Orora shares surge on better than expected half-year result

Orora shares have surged on an improved half-year result, as the company bounces back from China’s wine tariff hit.

Glass bottle production at Orora's manufacturing facility at Kingsford near Gawler in Adelaide’s north.

Bottle maker and packaging company Orora has shrugged off the impact of China’s wine tariff hit, rewarding shareholders with a higher dividend on the back of an improved first half result.

The company's underlying net profit for the six months to December came in at $102.7m, up 12.9 per cent on the corresponding period a year earlier.

Statutory net profit after tax of $100.3m was 3.1 per cent higher. The previous year’s result included an $11.3m gain on the sale of the Australasian Fibre business.

An unfranked dividend of 8c will be paid out on March 30, up from a 6.5c payment in the first half of FY21.

Investors welcomed the better than expected result, sending Orora shares 7.9 per cent higher in early afternoon trade, at $3.57.

Managing director Brian Lowe said the company’s first half performance was driven by growth in its North American division, and was pleasing given the disruption caused by the Covid-19 pandemic.

Orora chief executive Brian Lowe.

“Our North American business produced another outstanding result in the first half, continuing to drive improvements in operating and financial performance, exercising pricing discipline in a higher inflation operating environment and delivering strong earnings growth in both the manufacturing and distribution OPS (Orora Packaging Solutions) businesses,” he said.

“And we are pleased with the Australasian business which reported a solid result, having largely mitigated the impacts of lower wine glass volumes as the impact of Chinese tariffs on wine were cycled, with 100 per cent of this capacity now redeployed to new product categories.

“Cans demand remains strong, with solid volumes achieved across all categories.”

Sales revenue for the first half was 9.6 per cent higher at $1.99bn.

The growth was driven by improvements in North America, where sales were up 13.9 per cent on a local currency basis to $US1.13bn.

In Australasia, lower glass bottle volumes resulting from the Chinese wine tariffs, and supply chain and other Covid-19 disruptions, meant sales were up just 0.5 per cent to $443.2m.

EBIT in the region was down 2.3 per cent to $84m.

However, Orora said it had found new customers to absorb the impact of falling wine exports to China, including in the olive oil and spirits markets.

Mr Lowe said Orora’s strong balance sheet and operating cash-flow ensured the company was well positioned for growth and provided ongoing “operating and strategic flexibility”.

In a note to clients, Macquarie said Orora’s “defensive growth attributes” were attractive in the current environment, and it expects full-year EBIT to come in at $264.1m, up from $249.1m in FY21.

A $150m share buy-back is expected to be completed this year, with the company having already bought back about 9.3 million shares at an average price of $3.37.

Orora expects to report a higher full-year EBIT in FY22 as “positive operating and earnings momentum” continues throughout the year, driven by its North American business.

The company also said it was on track to achieving its goal of 60 per cent recycled content in its glass packaging by 2025, backed by a new $25m glass beneficiation plant being built at Gawler in Adelaide’s north, which is expected to be commissioned in the fourth quarter of FY22.