Orora takes Covid hit in lacklustre results

Packaging giant Orora took a Covid hit, posting lacklustre results for the 2020 financial year results with decreases in nearly all financial metrics, in stark contrast to last year's performance.

However, the company said operations have been resilient despite the Covid-19 pandemic, and the Australian beverage business provides a bright spot on an otherwise gloomy backdrop.

This was the year Orora sold its fibre packaging business to Nippon Paper for $1.7bn, giving shareholders a cash windfall of $600m as a result.

Orora’s sales revenue was $3.57bn for the 12 months ending on 30 June, which was a 5.2 per cent increase on the previous financial year. This is where the increases end.

In FY2020, earnings before interest and taxes (EBIT) decreased by 14.3 per cent to $224.3m, net profit after tax (NPAT) decreased 22.8 per cent to $127.7m, and underlying earnings per share decreased 23.4 per cent to 13.2 cents per share.

The results report revealed the Covid-19 pandemic had a significant impact on Orora’s EBIT, which cost an estimated $25m, 90 per cent of which in its North American business.

Commenting on Orora’s FY2020 result, the company’s managing director and CEO Brian Lowe said the company adapted and targeted its operations to meet the challenges presented by Covid-19 while keeping team members safe and meeting commitments as an essential services provider.

Looking closer at the company’s Australasia operations, the results are slightly brighter. Orora Australasia’s sales revenue was $785.9m, which is a slight increase on FY2019 ($778.7m). EBIT was $147.2m, a 7.4 per cent decrease on last year, mainly as a result, the company said, of the rebuild of its Gawler, SA glass plant ($8m) and Covid-19 (net $3m).

“Orora maintained its strong focus on investment in the Australasian Beverage business during the period with the successful rebuild of the G2 furnace and capacity expansion of the Gawler Glass site, which forms part of a $200m investment in this world class glass facility over the last five years,” Lowe said.

He went on to say the Australasian beverage business saw solid growth in cans volumes and was largely able to mitigate the impact of Covid-19, but there was some unfavourable product mix across both glass (imported product) and cans and lower glass volumes (due to a decrease in wine exports), which combined with the adverse earnings impact from the G2 rebuild, resulted in lower FY20 earnings.

Lowe said the Australasian beverage team had secured a supply of glass from the Western Australian government’s new container deposit scheme for use in Orora’s South Australian glass facilities. He noted that the company’s Gawler plant already recycles approximately 80 per cent of the glass collected through South Australia’s container deposit scheme.

Turning to North America, Lowe said the trading conditions there were difficult before the emergence of Covid-19 and both Orora Packaging Solutions (OPS) and Orora Visual (OV) results were further adversely impacted.

“As a result, earnings were down on the prior year. Despite this disruption, OPS continued its gross margin percentage improvement trajectory and the Pollock integration delivered revenue synergies in the health and safety segment during the period,” he said.

“Both North American businesses expanded their improvement programs during the second half, with further cost reduction initiatives including furlough, permanent reductions in headcount and OV consolidating its operating footprint in California which contributed to a recent stabilisation of earnings.”