Orora Ltd
(ASX: ORA) has announced two significant expense items that it’s going to include in its FY19 statutory result.
Orora is a global packaging business which provides a range of packaging solutions and displays. Its products include glass bottles, aluminium cans, closures & caps, recycled paper, point-of-purchase displays, boxes & cartons, rigid packaging, flexible packaging, bags and sacks. The company operates in seven countries with nearly 7,000 employees. It has 47 manufacturing plants and 23 distribution sites.
Orora’s FY19 Significant Expense Items
In the process of completing its FY19 report, the packaging business has come to the conclusion that it needs to recognise two items to form a ‘Significant Item’ totalling $55.8 million after the tax expense in its statutory result.
Orora’s Petrie Mill
There is going to be a $35 million provision for additional decommissioning costs associated with the former Petrie Mill site. The decommissioning involves multiple government agencies and it’s a significant and complex exercise.
An amended contract has recently been entered into with the landowner, so the scope of the final phase of remediation and decommissioning was able to be finalised, resulting in the estimated costs to complete the remaining decommissioning being higher than previously expected.
Therefore a specialist environmental consulting firm has been engaged to manage the completion of the works. In terms of the cash flow the costs are expected to fairly evenly spaced out over the next three financial years.
Restructuring And Impairment Charges
The company is going to recognise $20.8 million of restructuring and impairment charges.
Orora has completed its review of cost structures in Australasia and North America which was carried out because of lower earnings. The review has determined some parts of the business need restructuring for optimisation and for the cost base aligning with the market outlook.
In terms of the timing and cash flow, most of the initiatives will be implemented in the first half of FY20. The expected return is 30% in FY20 and 65% in FY21.
The review has also resulted in a non-cash impairment charge of $3.7 million after tax, although this won’t affect future earnings according to the company.
Is Orora A Buy?
After all that, Orora has reaffirmed its constant currency underlying earnings for FY19 are expected to be higher than what was reported in FY18.
Needing to restructure and recognise more costs isn’t great for shareholders, so I’m not personally attracted to buy shares today. I’d rather buy the growth shares in the free report below instead.
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