Orora Limited (ORA) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Orora Limited FY '23 Full Year Results Analyst Call. [Operator Instructions] I would now like to hand the conference over to Mr. Brian Lowe, Managing Director and Chief Executive Officer. Please go ahead.

Thank you, operator. Thank you all for joining. Hopefully, you all had the opportunity to participate this morning in our overview. So today's session is really just to make sure that we can ask any question or answer any specific questions you have. So we don't intend to give another overview of what you heard this morning. I do acknowledge that there are a few people this morning who are left in the queue to ask some questions, but we did unfortunately have a hard stop. So please if that was you, please feel free to ask your questions as we go through today. So operator, we'll now open the line up for questions.

[Operator Instructions] Your first question comes from Niraj Shah with Goldman Sachs.

Just first one for me. I mean you talked about aligning production to match demand. I think others in the industry are doing the same. Can you give us an indication, I guess, on where utilization rates are versus sort of installed capacity across the Saverglass network?

Yes, they've stayed pretty much at around 60% utilization, and which I believe is the last update we gave. And that's -- it is slightly under what demand is. And as you might have seen from what we had on, I think it was Page 27 of our deck with the inventory graph, the inventory we hold has been decreasing. So I guess the statement is more to ensure people we're not building inventory and keep running the plants unnecessarily. So yes, utilization is 60, maybe a touch below, but that's absorbing a bit of inventory in the process.

Okay. I appreciate that. And then the second one for me. I think you mentioned on the call something about freight adjustment to the Saverglass revenues, but I kind of missed. I was hoping you could elaborate on that?

Yes. It's just that as we bought Saverglass into IFRS accounting, the freight -- the revenue is inclusive of freight. So effectively, freight doesn't attribute to the same margins. It's slightly dilutive in terms of the margins. But the revenue includes the freight revenue in the way in which we've reported it.

Your next question comes from Keith Chau with MST Marquee.

First question relates to just some of your guidance comments on Saverglass. So I just want to confirm very quickly the exit run-rates out of FY '24 into FY '25. Are you talking about it on an EBIT basis for Saverglass?

We are, yes. And maybe while I'm talking about that, it might be good to say when you look at the exit D&A, you'll see that the exit D&A is a little different to the guidance D&A. What's driving that is probably there's a little bit of conservatism in the D&A number that we've put into, I think what slide it is here. Chris will tell us what slide it is. But on the Saverglass slide, in essence, what's driving that is an assumption around Ghlin, the Belgium furnace. So we do need to rebuild that at some point. Our initial plan was that we would -- we have that start now. We are pushing that build-out just as part of the CapEx rephasing program that we've been working on and we've talked a little bit about. So it's probably a little bit conservatism -- a little bit of conservatism in the D&A number.

And Shaun, when you back it up to the EBITDA line, even if you take out the conservatism for D&A, it means that EBITDA should be increasing on a run-rate basis given the EBIT is flat onto 2H. Can you give us a sense of what's driving that increase in EBITDA?

Yes, there's a couple of things. So when you look at it on a full year basis, there's probably -- there's really 3 things at play. So firstly, there's a little bit of mix, a little bit of cost improvement year-to-year that we expect to get just with some of the costs coming down and holding on to price. And then the third piece is there's an expectation. I mean we're not guiding to this in terms of our blanket guidance on EBIT, but we would expect to see some improvement into the second half of the year with volumes, assuming, as we talked about, those inventories continue to normalize, customer inventory start to normalize towards the back end of the year.

Okay. So I guess even without that step-up in volumes going into the second half of the year, there should still be a bit of a step-up in EBITDA in the first half?

In EBITDA, yes, a little bit. We've certainly seen good mix in July and some good work on cost recovery. We'd expect that to continue.

Okay. And what are you hearing from your customers? I mean, Shaun, I know you're based over the [ announce ] so can understand whether you've had discussions with your customers. And what's driving that mix benefits? I would have thought there might have been a chance mix was moving adversely rather than favorably. So what's actually driving that mix through the business at the moment, the positive mix?

Certainly, a complicated equation in terms of customer demand. I think it's more about holding on to a little bit of price, a little bit of mix in a few areas. We are certainly chasing some volume in some of the more commercial areas of the portfolio, but things are holding up reasonably well.

Okay. I might just quickly ask one more. Just in terms of [ Aussie one ]. The early indications is that the exports back into China, as you pointed out on the call, are actually pretty good. So the phasing of that $10 million benefit, I think it was referred to briefly in the slide -- sorry, in the results pack. But can you give us a sense? I think last time the disclosure was $10 million. But the potential phasing of that $10 million benefit, given what you've seen to date, if you can give us any clarity on that?

Yes. I mean just a reminder for others on the call. The impact, the negative impact from a pure margin standpoint when the Chinese tariffs came on a number of years ago was about $10 million to the glass business at Gawler. So that's effectively the size of the price, if we get back to full volume at the margins, we're selling those products at the time. We're anticipating this is maybe a 3- or 4-year journey to get back to fully loaded. So we wouldn't be anticipating any more than 1/4 to 1/3 of the volume. Now the mix will be dependent or yet to see what that is. But in terms of volume, we think the volume ramp-up to get back to where we were, it could be a 3- or 4-year journey. Early signs are good. But remember, this is about 10% of our total production. For reference, we were reasonably high single-digit decline in wine volume in FY '24 relative to FY '23. So we've seen -- and this is on total wine volume. So the counter to the upside of China is we're still seeing some demand decline in commercial wine. So this is not a pure add. It's certainly helpful. But at this point, it's yet to see where commercial wine is going to stabilize.

Your next question comes from John Purtell with Macquarie.

Brian and Shaun, just had a couple of questions to start with on Saverglass. Just in terms of the synergies, how are they tracking? And obviously, you're targeting the $15 million over time. What sort of realization should we expect this year?

Yes, you're right. The $15 million, we're still confident in. We said that would be over a few years. There's probably some activity that we got in part of '24. So obviously, that gets marked with volumes and other issues. And then the rest that we think, to be fair, between FY '25 and '26 would be spread. So a bit less than half of it. And some of that benefit will come into Gawler, where we realign some costs that advantage Saverglass has in the Gawler and some of it comes into Saverglass, again, realigning some of that. So yes, it's in our planning for this year, and it is real, and we're still highly confident of delivering that $15 million through to the end of what we think will be '26.

No problems. The second one, just in relation to -- I was thinking about the other side of destocking. The business, historically, you'd pointed to sort of that 6% CAGR volume growth at what it had grown at historically. Do you still see that as realistic on the other side? Obviously, there's a debate at the moment around premiumization and obviously, consumer trading down as well?

Look, I think there's no reason for us to believe that, that's not the case in the normalized world. And part of that CAGR was the premium segment growing faster than the segment as a whole. And we have done some work trying to revalidate that with some external advisers, and that has all come through, suggesting that when the world normalizes again, that the premium segment still should grow above that. So we'd be thinking you're going to get 3% to 4% within that premium category. And what Saverglass has consistently also done is gain market share, whether it be what they've done in Mexico, the consistent gains they're getting in North America, the opportunity we're now looking at, particularly in the broader Asia Pacific region. So we're comfortable that, that's a reasonable target for us to have once things settle back down.

Just two final ones, if I can. Just switching to North America. You talked about some green shoots there, et cetera. Does that -- just to clarify whether you're seeing that flow through to your order books for OPS, whether it's manufacturing and/or distribution? Are you seeing improved order books as you look forward for the next 1 to 2 months?

On the manufacturing side, so on corrugated, answer is yes. We have certainly seen positive sales and positive orders relative to comparative period last year, and that has been consistent the last few months. We're talking single-digit stuff. We're not talking there's a big resurgence. But we'd be comfortable to say that's clearly bottomed out and we are seeing some growth come back in. And as said, that is consistent with what we're hearing from some of the broader industry players in corrugated. We have not seen that yet on the distribution side. So our daily sales numbers and volume numbers are still a little behind the same period last year, but it's getting -- that gap is narrowing to a point where we don't think we're too far away from that comping fairly squarely.

Got it. And just a final one, just a quick one on interest for Shaun. Look, back in April, you provided an interest guide of $132 million for '25. Is that still the case?

Yes. We've actually got on Slide 28 interest guidance at the bottom of that slide. It's $130 million to $135 million. So obviously, that reflects the second half -- higher debt being held in the second half of last year. So it's slightly less than twice FY '24 for second half.

Your next question comes from Richard Johnson with Jefferies.

Shaun, can I just quickly go back to your very helpful answer on freight. I was just trying to understand if you could give us a sense of the order of magnitude. So presumably, the historic numbers we have for Saverglass exclude freight?

Yes, that's correct. So if you go back to the margin slide in the Saverglass deck last year, that excludes freight.

Yes. So can you help me understand how much it was included in revenue on annualized basis? What sort of number should we assume?

I'll have to come back to you on that. I couldn't tell you off the top of my head.

Okay. And then also, could you give us a sense of what the central costs were you put through Saverglass, please?

Relatively minus at low single-digit millions. And really, what that does is that reflects the incremental costs that we've incurred as a group that we've resourced up to manage Saverglass.

Got it. That's helpful. And then just on D&A. In Australia, which didn't change very much. I just wonder if you could just step us through where it goes from here as you start to depreciate, obviously, the expansions that you've done here and obviously, Glass as it kicks through?

Well, I mean, I think I'm not going to -- we haven't given specific guidance on D&A for '25. But I mean, what we have given you is the specifics around the CapEx programs. In terms of the Cans investments, we depreciate those Cans investments over 30 years. And in terms of the Gawler investment, that investment is depreciated over a 15-year cycle. But we haven't given specific guidance on D&A.

Okay. But in general, that will step up progressively over the next couple of years, correct?

Yes, that's right as will earnings in line with the Cans growth. So I mean, if you think about Cans, you form your view on what you think the Cans' underlying growth rate is, the depreciation investments, the capital investments we've outlined reasonably clearly, I think, and as I said, they are depreciated of over a 30-year life.

Yes. Okay. And then, Brian, just on Cans, still. I mean from the numbers you've previously given, it looks like volumes dropped 100 basis points in the second half. I mean I know you did address this. But is there anything particular behind that or category concentration? Or kind of how should we think about that?

Look, it's fairly consistent. I mean one of the segments that has suffered a bit, which has been quite public is Craft Beer. So that has been a growing segment for us, and that has certainly been in somewhat of a decline. And unfortunately, there's been a number of go under. So that has certainly tapered off a bit. But what we have seen is probably less aggressive promotion from some of the, whether the retailers or brand owners over that last period. So we're not at all concerned about the future prospects because we know we've got some step-up in terms of share of wallet. In fact, as we go into calendar year '25, with our agreements, and we know we've got further investments coming online from our major customer, soft drink manufacturer in early '25 relative to additional capacity for Cans and similar with our largest beer customer and others. So these investments are not in place yet, and a lot of them are tapped out relative to can capacity. So I think there's a little bit of demand, but there's also a little bit of available capacity for them and for us to fuel any growth.

Got it. That's very helpful. And then just two quick ones. I know you referred to Saverglass volumes being down 11%. Can I just clarify whether that was production or sales?

It's sales. Yes, sales.

Okay. Perfect. And then just finally, I mean, I know you couldn't answer this on the call earlier. But I can remember the days when Amcor used to say they could never sell sun clips because the tax burden would be far too high. So I know you don't have -- obviously, you don't have a definitive answer. But I mean do you -- I mean presumably, the hope is tax base was reset on spin-out? Or is that not correct?

I'm not going to comment on tax at this stage, Richard.

Your next question comes from James Wilson with Jarden Australia.

I'm trying to understand the seasonality of just Saverglass business and also the OPS business going into '25. Are you able to just talk us through how we should think about sort of annualizing that second half run-rate into next year? Is it just a factor effectively times-ing by 2? Or is there something we should be accounting for, particularly for OPS with a stronger fourth quarter than normally reports?

Well, I think if you think about seasonality right now, all of the rules are out of the window in terms of Saverglass because we've come off this destocking cycle. Historically, you kind of need to look at the Spirits business is more evenly weighted to the extent the champagne and wine season more towards the back end of their summer. But in terms of '25 guidance, the way to think about that is first half consistent with the second half of '24. And then once form a view on what you think will happen with destocking, when that will end, and that will probably give a lift sometime into the second half. So not a traditional seasonal patterns. On OPS, again, similar sort of pattern over the last 3 or so years, the business used to be weighted towards the first half, but that hasn't really been normal at all because with price inflation and then price deflation that it's been less predictable than it had been in the 5 years probably before COVID.

I know that you guys reported a lower rate for '24 relative to historical rate. How do we think about that? Is it sort of a reversion back to normal rates? Or is there something structurally changed maybe jurisdictionally that lead to a lower rate going forward?

Sorry. When you say rate, what are you referring to?

Your effective tax rate?

Oh, tax rate. Well, a couple of things. So in terms of the statutory ETR, obviously, the transaction costs for Saverglass are not deductible. So that impacts on the group's ETR in this FY '24 period, as we think about going forward, the ETR is probably closer to 26%, 20 -- it will come down a little bit. We've historically guided to sort of 27-ish percent. It's probably slightly lower depending on the mix of earnings. The French tax rate sits at just under 26%, 25-point-something percent there or thereabouts. So probably closer to 26% than 27% going forward.

Great. And just one final one for me, guys, before I hand it over, on sort of the deferred CapEx from the second half of '24 that was mentioned on the call. How much was that? And what sort of level of catch-up is expected, perhaps, if not in '25, then in FY '26 from CapEx deferrals?

Well, firstly, we don't expect any catch-up. The essence of what we've tried to do is we always look at our CapEx spend relative to the affordability envelope in year and then we try to manage that down. There's always an element of discretion, particularly around some of the base CapEx and phasing, and if you think about the Ghlin furnace that was originally slated to start at the back end of FY '24, beginning of FY '25. And because we're not drawing the same load, we're able to just hold that a little bit longer, and we think that will probably be sometime towards the back end of the first half, maybe the beginning of the second half, depending on the where in the furnace. So we don't really think that there's a big -- there's not a catch-up in any way. It's more just a rolling slowdown across the portfolio.

Your next question comes from Nikolai Dale with Barrenjoey.

Maybe If we can just jump to the next question and come back to Nikolai.

Thank you. your next question comes from Cameron McDonald with E&P.

Just I think FD offside in France, you mentioned that the OPS business, particularly around the distribution, was wearing about $5 million worth of additional recruitment costs for the salesforces. Is that the right number that we should be thinking about you sort of rolling and getting a benefit from in FY '25?

It was a there or thereabout, so $4 million, $5 million.

Yes. Yes, that's the right number. And I think as we talk there, Cameron, and Kelly went through, we have around about a sort of up to 2-year cycle before they start to, let's say, fully cover their costs and then start to give us an incremental return. So as we go through FY '25, we'll start to get some return from some of those, but we wouldn't be getting the full incremental return in a true upside probably until we start to get to FY '26. And one of the things that we have committed to do is to continue to add in '25. So even though some of them are generating return, and we expect that. We are still continuing to add some cost in, not incremental cost of what we have been incurring but to make sure that the long-term growth rate, which is in our control will be sustainable.

Okay. And then just on Saverglass. Can you break down or give us some color around what you're seeing between Europe and then North America and some of the trends? Because I mean, some of the big beverage companies obviously talking a weak U.S. environment, but seeing some pockets of strength in Europe and other jurisdictions.

We're probably seeing a little bit different to that. We're probably seeing in some ways a little bit of the opposite of that. European demand has been subdued to slightly down. And we have seen at least what's flowing through to us, the forward order book, particularly for our Mexico facility and Mexican supply is increasing. So just for awareness, we had curtailed capacity in one of our furnaces in Mexico. And it's been very public about the decline in tequila and the reduction in tequila manufacturing capacity that most of the players have taken. Now that directly impacted our facility there. But it's at the point now where we need to kick that additional capacity in second furnace back in gear as we get towards the latter months in this calendar year. So our order book is increasing sufficiently that our production will lift, and certainly from what we're seeing in the U.S. We're seeing still some increased demand. Mind you, some of that is us winning additional business, which is and has been our aim.

Okay. So the second line is coming back on in Mexico. So that sounds like that's a -- because I think, again, you sort of indicated that you had signed some take-or-pay protection around that facility with the tequila production. So as we think about that capacity coming back on, at what sort of capacity level does that have to hit before you get more than the take-or-pay?

Well, the -- well, effectively, take or pay. So we have a volume agreement, and that is with Diageo. So there's no issues us talking at least conceptually around what that agreement looks like. And that was when we built the second furnace that they would provide a certain volume load, and they have underwritten that volume load. Now what we saw in FY '24 is that they weren't able to take all of that load because they were overstocked themselves and needing to run down their own inventories, which means they have a catch-up. So what they've agreed is over the contract period, they will honor that. So whether it all flows through and how quickly back into Mexican production is TBD. We have been given additional SKUs that they were sourcing from others now come to us to help beef that volume back up. And they're also looking and giving us some volume in Europe where we don't supply Diageo that has to true up the entire balance. So it may not all come out of Mexico, but we're confident that agreement will be honored relative to total volume commitments they've made. But as I said, the good news is the underlying demand for certain products is starting to tick back up, particularly in Mexico. And that means certainly from their own inventory depletion, that's a good sign that they're getting close to the bottom there.

Okay. And then so where do you think you're currently? I think again, at the off-site, you were saying that you're about 60% utilization. Where do you think you're at the moment or as you exit '24?

Similar to that, maybe a touch under, as you can see from the inventory graphs we gave you, we've been taking some inventory down of our own because we want to make sure we're prudent and obviously, managing cash and everything else effectively. So we'd be a little under the 60% utilization. And it's vastly different depending on the site, obviously. We're not running every site at close to 60%, some are running at 70% to 80% and others like Mexico, where we had a furnace down, so we're at half.

Yes. Okay. And sorry, final question, just in terms of -- without running the risk of wanting to get into specific customers. But our understanding is that you certainly curtailed production for Grey Goose as they came out of the COVID boom, and we saw that in France. Where -- have you reached a point where you've depleted the inventory for them and you're putting capacity back into those bottles?

Yes. We won't give the specific volume numbers because that's not ours to give. But yes, their inventory levels have normalized. So from a production perspective where we're producing, and we're producing to what they're, we would say, is equivalent to the external demand. So we're comfortable with that depletion has taken place and normalized.

Your next question comes from Nikolai Dale with Barrenjoey.

It is Brook on Nikolai's line.

No problem.

We got you.

Yes. Just a few questions. You mentioned a couple of times that 60% type average utilization in Saverglass. Can you just talk about the level of margin opportunity if you get that utilization up to 70% to 80%, presumably as you see volumes recover and normalize over the next couple of years? Should we see some nice margin expansion there? Or is there some sort of offsetting to think about?

Well, I think, firstly, what I'd say is if we were to get the 11% volume lift, we would expect to be back where the pro forma numbers that we released in September where last year. And we haven't really given any guidance beyond that. But we would expect once we're through the destocking cycle, and look, there is a possibility that we might end up with an overcorrection briefly, just given what we are seeing with some of their customers running inventories down, probably a little bit below historical levels, or at least they're sort of talking about that. And there was some commentary from Brown-Forman to that extent a few months ago as well. But we would expect the business to come back to the long run average CAGR of circa 6%. And so you get the 11% volume back, then you'd probably expect to see some growth from that point.

Yes. And that's highly predicated, Brook, on the mix between what we have in the premium or what that business hold for core business, so the more premium specialized products versus the premium wine segment. So depending on what the load is on those plants, the margin is somewhat different compared to that. So we wouldn't want to tie it to specific utilization. It's more about the mix. And as Shaun said, our first goal is get the business back to a volume level and profitability level, which is in line with what we paid for the business, and then continue on the journey to get it back on the growth path.

And do you mind commenting on just the level of engagement you have with the private equity firm that sort of offers a bid for Orora, which was declined, which that makes sense given the numbers you've delivered and the plans you have. But just the level of engagement, is there sort of potential for them to come back with a more favorable offer?

Well, what they may or may not do, we don't know. So that is for them. What I can say is that the offer is very recent. So it's not like there have been a long period of engagement, a very recent and an offer, not a whole lot of engagement so which is why we were comfortable to reject it based on the price and very conditional nature of the offer. So where to from here, who knows? But we're not necessarily holding our breath waiting for another one.

Yes. Understandable. And just with respect to net debt. I know you've provided some comments with respect to leverage and getting down to a more comfortable level in FY '26. But do you expect -- or to what extent do you think net debt is going to sort of drop in FY '25 relative to what you just printed for June '24?

I think given my comments around leverage, I'd probably like to leave it at that because then you'll infer something from the calculation. I think we're pretty comfortable with the net debt level holding -- sorry, with the gearing level holding in our net debt-to-EBITDA terms with the first half with the exit second half of '24. And that really reflects the CapEx profile for the G3 rebuild and the earnings impacts of G3. When the furnace goes out, we lose a little bit of recoveries, as we've talked about, the circa $16 million. And then from that point, we've really -- we've spent the G3 CapEx. We would expect to start to see the group delever slightly before we get into '26, when we really see the earnings start to recover. And then we get more of an earnings delever than a net-debt delever.

Your next question comes from Sam Seow with Citi.

Just quickly on the U.S. there. I think previously, you quoted that kind of scanner data. And when you look at it in most of the categories that are currently declining. Just trying to reconcile that with kind of like your EBITDA increase commentary and maybe if we should just discount that scanner data altogether?

Well, I think it's generally a guide. So -- and we certainly look at it over the, let's say, the longer period. And I mean some of the short-term data really just gives you an indication is there something driving at the moment. I would suggest, particularly with the U.S., there's a lot of uncertainty in the U.S. economy, obviously, with an election coming up in November. And most people we talk to, a lot of people are sort of sitting on the fence relative to what may happen. And so I'm not sure we want to read too much into positive or negative trends of most of those things at the moment. But what we are comfortable with is depletion rates of inventories is definitely coming down. So even if consumer demand is pretty flat, we should expect an uplift in orders because those orders are going to come from us instead of out of our customers' inventory. So that's the main thing we're sort of focused on at the moment. And then I think once we get past November in the U.S., particularly, we would expect things to settle down when people have some certainty on what's happening at least on the political landscape.

I think the other add there, Brian, is when you look at that data, and it's one of your analyst that does really good job as well on, I think, Simon Hales. When you look at that data, you have to look beyond the headline volume to the individual products as well. And so there is really quite a mixed bag in terms of the reporting on it. Certain products have, in fact, 1 of the products that he regularly quotes, we actually supply, which is experiencing mid-20s growth year-on-year. And that's certainly not the whole portfolio, unfortunately. But there are certainly products that are doing well. What is clear is that the lower-end volume spirits are obviously significantly affected, but that's not really where we play. And we play in the premium-end of the market. But it is hard to get a read through that scanned data on the premium versus mass market portions.

Got it. That's really helpful. And then maybe following on from that. I mean, inherent in kind of your guidance for the second half run-rate, both, I guess, spot OPS and Saverglass. Is there -- I guess you touched on it earlier. But is there an inherent kind of macro forecast with -- I mean taking in consideration the most kind of consensus expect some kind of slowdown towards the end of the year?

I think we're -- what we've really done is just looked to both of those businesses, OPS and Saverglass have been relatively stable the last number of months. So we're effectively extrapolating that out. We don't see any real drivers up or down that should radically affect that. Now there's always some ups and downs in every business when we look back on it. But normally, some of the ups offsets the downs and vice versa. So we're comfortable that it's a steady state at the moment with a lot more volume, yes. But we feel that we're in a relatively steady state. So extrapolating that out, we don't see any macro or major macro influences on that.

Helpful. And then the French government benefits you touched on. Could you perhaps just give us a quick short 101 on how they work when you get the benefits and how they're reversing?

Yes. Like a lot of things in France. It's -- Sam, it's very complex. The way it sort of works is we effectively get a benefit on the social charges we need to pay on employee labor. And it kind of broadly works for the, what I call, part-time working or short hours working, we effectively get some benefit. And it's negotiated almost site-by-site with local government and federal government support. Belgium is different to the sites in France as well. But in essence, what we do is approach the government, talk to them about the amount of people that are impacted, negotiate an outcome, and they take part of the cost by accepting a reduction in the social charges that we might otherwise pay. The employee also ends up taking a bit of a hiccup because they are not getting paid for those hours. But we get a bit of a benefit by keeping them on. We get a reduction in what we pay them, we get a reduction in the social charges we pay on the rates that we actually do pay them for. But it's quite a complicated equation. It's low single-digit millions.

Is the benefit in FY '24?

Yes.

Okay. And that should fully reverse in '25?

No, we expect it probably to continue. But once we move -- once the utilization starts to lift back again, we would expect that we'd bring our staff back to full-time working. One of the things Jean-Marc has done a really good job at is where we have contractors or contract labor, certainly reducing that -- certainly reducing the labor in areas or jurisdictions where there are less issues. So in Mexico, for example, or in [ RAC ], we're able to release our staff a little more easily than in Europe. And of course, we've been rebalance, this is the benefit of having a global network, we've been able to rebalance the load across that network.

That's really helpful. And then just quickly, OPS, just the timing, yes or no, decision, is there a kind of timing you're working with to get to a final decision? Why was that just going to drag and kind of be there in the back-end?

We think, we'll know in the next few months. This is -- we're progressing -- I think we're progressing comfortably at a reasonable pace sort of to work through it. But if you use the phrase, it's a little bit of wood to chop before we get to a go, no go. But yes, it's inside a few months.

Okay. And would you -- and if it's a no, would you put it to a broader market or just with the one [indiscernible]?

What I mean is, I think over time, we've had quite a bit of inbound interest for that in other parts of our business, which shouldn't surprise you. And to be honest, now that it's in the public domain, I wouldn't be surprised if there are interested parties that we get it. Our intention is not to run a very broad anyone-can-participate process. We're comfortable with the process we've currently got going. But would it surprise us if we get some additional interest that we cut or shorter valuate? No. But we'll make a determination as we get to the decision juncture in a few months' time as to what we do from there.

Your next question comes from Niraj Shah with Goldman Sachs.

Be a quick one. I'm just trying to reconcile your comments around sort of hunting for standard product versus, I think, the green shoots and mix you called out in June or July?

Yes. So it's about price and mix. So one of the things we have said previously, Niraj, is we've been looking for additional volume in the more standard premium products as opposed to our premium products. What we've also been able to do is hold on to price with some of the price cost reductions. So with some of the things like energy, some of the raw materials like soda ash, et cetera, we've been able to hold on to that cost in terms of our average sell price. And that's what we've seen in July.

Your next question comes from Daniel Kang with CLSA.

Just a couple of quick ones from me. Just with regards to the inventory charts on Slide 27. I guess you commented on your own production discipline to take down your own stockpiles. And I guess we're not really seeing that same rate of depletion or acceleration in your customer inventory levels. Just wondering if you can comment on your competitors, whether they're showing the same level of discipline as you are?

I couldn't possibly comment on our competitors. But what I think you can see in that chart is real towards November, '23, you can see quite a peak in the customer-owned inventory, really accelerated at that point, whilst at the same time, we were actually seeing Saverglass' own inventory levels start to fall post the sort of, well, beginning at -- really at the beginning of our financial year. We have seen that spike. We have seen it start to come down. And the way we're thinking about it is if you draw that line between the peak and the current levels, even just in the period that we've owned the business from December through to July, that's really fails we haven't been able to build the customers for, or production we haven't been able to have.

Yes. Got it. Thanks, Shaun. And just, well, on Saverglass pricing strategy into FY '25. You sort of commented on the main call that some of the pricing pressure was more to the standard products. But if you can just give some color on the premium products and how it's looking into, yes, the next 12 months?

Yes. I mean certainly, as I said, that if you've got large sales customers, then they have always a view of making sure that the products we supply and whether premium not are competitive. And we have mechanisms we've talked about before in terms of resetting price based on input costs and things. So that works quite well. So we're comfortable that those pricing movements, whether they be up or down are reflective of where our cost base sits. Certainly, as you get to the very, very long tail of small customers that Saverglass has, thousands of customers. These are very small quantities of products. And the large part of the cost, particular for proprietary products, is the initial setup, design and tooling costs. So the cost in terms of the unit cost, there's not generally competitive pressure on those. So once they're set, those mechanisms continue to work. So we're comfortable with that long tail, which is a big chunk of the business, is quite protected from competitive threat. The larger premium customers, we have pretty clear contracts on how price movements are made within those. But where there is, as we said, let's say, getting into more the commercial premium, but in a lot of cases, they may call standard products, then yes, there's a little bit more competition. And therefore, at the moment, given most people are lightly loaded for their capacity, certainly more price pressure.

Your next question comes from Keith Chau with MST Marquee.

First one, the OPS sale. Can I just confirm that there was an inbound rather than an outbound that resulted in the sale process?

Yes, we -- and I might have said this before. Over recent years, and remember we've had a lot of inbounds for that business and quite a few for other parts of the business. And so we have consistently said no. So we have chosen to engage based on where we see ourselves heading for the future. And it's not to say we haven't had inbounds prior to that, may have made sense. We've had a lot of complexity obviously with the Saverglass acquisition. We -- to be frank, we had discussions prior to acquiring Saverglass about the long-term strategy for the business and focus. And we were all aligned relative to beverage containers being the packaging segment we wanted to be in. So once the dust has settled on Saverglass, the timing is -- I could argue that dust hasn't quite settled on Saverglass. But from an integration standpoint, settling, the timing is more appropriate. But this is something we have been in discussions on for quite a number of months now. So this is not a recent thing or a reaction based on our trading update or our concern about balance sheet. And as we've said before, this is not a fire sale. So if we don't believe it brings the appropriate value for shareholders, then we will not be selling the business.

It's fair to say, Keith, that it's been -- as Brian said, it's been a really active conversation for a long period of time. And we've had a firm view of what value looks like for a long period of time. And as we sort of got to the earlier part of this year, we're settling down Saverglass acquisition and thought the timing was starting to look like it might be right.

Okay. And then on the OPS business, I think you mentioned 4Q earnings did a little bit better. What was the makeup of that? Were volumes -- was it just simply the case that volumes were not quite as bad as previously expected? Or did price pressure from customers ease off? Because it seems like it was a pretty sudden change from our -- customers are coming to us and asking for price concessions to now maybe it's not so bad. So just keen to understand the differences between what you saw in April to what actually eventuated in the half?

Yes. When we made the call in April, at that point, we should have seen the start of the seasonal upticks, which is, I think, what we were talking about back then. And yes, there's -- because volume is a bit softer, there's a fair bit of noise in the market about pricing. And as we hadn't seen the volume come up, we rebaselined and I think we were quite open with that. We've rebaselined from that run-rate through to the end of June and said, look, if we don't see any uptick and this price pressure is greater, this is the sort of range. And we wanted to be relatively conservative because we haven't seen the improvement and we were a bit concerned. Now the team did a better job managing the price, right, and negotiating it through. And as they do to, going back to our supply base, given it's a distribution business and ensuring that where possible, we're not the meat in the sandwich giving price and therefore margin away. And I think that's reflected in the 5.3% for the second half. And yes, volume is a little better than what we predicted because we sort of we picked the floor and extrapolated that straight through.

Okay. And then a final question on Saverglass. Shaun, the margin range, I think you've given a couple of times in terms of normal margins as 22% to 24%.

That's correct.

But that was prior to the freight adjustment. So now that the freight adjustment is in there, what's the order of magnitude change that we should adjust to that margin? Would it be 50 to 100 basis points? Can you give us a steer on that, please?

Yes. I'm not sure we're ready to give that guidance just at the moment. I think we need to see where the business settles, and then we'll give you a little bit more of an update.

And we're still seeing quite a bit of volatility in freight prices and freight costs, and that will materially distort that number. So we're trying to figure out how do we do this in a way that becomes clear for everybody and is somewhat predictable because freight costs went astronomically high a couple of years ago, then they came right back down for a period. Now a lot of this is contracted and passed through to the customers. So it doesn't have an impact our true margin dollars, but obviously, the margin percentage will fluctuate. The higher the freight cost, the more it has an impact. So yes, we're just trying to figure out how to make sure we can articulate that without people rating into at a margin improvement or decline.

Yes. I think the other rate is -- the way we're thinking about it is excluding those freight costs, the margin range of 22% to 24% is the right way to think about the business. It's a little bit like the aluminum impacts in Cans. We don't really talk to margin in Cans because a wild swing in aluminum, which is a very substantial portion of the recharge through to our customers, really looking at margin is the wrong way to look at that business. So we guide to growth in terms of EBIT. We talk about underlying volume growth in that business, and we talk about returns holistically across the legacy Australasian business, but we don't talk to Cans margins as per se. And I suspect we're probably, given the global nature of the Saverglass production relative to its customer set, we're probably going to land on that being the right measure. So consistent with history 22% to 24% and provide a bit more color around freight over time.

Yes. Okay. Fair enough. Actually, I might as well ask another, I don't know what kind of response I'll get with this. But you mentioned some comps that are available for OPS. I don't know if you want to be forthcoming there just to steer us in the right direction just in case we've [ slabbed ] something in there that's not appropriate. Any guidance you can give us on that one, Brian or Shaun?

No.

Probably you can understand why. I mean we haven't finalized terms on this. So if we give a range, then we're effectively giving some guidance to prospective buyer as well, which we're not sure is particularly helpful.

Yes. I mean if we sit there and give you a conservative number and you print it, then it makes it more difficult for us to negotiate with the buyer because we...

No, I'm thinking more about the transactions in themselves rather than the multiples.

Yes. I think just based on how we've agreed to proceed on this at the moment, we'd prefer to steer away from giving any commentary on value other than should we get the deal done, that people would look back on it retrospectively and see that we've done an appropriate deal.

The next question comes from James Wilson with Jarden Australia.

Just one more from me. Just around sort of the changes to the PPA that you put through. Obviously, a large reassignment of value away from goodwill. Be able to sort of speak to what drove that over the period, that significant change in your thinking or how you valued the assets there?

It's a good question. So well, firstly, no change in our thinking at all. The international accounting standards require us to go through a valuation exercise to value the assets that we've acquired in the business. To be blunt, if I could have, I would not have put value against a finite life intangible and customer relationships, but the standards require us to do that. And so what we did is we engaged an independent valuer. We weren't able to do it in December, obviously, because we'd only owned the business for a month. So we had preliminary valuations and our accounts reflected that. Over this half, what we've done is engaged an independent valuer who has visited the sites, looked at the assets and then really ascribed value to PP&E, to customer relationships, to brand names, et cetera, and then assessed the various valuations for provisions, et cetera, across the balance sheet. And so that really reflects this change in goodwill, and the increase in assets really reflects those valuations. And then, of course, that's been independently verified through KPMG, our auditors.

Okay. Great. And then just sort of two follow-ups on that. Firstly, in terms of the PPA changes, you guys put them through on a very helpful slide for Saverglass. Am I right in thinking that those -- their impacts to earnings were only felt over the second half of the year? Or was there also a December impact that was retrospectively put through in that slide as well included there?

There was a December impact that if you look at our December results, it was a relatively minor impact because it was based on not having completed the PPA work. So what we did at that point was we had a view of an IFRS compliant set of financial statements. So that means we put leases into the accounts. We had some hedge accounting changes that we needed to make. But then when we've done this analysis, it also includes the full period of benefit for the [ 7 months ] because [indiscernible] we've had to do is bridge it to the opening balance sheet.

Okay. That makes sense. And then just sort of moving forward when it comes to guidance and talking to numbers. Are we right to assume that given the intangibles that you guys have reassigned to EPSA and NPATA will become sort of normal for how you guide going forward?

We intend to guide to an amortization and depreciation inclusive number. And these numbers that we've -- the guidance statements that we've given include the PPA numbers in them. Now I will say we might have to take any other questions offline. We have another call we need to run to. Thank you, everybody, for your participation, and please circle back with Chris if you've got any other direct questions.

All right. Appreciate your time today. Thank you all.

That does conclude our conference for today. Thank you for participating. You may now disconnect.