Orora : FY26 Trading Update & Impact of Middle East conflict - Market Call

About this update from Orora Limited

Start of Transcript Operator: Thank you for standing by and welcome to the Orora Limited Market Update. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number 1 on your telephone keypad. I would now like to hand the conference over to Mr Brian Lowe, Managing Director and Chief Executive Officer. Please go ahead. Brian Lowe: Thank you, operator. Good morning everyone and thank you for joining us at short notice this morning. I'm joined by Shaun Hughes, our Chief Financial Officer and Emanuel Ladent, the President of Saverglass. Today I want to provide a trading update for FY26 in relation to Saverglass following our March quarter review and the significant impacts of the ongoing Middle East conflict. Before I go any further I want to be clear on our first priority, which is our people. All team members in the region are accounted for and safe, and our Ras Al Khaimah facility in the UAE has not sustained any damage. We are continuing to follow local authority guidance and we'll keep providing updates as the situation evolves. Following the March quarter trading period and our updated second half forecast review, Saverglass FY26 underlying EBIT is now expected to be approximately €63 million to €68 million. This is compared to the previous guidance of broadly in line with FY25 EBIT of €79 million. FY26 reported EBIT is expected to be approximately €52 million to €59 million. The reduction in reported FY26 forecast EBIT reflects both direct and indirect impacts from the Middle East conflict. The direct, one-off operational and financial impacts from the Middle East conflict estimated in the second half of 2026 impacting EBIT will be approximately €9 million to €11 million. This amount will be separately disclosed as a significant item in the FY26 annual financial reports. An indirect impact of the conflict through a combination of lower volumes than initially forecast and greater than anticipated negative mix shift towards premium wine and champagne compared to a decline in premium spirits. There is also a within-category mix impact lowering average selling price and margin. We believe the recent shift includes the impact of weaker consumer confidence post the commencement of the Middle East conflict, leading to a forecast second-half '26 EBIT impact of approximately €11 million to €16 million. Importantly, there is no change to the existing guidance for Cans or Gawler for FY26. Turning to our RAK site. Since the conflict commenced on 28 February 2026, shipping routes have been closed and overland routes are inaccessible. In response, we have decided to transition the RAK facility to a closed-loop hot operation, keeping the furnace warm with no bottle production taking place onsite. RAK represents around 15% of Saverglass production capacity and has recently been geared towards global premium and ultra-premium wine bottles, predominantly for North America. We are moving some production to Mexico with moulds transported to the Acatlán facility to support production from late FY26. The decision to shift RAK into a closed-loop mode creates a one-off second half '26 EBIT impact of approximately €9 million to €11 million. These costs are primarily energy, staffing and retention costs and the continuation of fixed costs during a period of no production. With operations significantly reduced, we have supported a number of employees to return to their homes outside the region while the conflict continues. On energy and inflation, Saverglass has mitigation in place through existing 12-to-18-month fixed and hedged energy arrangements, and most large customer contracts include built-in energy price formulas. On the indirect side, as we flagged at the first half '26 results, the seasonal mix shift towards wine and champagne consistent with the Northern Hemisphere vintage is expected to occur in the second half of '26. However, post the commencement of the Middle East conflict, we have also seen a combination of slower offtake in spirits and a mix shift towards lower-priced and margin spirit products. Since the conflict commenced, this slowdown in our spirits offtake is across the US and Europe. We note that the US spirits, ex-RTD sales volumes in Nielsen-tracked channels during March of 2026 were down 4.6% year-on-year. Additionally, the same Nielsen-tracked channels in March de-premiumisation trends persisted for the US spirits ex-RTD with price mix falling 2.2% in March. Overall, we still expect sales volumes in the second half of '26, and for FY26, to be higher than the prior comparative periods, but lower than we previously anticipated. Second half '26 EBIT will be negatively impacted by this volume reduction, and a greater than anticipated negative mix shift towards premium, wine, and champagne, compared to the decline in premium spirits and the category mix impact lowering average selling price and margin. For the second half of '26, we're expecting the wine and champagne to spirits mix to increase to approximately 60% wine and champagne, which would be approximately eight percentage points increase on the prior corresponding period. This is expected to result in a second half '26 EBIT impact of approximately €11 million to €16 million, reflecting the ongoing uncertainty around future demand. On inventory, we have seen higher Saverglass-owned inventory levels in March 2026, reflecting the seasonal build as well as softer offtake since the start of the conflict. In relation to D&A, our forecast for FY26 is now expected to be around €70 million, approximately €2 million lower than previously expected due to CapEx timing delays, including the lightweighting program underway at RAK. Finally, in relation to cash flow and balance sheet, our cash flow generation and balance sheet remain strong, with leverage forecasts to remain below 1.5 times in June 2026. Given the uncertainty caused by the Middle East conflict, the on-market buyback announced at the first half of '26 results will be paused while we continue to monitor the implications of the conflict. To close, this is a dynamic situation. We are using the benefit of a global manufacturing footprint to reallocate production where we can whilst prioritising safety and continuity of supply for our customers. As always, this outlook remains subject to global economic conditions, currency fluctuations and importantly, the impact from the Middle East conflict. We'll continue to monitor these conditions closely and provide further updates as appropriate. Thank you, everybody, for listening to the opening remarks, particularly joining at short notice. Operator, I'll now hand back to you and you can open the line for questions which we're happy to take, either myself or Shaun or Emmanuel. Thank you. Operator: Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question today comes from Sam Seow with Citi. Please go ahead. Sam Seow: (Citi, Analyst) Thanks. Morning, guys. I appreciate you taking the question. Just on some of the indirect costs, you framed them as Middle East impacts. I'm just keen to understand your thinking and how you've managed to split that out versus broader trends in the market like people drinking less, oral GLP-1's, cost of living et cetera, how you managed to split out the Middle East versus I guess broader things happening in the industry. Thank you. Brian Lowe: Thanks, Sam. Look, it's easy enough for us to split out direct and indirect but on the indirect, which is why we're saying we believe this there is an impact from it but we certainly can't split out what would be underlying trends. We have certainly seen a noticeable change particularly through March where we've had a lower order intake and certainly, as Emmanuel and his team have relooked at all of the expected offtake and had updates during March from customers, we have noticed quite a material shift in terms of what that demand through the end of the half looks like. It would be difficult to say that there isn't the correlation between but can we say it's all attributed to that as we sit here today? No. Sam Seow: (Citi, Analyst) Got it, that's helpful. Then maybe on the cash side of things, obviously you've got the direct and indirect costs in a high inventory and then maybe offset by some lower CapEx. Could you perhaps talk to the net impact and what you think that might look like? Shaun Hughes: What we've guided to here is what we expect to be the net impact, so we would expect that to flow through into the cash for the period. Sam Seow: (Citi, Analyst) But maybe just frame up the high inventory piece and the CapEx offset I guess, if that's helpful. Shaun Hughes: Well, I think what we've seen is a little bit of a delay in the CapEx, particularly around the lightweighting program in RAK. It's relatively minor. We've spent a reasonable amount of that CapEx; we just haven't commissioned that activity so it hasn't gone into production because of the impacts of the war. Then in terms of inventory, it's a bit of a mix. We've got inventory where we've seen an inventory build in RAK and we can't get that inventory out. Relatively minor impacts, it's in them in the current numbers. But of course, we're then drawing down on inventory in other parts of the business so I don't think it's going to have much of an impact, per se, in the half. Sam Seow: (Citi, Analyst) Got it. Thanks, guys. I appreciate it. Operator: The next question comes from Ben Wedd with Macquarie. Please go ahead. Ben Wedd: (Macquarie, Analyst) Hi, Brian. Hi, guys. Hi, team and thank you for taking my question there. Just maybe a follow-up on Sam's point around the indirect cost there and just a clarification, I guess. Obviously, it's hard, but are you able to give us an idea of the different components of those indirect impacts re the mix shift towards wine versus a mix shift within the category, within spirits there? Then perhaps as a related question, just that increased competitive pressure. What are you seeing in terms of the industry repricing and has that had any effect on pricing of your own products there? Thank you. Brian Lowe: Thank you. A long question Ben, but we'll give it a go. I'll make some comments and then hand it to Emmanuel and he can elaborate a bit further. Certainly, relative to the components of the decline, part of it is volume. We have seen a lower volume now anticipated than what we expected for the full second half. The majority of that is in the spirits arena. Probably wine is down a little bit, but the vast majority is within spirits, so that's an impact. Then you get the cross-category mix impact because of the margin difference which we have called out previously is stronger in spirits than in wine, so you get an incremental hit from that. Then thirdly would be that within-category mix that we're seeing. They would be the components, and certainly the mix impact is probably the bigger than the volume impact. Maybe Emmanuel, have you got any other comments? Emmanuel Ladent: Yes. As you said, [the buyers] in some categories are impacted by the slowdown in consumption, probably due to the war. I'm thinking of we have a lower demand of tequila in the US. So, we are still growing in tequila, but we are growing less than expected. We saw the whisky in the US as well going down in terms of consumption so that has decreased a bit the demand of our customers. On certain customers, we had some small delays in new product development. Those projects are not cancelled, but they are slightly postponed, and we will have the benefit of that only in H1 of 2027 and not yet in H2 of 2026. All of that combined is the main impact. In terms of pricing, that was your question, I think we still see a competitive market, but we don't see pricing going further down than what we already saw in the previous half. Ben Wedd: (Macquarie, Analyst) Yes. That's great. Thank you, Emmanuel. Thank you, Brian. I appreciate the long question. Maybe just a quicker one, then. I guess, when you're thinking forward, and it's going to depend on how long this lasts, but what could the cost be and the timeframe to get RAK back up and running if things did resolve relatively swiftly? Emmanuel Ladent: RAK, we are keeping the plant in closed loop, and we have the team to keep managing the operation. As soon as we can start shipping products and as soon as the Strait of Hormuz is reopened to freight, then we will be starting to freight some products because we have produced and we have stocks that can be shipped. As soon as we see that the situation is stable in the region, we will be in a position to reopen the activity quite quickly because we have done everything to be capable to reopen quickly, but obviously, all of that depends on the geopolitical situation in the Gulf, and I cannot predict on that yet. Ben Wedd: (Macquarie, Analyst) That's great. Thank you all, I'll pass it on. Operator: Your next question comes from Jakob Cakarnis with Jarden. Please go ahead. Jakob Cakarnis: (Jarden, Analyst) Morning all. I know it's a theme, but I just wanted to dig into it a little bit further. Just the indirect impact size that €11 million to €16 million, assume that that assumes that the current impacts continue to the end of the fiscal period, so to 30 June. Just interested, the arithmetic of that ends up being that the anticipated impact at the midpoint of that is around €3.4 million per month. The business typically run rates at least since FY25 around €6 million per month. Can you just help me understand how you got to the quantum of €11 million to €16 million and maybe what you've already seen to the end of March given that that was the first month, and then how we think about that going into FY27, please? Shaun Hughes: Effectively, what we've done is looked at our forecasts in terms of our volume, looked at the price points that we think that we're going to sell that product into, and then looked at the cost equation, our cost of sales, and then this is effectively what flows from that. But your math is not incorrect. It was €79 million last year, right? Jakob Cakarnis: (Jarden, Analyst) Thanks, Shaun. I guess then, if we're going to just leave that open, the net finance guidance for FY26 also had an assumption that you were going to get through the buyback. The buyback's paused now, just noting that there's no change to the net finance guide that you've provided today. Can you talk to how we think about that? Will there be an announcement that the buyback is resuming? How do we think about the composition of the net finance guide as we get through the second half, please? Shaun Hughes: Yes, good question. Look, we haven't specifically changed the guidance on finance costs. We've left it there, but you're 100% right. It depends a little bit on what happens with the buyback over the next couple of months and what happens with the war and the impact. It's very, very difficult to predict that. Rather than change the interest guidance, we've left it as is on the basis that the guidance that's in market assumes that we will continue the buyback. Obviously, we're saying at this point, we're not going to, but we're not changing the interest guidance. Jakob Cakarnis: (Jarden, Analyst) Okay. Just one final one, maybe for Emmanuel. When does the repricing or the resets happen for Saverglass customers? Are they annual pricing resets? Can you just give us a sense of what that looks like, just noting that you've told us that there's 12 to 18 months effective hedging on the energy costs? I'm just wondering whether or not we can get to a repricing window for customers, call it to fiscal '27? Emmanuel Ladent: Yes, for most of our large customers, we do have a contract with pricing formula embedded. Basically, we have regular revision of pricing based on the actual cost of energy in particular and other materials. For the other customers, which are smaller customers, we are studying the impacts and we see how we need to react in terms of pricing, but obviously we can't do that with a very short notice. But the big part of our business is covered by pricing formula. Jakob Cakarnis: (Jarden, Analyst) Then finally, just for Brian, no change in Cans guidance. I'm just interested, given the commentary out in the market about the impacts on particularly ally prices, can you just talk to that? I know you've said specifically no change to FY26, but how do we think about working capital and flow through to FY27 for maybe inventory that you're taking on at the moment? Brian Lowe: We haven't turned our attention yet to FY27 because let's all hope that we're not having discussions about Middle East conflicts when we get to FY27. In terms of impact to Cans, as I think you're all aware, we have pass-through mechanisms with our customers, so extremely small exposure relative to that. Those true ups work on aluminium pricing, freight, FX, all of those elements, so no real direct impact. It's really around the edges with things like freight and that that we're working through. Historically, where we've had those shocks like we did in COVID, we work with our customers to ensure that we can recoup those costs. At this point, we're not expecting any direct impact at FY26 that we would need to call out in terms of cash flow relative to aluminium prices. We'll just continue to monitor that because it's too early to make a call on any forward impact to us. Jakob Cakarnis: (Jarden, Analyst) Thanks, guys. I'll hand it over. Operator: Your next question comes from Daniel Kang with CLSA. Please go ahead. Daniel Kang: (CLSA, Analyst) Hi. Good morning, everyone. Brian, you commented in the release that Saverglass-owned inventory are higher, which is I guess to be expected. Just wondering if you can comment on customer-owned inventory since the start of the conflict. Are we seeing a similar trend there? Brian Lowe: No, we have not. We've seen actually a slight decline in customer-owned inventory. That has continued to trend the right direction, so that in itself is a good thing, but we would have expected it based on the traditional cycle and what we've seen over the last couple of years since the heavy build-up. Our own inventory, yes, has gone up because we've been building for an expected stronger second half and obviously, as there's been a bit less offtake, that has gone a little bit higher so Manuel and the team will manage through that as we go through the rest of the year. But no, no dramatic impact. The only thing worth calling out is we certainly saw in March our order intake at a lower level, a noticeably lower level than what we've been previously running at. Certainly, at the half we'd reported we'd been having some strong order intakes which were leading to our internal assessment of a strong second half and we have seen that order intake step down materially in March. Now we'll just continue to monitor that month by month. Daniel Kang: (CLSA, Analyst) Thanks for the colour Brian. Maybe one for Shaun. The direct impact of €9 million to €11 million, I'm assuming that relates to the second half only. How should we be thinking about this significant item into the FY27 first half? Shaun Hughes: Well, the first part of your question is correct, that it does relate just to the second half but we're not giving any guidance at this point on FY27. We've got a whole planning process to work through with the Saverglass team and we'll do that through May and June. We'll update the market in in August once we've had a chance to do that work. Daniel Kang: (CLSA, Analyst) Thanks, guys. I'll pass it on. Operator: Your next question comes from Lee Power with JP Morgan. Please go ahead. Lee Power: (JP Morgan, Analyst) Thanks for the time today. Brian, just your comments around the order intake profile in March. Obviously, at the result you gave us data up until January so should we be taking from your comments that that rolling trend that you talked to continued into February? Then it was it was literally when the Middle East issue started that it fell back, or were you already seeing some downward trend before then? Brian Lowe: Hello everybody. Sorry, our line completely dropped out so I'm not sure if we missed any questions but apologies for that. Operator: Lee Power, your line is live for your question. Please proceed. Lee Power: (JP Morgan, Analyst) Thank you. Thanks, Brian. I was just asking you just to clarify. You gave us order intake at the result; it was quite strong to January. Should we be taking from your comments that that trend continued with a strong February and then March, the day that the Middle East crisis started, that's when it all reset materially lower or is there some trend happening before that point? Brian Lowe: Yes. We certainly don't look at it as a daily trend because orders can come in quite lumpy within a month. February order intake was okay. We didn't see any alarm bells in February but certainly in March we have seen a noticeable step-down from what that trend had been looking like, which obviously is correspondent with what we've seen elsewhere in the consumer offtake data and certainly what we've seen from our customers in terms of what they've pulled during March. Lee Power: (JP Morgan, Analyst) Okay. Then your comments around continuing to monitor the implications of Middle East conflict. Does the ceasefire change anything around that planning? Brian Lowe: Look, not unless we see it is going to be for a prolonged period of time. A two-week ceasefire, to be honest, doesn't help us because we do have, as Emmanuel said, the ability to re-ramp up the plant relatively soon, but it would be a couple of weeks minimum to get back up and running. We wouldn't want to bring all these people back, try and gear the plant back up for production, only to find that we're shut down and we go through all of that cost and difficulty again. Also, from a shipping standpoint we've got to find availability of vessels. Even if the Strait's open for two weeks we don't know what ships are going to be available, what shipping lines are going to want to ship vessels in there that we can then access capacity, what the overall backlog is. Our teams are actively engaged working with all of the logistics providers that we deal with, but you can imagine the level of complexity. We would need to be confident that it's going to last considerably longer than two weeks before we would try to kick back into normal operation. Lee Power: (JP Morgan, Analyst) Okay. Then just a final one. I get the Northern Hemisphere vintage and the mix shift into the second half; you've clearly called out an eight percentage point increase is clearly higher than you were originally assuming around wine and champagne. What's a sensible thing when we look on a 12 or 24-month period? Clearly, everyone on the call is trying to work out structural versus the short-term side of things. How long do you think we should assume before we revert to a more normal mix on a half-and-half basis and why you come to that conclusion? Brian Lowe: I'll get Emmanuel - I'll add some comments in a sec on where our confidence is that we can get our mix going back in the right direction based on what we're focusing on externally. Historically, we would run at a low 50% wine and high 40% spirits mix in this particular period. Now, as we said, we're expecting to be roughly 60-40. That's a material change, primarily from where we were expecting the change is the lower spirit volume. We had been targeting, as we called out over the last year or so, some work to help us with utilisation in the furnaces from the premium wine segment. That has been successful, which is great, so that might have taken it up just a little bit but we have seen a material change in terms of what that mix expectation is. Maybe Emmanuel, you could talk about why we'd have confidence over time that we can drive that mix back in the right direction. Emmanuel Ladent: Yes, the first good news is we haven't lost any business. Our pipeline of new business is quite positive, but obviously there is a time to develop the new products. We see a good level of amount of awarded business which will be starting in fiscal year '27, in spirits. We are confident that our spirits sales, irrelevant of the markets should go in the right direction in the future. On the short term, as I already said, we have a lower customer demand, very, very visible in March, particularly in the whisky and in the tequila and in the cognac. So, we have those impacts, and then we have also some products development which were postponed by customers for a few months, but which are still ongoing to deliver volumes in the next year. Lee Power: (JP Morgan, Analyst) Okay. Thank you. I appreciate the colour in, obviously, uncertain times. Thanks. Operator: Your next question comes from Mark Wilson with RBC. Please go ahead. Mark Wilson: (RBC, Analyst) Thanks very much, Brian. I was just wondering if you could provide an update on the Saverglass restructuring program, where you're at and the timing of those expected benefits. Brian Lowe: Yes, I'm sure Emmanuel can. Not a huge amount of time has passed since we talked to the market in February, but certainly Emmanuel can provide a brief update. Emmanuel Ladent: Yes. The programs are well ongoing. They are staffed and they are moving on. The diagnostic phase is done. Now we are putting the key actions to deliver the benefits for the future. Again, these programs are oriented in driving some cost down in our [SG&A structure] and in our cost of turning the plant. Also, we are working heavily on driving the business up with everything we do in driving the CAGR growth we need on the right segments and accelerating the new product development to be able to deliver faster incomes. All of that is running with the right timing at this stage. Obviously, we'll give an update when we present the fiscal year '27 and the impacts which were driving '27 but we are satisfied with the run rate on those programs right now. Mark Wilson: (RBC, Analyst) Okay, great. Thanks, Emmanuel. Operator: Once again, if you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. Your next question comes from Brook Campbell-Crawford with Barrenjoey. Please go ahead. Brook Campbell-Crawford: (Barrenjoey, Analyst) Good morning. Thanks for taking my question. I just had one around the cash flow and net debt. I guess given you're expecting leverage around 1.5 times by June and on my numbers that gets you a net debt balance of like €630 million by June. I just want to check if that's about right and then if you work back, given the buybacks on pause, you've got CapEx guidance, and you're given P&L guidance, it implies an operating cash flow number of about [$50 million sic - '€50 million'] in the second half. Just want to check if those two figures are broadly right, so €630 million net debt and [$50 million sic -'€50 million'] operating cash flow. Thanks. Shaun Hughes: No, and we haven't given specific guidance on what the net debt number will be. We have said it's below 1.5 but we haven't said it will be 1.5. So, that math is not correct, Brook. Operator: Your next question comes from Nathan Reilly with UBS. Please go ahead. Nathan Reilly (UBS, Analyst) Sorry to ask a similar question just in terms of cash impact but maybe can you give us an idea of what's the inventory impact in terms of how much additional inventory you're carrying or expect to carry? Shaun Hughes: Yes, we're carrying a little bit of extra inventory as at March, just as a result of having produced a product in RAK that we can't ship. What we'll now do is then draw that down progressively across - draw down inventories across the rest of the group. The inventory should largely close itself out within the Saverglass and Gawler business. From our perspective, there's not likely to be a major impact. There's a modest impact in March year to date though, and that's what we've called out. Then in terms of the cash impacts, it's pretty much as we've previously guided to with the EBIT impacts for both direct and indirect falling directly to the cash flow in the period. Nathan Reilly (UBS, Analyst) Got it, that's helpful. Thanks very much. Shaun Hughes: No problem. Operator: Your next question comes from Ramoun Lazar with Jefferies. Please go ahead. Ramoun Lazar: (Jefferies, Analyst) Good morning, guys. Just a quick one. Just as we head into '27, can you remind us of the gas and electricity arrangements in your European plants, how they operate in terms of hedging and then also the ability to pass on any costs as those hedges roll off? Shaun Hughes: I'll make a couple of comments and then Emmanuel may want to jump in as well. We largely have an annual-to-18-month hedging cycle within the European business, and so we have minimal exposure in 2026. We're very well hedged into the first half of FY27, and then it falls off a little bit. What we have is an annual reset process. Generally, around October of every year, we negotiate the next year's pricing, so it's a calendar year reset. Then to the extent that we had an impact on our underlying costs, then we would then need to use the mechanisms within our customer contracts to pass those costs across to customers. Ramoun Lazar: (Jefferies, Analyst) Okay. Are those mechanisms largely full recovery, or do you need to negotiate any step-up in those costs as the hedges roll? Shaun Hughes: It's obviously different by - sorry, you go, Emmanuel. Emmanuel Ladent: The large customers are - the price formula is already embedded in the contract, so we are regularly revisiting the price based on the index of energy price, in particular. For the other customers, we have a one-on-one negotiation, but we have the capability to do short-term price increase within our terms and conditions. Ramoun Lazar: (Jefferies, Analyst) Okay. Thank you. Operator: Thank you. There are no further questions at this time. I'll now hand back to Mr Lowe for closing remarks. Brian Lowe: Great. Thank you, everyone, for joining at short notice. Obviously, a lot going on and a significant impact to our business, particularly with the impact directly in the facility in RAK that we'll continue to work through and look at offsets of that, and monitor as the weeks go by. Should there be any change to what we've talked about today, we will certainly update the market accordingly. Thank you all for joining. Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect. End of Transcript of 13

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