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‘The Amcor Way’ is the packaging company’s “proprietary operating model”.
Developed in 2009, it’s a five-step map of business priorities: safety, a customer and market focus, talent, capital discipline, and a focus on remaining low-cost.
It can sound fairly ‘motherhood’ at times. After all, what right-thinking CEO doesn’t want to keep costs low?
But the policy’s pay-off can be seen in Amcor’s success over the past few years. Today, the global company posted a 16% rise in full-year net profit to $356.7 million, boosted by its acquisition two years ago of packaging companies Alcan and Ball.
The result is especially impressive when you consider all the company has had to deal with over the past year.
For one, the global company makes most of its profits overseas but converts them back to Australian dollars for reporting purposes, meaning the high Australian dollar has shaved a few percentage points off its growth. It’s heavily exposed to Europe and America, but has avoided their economic malaise by specialising in non-discretionary spending such as food and pharmaceutical packaging. It’s faced a blow-out in raw material costs. And in case you haven’t noticed, it’s a manufacturer.
Amcor’s cautious, defensive planning has paid off, due in no small part to its overall philosophy, its chief executive says.
“The Amcor Way” was originally called “The Way Forward”. It was designed as a turnaround and cultural-change program when Ken MacKenzie first took the top job in 2005, but it’s been retained because the company found it so useful.
“It’s the foundation of the company,” MacKenzie told investors this morning. “It focuses on the core capabilities you need to have in order to be successful in this industry.”
Things looked very different for the company in 2005. Amcor had spent more than $4 billion on acquisitions in new markets. This changed the strategic make-up of the company, but because there were few synergies to be gained through these overseas acquisitions, the company’s financial performance suffered.
From 2006 to 2011, Amcor was also embroiled in allegations of price-fixing with Visy. Amcor managed to settle the class action out of court for $63.3 million (Visy paid $31.7 million).
In a rather unorthodox beginning to his results briefing, MacKenzie proudly displayed his company’s safety record.
“I’d like to start this meeting as we do all our internal meetings at Amcor,” he said, explaining his company’s commitment to a goal of zero injuries.
The company this year posted its best-ever safety record: a lost-time frequency rate of 0.7 per million instances per million hours worked, and a recordable case frequency rate of 3.1 instances per million hours worked.
“Many of our sites did not have a single recordable injury. We’re world-class on safety, and that’s something the whole organisation is particularly proud of. One injury is one too many.”
A customer and market focus
Amcor works closely with its customers, in many cases partnering with them to deliver greater value.
Peter Brues, Amcor’s president of Europe and the Americas, gave a few examples.
“It might be a matter of joining together our research and development, or marketing teams. Or to work jointly with them on simplifying our products and what we do.”
Bringing along the talent
In the early days of its turnaround, Amcor’s talent strategy paid a lot of attention to having the right people in the right position. In the first 18 months, Amcor reviewed the top three levels of its organisation, and moved on or replaced 60 of its top 80 people.
Today, the company focuses on selling its message and strategic imperatives at every level within the organisation.
Brues describes it as “singing from the same hymn sheet.”
“When I talk to co-workers, whether at procurement or sales conferences, leadership meetings or at a plant, we talk about the importance of our financial results.”
“We think if we’re focused on the key things that’ll make a difference to the business, that’s our score card. It’s about creating one culture.”
Amcor has conducted five acquisitions in the past year, plus Alcan and Ball the year before.
In measuring the success of the acquisitions, the company is strikingly conservative.
“The great legacy of Alcan and Ball acquisitions is the cash-flow,” MacKenzie says.
Speaking of further acquisitions, he adds that a “pipeline of opportunities” has been prioritised.
“But we’re going to remain disciplined in how we benefit our cash-flow. We understand the benefits of patience and of not paying too much.”
“All things have to be considered against returning cash to shareholders through share buybacks and dividends. That keeps us very, very disciplined. If we can’t find good returns for the next dollar, we’re quite happy to turn around and give that back to shareholders.”
Lean, low-cost operations
In the first few years of its turnaround, Amcor divested $1.5 billion of non-core assets. This was made easier by its leadership overhaul. When it came time to divest, few of the leadership team had been heavily involved with the previous strategy.
Another aspect of keeping costs low is driving quick synergy gains from acquisitions.
The Alcan and Ball purchases, for example, have been completely absorbed into the organisation a full year ahead of plans.