Orora Limited (ORA) Earnings Call Transcript & Summary

[Presentation] Good morning, ladies and gentlemen. I'm Rob Sindel, Chair of Orora Limited, and I will chair the meeting today. On behalf of the Board of Directors, I'm pleased to welcome you to the 10th Annual General Meeting of the company. We're holding today's meeting as a hybrid meeting. So I welcome shareholders joining us online and those of us in here in-person today. I appreciate you spending the time with us. Firstly, if you have a mobile phone, please ensure it switched to silent for the duration of the meeting. Could I also ask that no photographs or recordings of the meeting be taken. A recording of the presentation will be made available on the Orora website shortly. As we have a quorum, I now declare the AGM open. A notice of meeting has been distributed to shareholders, and I'll take this notice as read. In attendance today and present in the room are Brian Lowe, Orora's Managing Director and CEO; Ann Stubbings, Company Secretary and Group General Counsel; and my fellow directors, Abi Cleland, who's standing for reelection today and will address the meeting shortly. Also, Tom Gorman, Sam Lewis and Michael Fraser, whom shareholders will know. We also have some members of the Orora senior executive team here, and I invite each of them to stand as I introduce them. Shaun Hughes, our Chief Financial Officer. Thank you, Shaun. Matt Wilson, our Chief Strategy and Corporate Development Officer. We also have our company auditor, Penny Stragalinos, joining us here today from KPMG. Thanks, Penny. And Penny will answer any questions for the auditor at the appropriate time during the meeting. Before addressing the formal items of business, I will recap on the major company achievements during the 2023 financial year, including our financial highlights, our approach and progress on our sustainability goals and an update on our strategic initiatives, including our recently announced acquisition of Saverglass. Brian will also provide additional comments on our safety and operational performance, sustainability achievements and progress against our strategic road map. Brian will also provide an outlook for our financial year '24. Two of our directors, Abi Cleland and Sam Lewis will have accumulated 10 years of committed service to Orora during this current financial year. Our Board charter provides that nonexecutive directors will resign at the AGM following the 10th year of service, except in exceptional circumstances. In light of the recently announced acquisition of Saverglass, we are mindful of ensuring an orderly Board succession and transition. Therefore, Abi, who is standing for reelection today will remain on the Board past the next Annual General Meeting, however, will not stand for reelection at the end of her 3-year term. Having stood for the reelection at the last AGM and to ensure orderly Board succession, Sam Lewis will step down from the Board before the next AGM. Our overriding objective is to ensure we continue to have an appropriate mix of skills, experience, knowledge and diversity. Turning briefly to our financial results for the year ended 30th of June 2023. Orora again delivered on its operating plans and strategy, reporting another solid increase in group earnings and underlying earnings per share. This was driven by double-digit earnings growth in North America, and another resilient earnings performance by our beverage business in Australasia. Underlying earnings before interest and tax increased by 12.3% on a reported basis driven by a significant increase in North American earnings up by 23.9%. Underlying net profit after tax was up 8.5% to $203 million and underlying earnings per share increased 11.1% to $0.241 per share. Cash generation remained strong, with underlying operating cash flow in line with the prior year at $270 million and cash conversion of 70%. The Board declared a final ordinary dividend of $0.09 per share, unfranked. This brought the total dividend in FY '23 to $0.175 per share, a 6.1% increase in FY '22. This represented a total dividend payout ratio of 72.6%. Post the sale of our Fibre business in 2020, underlying EBIT and underlying EPS have delivered compound annual returns of 12.6% and 22.2%, respectively. Over the same period, Orora has grown revenue to almost $4.3 billion and delivered strong growth in dividends. This strong operational performance Combined with our growth in earnings and dividends, has enabled us to continue our capital investment program, particularly in new aluminum can capacity. This has delivered solid growth in volumes, which continues to grow our cans earnings as additional capacity comes online over the next few years. Orora redefined our sustainability framework in FY '22, defining clear goals under the pillars of circular economy, climate change and community. During the year, we continued to make progress against all 3 of these goals. Under the circular economy pillar, we invested $25 million to increase our recycled glass content at our Gawler glass manufacturing plant in South Australia. In North America, further progress was achieved on recycled content, particularly in corrugated board manufacturer. Transitioning to a low-carbon future is a challenge for many manufacturing companies. Financial year '23 data shows further decreases by Orora against our baseline of FY '19 year and a marginal decrease in emissions compared with those recorded in the previous year. We remain on track to achieve our interim goal of 40% reduction in greenhouse gas emissions for Scope 1 and Scope 2 emissions by 2035. During financial year '23, we began our examination of Scope 3 emissions for Orora and we'll continue this work during the next 12 months. Step change, however, will come through investment in new technologies and pleasingly, we have begun construction to upgrade the G3 furnace to oxyfuel technology at Gawler. This upgrade will position the G3 furnace in the top 10% energy-efficient glass furnaces worldwide, delivering a 20% reduction in CO2 emissions. Construction of the oxygen plant is due for completion in FY '25. We also welcomed government funding of $12.5 million through the modern manufacturing initiative to support this project. Our review and implementation of findings from the Task Force on Climate-related Financial Disclosures was published during the year. No material risks were identified with our strategy determined to be fit for purpose and supported Orora's long-term sustainable growth. Brian will shortly provide further details on our sustainability achievements during the last financial year. As with sustainability, good corporate governance is integral to the culture and business practices at Orora. It enhances performance, creates value and supports an appropriate risk and return framework. Orora's governance practices are summarized in our corporate governance statement, which you can find in our FY '23 annual report or on our website. Now Orora continues to present compelling investment proposition to our valued shareholders and investors. This is underpinned by our company's clear strategy and consistent performance and the differentiated value we offer as a design-led, sustainable packaging solutions provider. On that note, the Board are very supportive of the recently announced acquisition of the premium global glass manufacturer, bottle manufacturer, Saverglass. This marks a significant milestone for the company, representing a unique acquisition of a market-leading business with a consistent growth profile and robust financial performance. The addition of Saverglass is set to offer a significant growth platform and value for creation opportunity for our shareholders. In September, the company successfully completed the fully underwritten equity raising comprising $450 million in an institutional placement and $895 million pro rata entitlement offer raising AUD 1.35 billion. We very much appreciate the support shown by existing and new shareholders for the acquisition of Saverglass. Our CEO, Brian will talk further about this exciting news shortly. In closing, despite continuing global economic challenges, Orora remains well positioned to achieve long-term growth for shareholders as we have done since our inception a short 10 years ago. The acquisition of Saverglass represents the next significant step in the company's evolution. And I extend my gratitude to Orora's executive and its leadership team and all of our global team members for the outstanding contribution and the delivery on the strong results in FY '23, including an enormous amount of work on the Saverglass transaction. So as Orora approaches its 10th anniversary, the Board is very excited as we move into the next chapter of growth for the company. I'll now hand over to Brian for his comments. Thanks, Brian.

Thank you, Rob, and thank you all for your continued support of Orora. The health, safety and well-being of our people remains a fundamental and ongoing commitment at Orora. Lost time injury rates remained relatively stable year-on-year. However, we experienced a disappointing increase in the frequency of largely preventable low severity injuries in FY '23. One serious injury was regrettably recorded at our glass facility. Extensive risk assessments have been undertaken and proactive controls implemented. In FY '23, we embedded the final elements of the Global Integrated Safety Improvement Program, or G-SIB, into our FY '23 to FY '25 global health and safety strategy, which is focused on high-risk activities improving effectiveness of critical controls, incident reporting and governance processes. Our stay safe rules were also communicated across all of our global operations this year, targeting 10 high-risk activities to reduce and empower team members to stop work and speak up at any time if they believe conditions are unsafe. And we are confident safety performance will improve through focused continuous improvement and driving existing programs. This includes the implementation of critical control checklists in FY '24 to verify critical controls for our highest risk activities are in place and effective. I am pleased to report the first 3 months of FY '24 has seen a substantial reduction in both lost time and recordable case injuries. Our FY '23 result again demonstrates the continued execution of our strategy, strategic priorities and embedded pricing discipline. In North America, we delivered another strong earnings performance with EBIT up 15% in local currency terms, largely driven by strong performance in our OPS distribution business. This result reflects the continued improvements in operating efficiency and cost to serve, whilst ensuring strong pricing disciplines to manage inflation. Sales revenue was down in the OPS manufacturing business, having experienced 12 months of lower volumes, reflecting the decline in the broader North American manufacturing industry and the flow-through impact of lower paper prices. The distribution business also saw volume softness in the second half of FY '23. This was partially offset by some price increases as well as cost management activities, which were proactively deployed to partially reduce the earnings decline. While softer trading conditions impacted OPS volumes in FY '23, the business remains well positioned to drive earnings growth from any improvement in the U.S. economy. Importantly, the benefits of our sustained and disciplined approach to operating efficiency and tight management of inflationary pressures, increased the North American segment EBIT margins by 90 basis points to 5.1% with the OPS business now at 5.9%. In Australasia, revenue was up 14.1%, driven by 2.7% net volume growth, 3.5% relating to higher aluminum costs that are passed through to customers and 7.9% from price increases and positive product mix. Australasia's EBIT was in line with forecast, up 1.8% on the prior year. This was driven by approximately 10% sales volume growth in cans across all formats which offset the softness in glass volumes. Pleasingly, revenue and earnings from new glass products were all higher than the prior year. And importantly, the Australasian business returned to growth in the second half of '23, growing underlying EBIT by 8.5%, primarily from cost inflation recoveries. The FY '23 result underscores the resilience and diversified strength of the Orora beverage business in Australasia with strong consumer demand for cans driving volume gains and product mix improvements. This offset a softness in glass due to a slowdown in domestic and export consumer demand for Australian commercial wine and beer. Our strategy continued to guide our actions supporting the delivery of our achievements in FY '23. In North America, OPS has driven further improvements in financial performance and operating discipline and is investing to drive long-term volume growth with an increase in sales resources. Our beverage business in Australasia has focused on operational excellence, automation and lean manufacturing programs, which have led to productivity gains to deliver strong volume growth in cans. Our cans growth investments are well advanced with stages 1 and 2 completed, comprising the cans ends capacity increase at Ballarat and our new multi-size canning line at Dandenong both now operational. Looking at our FY '24 priorities, OPS will continue to optimize the business and focus on driving customer account profitability as well as leveraging digital platforms to further streamline processes. Continuing to invest in the OPS sales force remains a focus to drive long-term growth. The beverage business in Australasia will further its cans capacity expansion with a second canning line at Revesby in New South Wales progressing well and due to come online in the second half of FY '25. Product mix will continue to be optimized as the business diversifies its portfolio and the business will benefit from its ongoing preference shift towards canned formats. As Rob mentioned, a significant development was the announcement on September 5 that Orora will acquire premium global glass packaging business, Saverglass. This is the combination of 4 years of disciplined execution of our strategy, positioning Orora for the next phase of growth. This is a particularly exciting milestone that will establish Orora as a truly global diversified, sustainable packaging solutions provider. Saverglass is a global leader in the design, manufacturing and decoration of high-end models for the premium and ultra-premium spirit and wine markets. It has an extensive manufacturing footprint with specialized assets and technical capabilities across 6 sites in Europe, North America and the UAE in close proximity to key global production regions and customers worldwide. With over 50 years of craftsmanship, Saverglass is a long-term partner for some of the world's most well-known names in luxury wines and spirits, many of which you will instantly recognize. They're exclusive designs, quality and craftsmanship are critical to the brand recognition and success of their customers. The acquisition price is EUR 1.29 billion or approximately AUD 2.15 billion. And as Rob mentioned, we have successfully completed the $1.35 billion equity raising and are well progressed on the acquisition debt financing. The works council consultation processes have successfully completed. The share purchase agreement has been executed and we are working towards completion of the acquisition in the final quarter of calendar 2023, and we will update the market in due course. Our current expectation is that due to the timing of regulatory approval processes, completion is likely to occur at the end of December, with earnings to flow from January 2024. Orora's acquisition of Saverglass is strongly aligned to our growth strategy and provides valuable future growth avenues for the combined group. It grows our core competencies in premium value-added beverage packaging capabilities and provides geographical diversification and meaningful scale benefits to our existing glass assets. Saverglass unlocks significant value creation opportunities for the combined group, leveraging complementary operational footprint, sustainability practices and customer network. We also gain access to a highly capable management team with significant experience in leading a global network of glass manufacturing sites. Importantly, this is the acquisition of a well-invested established business model with a historically consistent long-term growth profile and robust financial performance. This will enable us to optimize production and leverage the combined expertise. During FY '23, we continued to make progress towards our promise to the future sustainability goals under the pillars of circular economy, climate change and community that we announced back in FY '22. Key sustainability achievements included, under circular economy, we achieved 38% recycled content in our glass manufacturing. This was in line with the prior reported period. However, more than 30,000 tonnes of new cullet sources were developed during FY '23, with our cullet sourcing program now active in all mainland Australian states. This will further increase levels of recycled cullet in our glass containers during FY '24 as we strive towards our target of 60% recycled content by 2025. In North America, OPS averaged 57% recycled content in our corrugated board manufacturing, an increase of 3% from FY '22. We also continue to explore new ways to utilize and maximize recycled content across the range in OPS. Under climate change, total Scope 1 and 2 greenhouse gas emissions decreased by 4.84% utilizing market-based factors for Scope 2, and 12.98% using location-based factors for Scope 2 from our FY '19 baseline year. We have also begun our examination of Scope 3 requirements for Orora, and this will continue during FY '24. We also commenced our G3 furnace rebuild, utilizing an Australian-first oxyfuel technology at our glass manufacturing plant in Gawler. When commissioned, this will deliver a step change reduction in greenhouse gas emissions for that furnace. Along with the Board and the executive leadership team, I am extremely proud of the dedication from our people in executing our promise to the future. Finally, before I hand back to the Chair for the procedural part of the meeting, I'd like to cover Orora's outlook for FY '24. In North America, as anticipated, volume softness in the second half of FY '23 has continued in the first quarter of FY '24. And these trading conditions are expected to continue into the second quarter. This reflects the ongoing slowdown in the broader North American manufacturing industry. OPS remains well positioned to drive earnings growth from any improvement in the U.S. economy, with further margin accretion through account profitability programs and the continued focus on cost management expected to be largely offset by ongoing volume softness. In Australasia, continued strength in cans with incremental volume growth from recent investments is expected to offset the ongoing softness in glass from lower commercial wine volumes. And whilst global and domestic economic conditions remain uncertain, Orora Group earnings are expected to be higher in FY '24. And this statement excludes the impact of earnings from Saverglass which are expected to flow once the transaction completes. And this outlook remains subject to global and domestic economic conditions and currency fluctuations. With that, I'll now hand you back to the Chair for the procedural part of the meeting. Thank you all.

Thanks, Brian. Well, I'll shortly introduce and invite questions from the floor and those online. We have people joining on the platform. We have telephone, and we obviously have you in the room. So we've tried to provide maximum access for our shareholders to be part of the meeting today. However, before we jump into it, I'll give you a bit more detail of how that's going to work both in terms of voting and the procedure for that. For those attending in-person, you in the room, when you registered this morning, you have received an admittance card. Yellow cards were issued to shareholders and proxy holders who are entitled to vote today. Blue cards are for those shareholders entitled to speak but not to vote. You will need to have either of these cards to ask a question or reenter the meeting. The yellow card displays a series of boxes for voting. Please remember to indicate on your card how you wish to vote by marking the appropriate box. Visitors at today's meeting have been issued with red cards. That doesn't sound like a very good color. I remind visitors that they're not entitled to speak or vote at the meeting. The resolution at today's meeting will be decided by a poll. For those attending virtually, if you're eligible to vote, you have registered online as detailed in the virtual meeting online guide. If you are eligible to vote, you'll also have received a virtual voting card. I'll encourage you to review the online platform available on the Orora AGM link or on our website for further information. Julie Stokes, where are you Julie, Julie Stokes of Link Market Services will act as the returning officer in relation to the poll. The results of the poll can be obtained later today by visiting the company's website or the ASX website. So also, as usual, subject to a director having a personal interest in the outcome of the resolution, I confirm that the Board recommends that shareholders vote in favor of all resolutions today. As Chair of the meeting, I intend to vote all undirected proxies given to me in favor of each resolution in. Now I will invite questions from shareholders and proxies on all items of business. However, we will not pause between each resolution, we'll do that at the end of the resolutions that I'll put to the meeting. If you wish to ask a question, please ensure they are relevant to the meeting today. Questions on all items of business will be fielded through me as the Chair and I'll direct it to the appropriate person if I'm struggling. I'll first invite questions from those present today, followed by written questions from shareholders joining the meeting via the webcast and then any telephone questions. So for those shareholders present today, if you would like to ask a question, please move to one of the two microphones at the side of the room and show your card to the microphone attendant. The microphone attendant will invite you to speak when your turn comes. If you have more than one or two questions, I ask that you allow others to ask questions before returning to the microphone. Again, for shareholders joining us via the webcast, all the information you need is on your screen. If you're having any trouble using the online platform, please revert to the guide or call the telephone number shown on the assistance screen, shown on the screen for assistance. If you'd like to ask a question online, I encourage you to do so as soon as possible so that can be addressed at the relevant time. Please click the Ask-a-Question button and follow the instructions. We will endeavor to answer all questions. However, if there are repetition in any questions lodge, we may consolidate these. We'll then take any questions via the telephone line. Penny, as I said earlier, Penny Stragalinos, from KPMG is also available to answer any questions of the auditor. I will now proceed with the formal business of the meeting as set out in the notice. I also declare the poll open so that those of you who need to leave early can complete your voting card and place it in one of the ballot boxes near the exit doors. The first item of ordinary business is the tabling of the financial statements for the year ending 30 June 2023 and the report of the directors and the auditors of the company. These reports will be tabled but are not subject to a resolution. We'll now move to the second item of business, the reelection of Abi Cleland. As stated in the notice, Abi Cleland retires by rotation and being eligible, has nominated herself for reelection. The details of Abi's qualifications and experience are set out in the notice. However, I'd like to ask Abi to say a few words.

Good morning, shareholders. It's been more than 9 years since I joined the Board of Orora just after the demerger from Amcor. It has been an honor to represent shareholders during this time. The business looks quite different today than back then. We've invested in our people and culture. We've expanded and strengthened the Australian glass and cans business as well as successfully sold a low-returning cartons business. The North American OPS business now has much stronger foundations after investing in our core systems and processes. Recently, we bought the Saverglass business, which builds on the 50% of Orora's profit already offshore. Our focus now is to successfully integrate and run the business and our CEO and the executive team are motivated and committed. I'm currently a full-time nonexecutive director, and I'm also on the Boards of Coles and Computershare. Prior to this, I built a global career driving strategy, M&A, digital and running businesses for large corporates in industrial and retail sectors as well as running at a successful advisory firm. With your support, I look forward to continuing to work with my fellow Board members, CEO and executive team as we embark on Orora's next phase of the journey. Given my tenure, as Rob said, I will retire during this term. Thank you.

Thanks, Abi. It's a really good summary of where you've seen the progression of the company over the last 9 years. So I put the motion that Abi Cleland be reelected as a director. So shareholders, will you please complete your yellow voting card in relation to Item 2. Or those of you voting online, please submit your votes virtually. Anyone who needs assistance with the voting process, please raise your hand to attract the attention of Julie Stokes or one of the team. Great. Is there a question. Julie [indiscernible]. Thank you. [Voting]

So we've seen the proxies, the votes up there, a good support for Abi, well done. So moving to Item 3 in the notice of meeting, the incentive grants to Brian Lowe. The Board proposes a grant to Mr. Lowe under the terms of the company's short-term and long-term incentive plans as summarized in the notice. As required by the ASIC listing rules, shareholder approval is being sought in order to grant the proposed securities to Mr. Lowe. Mr. Lowe has not participated in Board discussions on resolutions concerning these grants. Each of these grants will be considered separately. Turning first to the short-term incentive grant to Mr. Lowe. Shareholders are asked to approve a grant of deferred share rights to Mr. Lowe as set out in the meeting. This grant is designed to reward the achievement of specific objectives for the 2024 financial year. Any short-term incentive granted to Mr. Lowe is also subject to Orora's safety performance. Importantly, the Board has overall discretion in granting the proposed short-term incentive grants to Mr. Lowe. Again, I will now disclose the way in which proxy votes have been directed on this item. [Voting]

I put the motion under Item 3A that Brian Lowe be granted deferred share rights under the short-term incentive plan. Again, shareholders in the room, would you please complete your voting card in relation to Item 3A on -- or your online voting card for those virtually joining the meeting. Turning now to the long-term incentive grant to Mr. Lowe. Shareholders are asked to approve the grant of performance rights as set out in the Notice of Meeting. Again, I'll now disclose the way in which proxy votes have been directed on this item. I put the motion under item 3B that Brian Love granted performance rights under the long-term incentive plan. Would you please complete your yellow voting card in relation to Item 3B or your online voting card for those joining virtually. [Voting]

Thank you, shareholders. The fourth item in the notice of meeting is the remuneration report. In accordance with the Corporations Act, the directors have prepared a remuneration report for the financial year ended 30th of June 2023, which is included in the annual report that has been made available to shareholders. Orora's executives are rewarded for annual performance against business plans as well as longer-term returns for shareholders. Incentive planned outcomes for this year again reflect the strong alignment between Orora's financial performance, executive performance, and the execution of the company's strategic business objectives. This year in the remuneration report, we outlined modest adjustments to the executive remuneration framework for financial year '24. We've introduced cash-settled dividend equivalent payments on the deferred equity component of short-term incentives and remove the absolute total shareholder return gateway on long-term incentive plans. The long-term incentive plan will continue to have earnings per share growth, return on average funds employed and relative total shareholder return performance metrics. These metrics align with Orora's goal to provide superior returns to shareholders. In accordance with the Corporations Act, the vote on the remuneration report is advisory and nonbinding. I will now disclose the way in which proxy votes have been directed on this item. I put the motion that the remuneration report for the period ended 30th of June 2023 be adopted by passing an ordinary resolution, advisory -- an ordinary advisory resolution as set out in the Notice of Meeting. Shareholders will you please complete your yellow voting cards in relation to Item 4, again, those online using the virtual tool. [Voting]

Great. Thank you. I think that's the formal part of the business other than the question and answer. So I encourage shareholders to ask as many questions or any questions on any topic, and we'll do our best to address those.

So are there any questions starting in the room. Yes, sir. If you could state your name to the moderator or state at the microphone, that would be very pleased.