Amcor shares plummet after slower growth forecast

Higher prices for oil-based plastic resins, paper fibre and metals cost Amcor an additional $750 million on an annualised basis, but only 90 per cent of the effect had been recovered from customers in the form of higher selling prices.

Oil-based resin used in plastic packaging has increased in price by seven per cent over the past six months, suggesting that the price increase trend is far from abating. In addition the price of benzene, which is used to make styrene, has reached historically high levels.

All this has had an inevitable knock-on effect on the operational costs of packaging manufacturers such as Amcor, with resin manufacturers passing these higher costs on.

Executive chairman Chris Roberts said the company was sticking by its ambition to grow earnings by 20 per cent over two years to the end of June 2006, but conceded it may fall short of the mark because of slower economic growth, the affect of the strong Australian dollar and customer resistance to higher prices.

However Amcor is confident that it will be able to minimise the effect on earnings by passing on the bulk of the additional costs to customers. In addition, the increase in materials costs has to some extent been offset by cost savings from job cuts and plant closures in the PET plastic bottle and flexible packaging divisions.

The firm, which is world's top manufacturer of plastic bottles, recorded a net profit of $190.1 million (€114.5m) after tax for the six months to the end of December 2004, a fall of 11.4 per cent from last year. Before significant items, profit was up 6.2 per cent to $199.4 million after tax, in line with market expectations.

Growth in the North and Latin American PET packaging division was offset by a poor performance in Europe, where a cool summer led to weaker drink sales. The flexibles business however managed to lift pre-tax earnings by 13 per cent in the first half, despite higher materials costs, with the benefits of the costly restructuring programme expected to show up in the second half.

The company has also been plagued by scandal. There has been speculation that the regulatory investigation of Amcor's involvement in a cardboard box cartel could weaken the company's bargaining position in contract negotiations.

The scandal, which involved former staff in Australia being suspected of involvement in an illegal operation to drive up box prices, has rocked the firm's share price and resulted in the removal of chief executive Russell Jones in December.

The corrugated box division accounted for about 9 per cent of the group's A$10.4 billion (€6bn) sales in fiscal 2004 and about 8 per cent of the group's A$831 million in operating profit. Amcor​ stock fell 7.8 per cent in December to a low of A$6.95 after its shares came off a trading halt.