Amcor PET Packaging is headquartered in Ann Arbor, Michigan (US) and employs 5,168 people at 45 sites – comprising 34 manufacturing locations and 11 on-site injection and blowing facilities in 12 countries. Amcor PET Packaging is one of the world’s largest producers of PET (polyethylene terephthalate) containers. It produces PET containers and preforms for a wide variety of food and beverage applications, and supplies PET containers to the personal care, household chemical and agro-chemical industries.

PET Packaging had an outstanding year in terms of earnings and returns. Profit before interest and tax and before significant items (PBIT), on a continuing business basis and expressed in local currency terms, was up 29.3% to US$198.8 million. The business benefited from higher volumes and a favourable product mix with the operations in both North America and Latin America improving on the 2006/07 year.

Returns, measured as PBIT over average funds employed, increased from 9.6% to 12%.

Capital expenditure was US$166.2 million, comprising US$104 million for base capital spending, net of disposals, and US$62.2 million for growth capital to expand capacity in the custom container market.

Working capital continues to be well managed. Average working capital to sales improved from 6.7 in 2006/07 to 5.3% for the 2007/08 year.

In June 2007, the European PET business was sold. For the 2006/07 year, this business had earnings of US$51.9 million.

Volumes for the year, on a continuing business basis, were up 3.7% to 28.7 billion units. Custom container volumes, which represent 32% of the overall product mix, were up 23.7% over the prior year, due largely to volumes associated with the new Wytheville plant in the US. Carbonated soft drink (CSD) and water volumes were down 3.6%, with volumes in this segment slightly higher this year in Latin America and lower in North America.

North America

The North American business had a strong year with an improved product mix and excellent operating performance. Volumes were up slightly at 1.3%, with custom containers increasing 26%. Custom containers represented 39% of the total volumes for the year. Volumes in the carbonated soft drink (CSD) and water categories were 10% lower reflecting the strategic decision to increase the focus on custom containers and be more selective in the CSD and water categories.

There has been substantial progress in growing the custom hot-fill category including:

• The new US$80 million facility in Wytheville, Virginia (US), which supplies Gatorade containers, had its first full year of operation. This plant is located adjacent to a new PepsiCo filling facility, and has a capacity of over 1 billion units annually; and
• The new panel-less heat set container, PowerFlex™, continues to gain momentum in the marketplace. More than 20 brands of premium beverages have been introduced in PowerFlex™, including two national brands. Capacity is now in place to supply the package on both the East and West coasts and the business is continuing to install capacity to meet the growing demand.

During the past three years, the business in North America has undertaken a significant footprint rationalisation, together with improvements in manufacturing performance. This has positioned the North American business with an excellent value proposition based on an efficient manufacturing platform, excellent quality, consistent service performance and industry leading innovation. The results in the 2007/08 year reflect the benefits from this three year program.

The business historically has offset inflationary cost increases with productivity improvements and operating cost reductions. While there will be continuous improvement in these areas, higher inflationary costs are no longer able to be fully absorbed and need to be recovered through higher selling prices.

Resin cost movements, which have the largest impact on the cost of manufacturing, are passed onto customers via established contract mechanisms. For the 2007/08 year, there was a benefit from inventory timing gains due to rising resin costs. If resin prices fall in 2008/09, there will be some losses incurred on inventory valuations. In the area of energy cost increases, the business has made substantial progress in recovering these increases via contractual pass-throughs.

Latin America

The business in Latin America also had a strong year. Volumes were up 6.8%, with CSD and water up 5% and custom containers up 15.5%. Custom container volumes now comprise 18.1% of the product mix, up from 16.7% for the 2006/07 year. The region has favourable demographics, increasing per capita income and ongoing replacement of glass with PET that continues to support overall growth.

The operations in Mexico have successfully undertaken a two year turnaround program that has delivered the expected earnings improvement of US$16 million. The business has closed four sites, substantially improved operating efficiencies and undertaken a comprehensive program to improve the quality of its people. The business is now well positioned for future growth.

Across Central and South America, earnings were up on the same period last year with strong year over year performances in Argentina, Brazil and Venezuela. In Brazil the program to move on-site with a large customer has been successfully completed and in Venezuela there was a favourable mix shift to custom containers.

All other countries met or exceeded last year’s performance, except for Colombia where the business experienced operational performance issues as it transitioned from a CSD and water, to custom product mix.

Bericap

The majority-owned joint venture in Bericap North America is managed and reported within the PET Packaging segment. This business has one plant in Ontario, Canada and one in California in the US. A third plant in Spartanburg, South Carolina commenced operations in March 2008.

The sales and margins from the plant in Canada were adversely impacted by the high Canadian dollar against the US dollar. The business also expensed startup costs for the new plant. As a result of these issues, earnings were lower. With the startup of the new plant, the expectation is for improved performance in 2008/09.

Outlook

Earnings are anticipated to improve in the current year, however growth will be substantially lower than the 29.3% achieved in 2007/08 and is dependent on the impact a slowing US economy may have on volume growth.