Record production, volume growth and improved product mix in cans enabled Orora to boost its Australasia EBIT by 2.2 per cent in the first half of the financial year, while US operations saw a 0.9 per cent rise in EBIT.
The robust performance of cans saw production up by three per cent, as its new $110m Dandenong expansion ramped up to 24/7 manufacturing. This helped offset a dip in the local glass business, as Australian consumers trended away from wine. Orora is keenly awaiting the outcome of a review by China on its effective ban on Australian wines, scheduled for March or April.
Orora delivered an increase of 11 per cent on its underlying EBIT and 0.5 per cent underlying NPAT, as it enters a new phase in its business, with Saverglass now part of the Orora Group following the $2.2bn acquisition, which completed on 1 December.
The company said the half year to December was a “challenging” period, reflected in its sales revenue of $2.1bn, which was down by 5.5 per cent on the prior corresponding period (down 7.3 per cent on a constant currency basis).
Excluding Saverglass, revenue was down 10.6 per cent. Most of that drop came from its North America business, which saw net revenue drop by 15.9 per cent, to $975.7m, as the company churned out low margin customers, and saw lower volumes on a softer manufacturing half year, and accommodated price pressures.
Its Australasia revenues dipped to $529.2m, with volumes down in net terms by 1.7 per cent. Cans revenue was higher, as the company saw rises in demand for new variants, including slim cans for carbonated drinks and energy drinks.
Brian Lowe, managing director and CEO of the company, said the second can line currently being built at its Revesby site in NSW would give the extra capacity the company believes it will need, and said in the meantime New Zealand has can capacity, as of some the cans that were being produced there are now being manufactured in Dandenong.
Statutory net profit after tax of $68.2m was down $39.9m, but this was almost entirely due to the cost of buying Saverglass, which incurred a significant item expense after tax of $40.4m
Orora had an underlying net profit after tax of $108.6m, which was up 0.5 per cent, although down by one per cent on a constant currency basis. The company’s underlying EBIT of $184.1m was up by 11 per cent, or 9.5 per cent on a constant currency basis. Excluding Saverglass, underlying EBIT was up by three per cent.
The Saverglass results for the first month under Orora ownership were in line with the December 2023 trading update, contributing revenue of €69.5m, EBITDA of €15.1m and EBIT of €8.1m.
Lowe said: “Against a backdrop of challenging economic conditions, Orora once again delivered a solid earnings performance for the first half, with growth reported in underlying EBIT and NPAT.
“Sustained business optimisation gains with strong embedded pricing discipline delivered an increase in EBIT of 0.9 per cent from OPS North America, despite being impacted by ongoing softness in the broader North American manufacturing industry.
“Underlying EBIT increased by 2.2 per cent in Beverage Australasia, reflecting another robust performance from the team.”
“And for its first month under the ownership of Orora, Saverglass performed in line with expectations during December 2023,” said Lowe, adding, “Our results reflect the ongoing passion, resilience and focus of our team, delivering a commendable set of results in the current market environment, while also successfully completing the Saverglass acquisition.
“As we enter the second half of FY24, we look forward to continuing to deliver on our strategy, transitioning Saverglass into the Orora Group and building momentum across the organisation.
Lowe signalled that the company would continue with its strong levels of investment, he said, “Orora retains a strong balance sheet and with robust cash generation, the company remains well positioned for ongoing organic investment.”
The company implementation of synergies with the Saverglass acquisition is “progressing well” with multiple value creation activities underway. Implementation has commenced for combining Orora’s glass manufacturing plant in South Australia (Gawler) with the Saverglass portfolio, to form a global network of high-performance production facilities.
Near-term synergies of approximately $15m are expected to be progressively realised from the next financial year from network optimisation, cost rationalisation and operational efficiencies across the combined Glass business.
Lowe also said that Orora has the capacity to meet demand should China drop its tariffs on Australian wine, which have effectively stopped all exports to what was the industry’s biggest overseas market. That decision is expected next month, or the month after.
Lowe said the leadership team was “especially proud” of Orora’s achievements in sustainability, and of its goals. New solar and wind farm PPAs were secured in 2023 for electricity consumption at Orora’s South Australian and Queensland facilities. He said a new deal with a windfarm in Queensland meant that 100 per cent of all electricity for the Sunshine State was now from renewables.
According to the company, the Saverglass sustainability targets are in line with, and in some instances in advance of, Orora’s sustainability targets, as reflected by its Science-Based Target initiative certification. Saverglass will achieve net zero by 2050.
The Saverglass F5 furnace was recommissioned in December 2023 as a low-carbon hybrid furnace delivering up to 30 per cent electricity boost, and successful hydrogen trials were competed at Saverglass’ furnace in Feuquiéres, France.
Whilst global consumer demand remains uncertain, Orora Group EBIT is expected to be higher in the full year, excluding the EBIT contribution from Saverglass.
For the rest of the year, North America will be in line with the first half; ongoing margin accretion through account profitability programmes, and a continued focus on cost management, is expected to be largely offset by ongoing volume softness.
In Australasia, continued strength in Cans in the full year is expected to offset the ongoing softness in Glass from lower commercial wine volumes. That may change if China drops its tariffs before the end of the financial year.
Saverglass EBITDA in FY24 is expected to be broadly in line with the previous year. The company says this outlook could be affected by either a prolonged customer destocking or softness in consumer demand if these continue beyond the first quarter of calendar 2024.
