Good day. Thank you for standing by. Welcome to the Orora Half- Year Results 2023 Conference Call. I would now like to hand the conference over to your speaker today, Brian Lowe, Managing Director and Chief Executive Officer. Please go ahead.
Good morning, everybody. Thanks for joining us today for the Orora Group first half '23 results presentation. I'm joined by Shaun Hughes, our Chief Financial Officer. Today, I'm pleased to provide you with an overview of our results for the first half of FY '23. Also give you an update on our safety performance, why we believe Orora provides investors with a compelling investment proposition as a defensive growth company, including an outline of Orora's strategic advantages in the markets in which we operate. An update on our progress against our strategic priorities. I'll then hand you over to Shaun. He'll take you through the group and business unit financial results in more detail. Before I conclude with an update on sustainability and our FY '23 perspectives. Our outlook.
At the end of the presentation, as always, Shaun and I will be happy to take your questions. Before I start on the rest of the content, please take note of the important information that we have on slide two. Turning to slide four. Our first half of 2023 financial highlights. I'm pleased to report that disciplined execution of our strategy has again resulted in a solid increase in group earnings and underlying EPS. The increase in earnings in the first half was driven by double-digit earnings growth in North America and a resilient earnings performance in Australasia. Group EBIT increased 7.3% on a reported basis, driven by a significant increase in North American earnings, up 20.2%.
Underlying NPAT was up 5.3% to AUD 108 million, while EPS increased 8.5% to AUD 0.128 per share. Cash generation remained strong, with underlying operating cash flow increasing 10.7% to AUD 161 million, with cash conversion broadly in line with the prior period at 75.2%. RoAPE in the first half was 21.6%, slightly down on the prior period, reflecting higher Australasian working capital, partly offset by increase in North American earnings. The board has declared an interim ordinary dividend of AUD 0.085 per share, unfranked, and 100% sourced from the conduit foreign income account. This represents an increase of 6.3% versus the prior period, with a dividend payout ratio of 66.4%. Turning now to slide 5.
Our first half of 2023 result again demonstrates the continued execution of our strategy, strategic priorities, and strong pricing discipline. In North America, we delivered another strong earnings result, with revenue up 2.6% and EBIT up 10.2% on a local currency basis. The growth in revenue was driven by pricing disciplines in distribution, partially offset by volume softness in manufacturing. On a reported basis, North American EBIT was up 20.2%. The strong earnings growth was driven by the OPS distribution business. This reflects the improvement in operating efficiency and focus on managing inflationary imports and cost to serve. Whilst manufacturing volumes were down in line with the broader industry, earnings performance was supported by strong pricing disciplines.
During the first half, we also aligned the OV operations under the OPS business to support operational and back-office efficiencies, as well as to optimize the growth opportunities for the business. The benefit of our sustained and disciplined approach to operating efficiency and tight management of inflationary pressures is reflected in the North American EBIT margin. The OPS EBIT margin expanded 30 basis points in the first half of 2023 to 5.5% and has now improved 90 basis points since the first half of 2021. This has been achieved through a clear focus on increasing sales force effectiveness, leveraging data insights to improve our customer account profitability, ongoing cost control measures, and ongoing benefits from the integration of Pollock and Bronco operations into our single OPS central region, and continued business optimization through embedding pricing disciplines.
In late December, our North American President, Frank Vernesi, resigned from Orora, and I'm really pleased to announce the appointment of Kelly Barlow as his successor. Kelly has been with Orora for over 20 years and has held many functional and P&L roles during her career. Most recently, Kelly was the Senior Vice President for the Landsberg Distribution business and played a leading role in the development and execution of the account profitability work, which commenced back in late 2019. I'm thrilled to have Kelly take on the role and have full confidence the OPS business will continue to get stronger under Kelly's leadership. Turning to Australasia.
Revenue was up 20.6%, driven by a 3% net volume growth, 10.8% relating to higher aluminum costs that are passed through to customers, and 6.8% of cost inflation recoveries. Importantly, whilst price drove the majority of the top line revenue growth, total volumes grew revenue by 3%, with growth in cans and new glass product categories offsetting the decline in wine and beer glass. Australasian EBIT was in line with expectations at AUD 81 million. The improved cans result was driven by growth in volumes and an improvement in product mix, delivering an increase in cans earnings, partially offset by the expected short-term inflationary pressures we'd outlined in our guidance for the half. We were able to achieve cans volume growth in the first half through production efficiencies as part of our long-running IWS productivity program.
Product mix was improved, underpinned by growing demand in both mainstream and craft beer, with CSD continuing to benefit from a preference shift towards cans. Glass earnings were down, reflecting a slowdown in Australian commercial wine and lower beer sales. Pleasingly, revenue and earnings from new glass products, including the spirits and olive oil markets in the first half of 2023, were higher than the prior period. The EBIT margin in Australasia was 15.2%, with the lower margin largely reflecting the dilutionary impact of higher aluminum prices and short-term inflationary pressures versus the prior period. Turning now to slide 6. In the first half of 2023, we unfortunately saw a modest increase in low-severity injuries, which has increased the recordable and lost time frequency injury rates. This is a disappointing outcome, we continue to drive health and safety improvement programs to keep our people safe.
Importantly, no serious injuries or fatalities were recorded. The health, and safety, and well-being of our people is paramount and is supported by our continuous improvement agenda, which includes an increased focus on safety culture and performance, capital investments in safety initiatives, and risk awareness programs. Orora's global integrated safety improvement program progressed to plan in the first half of 2023, focusing on mitigating high-risk activities and improving the effectiveness of critical controls. This included the continued rollout of our Stay Safe rules, targeting the top 10 high-risk activities. Our capital investment in safety during the first half of 2023, including implementation of health and safety measures to manage high-risk activities, such as the installation of physical barriers to prevent interaction between pedestrians, moving equipment, and stored products.
I first presented slide 7 at our Invest Day in 2022. It serves as a timely reminder of the compelling investment characteristics Orora provides, including our robust and diversified business model, our well-invested assets and defensive growth profile, with further investments in cans at Dandenong and Ballarat, a highlight during the first half. Our disciplined approach to capital allocation, which includes both internal investments, recent on-market share buybacks, and our 60% to 80% dividend payout ratio, our strong financial track record and future growth prospects, and our favorable position in sustainability. I'll shortly outline our good progress that we've been making on sustainability towards our goals and our commitments. Turning now to slide 8. Orora's compelling investment proposition is underpinned by our strategic advantage and core value proposition as a design-led, leading sustainable packaging solutions provider.
Importantly, Orora maintains strong market positions in both North America and Australasia. In North America, we are a top- five player in the integrated business-to-business packaging distribution industry, with national coverage and capabilities across U.S., Canada, and Mexico. We provide small to medium run sizes for the industrial, health and beauty, automotive, food and beverage, and retail sectors. As a one-stop shop for our North American customer supply chains, we continue to invest in and grow our deeply experienced sales team, who are well-supported by a digitally enabled and vertically integrated business model. In addition to providing our customers with custom packaging solutions, our North American team provides a breadth of value-added services, including graphic design, engineering consulting support, structural design and testing, product lifecycle analysis, fulfillment and supply chain optimization, and equipment supply and automation.
In Australasia, we are the industry leader in both wine glass and cans, and the number two player in closures and beer glass. Our Australasian market positions are supported by well-invested and maintained assets. Our capability, capacity, and sustainability credentials will be further enhanced by approximately AUD 325 million being invested in new assets, which will contribute to earnings from FY 2024. These investments are backed by long-term customer contracts and a track record of contract extensions and renewals. With a multi-substrate beverage capability supported by a digitally enabled business model, our Australasian business has a reputation for high-quality, sustainable products, consistency of supply, and leading-edge design and decoration capabilities. The value proposition, as outlined on this slide, is why we have continued to deliver strong earnings results and growth in challenging economic times. Turning now to slide 9.
Our strategic pillars, which are underpinned by our reliable cash flow- generating assets, remain unchanged. They continue to guide our actions and supported the delivery of our achievements in the first half of 23. Will continue to guide us in the coming years. We continue to make good progress against these core strategies. Our North American businesses continue to execute their strategic priorities and have delivered strong earnings results in the first half of 23. OPS has driven further improvements in operating discipline and financial performance. This relentless focus has helped us manage inflationary pressures and delivered strong EBIT growth. Orora Visual continues to trade profitably, continuing to earnings growth and margin accretion in the first half. In Australasia, underpinned by long-term customer contracts for both cans and glass, we have invested in cans capacity expansion and our glass recycling capability in the first half.
Our second can line at Dandenong and the installation of our additional end capacity at Ballarat are both progressing to a very advanced stage. The Ballarat the ends of capacity expansion project will be completed by March 2023. The second can line at Dandenong will be completed by June 2023, with earnings to flow from FY24. These investments add 10% additional cans capacity and 40% additional end capacity. In glass, our Glass Beneficiation Plant is fully operational, and we've commenced our G3 furnace upgrade with new oxy-fuel technology. The oxygen plant is scheduled for completion in 2024 at a gross cost of approximately AUD 40 million, with the investment supported by government funding of AUD 12.5 million. Looking at more closely at our FY23 priorities. Our North American business remains focused on account profitability and sales force effectiveness to drive earnings growth.
Kelly will continue to play a leading role in the execution of these important initiatives. This is supported by a continued enhancement of our North American business model, including leveraging digital platform investments and further streamlining processes. We also continue to actively assess inorganic opportunities in North America as we seek to expand our product and service offerings and continue to assess potential adjacencies to our Australasian beverage business. In Australasia, reflecting a strong outlook for cans volume growth, we will successfully execute the cans capacity expansion project at Dandenong and commence building the new line at Revesby. Product mix will continue to be optimized as the glass business diversifies its portfolio and the cans business benefits from a preference shift from glass and plastics to cans formats.
Across both North America and Australasia, our attention is firmly focused on sustaining the momentum that we've built and continuing the disciplined execution of our strategic priorities. I'll now hand it over to Shaun, and he'll give you an update on our Group and segment financial results.
Thanks, Brian, and good morning, everyone. I'll start with the group results before I cover the segment financial performance. I'm at slide 11, and this summarizes the group's underlying and statutory earnings result for the first half. At a group level, revenue was up 13.9% on a reported basis or 6.6% on a constant currency basis. Revenue growth was driven by a 20.6% increase in Australasia, largely reflecting the impact of higher aluminum prices and cost inflation passed on to customers, and a 12% increase in North American revenue. Group EBIT was up 7.3% or 2.4% on a constant currency basis.
The increase in group EBIT was driven by strong double-digit growth in North American earnings, up 20.2% on a reported basis or 10.2% on a local currency basis. The favorable result reflects our relentless focus on managing cost inflation and the benefits of the pricing disciplines we have now firmly embedded in both the manufacturing and distribution sides of the business. Underlying NPAT was up 5.3%. This reflects the strong earnings growth in North America. Resilient earnings performance in Australasia, partially offset by higher finance costs, which reflect the increase in gross debt from the recent on-market share buybacks, CapEx investments, and elevated base interest rates. EPS was up 8.5% for the half. On a statutory basis, NPAT and EPS were up 7.8% and 11.3% respectively.
Moving now to the North American business on slide 12. Pleasingly, the North American businesses delivered another half of significant earnings growth, driven by improvements in account profitability, operating efficiency, and a relentless focus on managing inflationary inputs and cost to serve. In local currency terms, revenue was up 2.6%, and EBIT increased an impressive 10.2% to $56.8 million. OPS achieved revenue growth primarily from price increases and expanded its EBIT margin by a further 30 basis points to 5.5%. Manufacturing EBIT was down in line with expectations, reflecting the softer volumes seen in the broader industry. The softness in manufacturing was more than offset by a strong performance in distribution, which delivered growth in the period. OV continued to execute its business improvement programs, delivering earnings growth and EBIT margin accretion versus the prior period.
North American operating cash flow increased by 38% to $62.7 million, reflecting improved cash EBITDA, slightly lower base CapEx. The movement in working capital was slightly below the prior period. Cash conversion was strong at 86%, primarily reflecting higher cash EBITDA, and a ROAE of 20.4% was 220 basis points higher, driven by the increase in North American earnings. Importantly, we reached in the period, with North American earnings now greater than our Australasian beverage business. Turning to slide 13. Australasia delivered sales revenue of AUD 534 million, up 20.6%. The growth in revenue reflects 3% net volume growth, 10.8% higher aluminum costs passed through to customers, and 6.8% cost inflation recovery. EBIT of AUD 81 million was in line with our expectations for the half.
This is a robust earnings performance and demonstrates the diversified strength and resilience of the Australasian business during a period where volume gains and product mix improvements in cans were offset by a slowdown in wine and beer bottle sales, and the impact of timing for inflation recovery through our contract mechanisms. Underlying operating cash flow of AUD 67.7 million was lower than the prior period, reflecting an increase in working capital and AUD 5.2 million of base CapEx related to the G3 furnace. Excluding the CapEx related to the G3 furnace, cash conversion was 64.8% for the half, reflecting higher working capital attributable to higher glass inventory, partially offset by depletion of cans and finished goods. RoAFE was a very solid 23%.
During the first half, AUD 76.5 million of capital expenditure was invested in the Australasian business, an increase of AUD 45 million on the prior period, with growth CapEx up AUD 40.5 million to AUD 63 million. I'll provide further details on our investment in capacity and capability shortly. Moving to slide 14. Underlying operating cash flow was up AUD 15.6 million or 10.7% to AUD 161 million. The improvement in operating cash reflects the increase in cash EBITDA up 14% or AUD 27 million to AUD 221 million, partially offset by an increase in base CapEx. The movement in working capital of AUD 38 million was up AUD 8 million on the prior period and broadly in line with the increase in EBITDA.
The increase in net working capital is largely attributable to higher glass inventories, partially offset by depletion of canned finished goods. The group invested AUD 84.8 million in base and growth CapEx. This was up by AUD 44 million on the prior period. The increase in CapEx was driven by additional growth of AUD 41 million relating to the new Dandenong Cans line, ends capacity expansion at Ballarat, the Glass Beneficiation Plant, and the oxygen plant for the G3 furnace. Tax payments of AUD 28 million are lower than the prior period due to the timing of FY22 payments. Cash conversion, excluding the AUD 5 million invested in the G3 furnace, remains strong for the group at 75% and in line with the prior period. We have also put in place new medium-term bank debt facilities to fund ongoing CapEx projects and repay facilities maturing in July 2023.
My apologies. Turning to slide 15. As detailed at both our 2022 Investor Day and in our FY22 results, the group is investing to drive further earnings growth. This table on this slide summarizes the CapEx program and key projects, a combination of base, growth, and sustainability improvements. Our capital investment in cans is underpinned by customer demand and long-term contracts. Further, our commitment to sustainability is evidenced by the commissioning of the Glass Beneficiation Plant in August and our investment in oxy-fuel technology for future glass furnace rebuilds, commencing with the G3 furnace.
The CapEx investment in the first half of 2023 was AUD 84.8 million. CapEx spend is weighted to the second half, and is expected to increase to approximately AUD 230 million for the full- year, with growth CapEx of approximately AUD 150 million. Our growth CapEx investments are expected to generate a minimum 15% return once fully utilized. Slide 16 highlights Orora's strong balance sheet and net debt position, which continues to provide operating and strategic flexibility to support our growth strategy. At the 31st of December, net debt increased to AUD 670.8 million, with leverage at 1.9 times net debt to EBITDA. The increase in net debt includes AUD 365 million relating to the on-market share buybacks undertaken since the first half of 2021.
Leverage increased 0.1 times from FY22, driven by CapEx investments, investment in working capital, interest payments of AUD 15.9 million, and Australian dollar movements in USD debt, partially offset by stronger earnings. The company maintains a strong liquidity position with committed undrawn debt capacity of approximately AUD 415 million and cash reserves of over AUD 85 million as at the 31st of December. We have also put in place new term bank debt facilities to fund ongoing CapEx projects and to repay debt facilities maturing in July 2023. Including these new debt facilities, the total debt headroom increases from approximately AUD 415 million to AUD 610 million. The average tenor of the group's facilities, including these new debt facilities, is 2.2 years.
Our approach to capital will continue to be balanced and disciplined, and we remain committed to maintaining sensible debt levels and investment-grade credit metrics with our target leverage range between 2 and 2.5 times net debt to EBITDA as we continue to pursue organic and inorganic investments. Moving to slide 17. The board has declared an interim unframed ordinary dividend of AUD 0.085 per share. This is an AUD 0.005 or 6.3% increase on the prior period and represents a dividend payout ratio of 66.4%. The DRP will be operative for this dividend, with shares purchased on the market to meet our DRP obligations. Given the group's near-term capital investment programs, the tax effects of Australia's instant asset write-off legislation, and other timing differences, the group does not expect to frank future dividends until after FY 2024.
I'll now hand back to Brian.
Thanks, Shaun. Now turning to sustainability and our promise to the future on slide 19. Sustainability has always been part of Orora's DNA and is vital to the way we operate, and we are making good progress on our sustainability agenda globally. Orora is a proven leader in circular economy initiatives that benefit our communities and the environment by maximizing the recycled content of our manufactured products and ensuring that these products can be recycled again and again. We are taking significant steps towards our 60% recycled content target in manufactured glass products by 2025. Our new Glass Beneficiation Plant is now fully operational and is helping us make positive progress towards driving an average recycled content in our manufactured glass containers above the 38% we achieved in FY 2022.
We are also on track to achieve a 40% reduction in greenhouse gas emissions for Scope 1 and Scope 2 by 2035. As part of our climate change commitments, we have signed a contract in December to upgrade the G3 furnace to oxy-fuel technology in 2024. This important investment will reduce G3 furnace emissions by approximately 20% and move the furnace into the top 10 of energy-efficient furnaces worldwide. Along with our executive leadership team, I'm extremely proud of the great work being done in this very important area. Turning to slide 21, I'll now cover our FY23 perspectives. In North America, the focus remains on maintaining our momentum to drive earnings growth. Whilst inflationary pressures appear to have stabilized, we are confident in the pricing disciplines we've built to facilitate market price adjustments as required.
Distribution is expected to continue to perform well, particularly in Mexico, Northern California, and the East, with operational improvements and investments in sales resources to deliver earnings growth. The manufacturing business is expected to be impacted by recent softness as seen in the broader industry. We expect the momentum from a double-digit earnings increase in the first half to continue in the second half. In Australasia, the first half EBIT decline was in line with expectations. The business is expected to return to earnings growth in the second half of 2023, driven by strength in demand for cans, contract price changes effective from the second half of 2023, and out-of-cycle price changes that address the magnitude of cost inflationary pressures that we've been experiencing. We expect a continued softness in customer demand for Australian commercial wine bottles for both export and domestic sales.
Energy costs are well covered in FY23, with approximately 80% of electricity costs covered by wind farm PPAs and fixed retail contracts, and approximately 99% of gas contracts are contracted. We'll continue to focus on additional inflationary pressures, identifying and implementing cost reduction initiatives, reinvest in asset upgrades, and build out our new capacity. In respect to cash flow and CapEx, we are committed to ongoing investment in our existing businesses. Growth CapEx will continue in Australasia with the commissioning of our cans ends capacity at Ballarat in March and the commissioning of our multi-site canning line at Dandenong by June. We'll also commence construction of the second canning line at Revesby. In glass, preparations have commenced for our G3 furnace rebuild and the construction of the oxygen plant at Gawler.
We continue to target group cash conversion above 70% for FY23, excluding the G3 furnace rebuild. In respect to capital management, FY23 dividends will be towards the top end of our target payout range, and the North American business will continue to actively assess M&A opportunities, whilst the Australian or Australasian business will explore potential adjacencies. Turning to the outlook on slide 22. The Orora Group earnings are expected to be higher in FY23, reflecting the resilience of the business. In North America, we expect the second half of 23 EBIT to be up on the second half of 22, delivering EBIT growth for the full- year in a local currency basis. In Australasia, we expect the second half 23 EBIT to be up on the two, with full- year FY23 EBIT to be broadly in line with FY22.
This outlook remains subject to global and domestic economic conditions and currency fluctuations. Thank you for listening.