Dear Shareholder

Earnings for the 2007 year were $397 million, down 2.2% on the previous year’s amount of $406 million.

Although earnings were lower on a full year basis, the earnings in the second half of the year were 10.7% higher than in the 2005/06 year, reflecting the benefits of improvements undertaken over the past two years.

The Company generated an excellent operating cash flow of $644 million. This follows a similarly strong performance in the 2005/06 financial year of $522 million. The key factors contributing to this strong cash flow performance were a $257 million reduction in working capital, continued discipline in capital expenditure and stable underlying earnings.

The improvement of the businesses in the second half of the year, combined with the strong operating cash flow, has enabled the Board to declare a final dividend of 17 cents per share, giving a full year dividend of 34 cents per share.

Significant Items
Significant items for the year were a profit of $137 million, comprising a $248 million profit on the sale of the European PET Packaging business, partially offset by restructuring expenses in the Australasian Fibre, European Flexibles and Latin American PET Packaging businesses.

‘The Way Forward’
This program was outlined to shareholders in August 2005 and involves a three-year agenda focusing on improving execution in a number of key disciplines.

It is pleasing to report there has been substantial progress across all aspects of this program over the past 12 months and this has been reflected in improved earnings and returns in the second half of the 2006/07 year.

The main components of ‘The Way Forward’ are:

• a portfolio review to ensure the Company only remains in those businesses that have strong market positions;
• building excellence in sales and marketing to help develop a customer facing organisation;
• relentlessly driving costs out of the business;
• improving all aspects of capital discipline;
• developing talent management processes; and
• changing the culture of the Company.

Throughout the year, a number of decisions were taken with regard to the business portfolio with the objective of only remaining in those segments and regions where Amcor has strong market positions and sustainable competitive advantages that will deliver shareholder value over the long term.

PET Packaging in Europe was sold for $720 million and in August 2007 subsequent to the finalisation of the year end accounts, the Australasian food can and aerosol business was sold for $150 million. Asset sales over the past two years have totalled $1.25 billion. The proceeds from these asset sales are being reinvested in those markets which exhibit the highest growth and return opportunities.

Specifically these include:

• custom PET containers in the North American market;
• flexible and tobacco packaging in emerging and attractive markets; and
• select market segments in Australasia.

To date, $335 million has been allocated for reinvestment with the main projects being:

• a new US$80 million plant focused on the production of Gatorade® containers for PepsiCo in the USA and located adjacent to the PepsiCo filling plant. This facility started production in March 2007;
• a new €30 million flexibles plant in Poland, dedicated to PepsiCo for snack food products, a market segment that is growing at more than 20% per annum in Central Europe. Production is anticipated to commence in May 2008;
• expansion of the flexibles plant in Russia with an additional press that will double the manufacturing capacity at this site; and
• construction of a tobacco carton plant in the Ukraine that will leverage the skills and manufacturing knowledge of operations in Russia and Poland.

Across the Group, there are a number of opportunities for further expansion in these market segments with further announcements relating to new investments expected in the coming year.

A second component of building strong market positions is to undertake turnaround programs for those businesses that are well positioned in their market but have poor operational performance. There are three business segments in this category.

The Mexican PET business is undertaking a two-year program to improve profitability by US$16 million. In March 2005, a new management team commenced a substantial change program that included closing three blow molding sites, improving manufacturing efficiencies and stabilising the workforce. In the 2006/07 year, the business achieved an improvement of US$9 million which is substantial progress against the two- year objective.

The Australasian Fibre business is undertaking a $300 million restructuring program to deliver benefits of $70 million per annum and, during the past twelve months, there has been substantial activity to rationalise the number of sites and recapitalise the operations. This has included closing four plants, with equipment from these plants relocated to other sites, installing new machinery to improve manufacturing efficiencies and reducing staffing by 335.

The size of this program and the pace of its implementation negatively impacted operating performance and customer service, resulting in higher costs in the short term and some loss of volume with smaller customers. These issues are being addressed and, from the second half of the 2007/08 year, the business is anticipating a strong improvement in profitability.

The flexibles business in Western Europe has also commenced a comprehensive repositioning program aimed at:

• strengthening market positions through better leverage of technology and manufacturing capabilities;
• increasing the weighting of production in lower cost regions, particularly in Southern and Eastern Europe;
• improving alignment to customer needs and market trends; and
• creating a strong platform for innovation and continued growth.

Upon completion, the business will have a smaller number of larger plants with improved technology or market segment focus. The project will deliver improved annual profitability of $50 million for a net cash cost of $100 million, with full benefits realised in the 2009/10 financial year.

Another component of ‘The Way Forward’ program is to improve customer and market focus through building excellence in sales and marketing. To achieve this, core capabilities are being developed around key account management, sales force effectiveness and customer and product profitability. It is already evident that as this new culture of customer and market focus is embedded into the organisation, long term sustainable benefits are being created.

The third component of the agenda is capital discipline. This involves a focus around all aspects of the generation and use of cash. An example of this has been the substantial improvement in the management of working capital. During the last two years, working capital has reduced by $380 million and the average working capital to sales ratio reduced from 13.3% to 9.9%. This has been an outstanding result with all business units contributing to the improvement.

The operating cash flow of $644 million is a 23% improvement on the 2005/06 result of $522 million, demonstrating that the disciplines relating to cash management are now embedded in the culture of the Company.

After the payment of the dividend, the free cash flow for the 2006/07 year was $325 million, a 52% increase on $214 million in 2005/06.

Capital Management
Over the past two years, the Company has divested businesses for $1.25 billion and generated an aggregate free cash flow of $538 million.

On completion of these divestments, the balance sheet gearing will be approximately 36%.

There are commitments for funding the balance of $335 million in growth projects and a proposed new $225 million recycled paper machine for Botany, NSW.

After funding these projects, the balance sheet gearing will still be below the target gearing of 50% to 55%, and given this strong balance sheet position, the Board has decided to undertake a share buy back of up to $350 million.

The final element of ‘The Way Forward’ agenda involves people and culture. Over the past two years there has been substantial change to the processes involving the talent and performance management of Amcor’s people. The focus has been on strengthening the senior management team and improving the performance metrics.

ACCC
The Australian Competition and Consumer Commission (ACCC) prosecution of the Visy Group companies is scheduled to commence in October 2007 and Amcor continues to assist and cooperate with the ACCC as part of its grant of immunity. We are committed to operating with integrity and in a manner in which its shareholders, employees and customers can have full trust and confidence.

Corporate Governance
As part of the ongoing commitment to continuous improvement in corporate governance, two initiatives were introduced this year. The first was an enhanced approach to risk management, moving the business from a business risk management framework to an enterprise risk management. The key objective of this new framework is to ensure risks are properly managed and to identify opportunities that will drive shareholder value.

The second initiative further enhances the commitment to sustainability through a global reduction in energy, water and emissions and is in addition to reductions already achieved. This will benefit the environment and create increased shareholder value through a reduction in costs.

Future
The Amcor Board is confident that changes undertaken over the past two years will deliver sustainable benefits and that the focus on developing implementation capabilities has been the appropriate program for the Company over that period.

For the current year, there will be ongoing improvements across all businesses and, on a continuing business basis, earnings are expected to improve.

The Amcor Board would like to thank all of the stakeholders, including customers, shareholders, employees and suppliers, for their continued support and encouragement over the past 12 months.



Chris Roberts
Chairman

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