The recent sale of Orora’s fibre packaging business in Australia to Nippon Paper Industries could make the latter a stronger player in paper packaging, according to data and analyst firm GlobalData.
The company’s consumer insights analyst Shagun Sachdeva said the deal seems to be a part of Nippon Paper’s two-pronged strategy of becoming a stronger player in paper packaging, along with competing with market leader, Visy Industries.
“The Australasian fibre business includes B9 Paper Mill, units of fibre converting, specialty packaging, cartons, bags, functional coatings and WRS packaging distribution. Nippon Paper looks to challenge Visy with Orora’s fibre packaging business in Australia,” she said.
Japanese company Nippon Paper recently bought the Australian packaging company Orora’s Australasian fibre business for $1.72 billion, with the completion of the transaction expected to occur in early 2020.
“According to GlobalData, the total packaging material market is growing at a steady pace in Australia and is expected to cross eight billion kilograms in 2022,” Sachdeva said.
“With all major forms of packaging, including flexible, glass, paper, metal and plastic, growing positively in Australia, it becomes strategically imperative for Nippon to expand its portfolio.
“Nippon Paper had identified paper packaging as a key growth area under its Sixth Medium-Term Business Plan in 2018 due to growing environmental and garbage disposal concerns over plastic.
“The deal will also allow Australian Paper, a wholly owned unit of Nippon Paper, to foray into new categories such as box and cartons, in addition to paper bags and sacks.”
Sachdeva added that the move could also be beneficial for Orora.
“On the other hand, Orora can focus on higher growth Australasian glass and aluminium beverage cans business where it has stronghold. It will also retain its North American packaging business, where it is a dominant player,” she said.
At the company’s annual general meeting, Orora chairman Chris Roberts said the Australasian fibre business had reached maturity under Orora’s ownership and will now benefit from the synergies and other value enhancements available to Nippon Paper.
“For the 3300 people employed by the Australasian fibre business, the sale to Nippon Paper represents a significant opportunity to become part of a leading diversified business with global operations,” he said.
“Orora will now focus on its Australasian beverage and North American businesses, which both have strong long-term growth prospects and provide opportunity for superior returns on capital for shareholders.”
Orora managing director and CEO Brian Lowe added that for Orora’s fibre business team, the combination of the Orora Fibre business with Nippon Paper Group’s subsidiary, Australian Paper, provides great opportunity for both groups to expand into new sectors and broaden their value proposition.
“The binding offer from Nippon Paper Group fully values the Australasian fibre business with reference to the benefits expected from the asset refresh program that Orora has undertaken in recent years and the prevailing outlook for the business,” he said.
“Following completion, Orora will be a more streamlined group of businesses.
“To put that into perspective, in FY19, the combination of the Australasian Beverage and North American businesses generated sales revenue of approximately $3.4 billion and EBITDA of approximately $350 million, excluding corporate costs.
“The beverage business is a leading supplier of cans, glass and wine closures in Australia and New Zealand. [It] is well positioned for further growth, particularly as consumers move towards more sustainable beverage packaging formats.”
Orora has also announced the appointment of Matthew Wilson as group general manager of strategy.