From the Chairman, Mr Chris Roberts
and the Managing Director and CEO, Mr Ken MacKenzie

Earnings for the 2008 year were $369.1 million (after tax and before significant items), down 7% on the previous year’s $397 million. The result was adversely impacted by the translation of overseas earnings into Australian dollars and a reduction in earnings due to the sale of businesses.

The negative translation impact of the higher Australian dollar on reported profit after tax was $32 million.

On a continuing business basis, expressed in constant currency terms, the profit before interest and tax (PBIT) was up 9.4%. This increase continues the momentum established in the second half of the 2006/07 year when earnings for the continuing businesses, expressed in constant currency terms, were up 10.7%.

The Company generated excellent operating cash flow of $418 million. This follows similarly strong performances in the two previous years of $644 million in 2006/07, and $522 million in 2005/06.

The improvement in the underlying performance of the continuing operations, expressed in local currency terms, combined with the third year of strong operating cash flow, has enabled the Board to declare a final dividend of 17 cents per share, giving a full year dividend of 34 cents per share.

Significant Items

Significant items for the year were a loss of $110.3 million (after tax), primarily comprising restructuring expenses in Australasian Fibre and European Flexibles.

‘The Way Forward’

This program was outlined to shareholders in August 2005 and involves a three year agenda focusing on improving execution in a number of key disciplines.

Over the past 12 months, there has been continued progress across all the key metrics. These improvements have made significant contributions to increasing profit before interest and tax for the business groups.

The main components of ‘The Way Forward’ are:

• A portfolio review to ensure the Company remains only in those businesses that have strong market positions;
• Building excellence in sales and marketing to help develop a more customer focused organisation;
• Driving costs out of the business;
• Improving all aspects of capital discipline;
• Developing talent management processes; and
• Changing the culture of the Company.

The portfolio review has resulted in asset sales of $1.25 billion and the business portfolio is now focused on those market segments where Amcor has strong market positions and sustainable competitive advantages that will deliver profits over the long term.

The proceeds from the asset sales have been used to retire debt, complete $680 million in share buy-backs, and reinvest in markets which exhibit the highest growth and return opportunities.

Specifically, these growth markets are:

• Custom PET containers in the Americas;
• Flexible and tobacco packaging in emerging and attractive markets; and
• Beverage packaging in Australasia.

To date, $680 million has been allocated for growth reinvestment with the main projects being:
• A $150 million furnace for the wine bottle plant in Gawler, South Australia. This is the third furnace installed at the site and upon completion in the first half of the 2010 calendar year, the plant will have production capacity of 600 million bottles per annum. Since commencing operations in 2002, the business has consistently delivered high levels of quality, service and innovation and has received strong support from the wine industry;
• A US$80 million PET bottle plant, focused on the production of Gatorade™ bottles for PepsiCo in the US and located adjacent to the PepsiCo filling plant. This plant had its first full year of production in 2007/08;
• A €30 million Flexibles plant in Poland, that commenced production in May 2008, dedicated to PepsiCo for snack food products. This is a market segment that is growing at greater than 20% per annum in Central and Eastern Europe;
• A €25 million investment to relocate and upgrade the existing Flexibles plant in Poland including the installation of two new production lines;
• A €34 million investment in the tobacco packaging operations in Eastern Europe. This includes a new plant in the Ukraine and expanding capacity at the plants in Russia and Poland; and
• A SG$281 million investment in a combination of cash and tobacco packaging plants to acquire shares in the Hong Kong publicly-listed company AMVIG. This company has approximately 20% of the tobacco carton market in China.

A second component of building strong market positions is to improve those businesses that are well positioned in their market, but have poor operational performance. There were three business segments in this category and comprehensive turnaround plans were developed for each of them.

The Mexican PET business has successfully completed a two year program to improve profitability by US$16 million. Under a new management team, there have been a number of initiatives implemented that have substantially improved operating efficiencies and positioned the business for future growth.

The Australasian Fibre business is undertaking a $300 million restructuring program to deliver cost savings of $80 million per annum. The first phase of this restructuring has been a comprehensive plant rationalisation program involving the closure of four plants and the equipment from these plants relocated to other sites. It also included the installation of new machinery and a reduction of more than 450 co-workers.

The magnitude of this restructuring and the pace of implementation resulted in a period of poor customer service and higher than anticipated operating costs, especially during the 2007/08 year. These issues are being addressed and improved operating efficiency is anticipated in the current year.

The second phase of the program is the construction of a new recycled-paper mill at Botany, New South Wales (NSW).

This mill will have capacity of 345,000 tonnes per annum and be capable of producing paper grades from 80 gsm to 200 gsm. The ability to offer the lightest weight papers in the Australian market will substantially enhance the value proposition to customers and be an important factor in delivering more environmentally friendly packaging. The net cost of the mill after the sale of excess land, is $230 million, and it is expected to start production by October 2010.

Following the commissioning period, the initial cost reductions from the new mill are expected to be $40 million per annum. This reduction in costs is an important component of the $80 million per annum improvement anticipated in the fibre turnaround program.

The Flexibles business in Western Europe is also undertaking a comprehensive repositioning program aimed at:

• Strengthening market positions through better leverage of technology and manufacturing capabilities;
• Increasing the weighting of production in lower cost regions, particularly in Southern and Eastern Europe;
• Improving alignment to customer needs and market trends; and
• Creating a strong platform for innovation and continued growth.

Upon completion, the business will have a smaller number of larger plants with improved technology or market segment focus. The project will deliver an improved cost position of €30 million per year for a net cash outlay of €60 million, with the full benefits in the 2009/10 financial year.

During the year, there were a number of important developments in this program:

• In the film extrusion operations, the number of sites will be rationalised from nine to three and the remaining sites upgraded with investment of €28 million. The plants in Denmark, the UK and Spain will close their extrusion operations and relocate production volumes to the remaining extrusion sites.
• The operations in Lund, Sweden and Somerset in the UK have been sold as they did not meet the strategic requirements for the future of the Flexibles business. These plants predominantly supplied unprinted commodity films and were located in high cost regions.
• To increase capacity in Eastern Europe, €27 million is being invested to relocate and expand the Flexibles plant in Poland.
• In the UK, two flexographic printing plants have been consolidated into a single site. This has doubled the size of the remaining site, lowering its cost base and ensuring the long term viability of the plant.

At the end of this program, the business will not only have larger and more focused plants, but also be in a substantially stronger position to be a leader in improving the value proposition to customers via product innovation, improved quality and enhanced service.

Cash Flow and Capital Management

Another important component of ‘The Way Forward’ agenda is capital discipline. This involves a focus on all aspects of the generation and use of cash. Over the past three years, there has been a substantial improvement in capital discipline within Amcor, resulting in an aggregate free cash flow over that period of $650 million.

A key driver of this improvement has been a significant improvement in the management of working capital. Over this period, average Message to our shareholders working capital to sales has reduced from 13.3% in 2004/05 to 9.9% in 2007/08. This improvement has resulted in a reduction in working capital for the continuing businesses of $650 million (since 2004/05). For the 2007/08 year, working capital reduced by $140 million.

The free cash flow, combined with proceeds from asset sales of $1.25 billion, has resulted in a gross cash inflow of $1.9 billion over the past three years. This cash has been applied to growth capital, retiring debt and $680 million in two share buy-back programs.

Following the share buy-backs, the balance sheet remains in a strong position with gearing measured as net debt over debt plus equity reducing from 44.6% to 42.9% in 2007/08. Interest cover measured as profit before interest, tax, depreciation and amortisation (PBITDA) to net interest improved from 5.6 to 6 times.

The Company has an excellent debt position and strong interest coverage. The net debt at 30 June 2008 was $2.25 billion with an average maturity on the non-current drawn debt of 3.6 years.

It is pleasing that, given financial market turmoil, the Company has a strong balance sheet and an excellent diversified debt profile.

Review of Business Performance

There is a detailed review of operational performance on pages 4 to 13 of this report.

In summary, the PET Packaging operations had an excellent year with significantly improved earnings and returns. There was strong volume growth of 24% in the high value add custom container segment and ongoing improvement in the operations in Mexico.

The Australasian business had a mixed year with the flexible packaging and glass wine bottle operations having solid results, however the fibre and beverage can divisions had lower earnings.

Within the global Flexibles segment, the food and healthcare operations had solid performances, benefiting from improved plant efficiencies and timely recovery of raw material cost increases. The tobacco packaging business in Europe was negatively impacted by higher than anticipated volumes causing additional unrecovered plant costs.

The distribution business, Amcor Sunclipse, based in California, achieved a good result despite slowing economic conditions in the US during the second half of the year.

The Asian operations also had a good year with the investment in the Hong Kong publicly listed company, AMVIG continuing to deliver strong growth through a combination of acquisitions and organic opportunities.

Summary

Three years into ‘The Way Forward’ agenda, Amcor is far better positioned across all aspects of its operations than it was in June 2005.

The portfolio has been strengthened and is focused on those businesses and market segments where there are sound industry fundamentals.

The large turnaround projects are progressing well with a number of significant milestones achieved.

There has been an intensive program over the past three years developing capabilities in customer and market focus, capital discipline, cost reduction and talent management. These are the foundations that underpin future growth and the benefits from these efforts are increasingly evident in the results.

The culture within Amcor has changed. There is a greater focus on customers and a more disciplined approach across all aspects of the operations.

Importantly, there has been positive momentum in the earnings growth for the continuing businesses over the past 18 months. This commenced in the second half of the 2006/07 fiscal year and has continued into the 2007/08 year.

Amcor’s businesses predominantly supply packaging for consumer staples and are relatively defensive when compared to the broader market. Notwithstanding this, input costs continue to increase and need to be recovered through higher selling prices. This could be more difficult to achieve in markets where the demand is showing signs of softening.

From a strategic perspective, Amcor is transitioning into a new phase of development. ‘The Way Forward’ agenda is delivering against expectations and the organisation is moving towards a more growth-orientated agenda.

This growth remains focused on custom PET, Flexible and Tobacco Packaging in attractive and emerging markets, as well as the beverage segment in Australasia, and will be a mixture of organic projects and acquisitions.

The Amcor Board is confident that the changes undertaken over the past three years will deliver sustainable benefits, and that the Company is well positioned to embark on the next phase of Amcor’s growth.

The Board would like to thank all of Amcor’s stakeholders, including customers, shareholders, co-workers and suppliers for their continued support over the past 12 months.

Chris Roberts

Chairman

Ken MacKenzie

Managing Director
and Chief Executive Officer