Amcor Sunclipse, based in California, is Amcor’s North American distribution and corrugated manufacturing business unit. It produces packaging products to complement its distribution services and has over 2,100 co-workers at 40 distribution and redistribution centres throughout the US and Mexico. The distribution unit is a major supplier to businesses in 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 these into boxes for use throughout the business. In addition, it designs and produces specialty packaging products including ‘Point of Purchase’ displays and specialty items tailored to customers’ requirements.

Amcor Sunclipse had a solid year with profit before interest and tax and before significant items (PBIT) up 10.4% to US$55 million.

Returns, measured as PBIT over average funds employed, increased from 20.7% to 26.9%.

The PBIT result included a positive impact from the sale and lease back of the Amcor Sunclipse head office, partly offset by write downs and other one-off expenses. After adjusting for these items, underlying earnings were slightly lower than the US$49.8 million achieved in 2006/07.

Total base capital expenditure was US$21.7 million. This was net of the proceeds from the sale of land and buildings of US$26.2 million. Working capital reduced by US$2.9 million.

The full year result was a solid performance in difficult trading conditions. There was flat underlying performance in the first half of the year and lower earnings in the second half compared to the previous year. The reduction in earnings for the second half of the year was a result of slowing economic conditions and rising input costs.

The distribution division had a solid year with sales in line with last year. Gross margins were modestly higher as the business undertook comprehensive programs to recover cost increases, including new tools for the field sales force to optimise selling prices, the introduction of freight surcharges to recover higher fuel costs and the ongoing development of new sales channels for low volume customers.

The manufactured products business had a difficult year with flat sales and a reduction in gross margins. There was an adverse change in product mix to lower margin ‘stock boxes’ and higher input costs were not fully recovered in selling prices.

The corrugated business had another good year with sound manufacturing efficiencies and excellent management of operating costs. Gross margins were maintained and the business successfully managed increased linerboard prices. A continued high level of quality and service was the key driver in retaining volumes.

Outlook

The operating environment was more difficult in the second half of the year and this has continued into the first half of the current year. The business has implemented a number of initiatives over the past two years to better manage costs and improve operating efficiencies. The benefits from these initiatives will be increasingly evident in the current year and will assist in offsetting any continued weakening of demand. The outlook for the first half of the year is largely dependent on performance in October and November which are typically strong months leading into the major holiday periods.