Amcor chief executive Ken MacKenzie has managed to defy the odds and produce a record underlying profit.
He's also delivered a 5.7 per cent lift in dividends despite a strong Australian dollar, a blowout in raw material costs, a big exposure to ailing Europe and the US, and a business that is classified as manufacturing.
MacKenzie expects profits in the global packaging giant to continue to swell in 2013 as the group moves into a new phase of its transformation, one that will be bankrolled by strong free cashflow.
Still, investors wanted more. The company's stock shed 2.6 per cent in morning trade to $7.52 as some switched out of defensive stocks while others were disappointed that the company didn't offer clearer guidance for 2013.
Part of investor concern is that the last three years of big profit expansion might be over as Amcor has already completed most of its cost-cutting plans and synergies from acquisitions.
The past seven years have seen Amcor repositioned into a lean, mean global packaging giant that has focused on lifting profit margins and achieving a stretch target of 15 per cent return on funds employed. The market - notwithstanding today's retreat - and MacKenzie are quietly confident that free cashflow (EBITDA, which takes tax, depreciation, interest payments, and post-dividend payouts) will more than double to $400 million or $500 million within the next two years.
Geared up, these inflows will give the company more than $800 million to $1 billion a year to spend on increased dividends, acquisitions or share buybacks without affecting the group's investment grade credit rating.
In the past year, Amcor has spent $350 million on five acquisitions aimed at expanding its global footprint and beefing up its packaging segments.
These purchases, coupled with a decision to buy Alcan Packaging at the height of the global financial crisis when other companies where bunkered down, have helped the company achieve a record underlying profit for 2012 and a 5.7 per cent increase in its dividend.
Those results own much to the synergy benefits flowing from the Alcan acquisition. The fact that most of the segments Amcor operates in are largely defensive, including healthcare, food and beverages, also played a major role in the steady growth.
The successful merger of the $2.3 billion Alcan acquisition and the $US280 million Ball Plastics acquisition, which is largely completed and ahead of schedule by one year, have restored investor faith after a poor record of acquisitions during the 1990s and early 2000s, prior to MacKenzie's reign.
When MacKenzie took the top job in July 2005, he sold $1.5 billion of non-core assets, cut costs, slashed debt and rebuilt the company's image after the shock news that it was involved in a price-fixing cartel with Visy.
Amcor managed to avoid a courtroom showdown over whether it colluded to fix cardboard box prices after reaching a confidential settlement with confectioner and beverage maker Cadbury.
In the process of this change, MacKenzie has created the biggest packaging company in the world and has left it well-placed to make acquisitions, issue share buybacks, expand organically, and re-focus on customers, during its next phase of growth.
The packaging company's net profit before one-off costs for the 12 months ending June rose 11.3 per cent to $635 million mainly as a result of synergy benefits from the Alcan Packaging and Ball Plastics acquisitions in 2009 and 2010, respectively, and a lift in sales in its emerging markets businesses.
The result would have been better if the impact of the strong Australian dollar had been neutral. Instead, according to MacKenzie, the rule of thumb for Amcor is that each one-cent rise against the US dollar rises lops $3 million from annual profit. Even worse, each one-cent rise against the euro erases $5 million in profits.
All up, the strong Aussie dollar reduced profits by $35 million in 2012 - making a case for a better hedging strategy.
MacKenzie forecast higher earnings, in local currency terms, from its flexibles and rigid plastics divisions in 2013, but expects earnings from Australasia and Packaging Distribution to be flat.
Expect emerging markets to continue to propel earnings growth, while the cashed-up cardboard king will also be in the hunt for more acquisitions to boost the bottom line.