Amcor sees growth following price war

By Mark Reynolds

Paper group Amcor is confident a ceasefire has been called in a price war that has ravaged its New Zealand packaging operations in the past few years.

Now that prices have stabilised, Amcor sees opportunity for growth in its operations here, with expansion in production facilities likely soon.

Chief executive Peter Brown has told the Business Herald that a "transtasmanisation" of the packaging industry here - whereby a relatively inefficient packaging sector was forced to match the efficiency of its Australian counterpart - appeared to have run its course.

The change in the market began three years ago when Australian company Visy crossed the Tasman to try to win a share of the packaging market that had traditionally been divvied up between Amcor subsidiary Kiwi Packaging and its rival Carter Holt Harvey.

"There's no doubt that competition has been very intense over the past two or three years and we've had to change the way we do things," Mr Brown said.

"New Zealand exporters have certainly benefited from the adjustments the industry here has had to make."

Figures are closely held, but market analysts suggest many packaging costs for New Zealand companies have halved since Visy entered the market.

But plant closures have followed, too.

Kiwi Packaging shut an Invercargill cardboard case plant with the loss of 30 jobs, closed an Upper Hutt case plant at the cost of 50 jobs and pulled the plug on a Hamilton case plant, laying off another 50 staff.

Redundancies at Auckland and Christchurch plants also cost 50 jobs.

Despite these closures, Mr Brown said Amcor had invested $20 million of new capital in its New Zealand operations over the past three years, and more investment was planned.

The company had concentrated on improving productivity at a few facilities in New Zealand, and was now in a good position to expand its earnings.

"The company is having a reasonable year [in New Zealand], with volumes up a bit," Mr Brown said.

"Revenue growth is probably doing a bit better than [gross domestic product] growth, and profitability growth has been higher than that due to the cost reductions."

Amcor wanted a 15 per cent internal rate of return on its assets and was close to achieving that, Mr Brown said.

Until a couple of years ago, Amcor was a messy collection of businesses throughout the world, but it has had a stringent global programme of restructuring and rationalisation and now has up to $1.5 billion available for reinvestment.

"I think we're at the point where we have earned the right to look for some growth," Mr Brown said.

The expansion was likely to be spread worldwide, but there were opportunities with the lowering of trade barriers in Apec-member countries, he said.

"The company has an opportunity to apply its global strength to some specific niches in the region."

Mr Brown noted that Amcor had established a research centre in Melbourne to explore new markets.

A big part of looking for the new business would be making use of electronic commerce products to get closer to customers, he said.

An example of how this might work was in design, where artwork could be sent electronically to customers for approval in the space of a day, rather than the two or three weeks it previously took.

"For us, like most businesses, there is a huge pace of change and that is presenting us with a raft of opportunities," said Mr Brown.

"What we have to ensure is that, in looking for new markets, we are not swamped by an inability to manage our basic internal systems for delivering a quality product to customers.

"What we have had to recognise now is that price is only one factor in the equation and that to grow our business from here we will have to concentrate on continually improving service."