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ANZ drives Orora increases in profits and sales

Wednesday, 13 February 2019
By Wayne Robinson

Capacity and flexibility to invest: Nigel Garrard, CEO, Orora

Australasia was the most profitable part of Orora in the first half of the year, delivering two thirds of the EBIT on 45 per cent of group sales.

Releasing its half year figures today Orora saw its net profit after tax (NPAT) increase by 7.6 per cent to $113.7m, on sales that were up by 9.9 per cent to $2.3bn in the six months to December, in what CEO Nigel Garrard said were ‘less than bouyant’ market conditions.

Its EBIT was up by 5.9 per cent to $175.1m, and earnings per share increased by 6.8 per cent to 9.4 cents per share. Return on capital employed was up to 14.3 per cent, compared to 13.9 per cent last time, and 9.3 per cent when the company listed on the ASX.

Orora says for the second half of the year it expects to continue to drive organic growth, integrate recent North American acquisitions, and invest in innovation and growth. It says constant currency earnings are expected to be higher than reported in FY18, ‘subject to global economic conditions’.

The company is continuing to look to invest in innovation and growth. Nigel Garrard, CEO, said, “Orora’s strong cash flow capability, combined with the strength of its balance sheet, continues to provide Orora with capacity and flexibility to invest with discipline in innovation, as well as organic and new growth opportunities that deliver sustainable value creation for shareholders.”

The two EFI Nozomi short run digital carton printers – which are among the first in the world – are now fully operational and delivering results for customers. CEO Garrard said, “Market response and sales are running ahead of expectations. Demand for short run digital corrugated is coming from across the board, particularly in fruit and vegetables, but also beverage and meat. That includes promotional work, and in high value, high quality work, for instance we have just produced a job on the Nozomi for cherry boxes for export to Asia.”

The Orora share price rose by almost three per cent on the eve of the figures being released, it dropped by 1.5 per cent on the results, but by 11am was back to where it was. Over the past six months its share price has fallen in a fairly consistent line from $3.60 to to today’s figure of $3.23, which is virtually the same as it was this time last year.

Just under half Orora’s sales, and two thirds of its EBIT, came from Australasia. Sales for the region were up by 4.4 per cent to $1.1bn while EBIT was up by 5.4 per cent to $126.7m. However speaking to Print21 at the media and investors conference call this morning Garrard said the major growth opportunity for the company was in the US. He also said that the ambling US and ANZ economies would likely provide little lift to business growth, which would need to be driven by Orora itself.

Both Australasian business groups – Fibre Packaging and Beverage – delivered earnings growth, despite what the comany said were flat market conditions and higher input costs.

The Orora North America EBIT was 6.5 per cent higher at $64.2m on sales revenue that was 15.4 per cent higher at $1.22bn compared to last year’s figures. In local currency terms, EBIT declined 1.1 per cent to US$46.5m, while sales revenue grew 7.2 per cent to US$881.5m compared to the pcp. Its US business was hit by the collapse of toy retailing giant Toys R Us, which was spending around $10m-$12m a year with POS operation Orora Visual.

During the half year Orora made two US investments, buying Pollock for $110m and Bronco for $33m. It invested a further $18m in upgrading its existing US assets. It spent some $57m on its Australasian business, including commissioning the secondary water treatment plant at Botany and the new can line in New Zealand. It is spending a further $50m upgrading its Gawler glass plant.

Orora is investing strongly in innovation. The $75m Orora Global Innovation Initiative continues its focus on bringing new, innovative, customer-led product solutions to life, as well as a number of initiatives aimed at improving productivity in the plants. To date around $53m has been committed to the Global Innovation Initiative across the Group, with the remaining amount expected to be invested over the coming two to three years. An emerging opportunity relates to the increasing emphasis on more sustainable packaging.

As showcased at the Orora Innovation Expo in May last year, Orora is working on developing and trialling, including in -market, a number of initiatives, especially in fibre-based fresh produce packaging solutions.

Garrad said Orora was well placed in the current recycling debate, as it worked with fibre, glass and aluminium, all of which were fully or almost fully recyclable.

 

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