Orora Limited (ORA) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Orora Limited Half Year FY '22 Results Media Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Brian Lowe. Please go ahead.

Good afternoon, everyone, and thank you for joining us for Orora's 2022 half year financial results media call. I'll start by taking you through a brief overview of our results announcement before I open up for Q&A. Today, I'm proud to say that we've reported a really strong set of results, building on the momentum from our financial year '21 and demonstrating the outstanding focus of our team in executing our priorities. Underlying net profit after tax for the group was $102.7 million, which is up 12.9%. Underlying earnings per share increased 22.9% to $0.118 per share. Sales revenue was $1.988 billion, up 9.6% on the corresponding period and underlying group EBIT increased 10.4% to $154.5 million. And on a constant currency basis, was up 11.1%. This outcome was driven by a strong increase in North American earnings measures up 32.1% on a local currency basis. The interim dividend was increased by 23.1% to $0.08 a share. If we look more closely to our regions in Australasia. Sales were up by 0.5% to $443.2 million, reflecting increased aluminium input costs that have been passed through to our customers as well as a solid demand for Cans, which was partially offset by the expected impacts of tariffs on Australian wine exports to China. EBIT in Australasia was down 2.3% on the prior corresponding period and was $84 million, but this is in line with our expectations. This reflects the business cycling lower wine lost volumes due to the tariffs on Australian wine as well as some modest COVID-19 supply chain and customer production disruptions, which impacted Can production volumes in late 2021. Pleasingly, the Beverage business has since secured alternate growth pathways for our Glass business, including Spirit and Olive Oil bottles to replace lost volumes and demand for Cans remains strong, with solid volume achieved across all categories and strong customer demand forecast for the second half of the year. Our North American businesses delivered another outstanding result for the half, continuing positive performance from financial year '21. On a reported basis, sales revenue was up 12.6% to $1.5 billion. And in local currency, EBIT was up 32.1% to $51.5 million. This result was delivered through continued improvement in operating and financial performance, greater focus on sales force effectiveness using data insights to increase customer profitability and importantly, managing supply chain inflation to ensure that these impacts are passed on in pricing. As we know, COVID-19 has continued to add complexity and challenge across our teams and to the operating environment. As an essential service provider, Orora maintained its focus on ensuring quality supply to our customers, successfully managing impacts of the restart in late 2021. In Australia, some key customer production and supply chain disruptions due to COVID had a modest impact in our beverage volumes in late 2021. In North America, the impact of COVID-19 on the retail landscape progressively improved in the first 5 months of the half, although the increase in infections slowed activity slightly in December. Our North American operations were able to minimize the impacts of supply chain and workforce disruptions and supplier customers. And a number of additional health and safety measures in response to COVID have been implemented to protect our people to mitigate the risk of transmission across sites and workplaces. Now underpinning our success is our core strategy, first presented at our FY '20 results. This guides us toward reaching our ambition of becoming a leading sustainable packaging solutions company. I'll now take you through some of the highlights of the progress against this strategy. In Australasia, we continue to make strategic investments to support our strong outlook for Cans volume, and the extension and with the extension of long-term customer contracts. This now includes an investment of $110 million to expand our Can multi-size capacity at Dandenong by an additional 10%, and our end capacity at Ballarat by an additional 40%. We expect the Dandenong to be commissioned in Q4 of financial year '23 and our Ballarat line will be commissioned progressively from late FY '22 and early FY '23. As mentioned, our Ballarat business has now successfully replaced all of the China export volumes through a combination of our new products focused on import replacement, growth in existing beer, water and other non-wine categories. Our $25 million Cullet Beneficiation Plant at our n Gawler site is expected to be commissioned in Q4 of FY '22. And this significantly increases our use of recycled glass and also supports our sustainability goals. In North America, at OPS, we have continued to improve our operating discipline and financial performance with both the manufacturing and distribution businesses delivering strong paper growth, while managing the challenges of a higher inflation environment. We will continue this disciplined approach, and we'll also continue to enhance our business model with initiatives including a refreshed e-commerce platform and customer self-help functionality. Orora Visual is now trading profitably with both revenue and earnings growth achieved through improved execution and a focused cost reduction program. Here, we will look to scale our customer value proposition to broaden our customer base into horticulture, quick service restaurants and retail segments. I'd now like to turn to sustainability. At our first year results -- or sorry, full year results in FY '21, we unveiled a new chapter in sustainability at Orora with a refreshed framework comprising the pillars of circular economy, climate change and community. We also announced a number of goals aligned to these pillars. Under circular economy, we are on track to achieve our 2025 goal of 60% content in the glass packaging we manufacture. We represent -- with respect to climate change, the company is also on track with a 40% reduction in Scope 1 and Scope 2 greenhouse gas emissions by 2035. A range of initiatives, including alternate tennis -- furnace technologies and our $25 million beneficiation plant at Gawler are underway to support these goals. Under our community pillar, in the first half of FY '21, we announced our global diversity equity inclusion goals to increase gender, racial and culture representation in various roles across a war and to ensure a pay equity across the company on an ongoing basis. Now in terms of outlook, positive operating and earnings momentum is expected to continue for the Orora Group throughout FY '20. And correspondingly, we are forecasting FY '22 EBIT to be higher than FY '21. In Australasia, EBIT growth is expected for the beverage business in the second half of FY '22, and with FY '22 EBIT to be broadly in line with FY '21. And in North America, with sustained improvement in performance in both OPS and OV, we expect EBIT for the second half of FY '21 to be up on the prior corresponding period, with continued strong earnings growth for the full year. Now this outlook remains subject to global and domestic economic conditions, currency fluctuations and the continuing impact of COVID-19. In summary, I'm incredibly proud of the results announced today, which demonstrates the strength of our diversified packaging businesses and the outstanding commitment of our team to deliver on our strategy. Thank you for listening. I'll now open up for questions.

[Operator Instructions] Your first question comes from Wayne Robinson.

Brian, at the results -- your full year results last year, you talked about a strategic review of Orora Visual, whether Orora was the natural owner of the business. Did that review take place? Or are you going to keep the business under your ownership?

Yes, we are. So we have completed that review, which was very extensive, and we focused on understanding what the external market looks like, what the alternatives would be for that business, retaining and not retaining the business and overlay that against the strategic plan that our management team has put together. And it's quite clear that we've got some good upside in the business. So it will remain in the portfolio.

Okay. And just a follow-up question to that. Would you anticipate expanding into that market in other areas, Europe or Asia or even here in Australia?

I think in the short to medium term, the focus for visual will be on improving that business rather than adding to it. So I think we're a fairway from assessing that.

Your next question comes from [ Andy Yang ].

Brian, I was just -- I know you've sort of highlighted a strong EBIT performance coming for next year in line with this. I just wondered how you're feeling long term about economies, both domestic and global. Obviously, interest rate rise looks likely here and inflation is climbing in the U.S.? How concerned are you about the -- how economic conditions may impact the business long term?

Certainly, from an Australasian perspective, we're very confident in the business based on the diversity of industries or segments we supply within the beverage categories, and they've proven to be very defensive industries regardless of economic conditions. And in North America, our focus and our performance is not driven by the buoyancy in parts of the economy. In fact, most of our top line growth has been based on passing through those cost increases, and we're really focused on improving the margin and quality of earnings in the business, and we think we've got some good opportunities in certain segments to continue to grow that business.

[Operator Instructions]

Operator, if there's no more questions, then thank you all for your time. If there are any follow-ups, please feel free to follow them through our media inquiries team. Hopefully, the information is there on the media release for you to do that. We'll happily respond to any questions you have. So thanks for your time today.