A major restructuring program could hold the key to long term improvements in profitability. That is what Amcor is aiming for at any rate

Amcor comes in for an overhaul

For the nine months ending 31 March 1999, Amcor recently announced that profits were up 11% on the year-earlier period before interest and tax. Profits after tax and before abnormal items rose 15% on last year. The company also highlighted the fact that the results were achieved in spite of a loss of earnings at Amcor Fibre Packaging Europe. The unit has now been sold to a Mondi Minorco subsidiary, effective 1 January.

According to Jones, a major part of the restructuring plan has involved understanding precisely what represented the core and non-core businesses of Amcor, and then divesting non-strategic or underperforming assets.

For the current financial year to the end of June 1999, Amcor originally set itself the target of divesting some A$250 million ($166 million) in assets. But by the time the current restructuring phase is completed by the end of this month, that figure will be well over the A$500 million mark.

Amcor has clearly made bold moves in this direction and the aggressive strategy has more than surpassed its earlier aims. The major businesses to go so far have included the group's softwood sawmilling business in Australia (the Brown and Dureau Building Materials operation), most of the rigid plastics division, and most recently, Amcor Fibre Packaging Europe. In addition, Amcor shut down the 75,000 ton/yr bleached hardwood kraft pulp mill at its Burnie plant in Australia late last year. The company decided to close the facility as it did not have the capacity or flexibility to be competitive in world markets.

Despite the fact that the company has already doubled its divestment target for the 1998/1999 fiscal year, Amcor is still looking to sell another couple of businesses in Canada. The company's Canadian packaging unit, Twinpak, is selling its coating and laminating division as well as its Fib-Pak woven bags business. Due diligence is being carried out and the sale should be completed shortly.

Having embarked on the process to identify core and non-core businesses and then taken the decision to sell off non-core assets, Amcor now has a far leaner operation. But Jones believes that the real benefit to customers and shareholders is that the company is more focused in what it is delivering and will continue to be more efficient in both the short and long term.

As far as Jones is concerned, one of the most important elements within the restructuring program was to introduce the idea that people should not be intimidated by change. Indeed, get over the message that change was a positive thing. For example, Jones points out that the company has
also managed to reduce lost time through injury by implementing an improved safety environment for the workforce under the plan.

The changes have led to layoffs for many, though. As part of the restructuring scheme, the company has reduced its workforce from 27,000 to 22,000 over the past two and a half years. Some 2,000 employees have gone from the group’s operations in Australia and around 3,000 worldwide. Out of the total number of job losses, 40% of the reduction came through the sale of businesses, with the remainder coming from "productivity oriented measures".

Another result of the restructuring over the past 14-15 months has been a decentralization within Amcor. This process has resulted in much of the responsibility for operations outside Australia being delegated back to the relevant regions.

So far, the management team at Amcor is pleased with the improvements to the company's finances, strategic focus and safety record. But Jones also stressed that although the vast bulk of Amcor's "reviewing, rationalization and restructuring" is almost complete, operations will continue to come under close financial scrutiny as part of an ongoing process.

Building up

Most of the A$500 million raised from the restructuring has been ploughed back into the company to reduce Amcor's debt, but some of the proceeds have gone toward a share buyback program. The program started in September and continued through
March. The company decided this option would be a good use of funds as it had freed up some cash and its share price was under A$6.

In March, the share buyback was extended for a further six months. Amcor set a ceiling of six million shares for both six-month periods and so far the company has purchased some 4 million shares.

As well as the share buybacks and debt reduction, Amcor has also been investing. At the group's Maryvale mill in Victoria, Australia, the new PM 5 went into production late last year and is already outperforming the predicted startup curve. Amcor is around four to five months ahead of where it expected it to be at this stage of the startup and the machine is running well, Jones said. The fine paper PM is currently running at a rate of 180,000-185,000 tons/yr - quite an improvement on the original nominal capacity figure for the PM, which was set at 160,000 tons/yr.

Looking ahead, the company intends to focus on maximizing the returns from its investments at the Maryvale, Burnie and Wesleyvale mills in Australia. But there will also be upgrades in other areas. The company plans to inject a total of A$100 million over a two-year period into its corrugated packaging businesses. The investments comprise a A$70 million upgrade of Amcor's corrugated packaging plants in Brisbane and Sydney, Australia. The company hopes to finalize these plans in a month or so. The company will also spend A$30-40 million upgrading its corrugated packaging plant in Melbourne, Australia.

Jones added that Amcor has also earmarked A$25-30 million for its food can operations over the next 12-15 months and recently approved A$40 million for its Canadian PET operations.

Bright outlook

According to Amcor, the group's corrugated packaging and folding carton businesses have weathered the Asian crisis reasonably well and returns for the company's Asian business units improved again this year - the third year running. Asian markets look to be picking up, according to Jones. While he concedes that the problems seen in the region are not all over by any means, there are good signs that these countries are fighting their way out of the financial crisis.

With the end of its restructuring plan in sight, the future is looking brighter for Amcor. Jones said that he has been pleased with the company's financial performance so far this year, and although he could not comment on the extent to which Amcor's results should improve once the restructuring is finished, he fully expects the solid growth to continue this financial year.