I would now like to hand the conference over to Mr. Brian Lowe, Managing Director and Chief Executive Officer. Please go ahead.
Thank you. Good morning, everybody, and thank you all for joining us today for the Orora Group First Half FY25 Results Presentation. I'm joined by Shaun Hughes, our Chief Financial Officer. Today, Shaun and I will provide you with an update on the group's strategy, given the significant changes that have taken place to the portfolio. We'll also cover the transition from a three-furnace to a two-furnace operation at Gawler and an overview of our results for the first half.
At the end of the presentation, I'll conclude with some insights and perspectives for the year ahead, including our outlook statement. And once concluded, we'll be happy to take your questions. Before I start, please take note of the important information we have on slide two.
Turning to slide four, I want to start with our long-term strategy, as it's important to reflect on the significant change in this organization over the past year. The key messages I want to reinforce to the market are, firstly, the portfolio has been simplified with the sale of the OPS business. Secondly, future growth for this company will be focused organically. And importantly, our strong balance sheet will enable continued organic investment and substantial ongoing shareholder distributions.
Turning to slide five, the sale of the OPS business for AUD 1.8 billion was successfully completed in December, and this leaves Orora with a very strong balance sheet. In January, we also completed the sale of our closures business to Interpack for AUD 20 million. This business was break-even as a result of the continued decline in commercial wine in Australia, and the sale further streamlines the Australasian beverage offering.
This results in the Orora of today being focused on global beverage packaging and having two distinct business groups: Global Glass, which includes our Gawler operations in Australia, and Saverglass globally, and Australasian Cans with operations in Australia and New Zealand. With this new Orora, today we are disclosing the earnings of the Cans business for the first time to give investors insights into the strong performance and growth trajectory of this business.
The numbers on this slide show the relative size of each business. For Cans and Saverglass, this is based on the calendar year 2024, with normalized corporate overheads to reflect the sale of the OPS business. For Gawler, it represents our view of the pro forma EBIT following the transition to a two-furnace operation. Turning to slide six, we have presented this slide before, and it's a reminder of Orora's market-leading positions in glass and cans and why we believe the end markets they're exposed to offer an attractive and defensive growth profile.
We believe the ongoing premiumization trend in glass is here to stay, and we are well-positioned to capture this growth. This is further enabled by our global glass network, which can be more effectively managed and position production to grow into underutilized markets. And I'll cover an example of this for you shortly. The cans market continues to benefit from the substrate shift to aluminum, and we have the number one market position in Australasia. Organic growth investments continue in cans as we invest alongside our customers as they increase their filling capacity.
Turning to slide seven, in Australia, we have witnessed a structural decline in commercial wine demand over the past seven years. We believe this structural decline is greater than the opportunities available from the reopening of wine exports to China or from other products such as food jars. Given this, we've made the decision to transition our Gawler operations in Australia from three furnaces to two furnaces later this calendar year.
This follows the successful completion of the rebuild of G3 in December as our first oxy-fuel furnace in Australia. We have already seen improved operational performance from this furnace, and early indications show a close to 30% emissions improvement compared to our initial expectations of approximately 20%. And while we have slightly more than two furnaces' worth of demand, the underutilization of running three furnaces significantly impacts productivity and performance.
By reducing to a two-furnace operation, you avoid the impact of this underutilization. Therefore, we will close the oldest furnace, known as G1, and we'll redirect some Australasian glass demand to our Saverglass facility at Ruck in the UAE. Accordingly, we are making a restructuring provision and impairment of Gawler of AUD 84 million in the half. Turning to slide eight, for Saverglass, we have undertaken a detailed review of our glass capacity requirements. While we remain confident in the ongoing premiumization trend, destocking has driven market softness, and we have seen capacity reductions across the industry over the past year.
We do intend to undertake a modernization of our Ghlin plant in Belgium. This facility is due for a rebuild, and modernization works will result in Ghlin becoming the most economic furnace for European wine and champagne bottle production. Therefore, all European wine and champagne bottle production will be consolidated here once works are complete. This enables the capacity at Ruck that is being utilized for European wines to be redirected to Australasian and North American glass customers.
This demonstrates the value of this integrated global glass network of furnaces where capacity can be balanced across our facilities. As part of our original CapEx program, the estimated cost of the Ghlin rebuild is AUD 17 million spread across FY25 and FY26, with AUD 15 million in our guidance for this year. When looking at the rest of the network, we are still evaluating our ongoing capacity requirements in Europe in the context of current lower levels of demand in the region and the proposed investment at Ghlin. And in North America, we have seen improved forward demand.
Therefore, in January, we have restarted the second furnace in Mexico, which supports Mexican and American spirits. Turning to slide nine, the changes in production and capacity are shown on this page. The change at Gawler is a net reduction in capacity of 100,000 tons. It is worth noting that available capacity or effective yield is typically around 80% of the nameplate capacity you see on this page.
The remaining furnaces and decoration plants in France will continue to support spirits customers in Europe and throughout the world with the industry-leading design and production capabilities. Turning to slide ten, before I discuss some highlights for the half, I'd like to touch on capital allocation and talk through our framework. Our first priority is to maintain an investment-grade balance sheet, which is strongly positioned following the sale of the OPS business.
Although the capital intensity of the company has changed, our long-term leverage target remains at 2-2.5 times EBITDA. We expect to remain below the bottom end of this range for some time, given our focus on organic growth and the time taken to execute on-market buybacks. Any capital investment will be measured in its approach and deliver value-accretive returns.
With a strong balance sheet and an organic growth focus, this leads to capacity for capital management. We are maintaining the dividend policy at 60%-80% of NPAT, and on-market buybacks will be a key element to return surplus funds to shareholders. In the absence of franked dividends, we believe on-market buybacks offer the most advantages to shareholders and also provide flexibility to Orora given the time taken to execute. Turning now to slide 11 and our first half results.
The results you see here today are on an underlying basis and therefore exclude significant items. The results of OPS and closures have been treated as discontinued operations. We are pleased to provide more visibility into our two continuing businesses: Global Glass, which includes Gawler and Saverglass, and our Australasian Cans business. Shaun will provide some details of our statutory numbers later in his presentation. Underlying EBIT was AUD 120.8 million, an increase of 24.6%, which was driven by Saverglass with only one month of earnings in the prior comparative period.
We'll talk about Saverglass earnings in more detail shortly, but we remain in a period of destocking with volumes declining further in the half. However, we are seeing early indications of a recovery through our order intake late in the half, which should translate to an increase in sales in the June quarter. When we exclude Saverglass, EBIT was AUD 58.4 million, a decrease of 30.1%. This was due to the G3 shutdown at Gawler, which took longer than expected and impacted EBIT by approximately AUD 24 million. Underlying NPAT increased 1.2% to AUD 58.8 million, while underlying EPS was AUD 0.044 per share.
The business continues to generate strong cash flows, with underlying operating cash flow of AUD 125.7 million, with cash conversion at 92.3%. With a strong balance sheet following the sale of OPS, we announced an on-market buyback in December, which will recommence now that results are out. We are committed to returning up to 10% of issued shares, which equates to approximately AUD 320 million. And finally, the board has declared an interim ordinary dividend of AUD 0.05 per share, which is consistent with the last two dividends.
Turning now to slide 12, the operating environment is mixed across our businesses, with Gawler impacted this half by the G3 shutdown and more broadly by a challenging commercial wine market. The cost of furnace rebuilds has increased significantly over the years in Australia, and the final cost of the G3 rebuild and oxygen plant will be approximately AUD 184 million.
Given the complexity of this project, equipment delays, and some bad weather, which impacted construction, it took eight weeks longer than expected, which resulted in the impact EBIT being approximately AUD 24 million, an increase of AUD 8 million over our initial estimate. This was a significant detractor to EBIT for the global glass business for the half, which increased 41% to AUD 71 million, with a full six months of earnings from Saverglass when compared to the prior year.
With our announcement today about the future closure of G1, there won't be a need for a rebuild of a furnace in Australia until at least 2034. For Saverglass, we are showing the movements in earnings compared to the second half of FY24. Given we only owned the business for one month in the first half of FY24, we think this is a more helpful comparison.
At the AGM, we noted volume softness in Europe, and this has continued for the rest of the half, with volumes for Saverglass down 13% and revenue down almost 15%. EBIT declined 6.4%, with cost reduction initiatives, synergies, lower profit sharing, and reduced depreciation partly offsetting the revenue decline. Destocking is continuing, but we ended the year with some encouraging signs of improved order intake, which I'll take you through in more detail later.
Finally, turning to Australasian Cans, we are pleased to provide visibility for the first time to this business, which has delivered solid growth in revenue and EBIT, increasing more than 5%. Volume growth was a modest 1.1%, with subdued consumer spending, especially in the beer category. The quality of the portfolio is apparent, with strength in CSD, energy, and kombucha, which provided an offset to beer.
We expect a stronger growth rate in the second half as new capacity comes online for ourselves and our customers. The second line at Revesby has commenced its commissioning process and will be fully commissioned in the second half of this year. We've also begun the early works on the expansion of our Rocklea facility in Queensland, which is expected to be completed in the second half of FY26. I'll now hand you to Shaun to discuss the 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 on slide 14, and this summarizes the group's underlying and statutory earnings result for the first half of FY25. The numbers I will initially focus on are on an underlying basis for the continuing operations only. Therefore, these exclude the results for OPS and closures of AUD 93 million EBIT, the restructuring of G1 at Gawler, and the net profit after tax from the OPS and closure sales of AUD 845 million.
Statutory numbers as displayed on the bottom of the page include discontinued operations and significant items. At a group level, revenue increased 65% to just over AUD 1 billion, with six months' contribution from Saverglass compared to only one month in the prior period. Outside of the increase in Saverglass revenue, Gawler revenue was flat, and Cans was up 5.2%. Group EBITDA grew 45%, with the additional Saverglass contribution being partially offset by the impacts of the G3 rebuild, which was AUD 24 million in the half.
Depreciation and amortization increased to almost AUD 70 million, reflecting a full six months of depreciation from Saverglass, with EBIT increasing 24.6% to AUD 120.8 million. Net finance costs increased AUD 33 million from the prior period, reflecting the increase in debt to acquire Saverglass and the CapEx investment program in Australasia. With the proceeds from the OPS sale being received mid-December, there was minimal benefit to interest expense from these cash proceeds in the period. Net finance costs will reduce significantly in the second half and are expected to be AUD 15-20 million, including ROU interest of approximately AUD 4 million.
This reflects net debt after funding our continuing CapEx investments and execution of the share buyback program. Our weighted average cost of debt is approximately 5%. Underlying NPAT of AUD 58.8 million has increased 1.2%, and the effective tax rate in the period was 18%. This is below our long-run effective tax rate of 26%-27%, with the tax impact of the G3 rebuild a greater portion of earnings for Saverglass from lower tax regions in the period. EPS was AUD 0.044 per share, with the 12% decline reflecting the dilutionary impact of the highest share count from the equity raising.
The statutory numbers at the bottom of the page for continuing operations include the Gawler G1 restructuring provision and impairment of AUD 83.7 million. Net profit from discontinued operations includes the trading results for the closures and the combined profit on sale. Further detail is available on slide 34. Moving now to the global glass business on slide 15. As Brian indicated, our new reporting segments are global glass and Australasian Cans. Global glass is the combination of Gawler and Saverglass, and we have also continued to show Saverglass earnings separately to provide transparency on the underlying Saverglass performance.
Given that we did not have a full six months of Saverglass performance in the prior period, we are also showing movements both including and excluding Saverglass, as the headline numbers have benefited from the additional five months of ownership. Excluding Saverglass, revenue was flat, with the EBIT reduction reflecting the impact of the G3 furnace rebuild. Gawler volumes were down 1%, with some growth in new products such as food jars being offset by the continued decline of domestic wine and soft demand for beer.
This volume decline was offset by contracted price increases from the 1st of July, reflecting higher input costs. The Gawler rebuild impact was larger than we had initially expected, as the rebuild took longer due to delays in equipment delivery, bad weather, and the overall complexity of the project itself. As Brian noted, the project is now complete and, importantly, is performing well, with emissions even lower than initially expected.
Turning to slide 16. As the prior period included only one month of Saverglass earnings, we are comparing the results to the second half of FY24. The first half saw a continued softness in demand, with revenue falling 15% on a 13% volume decline. European demand was particularly soft in the period. A fall in EBIT of 6.4% was partially mitigated by synergies, cost efficiencies, and a AUD 9 million reduction in employee profit sharing.
Profit sharing is something that all French companies must contribute to on a calendar year basis, with the amount determined by the performance of the business. With results below expectations for calendar year 2024, there will be a reduction in the profit share payable. Depreciation was also lower this half, reflecting the alignment of Saverglass and Gawler depreciation policies for moulds.
Turning to slide 17. Today, we are providing granularity on the profitability of our Cans business, as it is now a standalone segment. We believe the data shown shows the strength of this quality, high-performing business. Turning to the first half, revenue increased 5.2% on volume growth of 1.1%. If we exclude the impact of pass-through aluminum price increases, revenue was up 1.6%. EBIT increased 6.4%, with unit costs held constant and lower freight costs offsetting higher energy and labor costs.
EBIT was also helped by lower depreciation after we undertook a review of asset useful lives in the second half of last year as part of our Cairns capacity expansion program. Turning to slide 18. Orora has again delivered strong operating cash flow for continuing operations of AUD 125.7 million. This was 15% lower than the prior period, reflecting the increased Base CapEx, principally six months of Saverglass CapEx, and a AUD 33.7 million increase in the G3 rebuild as we completed this important project.
Cash conversion, excluding the G3 rebuild, was 92.3% and reflects the strong cash generation capabilities of all parts of the portfolio, even when market circumstances are challenging. Free cash flow includes AUD 78 million in Growth CapEx and interest costs of AUD 46.1 million. Interest costs will reduce in the second half following the receipt of funds in December from the completion of the OPS sale.
Growth CapEx will continue into the second half with the ramp-up of spend for the Rocklea expansion project in Queensland. Turning to slide 19. CapEx was AUD 159 million for the half, and our guidance for this year has been reduced slightly to AUD 340 to 360 million. This now excludes OPS, with a lower Saverglass CapEx spend to be offset by additional G3 CapEx.
Total Saverglass CapEx has been reduced from AUD 100 to 75 million and now reflects the updated planning for the modernization of our Ghlin site. The bulk of our Ghlin CapEx will occur in FY26. This project is a combination of base and growth CapEx. Growth CapEx in the second half is predominantly for our Cans business, with the Rocklea project now ramping up and the tail of the Revesby expansion spend.
We maintain our expectation of annual Base CapEx going forward of AUD 90 to 130 million. Slide 20 is a reminder of the significant amount of Growth CapEx we have and continue to invest in our Cans business. With Dandenong commissioned in 2023 and Revesby in 2025, these projects are already contributing to EBIT growth. With Rocklea the final piece in our expansion program, once complete, we will have increased the total capacity of the Cans network by more than 30%. Importantly, this additional capacity is expected to deliver an incremental AUD 50 million in EBIT off our FY23 baseline.
These investments will enable the Cans business to continue its impressive trajectory of earnings growth, which we have laid out on the bottom right-hand side of this slide. Slide 21 highlights Orora's balance sheet and net debt position, which is a very different position following the sale of OPS. As at the 31st of December, net debt was AUD 155.5 million, with leverage at 0.3 times net debt to EBITDA. We expect this to increase in the second half as we execute our growth CapEx and share buyback programs, but to remain well below our target leverage range.
This low- leverage position, when combined with significant amounts of liquidity, provides the company with flexibility to continue to invest in value-accretive growth and continue on-market buybacks beyond FY25. Turning to slide 22. The board has declared an interim dividend of AUD 0.05 per share, which is unfranked and represents a payout ratio of 114% of continuing operations for the half. This is above our target payout ratio as the underlying continuing operations results excluded the earnings from OPS, while still including the higher interest expense from the debt carried through the majority of the first half.
The board felt it was important to maintain the dividend at AUD 0.05 per share, given the decision to sell OPS has set the company up strategically for the future. Payout ratios are expected to normalize back within the target range in the second half, given our lower leverage and the impact of shares purchased on-market and earnings expectations. The dividend reinvestment plan will be operative for this dividend with shares purchased on-market to meet our obligations. I will now hand back to Brian.
Thank you, Shaun. We'll now turn to slide 24 and safety. We have maintained our strong safety performance for the half, with the number of lost-time injuries declining by more than 50% compared to the first half of 2024. Further, there were no serious injuries or fatalities recorded. This is a true reflection of our ongoing focus on communication, continuous improvement activities, and programs to identify hazards as well as manage risks.
We continue to deliver on our FY23 to FY25 global health and safety strategy, which includes the key elements of being aware and bringing awareness of our 10 highest-risk activities, confirming the effectiveness of critical controls, incident reporting, and governance processes. With the safety culture of Saverglass closely aligned to that of Orora, programs to integrate Saverglass into Orora's safety governance framework and systems have progressed well.
The frequency rates that you see on this slide now include Saverglass's performance. The health, safety, and well-being of our people remains a fundamental and ongoing commitment at Orora. We continue to focus on ensuring our safety performance improves even further through our targeted safety improvement programs. Now turning to sustainability and our promise to the future on slide 25. Orora continues to make solid progress on our sustainability goals under the pillars of circular economy, climate change, and community, and we look forward to announcing new targets, including Save a Glass at the end of the year.
Under the circular economy pillar in FY25, we remain on track to meet our target of 60% recycled content in glass products manufactured at Gawler after achieving 50% in FY24. Under the climate change pillar, the newly rebuilt G3 oxyfuel furnace at Gawler is already seeing improved performance, with a close to 30% reduction in emissions compared to our initial expectations of approximately 20%.
We are excited by this world-class technology being deployed at Gawler, and we are on track for further reductions in Scope 1 and Scope 2 greenhouse gas emissions, in addition to the impressive results delivered in FY24. G3 is now one of the top 10% of energy-efficient furnaces in the world. Overall, I'm extremely proud of the achievements of our entire team in this important area. Turning to slide 27, I'll cover our FY25 perspectives. Global markets and conditions remain challenging, and consumer spending has been soft.
However, the business is well-positioned for an improvement in the market with quality assets, quality people, and world-leading capabilities in beverage packaging across cans and glass. For Gawler, in terms of the market, there are improved export volumes for the industry from the reopening of China. However, this does not offset the decline in commercial wine we've seen over the past seven years, with this expected to continue. This is why we are making the decision on the G1 furnace with closure later this year.
This will enable further optimization with a two-furnace operation and additional capacity being deployed at RAK. There is potential for an additional $20 million in onerous contracts resulting from the G1 closure, primarily energy, which will be assessed in future periods. For Saverglass, the team are focused on many fronts, whether that be cost reductions, footprint optimization, or new volume opportunities. While volumes for the half were softer than we expected when we started the year, we are seeing some early positive signs from the strengthening order intake in both North America and Europe.
For Australasian Cans, volume is expected to improve in the second half, albeit at moderate levels due to softer consumer spending. Capacity expansions continue as we expect Revesby to be fully commissioned this half, and the Rocklea expansion is underway. Our new digital printing capability in Helio will arrive in Australia next month and is due to be commissioned in the June quarter. Turning to slide 28. As mentioned, our Saverglass order intake is showing recent signs of improvement.
This chart represents orders received from customers across the Saverglass business globally. As noted at the AGM, the Americas region has seen strong orders since August, and this has continued. What has changed is the strength in European orders since November. This has been broad-based, but notably with strength in vodka and champagne, albeit mostly at the standard premium end of the portfolio.
Timing of conversion to sales can vary, but it is a welcome development and indicates a more positive outlook from our customers. But we acknowledge that uncertainty remains in the pace of recovery in Europe and with potential U.S. tariffs. On the right-hand side, this is an update of inventory levels. Importantly, both customer-owned and Saverglass inventories are at lower levels than when Orora acquired the business in December of 2023. We expect this to subsequently fall throughout calendar 2025.
Turning to the outlook on slide 29. For the continuing operations, we expect group EBIT to be broadly in line with the second half of FY24, with each business improving compared to the first half of FY25. For Gawler, G3 is fully operational, and there will be no further impact from the G3 rebuild. Volumes are seasonally lower in the second half compared to the first half, with the structural challenges of commercial wine to remain. For Saverglass, the pace of recovery in European demand remains uncertain, but as noted, the order book has strengthened, which should result in improved second-half volumes.
For our Cans business, we expect the usual seasonality of lower second-half volumes, but with an improved growth rate compared to the prior year. The focus remains on new capacity additions with Revesby commissioning and the commencement of the Rocklea expansion. As always, this outlook remains subject to global and domestic economic conditions, currency fluctuations, and the potential of US tariffs. Thank you, everyone, for listening today. Now, Operator, I'll hand it back to you to open the line for questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Jakob Cakarnis with Jarden Australia. Please go.
Hi, Brian. Hi, Sean. Can you just talk about the corporate overhead amounts, please, that have been allocated from the OPS business, assuming they're coming through in the second half? And then the second part of that question, how much of that cost in that overhead can be optimized moving forward, please?
Yeah. So the way we're thinking about that is, obviously, in the first half, there's been an allocation into the OPS number, but in the second half, it'll be roughly AUD 5 million a half. And then in terms of what that looks like going forward, our expectation is we'll hold at those levels for 2026, and then from 2027, having really stabilized Saverglass, we'll start to take some of those costs out of the business.
Thanks, Shaun. Just a second one. It looks as though the cost performance in Saverglass compared to the second half of 2024, it looks like it's down around 17% on a run rate basis. You mentioned some savings also on the NA side. I'm just wondering how sustainable those cost improvements are if volume returns, if there's genuine cost reduction that's gone on in that business. And then how should we think about the objectives of that business as it now folds in with global glass and RAK, please?
Yeah. So I think you're absolutely right. We've done a very good job at managing the cost base with that volume decline in the half. And the team, and we would expect some, but not all of those cost reductions to hold going forward. For example, one of the, and you'll see this in the materials, one of the larger items is profit share. Now, that's something that is required to be paid in France.
It is part of our contractual arrangements with our Employees. But because the business isn't currently operating at performance, of course, we've written that back at the period. As we guide into the second half, we would expect to resume paying profit share. It's a calendar year program, and we would expect for the team to deliver against those commitments. So we would expect to start paying that again.
We have done a good job around synergies in terms of buying, insurance, all of those sorts of things we're really comfortable with, and we're making good progress on those synergies. So I think those things will absolutely stick. And then we have taken in the half as well another 3% out of the workforce, mostly in the contract labor. So I would expect that that will hold as we then start to ramp up volumes as we see the end of the destocking cycle.
Thanks, Shaun. Can you just quantify the buying and insurance synergies, please, in the half?
The whole synergies today is about AUD 4 million all up.
Thank you.
Thank you. Your next question comes from Andrew Scott with Morgan Stanley. Please go ahead.
Thank you. Good morning. Gents, if we could just look at slide five, which I think, Brian, you described as sort of the new base. I'm just trying to understand those numbers there. Jacob's already asked on the corporate allocation. Can you talk us through the adjustments they've made for the G1 closure?
Yeah. So effectively, what we've assumed for post-G1 is a normalized base for Gawler of sort of mid-30s. And then the rest is Saverglass in that number. So that's really just the first half, second half, 2024 number, plus that mid-30s expectation for Gawler post the rebuild. And then with Cans, it's the Cans number that you can see in the first half, and you've got the history in the appendix of the deck as well with the $5 million of overheads that we've talked about here. The $5 million per half. Okay. 5 million per half, just for clarity. Yeah.
That's clear. Thanks, Shaun. I know you're not providing—that's not a 2026 guidance number, but it's obviously well below 2026 if we sort of talk about that being the first clean year under the new structure. That's well short of where the street is looking at. So can you just talk about anything we need that comes through as we get through into that first clean year of an FY26?
I think the key comment I'd make is, A, we're not giving guidance for 2026. We've got to do a full planning process, which we'll do in May. We have said on previous calls that nothing we've seen gives us any cause to believe that once volumes return post-destocking, that we wouldn't be at the level of profitability that we initially expected when we acquired the business. So we'll have more to say about that in June once we've done our planning. And obviously, you can see that in the order data that we've included as well. But we really need to just see that play out in this half.
Okay. Thanks. And Shaun, if I can stay with you, can you just help us out quantifying the impact of the change to the D&A policies that happened in the second half of 2024 across both Cans and Glass? I think Glass looks to be the more meaningful, but it seems like there is quite a disconnect there between market expectations and what you've come out with today.
Yeah. Well, look, firstly, we guide to EBIT. We don't guide to EBITDA. And the reason for that is the timing of CapEx programs when they commission, etc., all has quite an impact on our D&A number. But we have been clear in the presentation that there's a couple of things. So firstly, Cans, we did re-life the assets as part of the whole capital investment program that we have. We looked at all of our assets and said, "Well, what's the right life?" And we did that in the second half of last year.
So that's actually reflected in the numbers. But it wasn't in the comparable half-on-half numbers because we did it in the second half of last year. With Saverglass, we've aligned the treatment for molds, and that's about AUD 4 million worth of impact in the half. And that really was moving the life from somewhere between one and two years to four years, which is what we've consistently seen in Gawler. And then the extended delays in the G3 rebuild meant that we had expected depreciation in the first half.
Of course, we've only just completed that project at the end of December. So we didn't have any depreciation really of note for G3 in that period. And that was probably three or four million. And I mean, you can do the math on the AUD 184 million that we've said it's cost us. So that'll sort of start to flow from the 1st of January.
That's helpful. Thank you. And Brian, if we can just squeeze in one more, can you just talk about the relative economics of supplying the U.S. from RAK versus Mexico? And then with that second furnace in Mexico restarted, how do you think about filling that capacity in a world where maybe tariffs place you at a disadvantage in the U.S.?
Sure. In fact, the RAK facility is the most cost-effective facility we have from an overall production cost. And it may surprise you based on the distance from Mexico to the U.S., particularly the West Coast. It is, in fact, more expensive to ship product into the West Coast from Mexico than it is from RAK to Mexico. So overall, economically, we're probably at a slight advantage coming out of RAK. But we do also supply product that goes into Kentucky for spirits. And that goes generally by road or potentially rail.
So again, that probably has a different set of economics relative to the transport. But we do have the ability, as we've called out with tariffs, to potentially move volume from Mexico to other locations if we need to. And RAK, bringing some wine production back into Europe from RAK, frees up that capacity there. So again, we're comfortable that the network allows us to really optimize it.
There shouldn't be a negative cost impost if we move product from Mexico to the UAE, for example. Order book in Mexico, particularly, is very strong. So as we've mentioned, we restarted our second furnace in January. We have quite a number of months in front of us where both furnaces are going to be at capacity. So that is a positive in itself. But again, we'll continue to move the production based on where it's going to be most economical.
That's helpful. Thank you.
Thank you. Your next question comes from Ramoun Lazar with Jefferies. Please go ahead.
Good morning, guys. Just a couple of questions from me. Any sort of additional costs relating to the G1 closure expected in the second half?
What we have flagged is the AUD 20 million or so onerous contract provisions. We weren't able to take those under the accounting standards. We would expect to renegotiate those contracts in the second half, and then we'll crystallize that as an SI in the second half. That's really all we can expect beyond the AUD 84 million plus that AUD 20.
Okay. So no additional remediation or anything like that expected?
No, that's already in the AUD 84.
Yeah. Decommissioning of the plant, potential redundancies, all of those things have been taken into account in the AUD 84.
Yeah. That's right. And the cash cost of that AUD 84 is probably AUD 14 million. The rest of it's all book.
Got it. And just the other one is just with the rejigging of the glass portfolio, I guess, where does that leave overall utilization for the network? And I guess, where does it leave the business to sort of meet future growth requirements if needed?
Okay. It leaves us quite comfortably positioned. Given we're only running now probably a little bit below 60% utilization in the Saverglass network, we have really good capacity to grow. And I think what we had mentioned probably in previous reviews where we also have the ability to add expansion capability in certain locations, for example, Mexico.
We can add two more lines to one of the furnaces, which increases capacity in the future. Now, that's not in the current capital plan. With what we've announced as our intention to rebuild the Ghlin facility, that will be a four-line furnace. But we would potentially have the ability to add a fifth line to that at some point in the future. So when we look across the network, we're still comfortable. We can grow through a three, four, five-year period, getting back to modest growth levels with the capacity we have before we need to consider any further expansion.
All right. Thank you.
Thank you. Your next question comes from Sam Teeger with Citi. Please go ahead.
Morning, guys. Thanks for taking the question. Look, just simple one for me. The $24 million impact from G3, just wanted to confirm exactly what line in the P&L that refers to. And two, is it as easy as assuming that reverses in the first half of 2026?
It sits across a large number of lines because obviously, it's all of the costs that's lost, all of the costs that we incur associated with inefficiencies in running or not running sort of three furnaces, energy costs, labour costs. There's also overhead costs that we're not allocating across the production that's being caught. So it's very widespread, Sam. In terms of the way to think about Gawler's number, you've now got transparency in the appendix for Gawler's number last year.
And that's a reasonable proxy for the number for the second half. Obviously, we've given quite clear guidance, I think, with EBIT using the second half of last year. So you've got that transparency at the business unit level now in the appendix.
Okay. That's helpful. And then just expectations for second half growth in glass EBIT year on year. Just wanted to unpack that a bit better. Looks like your D&A might be kind of like a seven or eight mil better using the first half kind of 25 run rate. And then I guess, one, is that correct? And then two, is that the starting benefit? And then you're expecting kind of volume impacts, positive or negative on top of that?
Yeah. I think, again, sort of if you look at the second half of FY24 as your proxy for Saverglass and Gawler using a similar number, that's a good basis for working out the go-forward position for the second half. But once we pull up the G1 furnace, then you're back towards that mid-30s number that I mentioned earlier. And that's what we would expect the go-forward position for Gawler Glass to be.
Saverglass doesn't really change off that number that we've guided to until we get the growth. And then we would expect growth to be laid out over the top of that. And it depends on how that destocking and customer demand cycle returns.
Helpful. And then just lastly, could you perhaps talk to those aluminum supply chains? I mean, any second-order derivatives from the US tariffs? No.
I mean, today, most of our aluminum comes from either Korea, China, some out of Europe. So it's not something that we would expect would have any dramatic impact on either supply at this point or cost. And as you, I think you're well aware, the cost is a direct pass-through to all of our customers in cans for aluminum. So we don't really see any exposure on that.
Okay. Thanks, guys. Appreciate it.
Thank you. Your next question comes from Brook Campbell-Crawford with Barrenjoey. Please go ahead.
Morning. Thanks for taking my question. Just the first one referencing slide 18, it looks like there's actually some pretty strong order intake on a year-over-year basis over the last few months, depending on how you've treated the Y-axis in that chart. But just trying to attest why that strong growth, I guess, with a lag wouldn't translate to earnings growth in the second half. Just trying to reconcile that with the sort of flat EBIT guidance, particularly given, I guess, the change in D&A assumptions, just trying to understand why you don't have any leverage there through Saverglass.
Yeah. Thanks, Brook. Yeah. I think what you're referring to is page 28, which is the order and inventory slide.
Sorry, 28. Yeah. Not 18. Yeah. That's it.
That's it. Look, we're very encouraged by the order book increase that we've seen. We show there from November through January. It's the highest order intake we've seen in approximately 18 months. Our cautiousness on the impact in the second half is twofold. One is if you see the order intake up through October, which was at the lower end of what we've seen in the last 18 months, we typically have a four- to six-month lag between order intake and that converting to actual sales.
So we are expecting the first quarter of this year to be impacted by that slow order book. And then we're expecting the, what would be the fourth quarter, to be higher based on that order book. The other piece of it is if you look back in sort of January, February, March, April in 2024 on that order chart, that showed an increasing order book. And I think at the first half results last year, we did talk about an increasing order book. But what we did see post that is some of those orders getting retimed and pushed out.
And then you can see from May, there was a reduction. So although it is encouraging and the order intake is certainly higher than what we've seen since we owned the business, we would say that should be a net positive to us. But there's a little bit of once-bitten-and-twice-shy here in terms of making bold statements of what that'll translate to in revenue.
Thanks. And just the second one on cans growth in Australia, it's slightly positive but relatively subdued. I guess, have you had a look into why the industry growth rate for cans is still well below that sort of 4%-6% target you have? And I guess, what needs to change to get back there? I guess some of the general consumer data is actually reasonably okay in Australia. Any thoughts around that would be great.
Yeah. A couple of things on that, Brook. One is the beer market, from our assessment, was down about 5% last year in total beer sales. We were down sort of very low single digit. So we're still net-net to the category, we're quite favorable as we're still seeing that transition to cans. So if the beer market is expected to be flat in the medium term or slight growth, then we should outpace that growth.
We're still very confident of that. The other part is that a lot of our major customers are effectively full in terms of their filling capacity. So whether that be our major customer for CSDs, they're putting additional can or can filling line capacity, which will be on stream during calendar year 2025. We know our largest beer customer who have put an expansion in their facility in Queensland, which is only sort of very recently being commissioned.
And similar, another organization who have built a brand new greenfield facility in Queensland, which was only started commissioning late last calendar year, which is also ramping up. So capacity is being installed in our customers' network, which we have confidence they're going to be pursuing growth on. That's why they've made those investments. And we expect that to flow through to us really in the next year and years beyond.
That makes sense. Thanks.
Thank you. Your next question comes from Daniel Franklin with CLSA. Please go ahead.
Good morning, everyone. Just wanted to discuss a bit more in terms of the improved order intake in the past three months. Do you have a sense of what portion reflects seasonal improvement in volume, customer demand improvement, or even restocking? Any comment on customer inventory levels would be great as well.
Yeah. I mean, unfortunately, we don't get real visibility on our customers' filled product inventory levels. And that creates some complexity for us in terms of really giving some forward projections. What we do have is good visibility on what we hold for our customers. And that right-hand chart on slide 28 shows what we hold for those customers. And you can see we've highlighted on there that generally each December, based on offtake agreements, that sort of spikes up, but also is progressively coming down.
So we see that that destocking of what we're holding for our customers is still progressing. So we have some comfort that we're getting back towards more normalized levels. There is some commentary in the market externally from some of the major players talking about their belief that the destocking is now effectively over or coming to an end. And based on our order intake picking up, we would concur. We would say this half is where we really should see things start to normalize back out.
Again, relative to seasonality, look, it's very difficult for us, particularly with Saverglass, to look at that because our window doesn't go back enough years. And you've got the whole COVID piece in there as well. But all we can look at is really over what's now been in excess of a two-year period of orders. The intake is at the strongest level we've seen in that couple of years. So it couldn't be all attributed to seasonality.
Yep. Thanks, Brian. And just taking a step back then, just interested in your thoughts on the premiumization trend. Just how has volume performed at the premium and super premium end relative to the commoditized value and standard segments?
Okay. It's hard for us to get some data on that. I mean, we're trying to look at that. It seems to be, depending on the product difference, things like cognac have been impacted quite severely. And that's been called out. At the other end, it's quite difficult for us to get a true assessment in spirits because they'll talk about Tequila. They'll talk about Vodka. They'll talk about whatever. But it's very difficult for us to, within that data, look at what those premium brands are doing.
A positive example would be Don Julio, where we supply Don Julio Tequila. So effectively, all of the Don Julio brand for our bottles. And they've been seeing some recent positive growth and quite substantial positive growth. And that is at the premium end. If anyone's gone to buy a bottle of Don Julio Tequila, it's pretty expensive. And that's flowed through to our order book in Mexico, for example. So that's positive. Some of the others are a little bit harder to get some visibility on. But overall, we have no doubt about the premiumization trend continuing. Our customers are telling that today.
I think we've even seen in the TWE result that came out today, probably a similar narrative to us, where they're certainly investing and putting their focus on the luxury and upper end of the premium market and the commercial end of the market or commercial wine at lower price points. They're seeing decline and expecting further decline. So we're still confident that this is the right part of the market for us to be in medium to long term.
Thanks, Brian. Pass it on.
Thank you. Your next question comes from Cameron McDonald with E&P. Please go ahead. Cameron, your line is now live. Please ask your question. Thank you. Your next question comes from Keith Chau with MST Marquee. Please go ahead.
Good morning, Gents. First question. I'm still not quite clear on the comments on the order intake and what it means for volumes and how it relates to potential one-off or stocking up of the channel ahead of tariffs. So maybe if I just ask it simply, are you getting feedback from customers who have suggested they are forward ordering to reduce risk of tariffs on the order book?
No. We certainly haven't had any direct feedback from anyone to say, "Hey, we want to pre-buy because we're worried about tariffs." And look, these orders that we've got, as we said, these are orders for us to manufacture specific products for customers. So the manufacturing could be several months after we get the orders. So the vast majority of this is not even in their production schedule for this month, for example. It's in the months to come. So by the time we make that ship it to our customer, they fill it and try and get it to the U.S., they're not going to be ahead of tariffs. So that's not at all what they're telling us.
Okay. Understood. Thanks, Brian. And then the second question relates to an emerging risk in the Cans business. Recorp in New Zealand have established a Can plant. From an Australasian perspective, the risk doesn't seem like it's big with that facility potentially making up somewhere in the vicinity of 5% - 6% market share. But in New Zealand, it's certainly big at adding another 30% capacity to the New Zealand market.
So, Brian, can you just give us your view of how you perceive the risk? Is there anything that has popped up amongst your customer base and your discussions with them, which suggests that could be a risk or otherwise? Any meaningful changes to contracts? If you could just or pass a few comments on that, that would be useful. Thank you.
Sure. Look, we don't see any short to medium-term risk and even potentially long-term risk relative to that. I mean, we are well-positioned with all of our major customers. When we look at the available contracts in New Zealand, for example, we can't see anything that's not contracted for, well, to well beyond 2030 at this point, between whether it be ourselves or our major competitor. So we don't know what they're targeting.
I mean, certainly from what we have read and we understand, there was a shortfall during COVID and the back end of COVID. Cans were being imported into New Zealand. And that, I think, has really been part of the driver for that investment to say, "Okay, there's going to be a net deficit in the market here. Cans can continue to grow at an accelerated rate, and they'll be able to pick up part of the market."
We can't see where they can get any meaningful volume inside the next five, six, seven years. So that's not a concern to us. And the vast majority of our customers, we supply both in Australia and in New Zealand. And those contracts are broader contracts across Australasia for volume. And effectively, the vast majority of them that we have today are exclusive relative to products and sites. So again, we don't see any real risk, not on any real time horizon that we're working to.
Okay. Great. Thanks, Brian. Appreciate it.
Thank you. Your next question comes from Nathan Laidig with UBS. Please go ahead.
Morning, gents. Just picking up on Saverglass volume. So you've highlighted a 13% volume decline in the first half of 2025 relative to second half of 2024. I'd just like to understand what volume outcome your guidance implies into the second half of 2025 relative to that first half of 2025 outcome.
Well, we don't give specific guidance on volume for a whole lot of different reasons. It is quite hard to predict as we've I mean, I think all of these questions around the order book really give us concern for making bold statements about what's going to happen in the second half in volumes.
We're comfortable that we have our hands around the cost equation. We're comfortable we have our hands around the levers in the business. And we're comfortable the business is well-positioned for when volumes do return. And so I think that's the key statement we'll probably make around that guidance,
Nathan. Yeah. And I think if the order book that we've shown here, and hopefully people appreciate the transparency we're trying to provide here so that you can all see what we see. So you can see what we're holding for our customers and their inventory. You can see what real orders we've got flowing in. So you have close to the information that we have where we're making our statements.
But if that order book holds, then we absolutely should see a higher last quarter of our financial year sales number, which would give us half- on- half an increase in volume. But as we said earlier, we just want to be a little bit cautious that those orders hold for actual shipping and invoicing within this financial year. Okay.
Thanks, Nicola.
Thank you. Next question comes from Cameron McDonald with E&P. Please go ahead.
Good morning. Can you hear me now?
Gotcha.
Thank you. Just staying on that order book for Saverglass. And so what are the obligations of the customers with regarding that retiming effect from last year? How much notice do they have to give you in it? At what point are you incurring costs to either gear up for that increased order, either through bringing back employees or retooling or remolding? I'm just trying to understand that risk.
Yeah, I mean, there's certainly from a fixed cost standpoint not a huge amount of impact, but from an employee standpoint, if we need to flex the labor back up and in France, we've also mentioned before where we have people on, let's say, short-time working or part-time working that we can bring back. So that's not that difficult to flex, but the obligation the customer has is once we're making the products, once it's locked into the production schedule for a certain volume, they are committed to buy that volume from us. So there's no risk to us. There is flexibility, and sometimes that can be negotiated depending on the customer on when they actually take that out of our inventory.
And then again, depending on the customer, we'll have an agreement that if they haven't taken it by a certain amount of time, we bill them for the entire amount. And then it transfers to what's the green line on the graph on the right-hand side, which is the customer-owned inventory. And it is different depending on the customer. But what is for sure is that they are obligated to take what we manufacture.
Yep. Okay. And then just in terms of that 13% reduction, that's as bad as what we've probably seen from the major beverage companies just from a volume perspective. Are you at all concerned that you're sort of over-indexing to the weakest customers?
No. And the piece that's not clear from anybody else is how much inventory were people holding, either of unfilled product or of filled product. Now, you would probably think, and we would concur with this, that for the more specialized high-end products that only run less frequently, the inventory levels are generally higher per item. So it can take longer to bleed that back out.
So we're not able to look at this as a direct comparison to a commercial wine producer, a glass producer for them, or a beer producer. It would have to be a very similar type company to us. And there's none really available for us to benchmark when it comes to that. So that's not something we have a concern about.
Okay. And then just finally, just on the as a more technical question, I suppose, the guidance around the business, is that now being done on a post-AASB '16 basis? And then how does the interest costs of AUD 65-70 relate to the lease payment cash impact on the cash flow of $13 for the half?
So we have always reported on an IFRS basis. What we did do was for Saverglass, we gave some visibility early on before we'd done the purchase price accounting to what the numbers looked like on a French GAAP euro number. And in fact, that's the basis on which we raised capital as well. There is disclosure in the results as well just around what the lease expense is. And I think I mentioned that in my speech as well. About AUD 4, yeah, it's about AUD 5-18 is the expected second half interest cost, of which about AUD 4 is ROU interest. And that's quite a lot different to what we've had historically if you go back through our reported results.
Because in OPS, all of the assets, the warehouses and sites were leased. So there was quite a substantial amount of ROU interest. In the continuing business, there's very little other than some warehouses in the U.S. and some of the other sites. The facility in RAK, because obviously you can't own that site. So there's relatively minor ROU interest going forward.
Okay. So that lease cash cost is predominantly that the thing. So the majority of that is actually effectively principal.
Yes. Now, what we've assumed in what we've assumed in the interest guidance as well is re-gearing the balance sheet as we progress the buyback that we've announced.
Yep. Yeah. Sure. And effectively changing net debt for the CapEx.
Yes. That's correct.
Yep. No. Thank you.
No problem.
Thank you. Your next question comes from Ben Way with Macquarie. Please go ahead.
Hi, guys. Thanks for taking my question there. Maybe just another question around your guidance for Saverglass there and talking sort of specifically with that €9 million benefit from the profit share. So I guess that implies if the second half 2025 EBIT improves on the first half there, notwithstanding that sort of impost from potential profit share coming back, the underlying improvement you're expecting is a bit better. I'd just be interested to hear your thoughts around that and how to differentiate it.
So just a clarification if I can, Ben. So the 9 is the half on half movement, but the amount released into the half was 5. So just because you had a cost in the first half sorry, in the second half of last year, you don't have the cost in the first half of this year. So there's a gap of nine in terms of the operating result, but it's only five and a half. So that's a little bit confusing. So apologies for that. And yes, the assumption is that we would cover that increase as part of restoring to our normal terms of employment with our employees with volume offsetting those costs in the guidance.
Yeah. Got it. Thanks for that. Then also sticking with Saverglass there, looks like price mix was sort of a negative 1.5% impact in the half. Just any comments around sort of how the price equation is sort of holding going into the second half expectations there?
Look, it's certainly more difficult trading conditions as you would expect with these volumes. And you're absolutely right. That is the price mix delta. We've tried to make that clear within the materials. Look, I think broadly we are seeing a mix as we've sought after some of the standard premium products relative to our more high-end spirits products, particularly with some of the softness in cognac that I think has been talked about with the tariffs from China and the XO brands, but overall, I think we're reasonably happy with how that's holding up.
Great. Thank you.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Lowe for closing remarks.
All right, well, thank you all for joining the call today. I hope that I've been able to answer your questions, and there's a lot of complexity in the results this year with continuing operations, discontinued operations, etc. If you have any further questions, please reach out to Chris Vagg or a number of you I'm sure we'll be talking to over the coming days or into next week. So once again, thanks for joining us.
That does conclude our conference for today. Thank you for participating. You may now disconnect.