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 58 sites 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, 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.

SUNCLIPSE GROUP

Amcor Sunclipse had a difficult year with reported PBIT down 46% to US$29.7 million. Returns, measured as PBIT over average funds employed, was 14.2%.

The PBIT result for the 2007/08 year included a net benefit of approximately US$6.4 million from the sale and leaseback of the Amcor Sunclipse head office, partly offset by write-downs and other one-off expenses. After adjusting for this benefit, underlying earnings in 2008/09 were 38.9% lower.

The business commenced the year with solid earnings for the first four months. From the beginning of November, volumes came under significant pressure and were substantially lower through to the end of January. Although there was some improvement in the second half of the year, volumes for the last eight months of the year were considerably lower than for the corresponding period in 2007/08.

The distribution business had a solid first half, however the second half was considerably more challenging as a number of important market segments were negatively impacted by the slowing economic conditions. Sales for the distribution business were 9.3% lower at US$694 million, after being only 3.9% lower in the first half. The strong focus on cost control meant that gross margins reduced by only 0.2%.

A key driver for this solid performance in the distribution business has been the development over the past two years of a channel strategy designed to differentiate the approach to customers across market segments. The success of this strategy has assisted in increasing market share and enabled the fully commissioned external sales people to be more targeted in their efforts.

Within the manufacturing division, the sheet plants had a particularly difficult year. With a declining overall market, there was intense pressure on margins and a move to lower value-add stock boxes. These pressures continued through the second half and into the start of the 2009/10 year.

The corrugated business also had a difficult year. After a solid first quarter, volumes were down 25% through the November to January period. Although market conditions improved in the second half, there was still considerable weakness and it was not possible to flex variable costs to match declining volumes.

The business is currently investigating the opportunity to divest the corrugated and manufactured products divisions. A final decision regarding sale or retention is expected to be made over the next three months.

OUTLOOK

The 2009/10 outlook is dependent on the economy in the US, particularly on the West Coast. The year has started with volumes considerably lower than the first half of 2008/09 and, consequently, the earnings for the first half of 2009/10 are likely to be lower than the first half of 2008/09.