Bottle maker Orora warns of earnings hit but looks to life after China

Australia’s largest wine bottle manufacturer, Orora, is reducing its future sales to China in wake of the nation’s ongoing trade spat with Beijing.

Orora chief executive Brian Lowe. Picture: Zoe Phillips

The largest wine bottle manufacturer in Australia, Orora, is actively reducing its future sales to China in the wake of the nation’s ongoing trade spat with Beijing, warning it would negatively impact its earnings in the second half.

Less than 10 per cent of the bottles Orora produces in Australia for its international wine customers end up in China but the company said second-half earnings before interest and tax would still be hit by lower Chinese wine ­bottle exports and the smaller 2020 wine vintage.

At a group level Orora is forecasting higher earnings in FY21 compared to the prior year, bolstered by its North American business, while in Australasia it is expecting EBIT to be broadly in line with FY20.

Treasury Wine Estates — which has been hit hard by the Chinese tariff war — is a large customer of Orora, which has spent $200m upgrading and expanding its bottle plant near the town of Gawler in South Australia over the past five years.

“We are taking a conservative approach to our forecasts for the second half,” said chief executive Brian Lowe. “Our customers are going to take time to find other homes for that (Chinese wine) product. We are also working on a pipeline of opportunities that are not wine-related.

“We are confident that through what our customers are doing and what we are doing we can rebuild and cover off that ­volume in 2022 and into 2023. It is not a permanent issue.”

But Mr Lowe added on the current trade dispute: “We would rather see the China issue resolved. We would hope discussions continue to resolve the differences and put it behind us.”

Orora on Thursday reported underlying net profit after tax before significant items of $91.1m, up 18.9 per cent on the prior corresponding period.

Statutory net profit was $97.4m, while the company declared an interim ordinary dividend of 6.5c per share unfranked.

Orora shares closed up 5.5 per cent at $2.88. Over the past three weeks, they have risen from a ­recent low of $2.43.

Orora, chaired by former chief executive of building products company CSR, Rob Sindel, expects EBIT from its North American operations to be higher in second half FY21 compared to second half FY20 and for the full year.

Constant currency earnings were higher for both the Orora Packaging Solutions and Orora Visual businesses, following increased sales force effectiveness and a strong focus on cost control measures.

Packaging Solutions returned to revenue growth in the half and Orora said it was well positioned in a growing and diverse customer market.

“In America, we have seen growth, particularly in the e-commerce segment. That has helped us,’’ Mr Lowe said.

“That won’t fully reset back to the way that it was before COVID-19 — and that will be a positive trend for the packaging industry.

“We also still have 2000 of our 3000 workforce over there working remotely. We have come to the view that it can be a permanent change. So we have been able to reduce the cost base permanently by doing that.”

Orora is also focused on leveraging its Australasian beverage capabilities by expanding its global sales footprint by launching complementary products and services. Mr Lowe said a preliminary assessment of an international beverage footprint expansion strategy was under way.

“It is early days. We see this as a medium- to longer-term play,” the chief executive said.

“We are very familiar with doing business in North America; we have a $2.7bn business there. We do see there is potentially an attractive proposition for expansion,’’ Mr Lowe said.

“The other piece we are gaining more confidence in is the Orora Packaging Solutions business in North America.

“We would be increasing in our confidence to make more substantial investments in that business,” he added.