- EBIT: Up 26% to $404 million, excluding Saverglass $323.4 million.
- OPS EBIT: $109.5 million.
- Global Beverage EBIT (excluding Saverglass): 2% growth.
- Saverglass EBITDA: EUR85.4 million.
- Underlying NPAT: Up 10.2% to $223.7 million.
- Underlying EPS: $0.179 per share.
- Underlying Operating Cash Flow: $397 million, excluding Saverglass increased by 8%.
- CapEx Spend: $256 million.
- Final Ordinary Dividend: $0.05 per share, unfranked.
- OPS Revenue: Down almost 11%.
- OPS EBIT Margin: Improved by 50 basis points to 5.6%.
- Australasia Revenue: Down 2.5%, adjusted for aluminum prices would have increased 0.5%.
- Australasia EBIT: Up 2%, margins improved 70 basis points to 15.5%.
- Saverglass EBIT: EUR48.8 million for the seven-month period.
- Group Revenue (excluding Saverglass): $3.99 billion, down 7%.
- Net Finance Costs: Increased by $55.6 million.
- OPS Revenue (constant currency): Down 10.8% to USD1.95 billion.
- OPS Cash Conversion: 91.9%.
- Global Beverage Revenue (excluding Saverglass): Down 2.5%, cans volume growth of 2.5%.
- Global Beverage EBIT (excluding Saverglass): Increased by 2%.
- Global Beverage Operating Cash Flow (excluding Saverglass): Increased by 19%.
- Net Debt: $1.75 billion, leverage at 2.78 times net debt to EBITDA.
- Group Liquidity: $865 million available.
- Dividend Payout Ratio: 60.5% for the full year.
Release Date: August 14, 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 a 26% increase in EBIT to $404 million, driven by the acquisition of Saverglass.
- The company's underlying NPAT rose by 10.2% to $223.7 million, reflecting strong financial performance.
- Orora Ltd (ASX:ORA) achieved a significant reduction in lost time injuries (38%) and recordable case injuries (43%), highlighting its commitment to safety.
- The Australasian beverage segment showed resilience with a 2% EBIT growth despite a 2.5% revenue decline.
- The company declared a final ordinary dividend of $0.05 per share, maintaining a dividend payout ratio of 60.5% for the full year.
Negative Points
- Saverglass's performance was below initial expectations, with EBITDA of EUR85.4 million, reflecting continued customer destocking and softness in consumer demand.
- The OPS business saw an 11% revenue decline due to softness in North American manufacturing activity.
- Net finance costs increased by $55.6 million, driven by higher debt levels and base interest rates.
- The ongoing soft demand for Australian commercial wine and beer bottles negatively impacted glass volumes and revenue.
- The company's leverage ratio increased to 2.78 times net debt to EBITDA, slightly above its target range.
Q & A Highlights
Q: Firstly, on the potential divestment of OPS, given that you've spoken to the challenging operating environment in the business currently, can you maybe step us through why you think now is the right time to be divesting the business? And also, what kind of value do you think could be realized from the potential sale?
A: In terms of value, we have agreed with the interested party confidentially. There are transaction precedents and multiples available in the marketplace to look at what the value should be. As for why now, there is a level of interest in the business due to its profitability doubling over the last five years. Strategically, we are focused on beverage container manufacturing, and with Saverglass settling in, this is an appropriate time to look at divesting OPS.
Q: You've guided twice to exit run rates into FY25. Is that a comment on second half performance for FY24? Or does it relate to an unprovided fourth quarter or perhaps even June number for the businesses, particularly Saverglass and OPS into '25?
A: We are referring to the second half as a whole, not trying to create any uncertainty. The second half run rate refers to the entire second half.
Q: Can you clarify whether selling OPS would affect any of the Saverglass synergies that you mentioned on acquisition between OPS and Saverglass?
A: Selling in North America through OPS is important for Saverglass's growth. However, Saverglass has existing relationships with other key distributors in North America, so we believe we can still deliver growth without necessarily integrating OPS.
Q: Can you call out some of the factors that drove the better performance of OPS in the second half against your April expectations?
A: The team managed pricing well, retaining margins despite pricing pressure. The manufacturing part of OPS saw higher volumes than the prior corresponding period, indicating some green shoots in the corrugated manufacturing business.
Q: Net interest expense for FY25?
A: You can take the second half number and use that as the basis for next year. Not a lot of change in the portfolio.
Q: How do you think about value in terms of crystallizing effort for shareholders, and in the context of the Saverglass acquisition and the strategic review?
A: We assess the trajectory of the business relative to what someone is prepared to pay and its value as part of our overall portfolio. We compare whether it is more beneficial to retain and improve the business or to sell based on the offer.
Q: Can you give additional color and context to some of the manufacturing and distribution volume declines within OPS over the second half and the full year?
A: Manufacturing volumes bottomed out early in the second half, while distribution volumes are still lower and have not yet leveled out.
Q: Why is October '22 the right base to compare inventory to for Saverglass?
A: Prior to October '22, inventories were higher, and there was a furnace rebuild in Mexico, making earlier comparisons unreasonable. October '22 marks the inflection point when inventory started to rise.
Q: Are volumes for Saverglass stable, and how does this relate to your guidance for the second half '24 exit rate?
A: Volumes have stabilized at lower levels since early in our ownership. We are guiding to stable profitability for the second half '24 exit rate, anticipating no further decline in volumes.
Q: Can you provide a bit of color around the earnings uplift expected in FY25 from the investments in the cans business in Australasia?
A: We have guided to an uplift in cans earnings of circa $30 million by FY28, assuming current demand levels continue. The key driver will be underlying demand in cans, which we expect to resume to slightly higher rates over time.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
