There has been substantial progress in growing the custom hot-fill category including:
The new US $80 million facility in Wytheville, Virginia (USA), which supplies Gatorade containers is now in full production. This
plant is located adjacent to a new PepsiCo filling facility, and has a capacity of over 1 billion units annually; and
The new panel-less heat set container, PowerFlexTM, continues to gain momentum in the market place. More than 20 brands of
premium beverages have been introduced in PowerFlexTM , including two national brands. Capacity is now in place to supply the
package on both the East and West coasts and the business is continuing to build capacity to meet the growing demand.
During the past three years, the business in North America has undertaken a significant footprint rationalisation, together with
improvements in manufacturing performance. This has positioned it with an excellent value proposition based on an efficient
manufacturing platform and industry leading technology. The results in the first half reflect the benefits from this three year program.
The business has also been successful in managing the pass through of cost increases to customers. Resin cost movements, which
are the largest input to the manufacturing cost, are passed onto customers via established contract mechanisms. The business has
also made substantial progress in recovering energy cost increases via contractual pass through. Historically, improvements in
operating efficiency have offset labour and other inflationary cost increases. Going forward these components of the cost base are
expected to increase at a greater rate than in the past and it may be necessary to recover these increasing costs via higher selling
prices.
Latin America
The business in Latin America also had a solid first half. Volumes were up 10%, with CSD and water up 8.5% and custom containers
up 18.1%. Custom containers now comprise 16.8% of the product mix, up from 15.7% for the first half of 2006/07. The region has
favourable demographics, increasing per capita income and ongoing replacement of glass with PET that combined will continue to
support higher overall growth.
The operations in Mexico continue to deliver improved performance and the turnaround program remains on schedule to deliver
improved earnings of US$16 million over two years. The business is now better positioned for growth and achieved solid volume
growth in the first half.
Across Central and South America, earnings were up on the same period last year with strong performances in Argentina, Brazil and
Venezuela. In Brazil the footprint changes to move on-site with a large customer has been successfully completed and in Venezuela
there was a favourable mix shift to custom containers.
All other countries met or exceeded last years performance.
Bericap
The majority-owned joint venture in Bericap North America is managed and reported within the PET Packaging segment. This
business has one plant in Ontario, Canada and one in California in the USA. A third plant is under construction in the USA and is
expected to be operational in March 2008.
The sales and margins from the plant in Canada were adversely impacted by the high Canadian dollar against the US dollar and
earnings for the half were substantially lower.
Outlook
The PET Packaging outlook for the second half of the year is for continued strong performance.