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Why beer and soft drink will become more expensive

Orora delivered a net profit of $87.9 million for the six months to December 31. Photo: Joe Armao $12 million worth of projects have been approved under the three-year program. Photo: Wayne Taylor

Australians can expect to pay more for products such as soft drink and beer, with falling oil prices failing to translate lower energy costs for the country’s biggest manufacturers, says the boss of packaging company Orora.

Orora chief executive Nigel Garrard said high industrial gas prices were “new fact of life that we are going to have to deal with”.

“Ultimately it’s a cost that has to be passed on to customers and to consumers,” he said.

“It’s going to be something that we are going to see for some time in Australia that will fall through the economy.”

He said the only benefit from plunging oil prices had been cheaper diesel in its transport fleet.

“Unfortunately it hasn’t transpired to any reduction in gas prices in Australia”.

Mr Garrard’s comments come after Orora – which was spun off from global packaging giant Amcor in 2013 – posted a 27.2 per cent surge in net profit for the six months to December 31, defying “muted economic conditions”.

Mr Garrard said the company would do what it could mitigate the price hikes for its customers, which include Carlton & United Breweries.

“From our point of view it means the investment opportunities for energy reduction and energy mitigation is all that more attractive given these high prices. But I don’t see any medium term reduction in this pressure.”

Orora delivered a net profit of $87.9 million for the six months to December 31, compared with $69.1 million the previous year. Meanwhile, overall revenue, climbed 13.9 per cent to $1.9 billion.

Investors welcomed the result, with the company’s shares surging 5.4 per cent to $2.35 on Tuesday.

Mr Garrard said the North American economy – the world’s largest – was still patchy and there was an “air of caution” on the continent.

“There are parts of the country that are stronger than others. For example, the oil-based states like Texas, we are seeing weaker performance, whereas the north-east is certainly stronger.

“I think for us, we expect relatively mute economic conditions there to continue to continue for the balance of ’16 and growth there will come from share and customer growth rather than anything from the economy.”

The company is aiming to bolster its market share through its $45 million innovation fund, which was launched last year.

A total of $12 million worth of projects have been approved under the three-year program, which aims to encourage “out of the box thinking” to combat slower-than-expected economic growth, particularly in the US.

Mr Garrard said programs implemented included increased automation as well as eliminating wastage.

“In our glass business for example we are commissioning a sleeving line where you add a sleeve to the top of each bottle and it enables our customers to have short-term promotional opportunities… and it enables us to sell off colour glass.

“In other words when we change colour in a furnace from let’s say amber to green… during that change process there is a lot of glass there that would not be of a marketable colour, which you would throw out.

“But this enables us to use that glass and it gives customers promotional opportunities that they currently do not have and … I think a real market opportunity.”

Mr Garrard expected 2016 full year earnings to be higher than 2015.

Orora will pay a dividend of 4.5 cents a share on April 6. This compares with 3.5 cents in 2015.

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