In its recent half-year results, Orora, one of Australia's main packaging suppliers, recorded increase in sales and profits from ordinary activities, despite the impact of rising aluminium prices on its Australasian business. The firm, which manufactures aluminium cans and glass bottles, reported $2 billion in revenue for the half year ended December 31, up from $1.8 billion the previous year.
The company's overall net profit, which includes its Australasian and North American businesses, increased by 12.9% to $102.7 million after tax and before significant items. Earnings before substantial items, interest, and tax in its Australian company, on the other hand, fell by 2.3 percent to $84 million from $86 million.
Revenue in its Australasian division increased slightly to $443.2 million from $441.2 million. This is due to higher aluminium input prices being passed on to consumers, which are somewhat mitigated by short-term COVID-19 can volume impacts, according to the company.
When increased aluminium costs were factored in, underlying sales in Australasia fell by 2.6 percent, Orora told the ASX this week. The impact of COVID-19 on important clients, according to Orora, resulted in interruptions in the short-term supply chain and production volumes of the can operations late in the half.
When challenged about the price hikes in aluminium, Orora CEO Brian Lowe responded that because aluminium accounts for such a major portion of overall can prices, "end consumers have always desired influence into these supply arrangements."
“In a lot of cases, customers direct who they buy from based on global agreements they may have in place. Most of Orora’s key customers are global businesses,” added Brian Lowe.
In the United States, a massive increase in can orders as individuals switched to packaged beer during the epidemic prompted Ball Corp, one of the country's major can producers, to boost minimum purchase requirements. It sparked outrage and forced a postponement until the end of 2021, but this shouldn't be an issue for Orora, according to Lowe.
“While some minimum order quantities are in place as one would expect, at the same time, we are looking at technologies to help provide shorter runs for customers, such as Craft Beer companies, as we see this being a key segment for Orora,” said added Lowe
Despite the COVID-19 client site interruptions, can demand remained "good" overall, according to Orora, with continued robust demand in the craft and mainstream beer markets, as well as carbonated soft beverages. Non-alcoholic beverages such as still and sparkling water, as well as seltzers, RTDs, and wine, saw a rise in volume.
Following the imposition of wine tariffs, the Australasian market saw an expected drop in glass volumes due to fewer shipments from China. As a result of these anticipated issues, Orora has "finalised a change in the mix of glass goods to other beverage categories," according to the company. Construction on a new can line in Dandenong and a $110 million increase of its multi-size can end capacity in Ballarat has also commenced.
Orora claims to have a portfolio of leading sustainable packaging and is thus "well-positioned to profit from sustained momentum in consumer desire for recyclable packaging formats," according to the company. In addition to the glass cullet from the South Australian and Additional South Wales projects, the business is looking for new ways to get recycled material.
Orora has also received $8 million in federal and state support for its glass beneficiation facility in Gawler, which will allow it to boost recycled glass content even more toward its objective of 60% recycled content. Overall, Orora remained upbeat, predicting that EBIT for the beverage company in Australasia will increase in the second half and remain flat for the whole year, compared to 2021.
However, earnings before interest and taxes in North America increased to $70.5 million from $53.9 million, owing to a "sustained and disciplined approach," increased sales force effectiveness due to data insights "to improve customer account profitability," pricing discipline in a higher inflation operating environment, and a continued focus on cost control measures, according to the company.
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