SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 20-F

 

o                                 Registration Statement pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934

 

or

 

ý                                 Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the fiscal year ended June 30, 2005

 

or

 

o                                 Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from                                               to                                              

 

Commission file number: 0 - 18893

 

AMCOR LIMITED

ABN 62 000 017 372

(Exact name of Registrant as specified in its charter)

 

NEW SOUTH WALES, AUSTRALIA

(Jurisdiction of incorporation of organisation)

 

679 VICTORIA STREET, ABBOTSFORD, VICTORIA 3067 AUSTRALIA

(Address of principal executive offices)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

None

 

Securities registered or to be registered pursuant to Section 12(g) of the Act.

 

Ordinary Shares

American Depositary Shares

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

 

None

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report.

 

Ordinary Shares – 878,182,834

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes ý                    No  o

 

Indicate by check mark which financial statement item the registrant elected to follow:

 

Item 17  o             Item 18 ý

 

 



 

TABLE OF CONTENTS

 

 

 

Forward-Looking Statements

 

 

 

 

 

 

PART I

ITEM 1

Identity of Directors, Senior Management and Advisers

 

 

 

 

 

 

 

ITEM 2

Offer Statistics and Expected Timetable

 

 

 

 

 

 

 

ITEM 3

Key Information

 

 

 

A.

Selected Financial Data

 

 

 

B.

Capitalization and Indebtedness

 

 

 

C.

Reasons for the Offer and Use of Proceeds

 

 

 

D.

Risk Factors

 

 

 

 

 

 

 

ITEM 4

Information on the Company

 

 

 

A.

History and Development

 

 

 

B.

Business Overview

 

 

 

C.

Organizational Structure

 

 

 

D.

Property, Plant and Equipment

 

 

 

 

 

 

 

ITEM 5

Operating and Financial Review and Prospects

 

 

 

A.

Operating Results

 

 

 

B.

Liquidity and Capital Resources

 

 

 

C.

Research and Technology

 

 

 

D.

Trend Information

 

 

 

E.

Off-Balance Sheet Arrangements

 

 

 

F.

Tabular Disclosure of Contractual Obligations

 

 

 

 

 

 

 

ITEM 6

Directors, Senior Management and Employees

 

 

 

A.

Directors and Senior Management

 

 

 

B.

Compensation

 

 

 

C.

Board Practices

 

 

 

D.

Employees

 

 

 

E.

Share Ownership

 

 

 

 

 

 

 

ITEM 7

Major Shareholders and Related Party Transactions

 

 

 

A.

Major Shareholders

 

 

 

B.

Related Party Transactions

 

 

 

C.

Interests of Experts and Counsel

 

 

 

 

 

 

 

ITEM 8

Financial Information

 

 

 

A.

Financial Statements

 

 

 

B.

Significant Changes

 

 

 

 

 

 

 

ITEM 9

The Offer and Listing

 

 

 

 

 

 

 

ITEM 10

Additional Information

 

 

 

A.

Share Capital

 

 

 

B.

Constitution

 

 

 

C.

Material Contracts

 

 

 

D.

Exchange Controls

 

 

 

E.

Taxation

 

 

 

F.

Dividends and Paying Agents

 

 

 

G.

Statements by Experts

 

 

 

H.

Documents on Display

 

 

 

I.

Subsidiary Information

 

 

2



 

 

ITEM 11

Quantitative and Qualitative Disclosures about Market Risk

 

 

 

 

 

 

 

ITEM 12

Description of Securities other than Equity Securities

 

 

 

 

 

 

PART II

ITEM 13

Defaults, Dividend Arrearages and Delinquencies

 

 

 

 

 

 

 

ITEM 14

Material Modifications to the Right of Security Holders and Use of Proceeds

 

 

 

 

 

 

PART III

ITEM 15

Controls and Procedures

 

 

 

 

 

 

 

ITEM 16A

Audit Committee Financial Expert

 

 

ITEM 16B

Code of Ethics

 

 

ITEM 16C

Principal Accountant Fees and Services

 

 

ITEM 16D

Exemption from Listing Standards for Audit Committee

 

 

 

 

 

 

PART IV

ITEM 17

Financial Statements

 

 

ITEM 18

Financial Statements

 

 

 

 

 

 

 

ITEM 19

Exhibits

 

 

3



 

FORWARD-LOOKING STATEMENTS

 

Certain statements contained in this Annual Report constitute forward-looking statements. Forward-looking statements involve subjective judgment and analysis and are subject to significant uncertainties, risks and contingencies, many of which are outside the control of, and are unknown to, Amcor.  Forward-looking statements can generally be identified by the use of forward-looking words such as “may”, “will”, “expect”, “intend”, “plan”, “seeks”, “estimate”, “anticipate”, “believe”, “continue”, or similar words.

 

No representation, warranty or assurance (express or implied) is given or made in relation to any forward looking statement by any person (including Amcor).  In addition, no representation, warranty or assurance (express or implied) is given in relation to any underlying assumption or that any forward looking statements will be achieved.  Actual future events may vary materially from the forward looking statement and the assumptions on which the forward looking statements are based.  Given these uncertainties, readers are cautioned not to place undue reliance on such forward looking statements.

 

In particular, we caution you that these forward looking statements are based on management’s current economic predictions and assumptions and business and financial projections.  Amcor’s business is subject to uncertainties, risks and changes that may cause its actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements.  The factors that may affect Amcor’s future performance include, among others:

                  changes in the legal and regulatory regimes in which Amcor operates;

                  changes in behaviour of Amcor’s major customers;

                  changes in behaviour of Amcor’s major competitors;

                  the impact of foreign currency exchange rates;

                  general changes in the economic conditions of the major markets in which Amcor operates;

 

These forward looking statements speak only as of the date of this Annual Report.  Subject to any continuing obligations under applicable law or any relevant stock exchange listing rules, Amcor disclaims any obligation or undertaking to publicly update or revise any of the forward looking statements in this Annual Report, whether as a result of new information, or any change in events, conditions or circumstances on which any such statement is based.

 

4



 

ITEM 3                                                        KEY INFORMATION

 

A.                                                                                    Selected Financial Data

 

Definitions

 

“Company” or “Amcor Limited” means Amcor Limited ABN 62 000 017 372, the listed holding company of the Amcor Group. “Amcor” or “we” or “our” means Amcor Limited and all its controlled entities.

 

Our fiscal year ends on June 30.  The fiscal year ended June 30, 2005 is referred to herein as “2004-05” and other fiscal years are referred to in a corresponding manner.  All other references are to calendar years.

 

 “A-GAAP” or “Australian GAAP” means Australian generally accepted accounting principles.

 

 “US-GAAP” or “US GAAP” means United States generally accepted accounting principles.

 

“AIFRS” means “Australian equivalents to International Financial Reporting Standards”.

 

“AASB” means Australian Accounting Standards Board.

 

“IASB” means International Accounting Standards Board.

 

“UIG” means the Urgent Issues Group.

 

“Significant items” means items of revenue and expense included in the operating profit or loss which are disclosed as significant under A-GAAP by reason of their size and effect on the operating profit or loss.  Significant items are not necessarily non-recurring items.  See Note 4 to the Consolidated Financial Statements.

 

 “Consolidated Financial Statements” means the audited consolidated balance sheets of Amcor as of June 30, 2005 and 2004 and the audited consolidated income statements and statements of cash flows for each of the one-year periods ended June 30 for the years 2005, 2004, and 2003 together with accompanying notes, included and incorporated by reference herein.

 

“PBITDA” refers to profit before interest, income tax, depreciation and amortization excluding significant items.

 

“PBITA” refers to profit before interest, income tax and amortization excluding significant items.

 

“PBIT” refers to profit before interest and income tax excluding significant items.

 

“Segment Result” refers to profit before interest, income tax and amortization excluding significant items (PBITA).

 

“ACCC” refers to the Australian Competition and Consumer Commission.

 

“NZCC” refers to the New Zealand Commerce Commission.

 

The selected financial data appearing below as at June 30, 2005 and 2004, and for years ended June 30, 2005, 2004 and 2003, is set forth in Australian dollars (except as otherwise indicated), is derived from our audited Consolidated Financial Statements, which are included in this Annual Report.  Certain A$ amounts have been translated into US$ amounts at the exchange rate specified.  These translations are indicative only and do not mean that the A$ amounts could be converted to US$ at the rate indicated.   The selected financial data at June 30, 2003, 2002 and 2001 and for years ended June 30, 2002 and 2001 have been derived from our audited Consolidated Financial Statements not included in this Annual Report. Amcor’s audited Consolidated Financial Statements are prepared in accordance with A-GAAP, which differ in certain respects from US-GAAP.  See Note 41 to the Consolidated Financial Statements for a discussion of the significant differences between A-GAAP and US-GAAP as they apply to Amcor for the periods presented therein.   Certain 2004, 2003, 2002 and 2001 amounts in accordance withe US GAAP have been restated to correct errors identified in prior year accounts.  Refer Note 41, for further details.  The restatements had no impact on amounts in accordance with AGAAP. Also, see Note 39 to the Consolidated Financial Statements for a discussion of the impact of adopting Australian Equivalents to International Financial Reporting Standards as they will apply to Amcor for reporting periods beginning July 1 2005.

 

5



 

The following selected financial data should be read in conjunction with, and is qualified in its entirety by reference to, the Consolidated Financial Statements, including Notes thereto.

 

Selected Financial Data prepared in accordance with A-GAAP

 

 

 

Year Ended June 30,

 

 

 

2005(1)

 

2005

 

2004

 

2003

 

2002

 

2001

 

 

 

(In millions, except ratios and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Statement Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales revenue

 

US$

8,442.4

 

A$

11,099.6

 

A$

10,405.9

 

A$

10,709.9

 

A$

7,472.4

 

A$

5,667.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit from ordinary activities before income tax

 

186.3

 

245.0

 

471.5

 

488.6

 

981.2

 

404.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax

 

(44.7

)

(58.8

)

(111.3

)

(110.5

)

(120.2

)

(118.2

)

Minority interests

 

(9.9

)

(13.0

)

(14.5

)

(16.8

)

(9.3

)

(3.4

)

Net profit

 

US$

131.7

 

$A

173.2

 

$A

345.7

 

A$

361.3

 

A$

851.7

 

A$

282.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends paid and payable – (2)

 

US$

229.1

 

A$

299.0

 

A$

280.3

 

A$

252.7

 

A$

206.2

 

A$

179.1

 

Dividends per Ordinary Share (A$)

 

 

A$

0.34

 

A$

0.32

 

A$

0.30

 

A$

0.28

 

A$

0.28

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends per Ordinary Share (US$) (2)

 

 

US$

0.26

 

US$

0.22

 

US$

0.18

 

US$

0.15

 

US$

0.14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per Share

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

US$

0.18

 

A$

0.14

 

A$

0.34

 

A$

0.37

 

A$

1.22

 

A$

0.45

 

Diluted

 

US$

0.18

 

A$

0.14

 

A$

0.34

 

A$

0.37

 

A$

1.10

 

A$

0.44

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per American Depository Share (“ADS”);

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per ADS

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

A$

0.56

 

A$

1.36

 

A$

1.48

 

A$

4.88

 

A$

1.80

 

Diluted

 

 

 

A$

0.56

 

A$

1.36

 

A$

1.48

 

A$

4.40

 

A$

1.76

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends per ADS (A$)

 

 

 

A$

1.36

 

A$

1.28

 

A$

1.20

 

A$

1.12

 

A$

1.12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends per ADS (US$)

 

 

 

US$

1.03

 

US$

0.88

 

US$

0.72

 

US$

0.60

 

US$

0.56

 

 

 

 

Year Ended June 30,

 

 

 

2005(1)

 

2005

 

2004

 

2003

 

2002

 

2001

 

 

 

(In millions, except ratios, other data and per share amounts)

 

Balance Sheet Data (at period end):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

US$

2,538

 

A$

3,337

 

A$

3,052

 

A$

2,951

 

A$

4,591

 

A$

2,683

 

Total assets

 

7,529

 

9,899

 

10,286

 

9,562

 

8,842

 

7,026

 

Total long-term interest bearing liabilities (including finance leases)

 

1,330

 

1,748

 

1,776

 

1,004

 

1,145

 

1,559

 

Other capital resources (3)

 

229

 

301

 

332

 

446

 

543

 

426

 

Equity attributable to members of the parent entity

 

3,258

 

4,284

 

4,617

 

4,440

 

4,395

 

2,361

 

Net assets

 

3,318

 

4,363

 

4,708

 

4,636

 

4,567

 

2,570

 

 

Refer to page 7 for notes relating to above table

 

6



 

Selected Financial Data prepared in accordance with US GAAP (5)

 

 

 

2005 (1)

 

2005

 

2004

 

2003

 

2002

 

2001

 

 

 

 

 

Restated (5)

 

Restated (5)

 

Restated (5)

 

Restated (5)

 

Restated (5)

 

 

 

 

 

(In millions, except ratios, other data and per share amounts)

 

Income Statement Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales revenue

 

US$

8,441.9

 

A$

11,099.6

 

A$

10,405.9

 

A$

10,709.9

 

A$

7,472.4

 

A$

5,667.2

 

Net Profit

 

156.5

 

205.7

 

364.3

 

355.5

 

797.1

 

264.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per Share (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Profit

 

US$

0.17

 

A$

0.23

 

A$

0.42

 

A$

0.43

 

A$

1.20

 

A$

0.42

 

Basic

 

US$

0.17

 

A$

0.23

 

A$

0.41

 

A$

0.42

 

A$

1.08

 

A$

0.41

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per American Depository Share (“ADS”);

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per ADS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Profit

 

US$

0.70

 

A$

0.92

 

A$

1.68

 

A$

1.70

 

A$

4.79

 

A$

1.68

 

Basic

 

US$

0.70

 

A$

0.92

 

A$

1.66

 

A$

1.69

 

A$

4.34

 

A$

1.65

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Data (at period end):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

US$

2,683

 

A$

3,527

 

A$

3,250

 

A$

3,141

 

A$

4,591

 

A$

2,683

 

Total assets

 

7,992

 

10,508

 

10,774

 

10,000

 

9,010

 

6,989

 

Total long-term debt (including finance leases)

 

1,898

 

2,496

 

2,543

 

1,770

 

2,058

 

1,938

 

Other capital resources (3)

 

229

 

301

 

332

 

446

 

543

 

426

 

Shareholders' equity/net assets

 

2,954

 

3,884

 

4,169

 

3,923

 

3,948

 

2,083

 

Number of shares (millions)

 

 

878.2

 

878.0

 

848.2

 

822.6

 

633.2

 

 


(1)                                 Income statement data and balance sheet data have been translated at the noon buying rate on June 30, 2005 of A$1.00 = US$0.7606.

 

(2)                                 Dividends have been translated into U.S. dollars at the noon buying rate on the date of payment, except for the 2004-05 final dividend of A$0.17 per Ordinary Share, payable on September 28, 2005, which has been translated at the June 30, 2005 noon buying rate of A$1.00 = US$0.7606.

 

(3)                                 Includes subordinated convertible unsecured notes which have no maturity dates.  These notes are subordinated to all other obligations of Amcor save for issued capital.

 

(4)                                 Includes undated subordinated convertible securities, partly-paid ordinary shares and Perpetual Amcor Convertible Rest Securities (PACRS).

 

(5)                                 Certain 2004, 2003, 2002 and 2001 amounts in accordance with US GAAP have been restated to correct errors identified in prior year accounts.  Refer Note 41, for further details.  The restatements had no impact on amounts in accordance with AGAAP.

 

7



 

Exchange Rates

 

A majority of Amcor’s revenue and earnings is derived from assets and operations outside of Australia, and those assets, revenue and earnings are denominated in foreign currencies. Most of these are denominated either in US dollars or Euros. Therefore, because Amcor presents its financial statements in A$, appreciation of the A$ against the US$ or the Euro will adversely affect the A$ amount of those assets, revenue and earnings. In addition, fluctuations in the exchange rate between A$ and US$ or Euros will affect the US$ or Euro equivalent of the A$ price of our shares on the ASX and the US$ or Euro value of any cash distributions paid on the shares in A$.

 

Fluctuations in the A$/US$ exchange rate will affect the US$ equivalent of the A$ price of Ordinary Shares on the ASX and, as a result, are likely to affect the market price of the our American Depositary Shares (“ADSs”) in the United States.  Such fluctuations would also affect the US$ amounts received by holders of ADSs on conversion by the depositary of cash dividends paid in A$ on the Ordinary Shares underlying the ADSs (see Item 3D – Risk Factors).

 

In this Annual Report, unless otherwise specified or the context otherwise requires, Australian dollar amounts are denoted by “A$”, Euro amounts are denoted by € and United States dollar amounts are denoted by “US$”. For convenience, certain A$ amounts have been translated into US$ amounts at the exchange rate specified. These translations are indicative only and do not mean that the A$ amounts could be converted to US$ at the rate indicated.

 

On December 22 2005, the noon buying rate was US$0.7321 = A$1.00.

 

For each of the periods indicated, the relevant noon buying rates for cable transfers of US$ payable in Australian dollars as certified for customs purposes by the Federal Reserve Bank of New York, were:

 

Fiscal Year:

 

2004-05

 

2003-04

 

2002-03

 

2001-02

 

2000-01

 

 

 

 

 

 

 

 

 

 

 

 

 

Average (1)

 

.7530

 

.7164

 

.5891

 

.5242

 

.5372

 

 

 

 

 

 

 

 

 

 

 

 

 

Period-end

 

.7624

 

.6947

 

.6714

 

.5644

 

.5100

 

 

 

 

 

 

 

 

 

 

 

 

 

High

 

.7976

 

.8008

 

.6738

 

.5756

 

.5996

 

 

 

 

 

 

 

 

 

 

 

 

 

Low

 

.6880

 

.6339

 

.5278

 

.4842

 

.4828

 

 


(1)           The average of the closing buying rates on the last day of each month during the year.

 

The high and low exchange rates for the six months preceding the date of this report were:

 

Month:

 

Nov 2005

 

Oct 2005

 

Sept 2005

 

Aug 2005

 

July 2005

 

June 2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

High

 

0.7451

 

0.7630

 

0.7731

 

0.7739

 

0.7661

 

0.7792

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Low

 

0.7267

 

0.7468

 

0.7537

 

0.7469

 

0.7403

 

0.7498

 

 

B.                                                                                    Capitalisation and Indebtedness

 

Not applicable

 

C.                                                                                    Reasons for the Offer and the Use of Proceeds

 

Not applicable

 

8



 

D.                                                                                    Risk Factors

 

General Economic Conditions

 

Amcor’s business may be affected by general economic conditions within Australia and globally (including, for example, government fiscal, monetary and regulatory policies, interest rates, tax rates, foreign exchange rates, oil prices, inflation and the industrial relations environment). Changes in the economic conditions in markets in which we operate may result in customers changing spending patterns and their level of general consumption, which may have a material adverse effect on our operating and financial performance.  From time to time input costs may rise particularly, but not only, resin and energy costs, and there may be a mismatch in the timing of recovery of these increases via increased prices to customers.

 

Technology

 

We operate in highly competitive business segments. Our industry continues to change in response to technological innovations and other factors. We cannot predict with certainty the changes that may affect our competitiveness. In particular, Polyethylene Terephthalate (which we will refer to as PET) product design and development may be subject to rapid technological change. We cannot predict whether technological innovations will make some of our products, production processes or distribution techniques wholly or partially obsolete. If this were to occur, we may be required to invest significant resources to further adapt to the changing competitive environment. In such a case the investments could negatively affect our profitability and results of operations.

 

Increased or New Competition

 

While we have a strong position in each of our key market segments (both in Australia and internationally), new competitors may emerge in the market and potential rivals may seek to increase market share. Price competition may have the effect of reducing margins and profitability.

 

Laws and Regulations

 

Our operations could be affected by government actions such as controls on prices, new forms of taxation and increased government regulation in the countries in which we operate. We also operate in some countries that pose political risks including civil unrest, nationalisation and changes in laws and policy. These political risks could have an adverse impact on the profitability of our operations.

 

Competition Law Investigations

 

The ACCC continued its investigation of conduct by Amcor that raised concerns under Australian competition laws.  On December 21, 2005 the ACCC commenced legal proceedings in the Federal Court of Australia against certain Visy Group companies and executives in respect of alleged cartel conduct in the Australian corrugated packaging industry.  The ACCC also announced that Amcor and its former senior executives have to date received immunity against ACCC-initiated court proceedings for any alleged cartel conduct.  Accordingly Amcor is not a party to the Federal Court proceeding, conditional upon continuing full cooperation from Amcor and such former executives.  The NZCC investigation of conduct by Amcor that raised concerns under New Zealand’s competition laws is incomplete.  As previously notified, Amcor has been granted conditional immunity by the NZCC against NZCC-initiated court proceedings for any alleged cartel conduct.  The granting of immunity by the ACCC and the NZCC does not exclude or limit the rights of third parties who claim to have suffered loss or damage to take legal proceedings.  It is not possible at this stage to predict whether any alleged cartel conduct in Australia or New Zealand will result in third party proceedings for damages against Amcor or the loss of customers by Amcor. Although it is not possible at present to provide a reasonable estimated range of any damages that may be awarded if third party proceedings are commenced, there can be no assurance that any damages which ultimately may be awarded will not be material to the results of operations or the financial condition of Amcor.

 

9



 

Exchange Rates

 

We are exposed to movement in exchange rates of foreign currencies – mainly the US$ and the Euro. The negative impact of a stronger Australian dollar, however, has only a notional effect as there is little repatriation of net profit from Amcor’s overseas businesses to Australia. We estimate that for each one cent change in the US$ or the Euro exchange rate against the A$ over a full year, the translation impact on A$ net profit would be approximately A$1.8 million or A$2.0 million respectively.

 

Impact of Proposed Tax Law Changes

 

Amcor operates in 40 jurisdictions and pays tax on its income according to the specific tax laws in each of these jurisdictions.  As with any business, there are various factors, some of which are beyond our control, that impact the overall effective tax rate for the Amcor Group.  One such factor is changes in, or interpretations of, tax laws that apply in any given jurisdiction.

 

Of particular relevance at the current time are proposed changes in U.S. Federal tax laws.  The Amcor Group currently derives a significant portion of global income from operations in the U.S.  As a result, the proposed U.S. Federal legislative and regulatory changes could, if enacted, increase the Group’s effective tax rate.

 

Specifically, such proposals recommend measures that include (a) a more stringent enforcement of the arm’s length standards applying to related-party cross-border transactions, including pre-approval of certain transactions; (b) amending the rules governing cross-border reorganisations; and (c) denying treaty benefits for certain tax deductible payments to a foreign entity.

 

The enacting of any or all of these proposals could adversely impact Amcor’s U.S. Federal income tax liability and, consequently, the earnings of the Group. At this stage it is not possible to predict either the extent to which the proposed changes might be enacted or the extent of any resulting impact on Amcor.

 

In any event, Amcor operates a tax risk model that seeks to identify, monitor and manage tax risks as and when they occur throughout the Group.

 

At the current time Amcor considers the above proposed changes to be the most likely to have an impact on the Amcor Group’s future effective tax rate if enacted.

 

Environmental

 

Amcor’s worldwide manufacturing operations are subject to extensive environmental regulation. We believe that we are currently substantially in compliance with these regulations. However, although compliance costs in future years will depend on legislative and technological developments which cannot be accurately predicted, Amcor believes the costs of compliance with environmental laws and regulations will increase as these laws and regulations become more stringent. These laws and regulations may, therefore have an unpredictable and adverse effect on our operations and profits.

 

ITEM 4                                INFORMATION ON THE COMPANY

 

The discussion below contains certain forward-looking statements. Amcor’s actual results could differ materially from those anticipated by those forward-looking statements due to a variety of factors, including those set forth under “Forward-Looking Statements”, “Risk Factors” and elsewhere in this annual report.

 

A.                                                                                    History and Development of the Company

 

General

 

Amcor Limited was incorporated in 1926 in the State of New South Wales, Australia under the Australian Corporations Act (2001) and is a public company with limited liability. We are headquartered in Australia at 679 Victoria Street Abbotsford, Victoria, 3067 and our telephone number is (61) (3) 9226 9000. Amcor has operations in Australia, New Zealand, Asia, Europe and the Americas.  At December 22 2005, our market capitalization was approximately A$6.6 billion.

 

10



 

Amcor’s history dates back to the 1860s and Australia’s first paper making activities.  Until 1980, Amcor was almost exclusively a forestry, pulp and paper company in Australia.  Since that time, however, Amcor has implemented a major program of expansion that resulted in a shift away from sole reliance on pulp and paper products in Australia and the development of a diversified and integrated international packaging and paper company. Amcor has grown through a combination of acquisitions, “greenfield” developments where suitable acquisitions could not be obtained and expansion of capacity of existing businesses.

 

After a two year rationalization and restructuring program in 1997-98 and 1998-99, when a number of non-core or under-performing businesses were disposed of Amcor embarked upon the following:

                  In April 2000 after shareholder and court approval Amcor demerged its paper manufacturing and fine paper distribution businesses;

                  In May 2001, Amcor announced its intention to sell its 50% investment in Kimberly-Clark Australia Pty Ltd (KCA).

 

The demerger and sale of KCA were strategic initiatives intended to enable Amcor to realize its goal of becoming a leading global packaging company by enhancing its ability to pursue opportunities to further develop businesses in new products, services and markets.

                  In July 2002 Amcor acquired Schmalbach-Lubeca’s PET and closures businesses;

                  In August 2003 Amcor acquired Rexam’s healthcare flexibles packaging operations.

 

These were key steps in implementing this strategy.

 

Amcor’s Strategy

 

Amcor’s aim is to be a global leader in the packaging industry, targeting specific segments predominantly in the food and beverage industries.

 

In Australia and New Zealand, Amcor has a broad product offering and is the number one or number two supplier in most segments in which it participates.  Over the past three years, Amcor’s Australian and New Zealand businesses have delivered a stable earnings stream.

 

Outside of Australia and New Zealand, Amcor’s strategy is to be a leader in specific market sectors. These market sectors are:

 

                  flexible packaging for the food, beverage, healthcare and industrial markets;

                  PET bottles and jars for beverage and food applications;

                  specialty printed cartons for tobacco, confectionery, health and beauty markets;

                  distribution of packaging products and related goods; and

                  plastic and metal closures.

 

Amcor believes that all these market sectors are attractive because they exhibit one or more of the following key characteristics:

 

                  prospects of higher than industry average growth;

                  the ability to create value-added products and services, which provid the opportunity for Amcor to differentiate itself from its competitors; and

                  the ability for Amcor to establish a leading presence, either regionally or globally.

 

Amcor implemented this strategy through a number of transactions that have reshaped it over recent years.

 

The most significant of these include:

 

                  the creation in June 2001 of the leading European flexible packaging business through a three way joint venture between Amcor Flexibles Europe, Danisco Flexible and Ahlstrom and the subsequent purchase of the minority stake in July 2003; and

 

                  the acquisition in July 2002 of the PET Container and closures operations of Schmalbach-Lubeca.

 

The Schmalbach-Lubeca businesses represented an attractive opportunity that was consistent with Amcor’s strategy. In acquiring these businesses, Amcor has become the leading manufacturer of PET containers globally. Additionally, the acquisition has allowed us to expand our activities in segments that exhibit higher than average industry growth and given us the ability to offer a greater number of value-added products.

 

11



 

The strategy over the past few years has been to build a solid foundation and the businesses are well positioned in their respective markets.   Amcor’s strategy over the next few years is to build on this and transform the group into a leaner and more dynamic organisation.  This coincides with the appointment of a new Chief Executive Officer and Managing Director, Ken MacKenzie, effective July 1, 2005,

 

Opportunities for growth will be through new, innovative product developments, or by targeting geographic growth in the emerging markets of Latin America, China, Eastern Europe and Russia.    Although Amcor has a solid asset base, the commercial and operational capability across the group is mixed and rationalisation that has taken place over the past few years has caused some parts of the organisation to be inwardly focused.

 

Amcor will be moving businesses towards a more customer and marketing facing approach by concentrating on developing unique insights into customer needs and understanding better how Amcor can add value.

 

Overall, the asset base is sound and well positioned in the respective markets, however, going forward there will be an increased focus on our core businesses and some non-core assets may be sold.

 

Capital Expenditure and Divestures

 

Since July 1, 2002 we have made the following principal capital expenditure and divestures:

 

China Tobacco Packaging Expansion

 

In January 05, Amcor acquired 80 million new shares, representing a 16.7% equity interest, at HK$2.50 per share in Vision Grande Group Holdings Limited (Vision Grande) for a cost of HK$200 million (approximately A$34 million).

 

At this time Amcor acquired an option to subscribe for an additional 96 million shares, also at HK$2.50 per share, to increase its equity interest to approximately 30.6% for an additional cost of HK$240 million (approximately A$41 million).  This option expires on December 31, 2005.  The transaction was approved by Vision Grande shareholders and the regulatory authorities.

 

Amcor announced on December 28, 2005 that it has entered into an agreement with Vision Grande to sell its two China tobacco packaging operations to Vision Grande.  These plants are located in Beijing and Qingdao.  The consideration for the sale is 121.1 million Vision Grande shares and represents a valuation of HK$4.20 per share to Amcor.  Vision Grande has also agreed to allot and issue 16.67 million new shares at a subscription price of HK$4.20 per share to Amcor.

 

In view of these transactions, Amcor does not intend to exercise its existing option to purchase 96 million shares at HK$2.50 per share, which expires on December 31, 2005.  Instead, Vision Grande and Amcor have entered into a new agreement under which Vision Grande has agreed to allot and issue a further 96 million shares at a subscription price of HK$2.50 per share, in order to supersede the previous option and bundle it together with the sale of the Chinese tobacco packaging operations and the new subscription.  Completion of all three transactions will take place contemporaneously.

 

All three components of the agreement being the sale of assets, new shares subscription and further share subscription, are subject to regulatory approval in Hong Kong and approval of the independent shareholders of Vision Grande.  Amcor will not be eligible to vote on these resolutions.

 

After completion of these transactions, Amcor will own approximately 44% of the issued capital of Vision Grande.  Amcor will also have the right to appoint the Chairman and a majority of Directors to the Board of Vision Grande.

 

Vision Grande, which is listed on the Hong Kong Stock Exchange in March 2004, is a leading supplier of tobacco packaging in China with operations in Shenzhen, Nanjing and Kunming.

 

Purchase of PET Assets in Mexico
 

In November 2003, Amcor entered into an agreement to purchase the PET injection and blow moulding assets of Embotelladoras Arca S.A. de C.V. (Arca) with an initial supply agreement of eight years to supply bottles to Arca. Amcor purchased the PET on site injection and blow moulding assets of Arca for approximately A$60 million which will be paid in yearly instalments throughout the life of the contract.

 

12



 

Acquisition of Rexam’s Healthcare Flexibles Packaging Operations

 

In October 2003, Amcor purchased Rexam plc’s (Rexam) healthcare flexibles business for A$327.1 million. The business, which has annual sales of approximately A$390 million, has ten plants in six countries – four in the United States and one each in England, Ireland, France, Singapore, Brazil and Puerto Rico.

 

The acquisition is consistent with Amcor’s strategy of targeting higher value added and higher growth market segments. The four plants in the United States have increased Amcor’s presence in that country and are expected to provide a solid base in a high value business from which to build.

 

Purchase of Amcor Flexibles Europe Minorities

 

In August 2003, Amcor purchased the 28.1% minority stake in Amcor Flexibles Europe A/S from Danisco and Ahlstrom for 99.5 million (A$165.1 million), effective from July 1, 2003.

 

Purchase of Alcoa’s Latin American PET Packaging Business

 

In June 2003 Amcor purchased Alcoa’s Latin American PET packaging business for A$110.0 million.

 

Alcoa’s Latin American PET business consisted of nine production facilities located across Brazil, Argentina, Columbia, Peru, Uruguay and Chile. Sales were approximately A$200 million in 2002.

 

A$130 Million Wine Bottle Plant Expansion

 

Amcor announced in March 2003 that it was building a second furnace on its existing wine bottle facility in Gawler, South Australia. The new furnace cost A$125 million. and has a capacity of 200 million wine bottles per year, it commenced output in December 2004 ahead of schedule.

 

The building of the second furnace is expected to increase production at the Gawler site to 400 million bottles per year. The strong customer demand for Amcor’s wine bottles has enabled new long term supply contracts to be both extended and upgraded and has underpinned demand for the new furnace.

 

Sale of Joint Venture Stake in White Cap North American Closure Operations

 

On December 31, 2002, Amcor entered into a definitive agreement to sell its 65% stake in Amcor White Cap LLC to Silgan Holdings Inc, its 35% joint venture partner. The joint venture, which consisted of seven plants, six in the United States and one in Mexico, was sold for A$66 million – equivalent to book value.

 

Acquisition of PET Container and Closure Operations of Schmalbach-Lubeca
 

On July 1, 2002 Amcor successfully completed the acquisition of the PET container and closure assets of Schmalbach-Lubeca for A$2.827 billion.

 

Schmalbach-Lubeca was the world’s largest manufacturer of PET containers with calendar 2001 sales of A$2.5 billion. It was also a manufacturer of food and beverage closures with calendar 2001 sales of A$825 million.

 

Other Recent Developments

 

Senior Executive and Board Changes

 

On March 16, 2005 Amcor announced the appointment of Ms Julie McPherson as Company Secretary and Group General Counsel, effective from April 18, 2005.

 

On May 12, 2005 the Chairman announced that Mr Ken MacKenzie has been appointed the new Chief Executive Officer and Managing Director, effective July 1, 2005, at which time Mr Chris Roberts reverted to the position of non-executive Chairman.

 

13



 

Competition Law Investigations

 

The ACCC and the NZCC continued their investigations of conduct by Amcor that raised concerns under Australian and New Zealand competition laws.  Amcor has been granted conditional immunity by the ACCC and NZCC in accordance with their relevant leniency policies for cartel conduct.  See Item 8, “Financial Information – Legal Proceedings” for further information.

 

B.                                                                                    Business Overview

 

General Overview of Our Business

 

Amcor operates its business through six main divisions:

 

Amcor PET Packaging manufactures PET packaging for a broad range of predominantly beverage & food products, including carbonated soft drinks, water, juices, sports drinks, milk-based beverages, spirits and beer, sauces, dressings, spreads and personal care items.

 

Amcor Australasia manufactures a broad range of packaging items throughout Australia and New Zealand.

This includes corrugated boxes, tobacco cartons, folding cartons; steel and aluminium cans for foods, beverages and household products; PET plastic jars and bottles; plastic and metal closures; glass wine bottles; multiwall sacks, paper, cartonboard and paper recycling.

 

Amcor Flexibles is a manufacturer of flexible and film packaging in the food and beverage and pharmaceutical sectors, including confectionery, coffee, fresh food and dairy, as well as high value-added medical applications.

 

Amcor Sunclipse operates distribution and manufacturing units.  The distribution unit purchases, warehouses, sells and delivers a wide variety of products.  The business manufactures corrugated and other principally fibre based specialty product packaging including ‘point of sale” displays.

 

Amcor Rentsch & Closures manufactures speciality folding cartons for tobacco, confectionery and cosmetics; and plastic and metal caps and lids for a wide variety of applications.

 

Amcor Asia is a supplier of tobacco carton packaging, flexible plastic packaging; corrugated boxes, fibre sacks for the food and industrial markets and closures for the beverage industry.

 

At November 27, 2005, Amcor had approximately 27,000 employees at 237 manufacturing plants and 42 distribution facilities in 39 countries and 126,000 shareholders.

 

The manufacturing plants by business are as follows:

 

Amcor PET Packaging

 

82 plants* in 21 countries

Amcor Australasia

 

65 plants in 2 countries

Amcor Flexibles

 

46 plants in 19 countries

Amcor Sunclipse

 

11 plants and 42 distribution facilities in 2 countries

Amcor Rentsch & Closures

 

18 plants in 14 countries

Amcor Asia

 

15 plants in 5 countries

 


* Includes all on-site blowing and injection facilities.

 

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The table below shows a breakdown of our sales revenue by geographic and industry category for the last three financial years. See also Item 5 - Operating and Financial Review and Prospects for a discussion of revenue performance during the last three years and Note 8 Segment Reporting on page F-22 for a break-up of sales for each material country for the years ended June 30, 2005, June 30, 2004 and June 30, 2003 .

 

 

 

Year Ended June 30,
(in A$ millions)

 

 

 

2005

 

2004

 

2003

 

Geographic Segments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Australia & New Zealand

 

2,566.3

 

2,524.3

 

2,440.1

 

Europe

 

3,921.1

 

3,852.3

 

4,005.3

 

North America

 

3,425.9

 

3,120.2

 

3,519.4

 

Latin America

 

895.7

 

632.0

 

462.6

 

Asia

 

290.5

 

277.1

 

282.5

 

 

 

11,099.6

 

10,405.9

 

10,709.9

 

 

 

 

 

 

 

 

 

Industry Segments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amcor PET Packaging

 

3,645.1

 

3,205.2

 

3,236.2

 

Amcor Australasia

 

2,571.7

 

2,537.9

 

2,455.7

 

Amcor Flexibles

 

2,418.9

 

2,241.0

 

2,170.3

 

Amcor Sunclipse

 

1,218.7

 

1,158.1

 

1,299.0

 

Amcor Rentsch & Closures

 

984.1

 

1,012.2

 

1,310.6

 

Amcor Asia

 

263.3

 

249.5

 

263.4

 

Inter-segment eliminations & other

 

(2.2

)

2.0

 

(25.3

)

 

 

11,099.6

 

10,405.9

 

10,709.9

 

 

Amcor PET Packaging

 

Products

 

In July 2002, Amcor acquired the PET Containers business of Schmalbach-Lubeca. The Amcor PET Packaging business was formed following the integration of this PET business with the former Amcor Twinpak’s PET operations.  Headquartered in Ann Arbor, Michigan (USA), it employs approximately 6,100 people at 82 sites – comprising 46 manufacturing locations and 36 on-site injection and blowing facilities – in 21 countries.

 

Amcor PET Packaging produces PET containers and preforms for a wide variety of food and beverage applications, and also supplies PET containers to the personal car, household chemical and agro-chemical industries.

 

PET containers are supplied primarily unlabeled, although labelling options are available for some products.

 

Amcor’s customers are among the leading consumer products companies around the world.

 

Significant new products utilize evolving technologies, including barrier for increased shelf life and heat set for increased filling and processing temperatures.  Markets impacted by these new products/technologies include beer and processed foods.

 

Seasonality

 

Amcor PET Packaging experiences some seasonality in its supply of carbonated soft drink, bottled water and isotonic product lines.  The ramp up for seasonal products begins in March and lasts until late August in the northern hemisphere.  It is the reverse in the southern hemisphere.  In addition, there is a slight increase in demand in preparation for the major December holidays.  Offsetting these are demand patterns for other products, including foods and juices, with demand sometimes heaviest in harvest seasons.

 

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Raw Materials

 

PET resin is the principal raw material used within Amcor PET Packaging and PET resin is considered a commodity by the plastics industry.  For North America, PET resin is available from 6 major domestic suppliers and can be imported from Asian suppliers.  Amcor has established relationships with all major suppliers.   For Europe and South America, a combination of regionally produced and imported resins is employed.

 

While in general the supply of PET resin has become more predictable and the pricing less volatile as the resin industry has consolidated, the recent damage to the petrochemical industry in the Gulf Coast of the United States has created some shortages of PET resin precursors (ie, paraxylene).  These shortages have caused resin price increases that may remain on a short term basis.  Until the extent of damage is understood, no long range predictions are possible.

 

Competitive Position

 

Amcor PET Packaging is one of the few major PET converters that supply a full range of products to nearly all segments of the market.

 

In North America, the five major PET suppliers hold just under 60% of the market.  Self-manufacturers make up another 20%.  The remaining 20% is comprised of small regional or niche converters, many with strong positions in their chosen markets.    The major converters, as well as the self-manufacturers, tend to supply the beverage market – soft drinks, waters, juices and isotonics.  The smaller competitors are producers of food, dairy, personal care, pharmaceutical and household products containers.

 

In Latin America, the competition is more fragmented.  The major converters hold over 50% of the market.  There are smaller competitors that are very strong in specific countries, but are not pan-regional.  There is also a significant percentage of self-manufacturing, however, the trend seems to be moving away from consumer product companies making their own packaging.  Consolidation in Latin America continues as small competitors are acquired.

 

In Europe, the major converters make up less than 40% of the market.  Self-manufacturing is stronger in Europe than in any of the other regions and in addition there are a greater number of small, in-country suppliers.  Competition from East Europe into West Europe is also increasing.

 

Patents and Licences

 

Amcor PET Packaging holds approximately 120 patents in the U.S.  Many of these innovations are also patented in our major markets outside the US, especially in Europe and Brazil.  The bulk of these patents are held for the competitive advantage of our business, and our income from licensing is marginal.

 

Amcor PET Packaging has a significant relationship with Yoshino Kogyosho, a Japanese packaging company from whom we license heat set technology.  Over the years, this relationship has grown to a strategic partnership, with technical information and innovations shared between our two companies exceeding the scope of the original contract.  This relationship has been mutually beneficial.

 

Amcor Australasia

 

Products

 

Amcor Australasia is the most diverse of the group’s business units and supplies a broad range of packaging items across the complete Amcor product line.  Its range of products includes: corrugated boxes, tobacco cartons, folding cartons; steel and aluminium cans for foods, beverages and household products; flexible packaging; PET plastic jars and bottles; multiwall sacks, paper, cartonboard and paper recycling.  With headquarters in Camberwell, Victoria (Australia), it has 65 plants throughout Australia and New Zealand and approximately 6,900 employees.

 

Amcor Australasia had a turnover of over A$2.5 billion in 2004-05, of which 93% relates to sales within Australia and New Zealand.  Approximately 10% of the paper manufacturing group’s sales relates to exports into South East Asian countries and to Amcor subsidiaries in the US.  The metals and flexibles businesses have some export sales within the Pacific region and some small volumes to South East Asia and the US. For these businesses, export sales represent only 11% and 5% respectively of the total sales of each business.  The corrugated, carton and glass businesses have no significant export sales.

 

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Amcor Australasia participates in most packaging segments and, therefore, supplies packaging to most manufacturing sectors in Australia and New Zealand. Its main market, however, is the food and beverage industry, with approximately 70% of total sales made to this market.

 

Seasonality

 

The Australasian packaging market is not subject to large seasonal swings in demand, given the high dependence on the food and beverage industry.  Consumer demand does increase over the main holiday periods of Christmas and Easter and this is reflected in increased demand from Amcor Australasia’s customers in the lead up to these holiday periods.  In particular, this affects Amcor Australasia’s Beverage Can business and the confectionery segments of the Cartons and Flexibles businesses. These seasonal variations are well understood and planned for by the food and beverage industry and, as a result, Amcor Australasia’s monthly turnover during peak periods is no more than 15% higher than average.

 

Fresh fruit and produce is a major part of the Australasian food industry and the Corrugated Fibre Box and Food Can businesses have significant sales into that market.  While individual crops within this segment have seasonal peaks, the product range of the industry and Amcor Australasia’s broad customer base means that individual seasons do not have a significant overall impact.

 

Raw Materials

 

Raw Materials of the business fall into three broad areas. The main raw material of the Paper, Corrugated Box and Carton business is wood fibre, either virgin or recycled. Globally the price of fibre does follow a cycle, as the supply/demand balance is affected by the large changes in supply brought on by new, high capacity paper mills as opposed to more gradual, market driven changes in demand. This cycle tends to run over a period of several years. In Australasia, the industry is somewhat insulated from these movements, as there is a good supply of virgin fibre from the domestic forest industry and a well developed recycling industry to supply recycled fibres. Fibre prices have therefore remained relatively stable in recent years. Furthermore, when increases have occurred in the past, it has generally been possible to recover them from the market.

 

The main raw materials of the plastic packaging businesses are petroleum based and with a reasonable correlation to the price of crude oil, are more volatile than fibre prices.  In these businesses, the impact of changing raw material prices in the main is passed on to customers through “rise and fall” pricing contract clauses wherever possible. This is generally achieved with the larger and more sophisticated customers, with whom we have long term contracts and who understand the raw material markets.  With smaller customers and commodity type products, the ability to pass on price changes depends on market conditions at the time.

 

The main raw materials of the metal packaging businesses are steel and aluminium. Both of these materials are subject to world pricing movements and aluminium in particular is traded globally.   The impact of changes in these raw material prices is also passed on to customers through rise and fall clauses wherever possible.

 

Competitive Position

 

Australasia is a relatively small market in global terms, with a relatively small number of major competitors. These factors allow market research to provide a reasonably accurate picture of our market position. Such market research is conducted on a regular basis by a small central marketing team and Amcor Australasia is also a member of several industry associations.

 

Broadly, the Australasian packaging market is mature and has limited growth prospects. Within packaging however, some segments such as flexible packaging, wine bottles and plastic bottles and closures have growth opportunities. Others, while profitable, are either static or in decline due to substitution from other packaging and from the industry life cycle of products.

 

Excess capacity exists in most packaging segments and most major competitors continue to replace old equipment with state of the art technology.  At the same time, our customers continue to find attractive returns difficult to achieve as the major supermarket chains seek greater market power and continue to increase demands upon their suppliers.  The concentration in the retail sector has risen, with the two major supermarket chains increasing their market share from 65% to in excess of 80% in the last eight to ten years.

 

To meet this competitive business environment, Amcor Australasia focuses on product leadership, growth of niche food and beverage segments, adding value for customers, and continually lowering of the cost base. Amcor Australasia also has an active reinvestment program and the total value of major new capital projects is consistently in excess of annual depreciation.

 

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Patents and Licences

 

Amcor Australasia has an extensive portfolio of over 100 patents and over 200 trademarks and registered designs. Many of these intellectual property rights are registered in both Australia and New Zealand and a selected few also have wider international registrations, reflecting their world-leading nature. Historically, patents and designs have been held for the competitive advantage of our business and current income from licensing has been minimal, but Amcor Australasia is now actively pursuing revenue opportunities in this area, including through collaboration with other international Amcor divisions.

 

Several businesses are also party to a number of technical assistance agreements with international manufacturers, especially in metal packaging. These provide access to new technology in terms of both product design and manufacturing processes. In particular, Amcor Glass pays an annual fee to Heye Glass of Europe, under a Technical Assistance Agreement that allows Amcor to use their technical knowledge, including their recuperative furnace technology.

 

Amcor Flexibles

 

Amcor Flexibles was initially created in 2001 through the combination of all relevant flexible packaging assets of Amcor Limited, Danisco A/S and Ahlstrom Corporation. The following acquisitions have since been undertaken to create the current business:

 

                                The acquisition of Tobepal the flexible packaging and extrusion operations of the Tobepal Spanish operations in May 2002;

 

                                The acquisition of two flexible packaging plants in the UK from Rexam in May 2002;

 

                                The purchase of the 28.1% minority stake in Amcor Flexibles from Danisco and Ahlstrom in July 2003; and

 

                                The acquisition of the flexible healthcare business of Rexam in October 2003.

 

Amcor Flexibles is headquartered in Gloucester in the United Kingdom and has 7,000 employees and 46 manufacturing plants in 19 countries throughout Europe and the Americas.

 

Products

 

Amcor Flexibles is active in providing high quality flexible packaging and supplies a wide range of food and beverage markets including confectionery, coffee, fresh food, dairy and healthcare applications. Its technological capabilities include gravure and flexographic printing, coating and lamination, co-extrusion, metallising, micro-perforation pouch and bag making and die cut lids.

 

The business supplies a wide range of products to the food, beverage and healthcare markets.  This includes fresh foods such as meat, fish, bread, produce and dairy; processed foods such as confectionery, snack foods, coffee and ready meals, as well as tobacco and high value added medical applications, hospital supplies, pharmaceuticals and personal care products.

 

Most demand for flexible packaging is bespoke in the sense that each customer has very specific requirements for each product it is packaging. The customer selects a bespoke product based on a number of considerations: cost, functionality, shelf life, machinability and “look and feel”. A combination of these factors determined by the customer will set the parameters within which the raw materials and conversion processes used for the specific product supplied will be chosen. As a result, similar products may often be packaged very differently, whilst different products may be packaged with similar packaging. On the demand-side, it is therefore not meaningful to sub-divide the flexible packaging market into narrower sub-markets.

 

Seasonality

 

Given the wide diversity of product offering that Amcor Flexibles produces, it is not considered to be a seasonal business.  However, elements of its product portfolio are by their nature seasonal, for example ice cream and snacks, which experience a growth in sales during warm weather, while products such as coffee will have slower sales during this type of weather.  In terms of fresh produce, these products are packed during specific crop seasons and, as such, show higher sales during these periods.  Given Amcor Flexibles position as a predominantly European business, July and August are slower months as there are manufacturing shut downs and holiday periods for certain European countries such as France and Sweden.

 

18



 

Raw Materials

 

The principal raw materials used in the production of flexible packaging are as follows: polyethylene (PE), polyamide (PA-nylon), ethylvinylalcohol (EVOH), biaxially oriented polypropylene (BOPP), cast polypropylene (CPP), polyvinylchloride (PVC), polyvinylidene chloride (PVdC), polyester, cellulose film, aluminium foil and various types of paper.  Raw materials generally have a wide range of applications across our products and have numerous suppliers with which Amcor has established relationships.

 

Competitive Position

 

Amcor Flexibles is the number two producer of flexible packaging material within Europe behind Alcan (measured in terms of sales value).  Amcor Flexibles is the global leader in terms of sales and service capability for medical packaging.  The Company has a European leadership position in the following segments, Dairy, Produce and Beverage.  Within other key segments such as Confectionery, Snacks and Processed Food it holds the number two position.  With 40 plants in Europe, Amcor Flexibles has a large manufacturing footprint which enables it to not only service its Pan-European customers, but also to provide local or regional production for national customers.

 

There is a very high degree of supply-side substitutability in the sense that manufacturers of flexible packaging with one set of characteristics can readily produce flexible packaging displaying a different set of characteristics. Amcor Flexibles distinguishes itself from its competitors through innovation, product quality, safety, focus on customer service and its ability to deliver global packaging solutions to its customers.

 

Patents and Licences

 

Innovation is a key component of Amcor Flexibles strategy to be an industry leader and it invests significant resources to ensure that it meets the market needs for innovation.  Amcor Flexibles has a rigorous intellectual property development system, based on an Amcor wide business process of Product Leadership & Innovation which facilitates the efficient development of new concepts and the filing of appropriate patents to ensure protection.

 

Amcor Flexibles currently holds 110 patents.  Patents are held for a wide variety of process improvements and new products.  Patents are held both at a national and regional level as appropriate.

 

As noted, Amcor Flexibles technical capabilities include gravure and flexographic printing, coating and lamination, co-extrusion, metallising, micro-perforation pouch and bag making and die cut lids.

 

Amcor Sunclipse

 

Products

 

Amcor Sunclipse, based in California, is Amcor’s North American distribution and corrugated manufacturing unit.  It produces packaging products to complement its distribution services and has over 2,200 employees, 42 distribution centres throughout the USA and Mexico, and 11 manufacturing locations.

 

The distribution unit is a major supplier to businesses throughout North America and purchases, warehouses, sells and delivers a wide variety of packaging products and equipment and industrial and janitorial supplies.  The manufacturing division produces corrugated sheets and converts them into boxes for use throughout the business.  It also designs and produces other speciality packaging products including “Point of Purchase” displays and other items tailored to customers’ requirements.

 

Seasonality

 

The overall business is vulnerable to the levels of manufacturing activity in the US and Mexico and benefits during periods of prosperity in manufacturing.  The shift of manufacturing from Mexico to Asia has adversely impacted the Mexican operations, particularly in Guadalajara.   The strongest period for the business is typically the September through November time frame prior to the Christmas holidays. The quietest time is usually in January and February, after the holidays.

 

19



 

Raw Materials

 

The three corrugated sheet manufacturers presently rely on three major suppliers for their paper roll stock. However, over ten other minor supply relationships are in place. Many of these minor suppliers have far reaching capabilities. This creates a healthy competitive environment even in a market that has experienced some tightness after an extended three to four year period of abundant supply. The distribution group has access to numerous suppliers for all its products both domestic and overseas.

 

There is exposure to typical raw material or finished goods supply price movements. These are initiated for a variety of reasons, such as supply conditions tightening and/or increases in the price of oil and labour. The business has shown an ability to pass on these costs to customers, as the price increases usually impact the competition in a similar manner.

 

Competitive Position

 

Business is conducted typically on an order by order basis. Sales emanating from supply agreements with customers do not represent a significant percentage of total sales. The company’s suppliers also work on an order by order basis, although there are some supply agreements in place with our major corrugated rollstock suppliers. The company does not rely on patents, exclusive licenses or contracts.

 

Amcor Rentsch and Closures

 

Amcor Rentsch and Closures are headquartered in Rickenbach, Switzerland and have 2,800 employees.

 

Amcor Rentsch is the European leader in tobacco packaging and a leading supplier of specialty folding cartons to the cosmetics and confectionery markets.  The business is headquartered in Switzerland and has 7 manufacturing plants in 6 countries.  It also works in close affiliation with other Amcor tobacco and specialty carton plants in China, Malaysia and Australia to service its major international customers.

 

Amcor Closures is comprised of the two closure divisions, Amcor White Cap and Bericap North America, that between them have 11 metal, plastic and composite closure manufacturing locations through the Americas, Europe and Asia, plus around 20 sales offices.

 

The principal raw material for Amcor Rentsch is fibreboard, in both roll and sheet stock. Amcor Rentsch’s key customers control the purchase price of these raw materials and consequently our supply contracts have full raw material cost movement and price adjustment mechanisms.

 

Business is conducted on a contractual basis, with typical terms of 1 to 4 years. In Europe, our principal market, four competitors have over 75% of the market. The tobacco industry has extremely demanding quality requirements, which raises the barriers to entry.

 

Amcor Closures is a global producer of metal and plastic closures with 12 plants in 11 countries and is headquartered in Switzerland. Main products are metal vacuum closures for glass jars and bottles. It also produces a range of plastic closures for beverage and specialty applications through its Bericap joint venture in North America.

 

The Closures business has a significant amount of business in the beverage, fruit and vegetable segments and volume is consequently higher during the Northern Hemisphere summer season.

 

Principal raw materials are tinplate steel for metal closures and polypropylene resin for plastic closures. The business has numerous suppliers of these materials.

 

Business is generally conducted on an annual supply agreement. In the case of metal closures prices are generally agreed for a 12 month period. For plastic closures, agreements have full pass through of resin and foreign exchange movements on a six month basis. The metal closures business derives its competitive position from its leading market share in Europe and Asia and industry leading low cost position. The plastic closure business has a number of innovative products with predominantly its own intellectual property and some license arrangements.

 

20



 

Amcor Asia

 

Amcor Asia has 15 plants and 2,400 employees in 5 countries and its head office is in Singapore.  It produces a diverse range of products, including fibre packaging, corrugated cartons and sacks, speciality folding cartons and tobacco packaging, flexible plastics, including high value-add medical packaging at the plant in Singapore acquired from Rexam Healthcare in October 2003 and some PET containers and closures.

 

The business has 15 manufacturing plants across five countries - Singapore, Malaysia, Indonesia, China and Thailand. The business has six corrugated box plants and four tobacco packaging plants in the area. Its other products include closures, flexible packaging and paper sacks.

 

In January 2005, Amcor acquired a 16.67% share in the Hong Kong listed company, Vision Grande Group Holdings Limited that operates three tobacco packaging businesses in China.  This is a strategic investment in the rapidly consolidating Chinese tobacco market.

 

The Flexibles business, which consists of a medical packaging plant in Singapore and two food flexible packaging plants in China, had another solid year with good returns and raw material cost increases were generally passed on to customers in a timely manner with minimal impact to earnings.

 

Corrugated packaging is normally a very competitive market with excess capacity throughout Asia.  The ability of key customers to reposition their production facilities to alternative countries as labour costs impact on their products causes a continual shift and scramble for corrugating work.

 

Tobacco packaging is a market segment Amcor operates in, that has only three major international cigarette manufacturers together with the monopoly of the State run industry within China, Thailand and other Asian countries. The dominance of these three international cigarette manufacturers creates strong pricing pressure as they benchmark packaging prices around the world.

 

Flexibles packaging is a growing segment in Asia as the cost base is so much lower than Europe or US. However the majority of specialized flexible packaging for Asia is still supplied by European or US manufacturing.

 

Paper sacks is a specialised market, with a relatively small market size, excluding cement sacks. It operates in an over capacity environment within Asia. Most large paper sack manufacturers have positioned production facilities within the Asian region. There is quite a limited choice in the sourcing of sack kraft paper throughout the world.

 

Within the corrugated market the demand for food and beverage packaging is higher in the annual festive season of December through to April.  This is offset by the electronic segments high season of June through to November.  There are no significant seasonal factors influencing the tobacco segment.   Flexibles packaging is influenced by the food and beverage segments which causes a higher level of activity in the period November to February.

 

Raw materials are sourced throughout the world with Amcor Asia directly affected by both world prices (driven by supply and demand) and foreign currency exchange fluctuations.

 

21



 

Environmental and Other Regulations

 

The regulatory constraints on Amcor’s businesses include compliance with the following:

 

                                                                                          the provisions of various jurisdictions’ corporate regulations;

                                                                                          trade practices and consumer protection legislation

                                                                                          labor legislation;

                                                                                          the provisions of various jurisdictions’ anti trust legislation;

                                                                                          numerous laws relating to workers’ compensation and rehabilitation, occupational health and safety, dangerous goods handling; and

                                                                                          environmental regulations of various kinds.

                                                                                          listing rules of home jurisdiction

 

The ACCC and the NZCC continued their investigations of conduct by the Amcor that raised concerns under Australian and New Zealand competition laws.  Amcor has been granted conditional immunity by the ACCC and NZCC in accordance with their relevant leniency policies for cartel conduct.  See Item 8, “Financial Information – Legal Proceedings” for further information.

 

Amcor’s aim is to ensure that no one who works for Amcor is ever injured. This applies equally to employees, contractors and visitors.  Amcor’s “No Injuries” program is supported by extensive procedures and subject to regular management review.  The Audit and Compliance Committee is responsible for regular monitoring of safety and health performance and compliance with associated regulations.

 

During the 2004-05 year, Amcor must regrettably advise that one employee and one contractor were fatally injured while working at Amcor sites. The first incident involved an employee at the Amcor Interpac site in Dongguan, China, who was fatally injured while operating a forklift truck in the warehouse. The second accident was at the Amcor Flexibles site in Brazil, where a contractor was fatally injured on falling through the factory roof he had been working on.

 

Regrettably another contractor was fatality injured at an Amcor site in July 2005. A contractor, who had entered a water supply well on the Amcor Flexibles site in Barcelona to inspect a pump, fell and could not be revived when he was retrieved from the well.

 

In all cases, management has been working with the families and co-workers to provide as much support as possible. The accidents were fully investigated, in conjunction with the authorities, and corrective measures have been conveyed to all Amcor businesses.

 

During September 2005, the Victorian Supreme Court handed down its decision regarding an appeal by the Director of Public Prosecutions in relation to a fatal accident at Amcor’s Fairfield Paper Mill site in 2003.  Amcor pleaded guilty in the original County Court hearing to two breaches of the Occupational Health and Safety Act, 1985.  The Supreme Court decision increased the level of penalty to A$180,000 for each breach.

 

Amcor is committed to achieving a high standard of environmental performance. Its operations are subject to significant environmental regulation in all countries in which it maintains a presence.

 

The Audit and Compliance Committee is responsible for regular monitoring of environmental exposures and compliance with environmental regulations. As part of this process, the Committee is responsible for overseeing:

                  implementation of environmental management plans in operating areas which may have a significant environmental impact;

                  identifying where remedial actions are required and implementing action plans; and

                  regular monitoring of regulatory requirements.

 

To enable it to meet its responsibilities of oversight, the Committee has established an internal reporting process. Environmental performance is reported from each site up through management to the Committee on a regular basis.

 

Compliance with the requirements of environmental regulations and with the specific requirements of site environmental licenses was substantially achieved across all operations.

 

22



 

Amcor complies with a number of food and medical packaging standards such as EN 868 for medical packing produced within Europe, standards published by the Agricultural Development Advisory Service (ADAS), The American Institute of Baking (AIB), the British Retail Consortium (BRC) and US Food and Drug Administration (FDA).

 

Amcor, like all corrugated suppliers, continues to prepare for the implementation of the Radio Frequency Identification Directive (RFID) tagging requirements. This is a mandatory U.S. Department of Defense requirement for corrugated boxes sold to the military branch of the U.S. government effective January 1, 2007. The company presently has a number of small contracts with the U.S. government.

 

C.            Organisational Structure

 

The chart set out below describes our organizational structure as at June 30, 2005.

 

 

Amcor’s Significant Subsidiaries as at December 20, 2005 were:

 

 

 


Country of
 Incorporation

 

Percentage
Held by Parent
Entities

 

Amcor Investments Pty. Ltd.

 

Australia

 

100

%

Amcor Packaging (New Zealand) Ltd.

 

New Zealand

 

100

%

Amcor Packaging (U.S.A.), Inc.

 

U.S.A.

 

100

%

Amcor Sunclipse – North America, Inc.

 

U.S.A.

 

100

%

Amcor Europe

 

United Kingdom

 

100

%

Amcor Packaging Asia Pty. Ltd.

 

Australia

 

100

%

Amcor Packaging (Australia) Pty. Ltd.

 

Australia

 

100

%

Amcor European Holdings Pty. Ltd.

 

Australia

 

100

%

Amcor European Consolidated Holdings Limited

 

Cyprus

 

100

%

Amcor Holding

 

United Kingdom

 

100

%

Amcor Flexibles A/S

 

Denmark

 

100

%

 

23



 

D.                                                                                    Property, Plant and Equipment

 

At November 30, 2005, Amcor operated manufacturing* and distribution facilities in the 39 countries listed in the following table.

 

 

 

Number of

 

Number of

 

 

 

Manufacturing

 

Distribution

 

Geographic Region

 

Facilities

 

Facilities

 

 

 

 

 

 

 

Argentina

 

2

 

 

Australia

 

51

 

 

Belgium

 

3

 

 

Brazil

 

12

 

 

Canada

 

7

 

 

China

 

6

 

 

Colombia

 

6

 

 

Denmark

 

3

 

 

Ecuador

 

1

 

 

El Salvador

 

1

 

 

Finland

 

2

 

 

France

 

6

 

 

Germany

 

7

 

 

Honduras

 

1

 

 

India

 

1

 

 

Indonesia

 

2

 

 

Ireland

 

1

 

 

Italy

 

2

 

 

Malaysia

 

4

 

 

Mexico

 

14

 

4

 

Morocco

 

1

 

 

The Netherlands

 

1

 

 

New Zealand

 

14

 

 

Norway

 

1

 

 

Peru

 

1

 

 

Philippines

 

2

 

 

Poland

 

4

 

 

Portugal

 

5

 

 

Puerto Rico

 

1

 

 

Russian Federation

 

2

 

 

Singapore

 

3

 

 

Spain

 

11

 

 

Sweden

 

1

 

 

Switzerland

 

3

 

 

Thailand

 

1

 

 

Turkey

 

2

 

 

United Kingdom

 

13

 

 

United States of America

 

37

 

38

 

Venezuela

 

2

 

 

 

 

237

 

42

 

 


* Includes PET on-site blowing and injection facilities.

 

Amcor believes that its facilities are suitable and adequate for its present needs and are generally well maintained and in good operating condition. Amcor carries insurance covering property, casualty and certain other risks to which its worldwide facilities and operations may be subject.

 

108 of Amcor’s principal manufacturing and distribution facilities are owned. Those facilities which are not owned are leased by Amcor for periods varying from one to 10 years. Amcor does not believe any of its businesses is dependent on any single facility.

 

24



 

Capital expenditure on property, plant and equipment, excluding acquisition of controlled entities and businesses is outlined in the table below. Net capital expenditure is arrived at after deducting proceeds on disposal of property, plant and equipment and does not include proceeds on disposal of controlled entities, businesses and investments.

 

 

 

Year Ended June 30

 

 

 

2005

 

2004

 

2003

 

 

 

A$m

 

A$m

 

A$m

 

Gross capital expenditure

 

647

 

605

 

890

 

Proceeds on disposal of property, plant and equipment

 

77

 

98

 

58

 

Net Capital expenditure

 

570

 

507

 

832

 

 

In 2004-05, the major items of capital expenditure included the second glass furnace at Gawler in South Australia and the consolidation and upgrading of the Burgos plants in Spain.

 

In 2003-04, the major items of capital expenditure included the PET injection and blow moulding assets of Arca in Mexico, upgrade of the paper mill in Queensland, Australia and additional printing presses at Rentsch’s plant in Russia.

 

In 2002-03, the major items of capital expenditure included the expansion of PET Packaging’s injection moulding and blow moulding capacity, upgrade of a paper mill in Queensland, Australia to improve board quality and expansion of plastic closure capacity in Poland.

 

ITEM 5                                OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

The discussion below contains certain forward-looking statements. Amcor’s actual results could differ materially from those anticipated by those forward-looking statements due to a variety of factors, including those set forth under “Forward-Looking Statements”, “Risk Factors” and elsewhere in this Annual Report.

 

Over the past few years Amcor’s performance has been affected by an environment of volatile raw material prices, rapidly rising energy costs and a weakening of the Australian dollar against the US$.  The likelihood that past performance may be an indication of future earnings is only meaningful in a period of steady conditions which have not been present over the past couple of years.

 

Critical Accounting Policies (refer F-7 – Note 1 Accounting Policies)

 

Amcor’s consolidated financial statements have been prepared in accordance with Australian generally accepted accounting principles (A-GAAP). Our significant accounting policies are more fully described in Note 1 to our financial statements. The preparation of our financial statements requires management to make estimates and judgements that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent liabilities. We continually evaluate our estimates and judgements including those related to bad debts, inventories, intangible assets, income taxes, financing activities, restructuring costs, contingencies and litigation. We base our estimates and judgements on historical experience and on various other assumptions we believe to be reasonable under the circumstances. This forms the basis for making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions.

 

As our financial statements are prepared under A-GAAP, our accounting policies are necessarily compliant with all aspects of A-GAAP. A-GAAP is based on a ‘substance over form’ conceptual framework that requires us to look through the legal interpretation of an arrangement or transaction to its underlying purpose and to reflect it in our financial statements on that basis.

 

Changes in Amcor’s accounting policies generally reflect changes to currently applicable Australian Accounting Standards and disclosure requirements of Australia’s professional accounting bodies. These changes are described in Note 1 to our financial statements, as are the financial effects of these changes in the current or prior periods.

 

25



 

In developing accounting policies, in addition to A-GAAP requirements, we also consider industry practice. Where there is no conflict with A-GAAP we also consider the suitability of accounting policies under US-GAAP. This reduces the number of A-GAAP/US-GAAP reconciliation differences required to be adjusted in Note 41 to our financial statements.  Refer to Note 41 for a description of the adjustments made to AGAAP to reconcile financial measures to USGAAP.

 

Adoption of AIFRS

 

On July 3, 2002, the Australian Financial Reporting Council announced that Australia would adopt International Financial Reporting Standards (“IFRS”), to be referred to as AIFRS, for financial years beginning on or after January 1, 2005 (fiscal year ending June 2006 for Amcor).  Refer to Note 39 to our financial statements for a discussion of the key areas where accounting policies will change and have an impact on the financial report of Amcor.

 

The impact of transition to AIFRS, including the transitional adjustments disclosed in the reconciliations from current AGAAP to AIFRS and the selection and application of AIFRS accounting policies, is based on expected or early adopted AIFRS standards. The figures disclosed in Note 39 are management’s current best estimate of the quantitative impact of the changes, as at the date of preparing the 30 June 2005 financial report. The actual effects of transition to AIFRS may differ from the estimates disclosed due to (a) potential amendments to AIFRS and interpretations being issued by the AASB and IASB; (b) emerging accepted practice in the interpretation and application of AIFRS and UIG interpretations; and (c) changes to the consolidated entity’s operations.

 

In all material respects our accounting policies are applied consistently across Amcor. The critical accounting policies discussed below apply to all segments of Amcor. Management has discussed the development and selection of these critical accounting policies with the Audit and Compliance Committee of our Board of Directors.

 

The following are the critical accounting policies we apply in producing our A-GAAP financial statements.

 

Recovery of Long-lived Assets

 

Long-lived assets, consisting primarily of property, plant and equipment and intangibles, comprise a significant portion of Amcor’s total assets. Changes in the intended use of these assets may cause the estimated period of use or the value of these assets to change.

 

Long-lived assets, including goodwill and intangibles, are reviewed for impairment whenever events or changes in circumstances have indicated that changes in their carrying amounts may not be recoverable. Estimates and assumptions used in both setting depreciable lives and testing for recoverability require both judgments and estimations. Property assets are independently valued on an ‘existing use’ basis every three years and we assess the recoverable amounts of our plant and equipment bi-annually, based on an analysis of the current replacement cost of plant and equipment at each business location. We assess the carrying value of acquired goodwill for impairment at least annually, based on its recoverable amount. Our assessments include methodologies such as earnings multiples and discounted cash flow. If earnings and earnings multiples change, Amcor may have to record additional impairment charges not previously recognized.

 

Significant items in 2004-05 included asset impairments of A$242.4 million in PET, Australasia, Flexibles and Asia.  The asset impairments in PET of A$55.5 million represent the announced closure of 3 plants: Vancouver, Calgary and Montreal.  In Flexibles, the impairment of A$27.2 million is against three plants predominantly servicing the Processed Food sector.  In Australasia, a charge of A$108.7 million was taken against the Botany and Fairfield paper mills after their life was reassessed to be 3 – 5 years.   In Asia, impairments of A$44.9 million were recorded against the carrying value of the corrugated, sacks and rigid assets, reflecting the outlook for those businesses in the face of increasing competitive pressures in the region.

 

In 2003-04 a write-down of residual assets of the former Twinpack group of A$10.6 million was recorded.

 

Business Combinations

 

Amcor accounts for business acquisitions using the purchase method of accounting. The accounting for business acquisitions is complex and involves the use of significant judgment.

 

26



 

Under the purchase method of accounting, a business acquisition is accounted for at a purchase price based upon the fair value of the consideration given, whether it is in the form of cash, assets, stock or the assumption of liabilities. The assets and liabilities acquired are measured at their fair values, and the purchase price is allocated to the assets and liabilities, since the majority of the assets and liabilities acquired do not have fair values that are readily determinable. Different techniques may be used to determine fair values, including market prices, where available, appraisals, comparisons to transactions for similar assets and liabilities and present value of estimated future cash flows. Since these estimates involve the use of significant judgment, they can change as new information becomes available.

 

Doubtful Debts

 

We maintain provisions for doubtful debts based on an estimate of the inability of our customers to pay amounts due to us. These provisions are based on historical trends and management’s assessment of general economic conditions. If the financial condition of our customers deteriorates, these provisions may not be sufficient and may lead to an increase in bad and doubtful debt expenses. We have no reason to believe that the provisions we have raised will not sufficiently cover bad debts arising out of the receivables we currently have on hand. Our provision for doubtful debts was A$50 million at June 30, 2005, A$52 million at June 30, 2004 and A$60 million at June 30, 2003. Trade debtors before any provision for doubtful debts were A$1,362 million at June 30, 2005, A$1,283 million at June 30, 2004 and A$1,163 million at June 30, 2003.

 

Slow Moving and Obsolete Inventory

 

Amcor’s policy is to maintain a provision for slow moving and obsolete inventory based on our best estimate of such amounts at year-end. We base our estimate on a systematic, on-going review and evaluation of inventory balances. As part of this evaluation, we also consider the average age of the inventory as compared to anticipated necessary levels for future periods. We believe that the accounting estimate related to the establishment of a provision for slow moving and obsolete inventory is a critical accounting estimate because the evaluation is inherently judgemental and requires the use of significant judgements about expected future sales levels which may be susceptible to significant change.

 

Amcor’s inventories are valued at the lower of cost (including an appropriate proportion of fixed and variable overheads) and net realisable value in the normal course of business.   After initial measurement of the cost of finished goods inventories, cost is determined using the most appropriate of either first-in, first-out (FIFO) or weighted average cost formula.

 

Our provision for diminution in value of inventories was A$84 million at June 30, 2005, A$72 million at June 30, 2004 and A$72 million at June 30, 2003. Total value of inventories before any provision for diminution were A$1,523 million at June 30, 2005, A$1,442 at June 30, 2004 and A$1,356 at June 30, 2003.

 

Pension Plans

 

We engage actuaries to assist in the determination of our prepaid pension and other post-retirement assets, accrued liabilities and retirement benefit gains/(losses) under US GAAP.  Under AGAAP the contributions to the various pension plans are recorded as an expense in the income statement and there is no requirement to recognise the liability or prepaid pension asset.  The following are the main assumptions used to calculate the adjustment recorded in the reconciliation to US GAAP in Note 41 to the financial statements:

 

                  Discount rate;

                  Rate of increase on salary levels; and

                  Expected long term rate of return on assets.

 

These assumptions have a significant impact on the calculations and adjustments made, and are disclosed in Note 35 to our financial statements.

 

The company participates in a number of pension and other post-retirement funds which have been established to provide benefits for employees and their dependants.  These arrangements are discussed in greater detail in Note 35 to our financial statements.

 

27



 

Results of Operations

 

The following discussion is based on Amcor’s consolidated financial statements as prepared under AGAAP.  A discussion of the differences between AGAAP and US GAAP, and the impact of those differences on the consolidated financial statements, is set out in Note 41 to the consolidated financial statements.

 

Restatement of certain prior year US GAAP financial measures

 

Certain US GAAP financial measures for the years ended June 30, 2002, 2003 & 2004 have been restated to correct errors identified in 2005.  As discussed below, during the 2004-05 financial year Amcor undertook a process of transitioning its financial reporting under AGAAP to reporting according to Australian International Financial Reporting Standards (AIFRS).  A number of errors were corrected, principally as a result of identifying and determining certain adjustments for the transition to AIFRS where certain differences between AGAAP and USGAAP were identified that had not previously been considered.  These instances of misapplication of USGAAP related to accounting for asset retirement obligations, accounting for lease payments on a straight line basis, capitalised relocation costs, the amortisation of borrowing costs using the effective interest rate method and the treatment of acquired deferred tax balances.  In addition during the AIFRS transition process a number of USGAAP calculation errors were determined as a result of comparing the AIFRS transition result to the previously reported USGAAP financial measures.  These related to accounting for start-up costs, pension plans, deferred tax and foreign exchange.  Other minor errors corrected include AGAAP to USGAAP adjustments for sale and leasebacks, net investment hedging and available for sale investments.

 

Management has determined that these restatements revealed certain significant deficiencies (as defined by the PCAOB in their Auditing Standard AS2) in Amcor’s internal controls over financial reporting.  Amcor has increased the attention and resources skilled in US GAAP and increased the reconciliation and review controls over the preparation of Amcor’s US GAAP reconciliation to help prevent or detect future misstatements before future financial statements are issued.

 

Amcor considers, that despite the existence of certain deficiencies, disclosure controls and procedures overall remain effective and management has certified accordingly, refer Item 15.

 

28



 

AGAAP Results of Operations

 

Amcor’s senior management and Board review results on a PBITA basis and believe it is the most informative and reliable gauge for measuring and understanding trends across a diverse range of businesses. Given that Amcor will report under AIFRS from July 1 2005, where there is no amortization of goodwill, it is more appropriate to report segment results currently on a pre amortization basis.

 

 

 

Sales

 

PBITA

 

 

 

Year Ended June 30,

 

Year Ended June 30,

 

 

 

2005

 

2004

 

2003

 

2005

 

2004

 

2003

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Industry Segments (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amcor PET Packaging

 

3,645.1

 

3,205.2

 

3,236.2

 

260.5

 

268.2

 

301.6

 

Amcor Australasia

 

2,571.7

 

2,537.9

 

2,455.7

 

316.8

 

316.5

 

282.8

 

Amcor Flexibles

 

2,418.9

 

2,241.0

 

2,170.3

 

143.0

 

131.2

 

132.6

 

Amcor Sunclipse

 

1,218.7

 

1,158.1

 

1,299.0

 

55.8

 

57.6

 

84.8

 

Amcor Rentsch and Closures

 

984.1

 

1,012.2

 

1,310.6

 

109.1

 

100.6

 

83.3

 

Amcor Asia

 

263.3

 

249.5

 

263.4

 

27.0

 

30.5

 

32.1

 

Other

 

(2.2

)

2.0

 

(25.3

)

(74.4

)

(73.5

)

(56.8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total sales revenue

 

11,099.6

 

10,405.9

 

10,709.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Significant items before tax (2)

 

 

 

 

 

 

 

(328.4

)

(99.8

)

(86.7

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit before interest, tax and amortization (3)

 

 

 

 

 

 

 

509.4

 

731.3

 

773.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of goodwill

 

 

 

 

 

 

 

(127.2

)

(127.6

)

(138.8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit before interest and tax

 

 

 

 

 

 

 

382.2

 

603.7

 

634.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net borrowing costs

 

 

 

 

 

 

 

(137.2

)

(132.2

)

(146.3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax

 

 

 

 

 

 

 

(58.8

)

(111.3

)

(110.5

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Minority interests

 

 

 

 

 

 

 

(13.0

)

(14.5

)

(16.8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net profit after tax

 

 

 

 

 

 

 

173.2

 

345.7

 

361.3

 

 


(1)              The individual industry segments’ profit results refer to profit before interest, tax and goodwill amortization, excluding significant items (PBITA).

(2)              Details of significant items are as follows:

                  2005 –  PET business integration and restructure expense – A$51.8 million; Flexibles’ market sector rationalization expense – A$34.2 million; asset impairments A$242.4 million.

                  2004 – PET business integration and restructure expense – A$19.9 million; Flexibles’ market sector rationalization expense – A$69.3 million; write-down residual assets of the former Twinpak group – A$10.6 million.

                  2003 – restructuring expenses following acquisition of Schmalbach-Lubeca businesses – A$86.7 million.

 

29



 

Year Ended June 30, 2005 Compared with Year Ended June 30, 2004

 

Consolidated Results of Operations

 

Sales

 

Sales revenue increased from A$10.4 billion in 2003-04 to A$11.1 billion in 2004-05. The increase of 6.7% reflected a combination of volume and price increases as a result of the pass through to customers of resin and other raw material prices increases.  In addition the strengthening of the $A against the USD and Euro caused the 2004-05 sales revenue to be 2% lower when expressed in AUD.

 

Costs

 

Expenses from ordinary activities excluding borrowing costs increased from $9.9 billion in 2003-04 to $10.8 billion in 2004-05, an increase of 9%.  This reflects an increase in raw material costs offset by cost savings through rationalisation and restructuring initiatives and the appreciation in the A$ against the USD and Euro.

 

Interest

 

Amcor’s overall average interest rate in 2004-05 of 5%, was up from 4.7% in 2003-04.  The increase in net borrowing costs in 2004-05 to A$137.2 million from A$132.2 million in 2003-04 can largely be attributed to interest rate increases in Amcor’s major borrowing currencies and the credit rating downgrade.  Partially offsetting the increase in interest expense is the increase in external interest revenue resulting from the increase in cash holdings during the year.

 

Income Tax

 

Amcor’s income tax rate in 2004-05 before significant items of 20.5% remained relatively consistent with the 2003-04 tax rate of 20.4%.

 

Significant Items

 

The significant items in 2004-05 totalled A$328.4 million (2003-04 -  A$99.8 million) and were made up of asset impairments with PET, Australasia, Flexibles and Asia of A$242.4 million (2003-04 – nil); expenses associated with the PET business integration and restructure – A$51.8 million (2003-04 – A$19.9 million); the Flexibles’ market sector rationalization – A$34.2 million (2003-04 - A$69.3 million).  In addition significant items in 2003-04 included the write-down of residual assets of the former Twinpak group of A$10.6 million.

 

The asset impairments in PET are a result of the announced closure of 3 plants: Vancouver, Calgary and Montreal.  In Flexibles the impairment is against three plants predominantly servicing the Processed Food sector.  In Australasia, a charge of $89m was taken against the Botany and Fairfield paper mills after their life was reassessed to be 3 – 5 years.  In Asia, impairments were recorded against the carrying value of the corrugates, sacks and rigid assets, reflecting the outlook for those businesses in the face of increasing competitive pressures in the region.

 

Net Profit

 

Amcor’s Australian GAAP net profit after tax decreased from A$345.7 million in 2003-04 to A$173.2 million in 2004-05. This result was negatively impacted by an increase in significant items of A$228.6 million from 2003-04.  This result was negatively impacted by A$8 million from the translation, for reporting purposes, of overseas profits into Australian dollars, the currency in which we report our results. If exchange rates in 2003-04 had remained unchanged in 2004-05, net profit after tax would have been A$8 million higher in 2004-05.

 

The Company’s US GAAP net profit decreased from A$364.3 million in 2003-04 (as restated) to A$205.7million in 2004-05. The difference between the 2004-05 Australian GAAP net profit and the US GAAP net profit is detailed in Note 41 to the consolidated financial statements included in Item 18.

 

30



 

Dividend

 

A final dividend of A$0.17 per share (franked to 22%) was declared on all fully paid ordinary shares registered as at September 8, 2005, and paid on September 28, 2005. The final dividend, combined with the interim dividend of A$0.17 per share, represented an annual dividend of A$0.34 per share. This represents an increase of A$0.02 per share over the 2003-04 dividend.

 

Amcor PET Packaging

 

 

 

2004-05

 

2003-04

 

Change

 

 

 

A$m

 

A$m

 

%

 

 

 

 

 

 

 

 

 

Sales

 

3,645.1

 

3,205.2

 

13.7

 

Segment result (PBITA)

 

260.5

 

268.2

 

(2.9

)

 

Amcor PET Packaging had a satisfactory year in 2004-05 with PBITA in US dollars increasing by 2.7% compared with 2003-04 (from US$190.3 million to US$195.4 million). As can be seen from the table, above, however, in Australian dollar terms, PBITA in 2004-05 fell by 2.9% from 2003-04.  This was before significant items of A$107.3 million in 2005 relating to asset impairments of $A55.5 million and PET business integration and restructure costs of $A51.8 million (A$19.9 million in 2003-04).

 

Overall unit volumes in 2004-05 grew by 5% to 34 billion.  The custom segment, including higher margin custom containers and multilayer preforms, grew by 6%.  This stronger growth pattern reflects the business strategy to focus capital on this higher technology market segment.

 

The North American operations, including Canada, experienced volume growth in 2004-05 of 3% over 2003-04. This growth came primarily from the decision to exit marginal volumes and focus on higher value added segments.

 

Volume increases in 2004-05 came primarily from the continued strength of the custom market which was up over 10% versus 2003-04, driven by strong growth in the juice and sports drinks categories.  The CSD and water volumes in 2004-05 were consistent with 2003-04.

 

PBITA in North America for 2004-05 decreased by 4.3% when compared to 2003-04.  Although the cost reduction programs have delivered the benefits anticipated and differential pricing initiatives have improved earnings at some plants, these increases were more than offset by the inflationary pressures in costs that were absorbed by the business and some price concessions on longer term contracts.

 

The North American business has also been notified of the loss of around 800 million containers in volume at the end of the current contract in January 2006.  The supply of this volume is predominantly from plants located in Canada.  After examining a number of options, the decision has been made to close the three small Canadian plants, being Vancouver, Calgary, and Montreal.  This has required an asset write down on these plants and related equipment of US$34 million and cash restructuring cost of US$19 million.  Both these amounts are reflected as significant items.  Other significant items for the year, relating to previously announced projects, included a US$25 million charge largely dedicated to funding the North American restructuring effort and overhead cost reduction initiatives in all three regions.

 

In Latin America, volume growth from 2003-04 to 2004-05, including the impact of acquisitions was 23%.  Custom volumes continued to deliver strong growth and were up 13% due mainly to new custom developments for sports drinks, food products and personal care items across the region.   PBITA in this region was increased by 53% in 2004-05 compared with 2003-04, after acquisitions, with strong performances in Argentina, Brazil and Venezuela.   The Brazilian operations executed a program of restructuring and cost reductions contributing to significant progress in improving PBITA in this region.

 

The European operations’ volumes in 2004-05 were 4% down from 2003-04 and PBITA, in US dollar terms was 23% lower for the equivalent period (in $A, PBITA in 2004-05 was 27% lower than 2003-04).   Lower volumes were primarily due to a cool summer in 2004 compared to the unusually hot summer in 2003 and the significant reduction in refillable PET containers in Germany.  Custom volumes represented 23% of the total volumes for the region in 2004-05.    PBITA in UK and Spain were consistent with previous years, however, the operations in Turkey and Poland both made losses.  The Turkish plant was closed in May 2005.

 

31



 

Amcor Australasia

 

 

 

2004-05

 

2003-04

 

Change

 

 

 

A$m

 

A$m

 

%

 

 

 

 

 

 

 

 

 

Sales

 

2,571.7

 

2,537.9

 

1.3

 

Segment result (PBITA)

 

316.8

 

316.5

 

0.1

 

 

Sales increased by 1.3% to $2,571.7 million from 2003-04 to 2004-05, with PBITA remaining consistent in 2004-05 at $316.8 million.  This is before significant items.

 

The Australian business is managed as four divisions, being Fibre, Flexibles, Rigid and Glass.  The Fibre division consists of the corrugated and carton converting businesses, as well as the manufacture of recycled papers for corrugated boxes and board for folding cartons.

 

In the Corrugated Packaging segment of the Fibre division, volumes were down in Australia by 3% in 2004-05 compared to 2003-04, reflecting a slowing economy, the continuation of the drought affecting the dairy, fruit and produce segments, partly offset by stronger demand in the meat segment.  In New Zealand, volumes were down by 5% in 2004-05 compared to 2003-04, mainly due to the poor kiwifruit season but compounded by the loss of a major customer early in the year.

 

The Recycled Paper Mills were negatively impacted in 2004-05 by the reduced domestic demand from the corrugated box plants, a very competitive export market and a strong Australian dollar.   Mill efficiencies were sound while ongoing cost increases, especially for wastepaper were generally not recoverable in a competitive market.  The useful life of the paper recycling mills was reassessed in 2004-05 resulting in an increase in depreciation of $90 million from 2003-04.  This has been recorded as a significant item.

 

The Folding Carton Converting business benefited from the restructuring that commenced in 2003-04 on the Australian east coast.  Volumes were slightly lower in Australia, due to reduced off-take in the wine and cereal segments.  In New Zealand, volumes were steady.

 

The Petrie Mill, located in Queensland, was negatively impacted by weaker domestic demand and increased imports of cheaper Korean board.  Although this importation was the subject of a successful anti-dumping case, it lowered margins and reduced domestic volume.  The upgrade of the Mill has taken longer than expected to achieve the quality required to replace imported whiteboards.

 

Overall, the Fibre division PBITA reduced by 26% in 2004-05, compared to 2003-04 mainly due to lower volumes and unrecovered cost increases and additional depreciation.

 

Flexibles volume increased by 2% in 2004-05, compared to 2003-04 and resin cost increases were recovered from the market in a timely basis resulting in an increase in PBITA of 10%.

 

Rationalisation down to one site in NSW is nearing completion and, combined with recent capital investment, this business now has a cost effective manufacturing footprint with appropriate state of the art equipment.  The business continues to benefit from its strong relationship with the global Flexibles group.

 

The Rigid Packaging group comprises the beverage, food, aerosol cans, PET and closures businesses.  The Rigid Packaging group PBITA increased by 13% in 2004-05 compared to 2003-04, mainly as a result of improved performance in the Beverage Can and Food Can businesses.

 

In the Beverage Can business volumes increased by 4% in 2004-05, compared to 2003-04, mainly in the ready to drink, mixer and soft drink segments.  Plant efficiencies improved following the extensive capital investment program on the new 202 super end in 2003-04.

 

Volumes in the Food Can business were down on the previous year due of the impact of poor crops, increased imports of filled product and, in the second half, significantly higher tinplate costs.  Offsetting these impacts were a more favourable sales mix and continued improvement in manufacturing efficiencies.

 

32



 

The Glass wine bottle operation PBITA increased by 23.5% in 2004-05 compared to 2003-04, due to the commissioning of the second furnace ahead of plan, increasing sales volume.  Continued strong customer support and an increase in the range of products also contributed to the increase in PBITA.

 

Amcor Flexibles

 

 

 

2004-05

 

2003-04

 

Change

 

 

 

A$m

 

A$m

 

%

 

 

 

 

 

 

 

 

 

Sales

 

2,418.9

 

2,241.0

 

7.9

 

Segment result (PBITA)

 

143.0

 

131.2

 

9.0

 

 

In local currency (Euros), Amcor Flexibles’ PBITA in 2004-05 increased 8.2% on 2003-04, from €78.2 million to €84.6 million. In Australian dollar terms, there was an increase of 9%. This was before significant items of A$61.4 million expense in 2004-05 consisting of asset impairments of A$27.2 million and the Flexibles’ market sector rationalization of A$34.2 million.   Significant items of A$69.3 million in 2003-04 related to the Flexibles’ market sector rationalization.    Sales increased by 7.9% primarily due to an increase in raw material costs.

 

PBITA was negatively impacted by substantial raw material cost increases.  Significant success was achieved in passing on these costs increases, although they were not fully recovered.  This partial under-recovery reflected continuing retailer pressure on the supply chain, weakness in a number of central European economies and the strong Euro depressing exports.  Although raw material input costs have now stabilised, this is mainly due to weakening demand across much of Europe and with the oil price remaining high, it is possible that raw material costs will increase if there is an improvement in economic activity.

 

Offsetting this negative, was substantial positive contribution from a range of cost cutting and restructuring initiatives.  During the year, the loss making plant in the Netherlands was closed and there was significant reduction in overhead costs as well as ongoing restructuring at a number of plants.  In all, around 700 people, out of 7,820 have left the business over the past 12 months.  The significant item booked for the year to cover this restructuring was €20.2 million.

 

Slowing economic conditions across much of Continental Europe during the second half of the year also impacted earnings.  With the weakening demand and consequent lower volumes, it was considerably more difficult to recover cost increases.

 

Other input costs, mainly relating to energy and transport, resulted in higher than inflation cost increases which were generally not able to be passed onto customers.  These increases were absorbed by the business and impacted negatively on earnings.  Energy price pressure continued to be a major concern.  The high Euro exchange rate continued to put pressure on export margins of both Eurozone manufacturing plants and their customers.

 

The operational positives, besides the restructuring program, included the ongoing strong performance in America, improvement in Processed Foods and the continued success of product innovation in delivering new value-add products to the market.

 

The Processed Food sector achieved solid improvements during the year.  The closure of the plant in the Netherlands, combined with a number of other individual restructuring programs and improved performance in some market segments were the primary drivers of the earnings increase.

 

Construction of the new plant in Russia proceeded according to schedule and it commenced operation in September 2005, enabling Amcor Flexibles to meet the local needs of a number of its key customers.

 

Due to ongoing difficult operating conditions in some market segments and geographic regions, the assets at three sites, predominantly servicing the Processed Food markets, have been written down by a combined amount of €16 million.  This is treated as a significant item.

 

PBITA for the Fresh Food sector decreased by 10% in 2004-05 compared to 2003-04, although sales for the sector increased.

 

PBITA for the European Healthcare sector remained consistent in 2004-05 with 2003-04 and benefited from the integration of the former Rexam businesses, although the film based businesses suffered from the lag in recovery of raw material cost increases and operational issues.

 

33



 

In the American business, which comprises mainly the former Rexam Healthcare operations in the US, Puerto Rico and Brazil, plus a focused Fresh Food operation, sales and PBITA increased in 2004-05 from 2003-04.

 

Amcor Sunclipse

 

 

 

2004-05

 

2003-04

 

Change

 

 

 

A$m

 

A$m

 

%

 

 

 

 

 

 

 

 

 

Sales

 

1,218.7

 

1,158.1

 

5.2

 

Segment result (PBITA)

 

55.8

 

57.6

 

-3.1

 

 

Reflecting adverse economic conditions in the USA, Amcor Sunclipse experienced a flat year in 2004-05 with PBITA in US dollars up 2.4% from US$40.9 million in 2003-04 to US$41.9 million. In Australian dollar terms, PBITA was down 3.1% in 2004-05 compared with 2003-04.

 

The corrugated business had a solid year overall with volumes up 4.7% in 2004-05 compared with 2003-04, although this growth was assisted by a competitor’s corrugator being down for two months in the first half. In the second half, the increased competitor volumes and somewhat slower economic conditions meant that earnings were well down on the second half last year.  In June, there was a modest reduction in linerboard prices, reflecting the overall weaker demand and some stock was sold at lower prices to meet competition in the market.

 

The manufactured products group PBITA increased by 38.5% in 2004-05 compared to 2004-03.  Volumes for the year were 7.7% lower as the business made a conscious effort to concentrate on higher value products.   During the first half of the year, cost increases were generally passed on to customers, but this became increasingly difficult in the second half.

 

The Distribution division covers 14 states in the US and has four sites in Mexico. During the year, a small distributor was acquired in New Jersey to further expand the footprint on the east coast.

 

The Distribution business had a solid year, although PBITA decreased by 5.9% in 2004-05 compared to 2004-03. Two corrugated cost increases, as well as numerous other cost increases caused by rising oil prices, were absorbed by the business during the year.  As a result, PBITA suffered during the year as the full impact of these price increases were not able to be passed on to customers.

 

Amcor Rentsch and Closures

 

 

 

2004-05

 

2003-04

 

Change

 

 

 

A$m

 

A$m

 

%

 

 

 

 

 

 

 

 

 

Sales

 

984.1

 

1,012.2

 

(2.8

)

Segment result (PBITA)

 

109.1

 

100.6

 

8.4

 

 

The combined Amcor Rentsch and Closures business improved PBITA in local currency (Euros) and Australian dollars in 2004-05 compared with 2003-04 by 7.7% and 8.4% respectively.

 

Amcor Rentsch had a solid year with higher earnings despite sales being 6% lower than 2004-03 at €306 million in 2004-05.  The lower sales were a result of continuing pressure on tobacco markets in Western Europe, driven primarily by substantial tax increases in major markets such as Germany and France.  This decrease in Western Europe was partially compensated by increased production in Russia and Poland with both these plants running at full capacity.

 

The growing demand in Eastern Europe, together with ongoing reductions in the cost base in Western Europe contributed to an 8.4% increase in PBITA for 2004-05 compared to 2003-04.

 

Sales for the Amcor Closures business were 1% lower in 2004-05 compared to 2003-04 with PBITA in line with last year.  The business was significantly impacted by an increase in tinplate prices of 20% on January 1 in Europe and even larger increases in Asia.  Amcor White Cap was committed to recovering raw material cost increases and this was largely achieved, although at the expense of some volume.

 

34



 

Overall, although volumes declined in Western Europe, the business benefited from good growth in the regions of Eastern Europe, Asia and the Middle East. In Europe, Amcor White Cap continued its efficiency improvement program by closing the loss-making Hungarian operation and transferring production to other sites. In Asia, Amcor White Cap commercialised a new patented composite cap for food applications. Its new plant is now fully operational producing at capacity with forward orders requiring additional capacity expansion.

 

The Bericap joint venture’s revenue and sales were broadly in line in 2004-05 with 2003-04.  Profit continued to be negatively impacted by the strength of the Canadian dollar against the US dollar for those products exported from Canada to the US.

 

Amcor Asia

 

 

 

2004-05

 

2003-04

 

Change

 

 

 

A$m

 

A$m

 

%

 

 

 

 

 

 

 

 

 

Sales

 

263.3

 

249.5

 

5.5

 

Segment result (PBITA)

 

27.0

 

30.5

 

(11.5

)

 

Amcor Asia’s PBITA in Singapore dollars was down 9.4% in 2004-05 compared with 2003-04 (2004-05 S$33.7 million; 2003-04 S$37.2 million).

 

The major contributor to the decrease in PBITA in 2004-05 from 2003-04 was a decrease in selling prices in the corrugated businesses in Malaysia and Indonesia due to excess capacity and a highly competitive market. Although sales and volumes increased, there was an inability to pass on linerboard raw material cost increases. The carrying values of the corrugated assets have been written down by S$48 million in 2004-05.

 

The Tobacco Carton business sales and earnings increased and performance improved in all three countries where plants are located.

 

In January 2005, Amcor acquired a 16.67% share in the Hong Kong listed company, Vision Grande Group Holdings Limited, that operates three tobacco packaging businesses in China. This is a strategic investment in the rapidly consolidating Chinese tobacco market.

 

The Flexibles business, which consists of a medical packaging plant in Singapore and two food flexible packaging plants in China, had another solid year with good returns. Raw material cost increases were generally passed on to customers in a timely manner with minimal impact to earnings.

 

Year Ended June 30, 2004 Compared with Year Ended June 30, 2003

 

Consolidated Results of Operations

 

Sales

 

Sales revenue decreased slightly from A$10.7 billion in 2002-03 to A$10.4 billion in 2003-04. The decrease of 2.8% reflected a combination of increases due to the acquisitions of Rexam’s Healthcare flexibles packaging business, Alcoa’s Latin American PET packaging business, and the negative impact of translating foreign sales into Australian dollars. Other revenue was lower in 2003-04 due mainly to the sale in 2002-03 of our 65% share of Amcor White Cap LLC to Silgan Holdings Inc.

 

Interest

 

Amcor’s overall average interest rate in 2003-04 of 4.7%, was down from 5.0% in 2002-03.  This, coupled with the impact of currency translation were the main reasons that net borrowing costs fell in 2003-04 to A$132.2 million from A$146.3 million in 2002-03 despite net debt increasing by 17% from A$2,297 million in 2002-03 to A$2,689 million in 2003-04.

 

Income Tax

 

Amcor’s income tax rate in 2003-04 before significant items of 20.4% fell from 22.1% in 2002-03. This is primarily due to debt push down in higher rate jurisdictions and increases in loss recoupment in high tax rate jurisdictions.

 

35



 

Significant Items

 

The significant item in 2002-03 of A$86.7 million related to restructuring expenses following the acquisition of the PET and Closures businesses from Schmalbach-Lubeca. The significant items in 2003-04 totalled A$99.8 million and were made up of expenses associated with the PET business integration and restructure – A$19.9 million; the Flexibles’ market sector rationalization – A$69.3 million; and the write-down of residual assets of the former Twinpak group – A$10.6 million

 

Net Profit

 

Amcor’s Australian GAAP net profit after tax decreased from A$361.3 million in 2002-03 to A$345.7 million in 2003-04. This result was negatively impacted by A$34 million from the translation, for reporting purposes, of overseas profits into Australian dollars, the currency in which we report our results. If exchange rates in 2002-03 had remained unchanged in 2003-04, net profit after tax would have been A$34 million higher in 2003-04.

 

The Company’s US GAAP net profit increased from A$367.6 million in 2002-03 to A$377.6 million in 2003-04. The difference between the 2003-04 Australian GAAP net profit and the US GAAP net profit is detailed in Note 33 to the consolidated financial statements included in Item 18.

 

Dividend

 

A final dividend of A$0.16 per share (franked to 40%) was declared on all fully paid ordinary shares registered as at September 9, 2004, and paid on September 29, 2004. The final dividend, combined with the interim dividend of A$0.16 per share, represented an annual dividend of A$0.32 per share. This represents an increase of A$0.02 per share over the 2002-03 dividend.

 

Amcor PET Packaging

 

 

 

2003-04

 

2002-03

 

Change

 

 

 

A$m

 

A$m

 

%

 

 

 

 

 

 

 

 

 

Sales

 

3,205.2

 

3,236.2

 

(0.9

)

Segment result (PBITA)

 

268.2

 

301.6

 

(11.1

)

 

Amcor PET Packaging had a mixed year in 2003-04 with PBITA in US dollars increasing by 7.6% compared with 2002-03 (from US$176.8 million to US$190.3 million). As can be seen from the table, above, however, in Australian dollar terms, PBITA in 2003-04 fell by 11.1% from 2002-03.  This was before significant items of A$19.9 million expense in 2004 relating to the PET business integration and restructure and A$ 59.5 million restructuring expenses in 2003 following acquisition of Schmalbach-Lubeca businesses.

 

Overall unit volumes in 2003-04 grew by 17% to 32.4 billion, of which just under 5% was due to acquisitions (see Capital Expenditures and Divestures). This volume growth was achieved in all three regions (North America, Latin America and Europe).

 

The North American operations, including Canada, experienced volume growth in 2003-04 of 13.6% over 2002-03. This growth came primarily from the strength of the bottled water and custom markets, the latter driven by growth in the single serve juice and sports drinks categories. PBITA, however was down in 2003-04 by 13% compared with 2002-03. The higher Canadian dollar against US dollar forced prices lower and in the US there was strong pricing pressure from large customers.

 

In response, the business has undergone a rationalisation and restructuring plan which, together with a review of overhead expenses, is expected to reduce the number of North American employees by 250 people. In addition, PET Packaging has begun a review of pricing in the carbonated soft drink/water segment as, in many cases, prices are delivering unacceptable returns on the assets employed.

 

In Latin America (excluding acquisitions) volume growth in 2003-04 was 7.7% up on 2002-03. PBITA in this region was 25% higher in 2003-04 compared with 2002-03 with strong performances in Argentina and Venezuela helping offset shortfalls in Brazil where over-capacity and general economic conditions are causing some concern.

 

The European operations’ volumes in 2003-04 were 9% ahead of 2002-03 and PBITA, in US dollar terms was 42% ahead for the equivalent period (in local currency terms, PBITA in 2003-04 was 20% ahead of 2002-03).

 

36



 

The good summer weather in Europe in 2003-04 assisted the businesses in the UK, Spain and France to improve volumes and PBITA over 2002-03 and the German operations also benefited from strong growth in the carbonated soft drink market and increased volumes in 2003-04 by 75%.

 

Excluding acquisitions, capital expenditure in 2003-04 was significantly less than in 2002-03 and was well under 2003-04’s depreciation expense. Capital in 2003-04 was invested primarily in strengthening the push into higher margin, custom markets, including juices, food and personal care products.

 

Amcor Australasia

 

 

 

2003-04

 

2002-03

 

Change

 

 

 

A$m

 

A$m

 

%

 

 

 

 

 

 

 

 

 

Sales

 

2,537.9

 

2,455.7

 

3.3

 

Segment result (PBITA)

 

316.5

 

282.8

 

11.9

 

 

Growth in sales volume of glass wine bottles and restructuring initiatives in the fibre packaging, folding cartons and food can sectors contributed to Amcor Australasia’s sales and profit improvement in 2003-04 over 2002-03. Sales and PBITA increased in 2003-04 by 3.3% and 11.9% respectively. One-off costs of restructuring were effectively offset by profit on sale of properties. However, the strength of the Australian dollar in 2003-04 had a negative impact on export margins, particularly in the paper and flexibles businesses.

 

In the fibre packaging segment the drought in Australia in 2003-04 had an adverse affect on corrugated box volumes in the dairy, fruit and produce markets. However this was partly offset by stronger demand in the meat market in Australia and New Zealand. Overall corrugated box volumes in 2003-04 were slightly down in Australia and up 5% in New Zealand compared with 2002-03.

 

The recycled paper mills continued to operate efficiently in 2003-04 but experienced a difficult year with lower demand from the Australian fibre box business, lower pulp sales and an adverse impact of the strengthening of the Australian dollar on export pricing.

 

The folding carton business improved its PBITA in 2003-04 over 2002-03 due in part to the restructuring of its operations on the east coast of Australia resulting in a lower cost base. The upgrade of the Petrie Mill in Queensland, Australia is expected to improve board quality and create an opportunity for replacement of imported whiteboards. Low margin export volumes, as expected, were adversely impacted by the shutdown of the mill for the upgrade.

 

The sacks business experienced a difficult year in 2003-04 with the drought conditions in Australia affecting dairy volumes. Additionally, the sacks market in Australia is very competitive. In the metal packaging segment, beverage can volumes in 2003-04 were 4% up on 2002-03, mainly in the soft and mixer drink sectors.

 

The full year benefits of the closure of the Dandenong, Australia food can plant contributed to the improved PBITA in 2003-04 of this business despite sales volumes being flat. Overall sales volumes in the aerosol can business improved in 2003-04, particularly aluminium cans.

 

In Amcor Australasia’s plastics segment, the flexibles business’s sales volumes in 2003-04 were slightly higher than 2002-03; however the strengthening of the Australian dollar had an adverse impact on the profit margins of exports. Resin supply was adversely affected by a gas field fire at Moomba, South Australia which necessitated importing resin and unfavourably impacted productivity. Overall, however, PBITA in 2003-04 was slightly up on 2002-03.

 

The glass wine bottle operation operated at full capacity in 2003-04 and sales volume exceeded expectations. Most major customers experienced strong export volumes during the year.

 

37



 

Amcor Flexibles

 

 

 

2003-04

 

2002-03

 

Change

 

 

 

A$m

 

A$m

 

%

 

 

 

 

 

 

 

 

 

Sales

 

2,241.0

 

2,170.3

 

3.3

 

Segment result (PBITA)

 

131.2

 

132.6

 

(1.1

)

 

In local currency (euros), Amcor Flexibles’ PBITA in 2003-04 increased 5.4% on 2002-03, from €74.2 million to €78.2 million. In Australian dollar terms, however, there was a decrease of 1.1%. This was before a significant item of A$69.3 million expense in 2004 for the Flexibles’ market sector rationalization.  The result was below expectations due to a decline in sales in the processed food sector, operational underperformance at some plants, poor economic conditions across much of Europe and a strong euro which impacted margins on export sales.

 

In Europe, Amcor Flexibles is organised into three markets – fresh food, healthcare and processed foods.  Our Americas business is predominantly a healthcare business with some positions in processed and fresh food.

 

The fresh food sector, benefited from increased demand from consumers for fresh produce, chilled foods and dairy products in the UK and Southern Europe. As a result, PBITA in 2003-04 showed a substantial improvement over 2002-03.

 

The healthcare business has operations in Europe and the Americas. Assisted by the acquisition of the Rexam healthcare flexibles business in October 2003, sales volume and PBITA improved in 2003-04 compared with 2002-03. The integration of the Rexam acquisition has been completed and it is expected that synergy benefits will be achieved in future periods.

 

Difficult conditions in certain market segments and operational performance below expectations contributed to a difficult year in the processed food sector. Sales values in 2003-04 were around 7% below 2002-03 and volumes for the sector were impacted by economic conditions in Europe including a trend to more generic packaging. PBITA in 2003-04 was €15 million below 2002-03.

 

Amcor Sunclipse

 

 

 

2003-04

 

2002-03

 

Change

 

 

 

A$m

 

A$m

 

%

 

 

 

 

 

 

 

 

 

Sales

 

1,158.1

 

1,299.0

 

(10.8

)

Segment result (PBITA)