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Amcor shuffles its deck with massive restructure

Thursday, 31 August 2006
By Print 21 Online Article

This restructuring program will take four years to complete and will cost the company approximately $300 million, the result of an extensive operations review undertaken by the new management team that was appointed 12 months ago. Ken MacKenzie, CEO of Amcor, says the program will deliver improved operational efficiencies and a simplified product mix.

“Although current earnings and returns are not satisfactory, the industry fundamentals are sound and Amcor is a significant participant in the market. It is critical to be a cost competitive producer, an outcome which this plan will deliver,” says MacKenzie.

Part of the plan has Amcor looking to open a new recycling mill in Botany, Sydney to supply low-cost recycled paper to the Australasian market. The company is to undertake a detailed feasibility study with the new mill expected to be operational by 2009 or 2010.

Amcor will close its small recycling paper mill located in Spearwood, Western Australia, a decision it claims will allow it to fine tune the supply of domestic recycled paper and significantly reduce non-profitable exports. Amcor’s mill in Petrie, Queensland will also be restructured to reduce costs.

In the cartonboard segment there has been an extensive review of the Petrie mill in Queensland. While the mill is globally cost-competitive in reel production, the sheet conversion process will be restructured to reduce costs.

Big changes are afoot for the corrugated operations of Amcor with its plant at Box Hill, Victoria to close and the remaining two sites in the state to be significantly upgraded. A project is already underway in Queensland to close one site and upgrade operations at the Rocklea plant with completion scheduled for December this year. The company is also looking closely at its manufacturing footprint in New South Wales to ensure its operating costs match the other states, which will likely to involve restructuring and upgrades.

Amcor’s folding carton business will not be overlooked as the company plans to lower costs and target new growth opportunities through the purchase of a new large format printing press and conversion machinery. Amcor claims this new equipment will allow it to improve efficiencies by reallocating production across its eastern seaboard plants.

The extensive changes in the pipeline for Amcor will complement the existing SAP management information system that has already been commissioned across the country. The company claims that while it initially had a negative impact on business performance, the benefits are now being realised through improvements in both customer service and manufacturing.

Full year results for Amcor

Amcor secured profit results of $405.9 million for the 2005/06 financial year, with MacKenzie labelling it as a solid result in spite of the company facing a difficult environment of resource price rises.

“Although there were a number of adverse factors, the operating earnings before interest, tax and depreciation were down only 2.7 per cent,” he says.

“During the year, oil and energy related costs rose substantially. Raw material costs remained volatile making timely pass-through of these movements difficult, especially those caused by the hurricanes in North America. In Australia, cyclone Larry severely impacted corrugated carton sales in Northern Queensland.”

MacKenzie says the impact of its national restructuring program will not be reflected immediately as a number of negative factors are continuing into the current year, but insists the company is well placed to deliver earning improvements over the medium term.

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