Release Date: February 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Orora Ltd (ASX:ORA, Financial) reported an 11% increase in underlying EBIT to $184.1 million, demonstrating strong financial performance.
- The acquisition of Saverglass is expected to enhance Orora's market position and align with its strategic growth priorities.
- Cash generation remains robust with underlying operating cash flow of $240.5 million and a cash conversion rate of 92.7%, excluding Saverglass and the G3 rebuild.
- The North American business achieved EBIT and margin growth despite challenging market conditions, reflecting effective cost management and operational efficiency.
- The Australasian beverage business showed resilience with earnings growth driven by strong demand for cans and successful commissioning of a new cans line in Dandenong.
Negative Points
- Revenue in North America declined by 15.9% on a constant currency basis, impacted by lower volumes and price deflation.
- The Australasian beverage glass segment faced ongoing softness in demand for Australian commercial wine and beer bottles, leading to lower glass volumes.
- Net financing costs increased by $11.4 million due to higher debt levels and base interest rates, impacting overall profitability.
- The acquisition of Saverglass incurred significant transaction costs of $40 million, with total transaction costs amounting to $75 million in the half.
- Global market conditions remain challenging with persistent inflationary pressures and uncertain consumer demand, potentially affecting future performance.
Q & A Highlights
Q: Can you provide more details on the financial impact of the Saverglass acquisition?
A: Shaun Hughes, Chief Financial Officer: The net purchase consideration for Saverglass was EUR1.3 billion, inclusive of the locked box working capital mechanism and acquired cash on hand. Acquisition-related transaction costs amounted to $40 million, with total transaction costs, including equity and debt raising costs, reaching $75 million. The purchase price accounting review process is underway and expected to be completed by the end of 2024.
Q: How did the North American business perform in the first half of FY24?
A: Shaun Hughes, Chief Financial Officer: North America delivered a robust earnings result despite a 15.9% decline in revenue on a constant currency basis. This was driven by lower volumes and price deflation. However, EBIT increased by 0.9% to USD57.3 million due to operational alignment initiatives and cost management disciplines.
Q: What were the key drivers behind the performance of the Australasian beverage business?
A: Shaun Hughes, Chief Financial Officer: The Australasian beverage business saw a 2.2% increase in EBIT to $82.9 million, driven by strong customer demand for cans, product mix improvements, inflation cost recoveries, and active cost management. However, there was ongoing softness in domestic glass demand.
Q: Can you elaborate on the sustainability initiatives and their progress?
A: Brian Lowe, Managing Director & Chief Executive Officer: Orora has made significant progress on sustainability goals, including expanding the cullet sourcing program, executing a new wind farm PPA, and achieving 100% renewable electricity coverage for our Queensland cans facility. Saverglass has also recommissioned its furnace as a low-carbon hybrid furnace and successfully trialed hydrogen as an alternative fuel source.
Q: What are the near-term priorities for Saverglass under Orora's ownership?
A: Brian Lowe, Managing Director & Chief Executive Officer: The focus includes creating a global glass manufacturing footprint by integrating Gawler into the Saverglass network, maintaining value capture initiatives, driving incremental volume growth, and rebuilding the furnace at Ghlin in Belgium. We aim to realize near-term synergies of approximately $15 million from FY25.
Q: How is Orora managing the current economic challenges and market conditions?
A: Brian Lowe, Managing Director & Chief Executive Officer: Despite global consumer demand uncertainties, Orora expects group EBIT to be higher in FY24, excluding Saverglass. In North America, margin accretion and cost management are expected to offset volume softness. In Australasia, strength in cans is expected to counterbalance softness in glass from lower commercial wine volumes.
Q: What is the outlook for Orora's dividend policy?
A: Shaun Hughes, Chief Financial Officer: The Board has declared an interim unfranked ordinary dividend of $0.05 per share, representing a gross interim dividend of $67.2 million with a payout ratio of 62%. The dividend reinvestment plan will be operative, with shares purchased on market to meet obligations. Future dividends are not expected to be franked until after FY24.
Q: What are the key capital expenditure projects for FY24 and FY25?
A: Shaun Hughes, Chief Financial Officer: Key projects include the new multi-size canning line at Revesby, the G3 furnace rebuild with oxyfuel technology, and the Saverglass furnace rebuild in Ghlin, Belgium. The total CapEx spend for FY24 is expected to be approximately $300 million, including Saverglass.
Q: How is Orora addressing safety performance across its operations?
A: Brian Lowe, Managing Director & Chief Executive Officer: Orora has significantly reduced recordable case injuries and lost time injuries by over 50% compared to the prior period. No serious injuries or fatalities were recorded. Safety implementation activities are progressing with Saverglass team members, aligning with our global health and safety systems.
Q: What are the strategic priorities for Orora in the second half of FY24?
A: Brian Lowe, Managing Director & Chief Executive Officer: Priorities include enhancing the business model in North America, expanding product and service offerings, optimizing production mix in Australasia, and integrating Saverglass into a global glass manufacturing footprint. We will also focus on sustaining momentum and disciplined execution of strategic priorities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
