Amcor spin-off will rely on cost savings

The Australasia and Packaging Distribution (AAPD) business to be spun out of Amcor will rely on cost savings to underpin earnings over the next few years. Global packaging firm Amcor announced earlier in August that it intends to split AAPD from the rest of its operations.

AAPD will focus on the fibre, glass and beverage can packaging markets in Australia and New Zealand, plus packaging distribution in North America and Australia. The new Amcor will focus on making flexible and rigid plastic packaging and tobacco packaging mostly for overseas markets.

"The most important driver of shareholder value (for AAPD) over the next two to three years is certainly going to be the cost-reduction piece," Amcor chief executive Ken MacKenzie said on Monday. AAPD is expected to gain $81 million in benefits over the next three years from a new recycled-paper mill at Botany in NSW, the rationalisation of its product portfolio and improvements to manufacturing. Mr MacKenzie said AAPD supplied consumer staples markets, so its sales would mirror gross domestic product (GDP) growth in Australia, New Zealand and North America. AAPD would likely have a debt of $700 million to $750 million when it splits from Amcor. Amcor on Monday booked an annual net profit of $600.6 million for fiscal 2013, up 45.6 per cent on the the prior year's net profit of $412.6 million. The prior year's net profit was dragged back by $222.3 million in one-off items. Sales revenue for AAPD's Australasia operations lifted 0.4 per cent to $1.94 billion, but profit before interest and tax slipped 0.3 per cent to $102.4 million. Packaging Distribution sales lifted 6.7 per cent to $944 million, but profit before interest and tax fell 12 per cent to $43.8 million mainly due to a lag in the recovery of raw material price increases and investments in IT infrastructure.

Amcor's flexible packaging business had a strong year as it benefited from acquisitions and growth in emerging markets. Profit before interest and tax lifted 8.5 per cent to $741.7 million. Amcor's rigid plastics business generated a 5.7 per cent lift in profit before interest and tax of $279.2 million as it gained market share in the soft drink and water segments in the US and Canadian markets.

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