Orora’s glass half-full despite China, Covid-19 profit hit

Bottles and packaging giant Orora is optimistic about stability in Australasia and growth in North America despite ongoing challenges.

Orora chief executive Brian Lowe.

Net profit: $135.8m (FY20: $238.9m)

Sales revenue: $3.5bn

Dividend: 7.5c

‘Unrelenting’ Covid-19 retail market challenges in North America and the continued impact of China’s wine tariff hit to exporters pushed profit down 43 per cent to $135.8m at bottles and packaging giant Orora.

Last year’s profit included $164m of gain on the sale of the fibre business.

Underlying net profit was up 34 per cent to $156.7m.

“This year, the Orora team was faced with another 12 months of challenges presented by the pandemic – particularly in North America where the impacts of COVID-19 have been unrelenting,” the group told investors.

The group reported sales revenue of $3.5bn, down 0.8 per cent on FY20.

In Australasia, revenue increased 6.1 per cent to $834.1m, driven by volume growth in its cans and closures division, but this was partially offset by declines in the glass business.

Earnings for the segment increased by 2.5 per cent from the prior year to $150.3m — “a solid result in the face of significant headwinds, including the impact of tariffs imposed on wine exports to China”.

The group said “solid progress” has been made to replace wine bottle volumes through entry into new segments, diversification of production capabilities and customer portfolio expansion. Orora is working closely with customers, including its largest client Treasury Wine Estates to replace volumes lost due to lower bottled wine exports to China by accelerating alternate growth pathways.

In North America, revenue came in at $2.7bn, down 2.7 per cent but a significantly improved financial performance with reported earnings before interest and taxes up 28.8 per cent to $98.8m.

Managing director and chief executive Brian Lowe said he was proud of the result “in a year that continued to present unique challenges due to Covid-19”.

“We were pleased to report an increase in both net profit after tax and underlying EBIT, demonstrating a solid contribution from all of our business groups across Australasia and North America,” Mr Lowe said.

“Our strategy is delivering, with focused execution improving our operations, stabilising our North American businesses and returning them to growth.

“We are also well positioned to pursue new growth opportunities as they emerge, both within our market-leading Australasian Beverage business as well as in North America.

“A strong balance sheet and cash flow provides the company with flexibility.

“We head into FY22 with positive momentum and the ability to invest where it will deliver the greatest long-term value.”

In terms of outlook, earnings forecasts for the Australasian business are in line with the previous financial year as the impact of China tariffs continues through the first half.

There is further growth in earnings expected for the North American side of the business as improvement programs continue.

On the sustainability front, Orora said it was committed to a 40 per cent cut in Scope 1 & 2 greenhouse gas emissions by 2035, targeting net zero emissions by 2050.

As reported previously, it is targeting 60 per cent recycled content for glass beverage containers by 2025 with a $19m investment in a glass beneficiation plant its Gawler packaging site in South Australia, supported by a $8m state government grant.

“Our pathway between 2035 and 2050 will be firmed up over time and will require advances in technology”.

Orora shares closed down 3.3 per cent on Thursday at $3.54.