Orora Limited (ORA) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Orora Limited Media Update Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Brian Lowe. Please go ahead.

Thank you. Good afternoon, everyone. Thanks for joining us for Orora's FY '21 full year results media call. I'll take you through a brief overview of the results announcements before we open up to some Q&A. In summary, I'm really proud to share that we've reported a strong improvement on our FY '20 results, with both our Australasian and North American businesses delivering improved performance, reflecting the continued focus on the execution of our strategy. Underlying net profit after tax, or NPAT, was up 23.7% to $156.7 million. Underlying earnings per share increased by 29% to $0.169 per share. Sales revenue for the business was $3.5 billion, down 0.8% on FY '20. However, on a constant currency basis, sales revenue was up 7.8%. Our Group EBIT increased by 11.6% on a reported currency basis to $249.1 million and on a constant currency basis was up 17.3%. Turning to the regions in which we operate. In Australasia, sales revenue increased by 6.1% to $834.1 million. EBIT growth of 2.5% to $150.3 million was driven by strong growth in can volumes, reflecting increased levels of at-home consumption across the year. With specific reference to glass, growth in beer and other nonalcoholic beverages partly offset reduced wine bottle volumes resulting from the China tariffs on wine exports. The North American businesses have continued the positive momentum started in late 2020, delivering improvements in both operating and financial performance. Local currency EBIT was up 43% to $73.8 million on a constant currency basis, and local currency revenue grew 8.2% to just over $2 billion. This has been achieved through a disciplined focus, increased sales force effectiveness by leveraging data insights to improve our customer account profitability and an ongoing focus on cost control. The impact of COVID-19 on the retail landscape in North America was materially greater than that felt in Australasia. While many retailers remained closed to much of the first half of the financial year, both OPS and OV have returned to revenue growth in FY '21, with trading commissions improving over the course of the second half. We've made good progress against the core strategies in each business, and we'll continue to leverage the momentum that we have developed into FY '22. In Australasia, we've increased our can capacity with completion of the slim line can expansion at Revesby, New South Wales. And we continue to press further can expansion plans, including an anticipated installation of an additional canning line at an existing facility for operation during FY '23. In glass, we have secured sales opportunities to replace approximately 90% of China export volumes through a combination of new products and build on existing nonwine sales through beer and [indiscernible], albeit at lower margins. In North America, with the business platforms now stabilized and scalable, the expansion of our products and service capabilities for OPS, including for M&A, will come into greater focus throughout FY '22 and beyond. We have an ongoing focus at OPS on business model enhancement initiatives, including a refreshed e-commerce platform and customer self-help functionality. For OV, we're looking to scale our customer value proposition by capitalizing on the solid foundation established in FY '21 and on track to complete a review of our strategic direction for OV by the end of calendar year 2021. I'd now like to provide an update on sustainability. This is part of Orora's DNA and is vital to the way that we operate. Continuing our strong track record, in Australasia, we increased the use of recycled glass at our production facility at Gawler, taking the majority of the recycled glass from the Western Australian and South Australian Container Deposit Schemes and accessing other state initiatives where we can. Renewable energy provides 80% of our total electricity requirements in Australia, secured through wind-generated electricity. In North America, OPS drove an average of 70% recycled content in the corrugated board manufactured for our customers. And at OV, we introduced fabric made from 100% recycled PET bottles used for customer advertising campaigns. We submitted our first modern slavery statement, demonstrating our commitment to human rights, and good progress is made on our 5-year eco targets, focused on reduction of CO2 emissions, waste to landfill and water use. And now a new chapter in our story. Following a comprehensive review, the pillars of Orora's sustainability frameworks have been redefined, clearly highlighting our focus areas of circular economy, climate change and community. Our new pillars represent a more aspirational view to Orora's promise to the future. Our contribution to the important issue of climate change is the commitment we have today announced of achieving net zero scope 1 and 2 greenhouse gas emissions by 2050 across our operations. We have also announced the interim goal of achieving a 40% reduction in emissions by 2035 from our 2019 levels. Our well-defined plan to achieve this interim goal includes increasing use of recycled glass at our Gawler facility for energy reducing benefits, implementing less greenhouse gas-intensive furnace technology such as occupied furnaces at Gawler and procuring greenhouse gas-free electricity for our businesses globally. Our pathway between 2035 and 2050 will be firmed up over time and will require advances in technology. Our proven -- Orora is a proven leader in circular economy initiatives. Building on our strong foundation, we've also today announced the target of achieving 60% recycled content for our glass beverage containers by 2025. A major initiative that will help us reach this target is the glass beneficiation plant at Gawler, which is under construction and due to be [ completed ] in the second half of financial year '22. This is approximately a $25 million investment, including $8 million of government funding. It will deliver important sustainability benefits, including a reduction in CO2 emissions, energy use and diverting waste from landfill. In terms of our outlook for the future. In Australasia, we expect our FY '22 EBIT to be broadly in line with FY '21. Continued strength in the Cans business is expected to be offset by the impact of subdued Glass volumes as the impact of the China wine tariffs are cycled in the first half of FY '22. In North America, significant progress made on the implementation of core strategic initiatives and the OPS and OV profit improvement programs are expected to continue. We are confident that recent performance improvements are sustainable, and we anticipate further EBIT growth in FY '22. The positive momentum is expected to continue into FY '22. And correspondingly, we are forecasting further growth in underlying group earnings. This outlook does remain subject to economic conditions, currency fluctuations and the continued impacts of the COVID-19 pandemic. In summary, I'm incredibly proud of the company's solid performance in FY '21. The recent results focus -- show the passion and commitment of our team in what has been a uniquely [indiscernible]. So thanks for listening to our brief overview, and we'll hopefully open up the line for questions. Please, operator.

[Operator Instructions] First question comes from [indiscernible].

Really interesting results on the Australasian side of things. It kind of reflects what we've seen in the brewing industry as well. My question is a bit more general. I was just wondering how important the beer market is, both craft and [ macro ], to Orora.

Very important for us, certainly for our Can business. We are a major supplier to the beer market, and we're seeing some really good growth in that sector over recent times. And we are also the predominant supplier of can into the craft beer market and are seeing good sustained growth in that area and are continuing to putting [ paper ] to support growth in that part of the industry.

[Operator Instructions] The next question comes from the line of Wayne Robinson from PKN Packaging News.

Yes, Brian, can I ask a little bit about -- more about your strategic review of the OV business in North America? It's -- obviously that market is quite different for you guys because it is so fragmented. And can you talk a little bit about the scope of that review?

Yes. Certainly, it's come about based on the performance of the business over the last couple of years, which had suffered. And that's our view of what Orora should look like for the future and what's core and what's not core. First of all, let me say that we're really pleased with how that business has rebound and how the team in that business had found a way to get the business back to profitability this year despite some really subdued trading conditions. So the review is really twofold. One is looking at what would the growth plan look like [indiscernible], whether to take from the investment of dollars and resources and what are they going to get from that over the journey. And the team has been putting a lot of work into that. And then also externally, what does the market look like for this type of business and industry and, ultimately, at least a natural one for it, but we want to make sure that we're making an informed decision.

Okay. Okay. Just a kind of practical question as well. Presumably, you guys, the senior management, you haven't been able to go over to North America very much or at all. How are you dealing with that as being kind of very geographically, personally remote from it for so long?

Well, we're all experts on Zoom and everything else, every other format [indiscernible]. The last time I was there was late November, early December last year. So [indiscernible] to get there. And unfortunately, that's going to change or a number of months yet. So look, we, as every business has, have really had to adapt to a different way of working. And our teams over there, unless they're working directly in the manufacturing or distribution center, are working remotely, and majority are continuing to do so. So everything these days is done by a video conference, and they just put in a cadence that facilitates that and a lot more regular reviews, and I think that's keeping the wheels moving in the right direction.

Okay. And one final question, if I may. On your recycling commitment in Australia, particularly, do you feel you are kind of leading the field in that? Or are you kind of playing catch-up and with various targets are being set by you externally from various government organizations or green groups for that matter?