06 Oct Orora on spill alert as investors blast bonus plans, share price crash

Source: AFR

By: Gus McCubbing

Major investors are threatening to spill the board of Orora with growing frustration over bonuses paid to chief executive Brian Lowe despite a long stretch of underperformance and disquiet over a strategy that has included the poorly received purchase of French giant Saverglass.

Sandon Capital, a Sydney hedge fund which has an investment of nearly 1 per cent in the company, has written to Orora directors warning it intended to vote against the executive remuneration plan and bonuses paid to Lowe at an annual meeting scheduled for October 14.

Sandon portfolio manager Gabriel Radzyminski said he was concerned that there was a disconnect between executive incentives and how the company was performing.

More than 48 per cent of votes at the last annual meeting were cast against Orora’s executive remuneration, delivering the company a first strike. If there is a second, requiring 25 per cent of votes to be cast against the plan, investors will be asked whether to spill the Orora board.

The company’s largest investor is Allan Gray, with a stake of more than 20 per cent. Last year, angered by the $2.16 billion acquisition of Saverglass in 2023, Allan Gray successfully pushed the company to put in place restrictions on the board’s right to issue shares without approval.

Allan Gray chief investment officer Simon Mawhinney said he had yet to meet with the company’s board, adding that it would neither “be constructive nor professional to comment on Orora’s remuneration outcomes”.

“Unrelated to Orora though, it might be worth noting that we always vote in favour of the spill resolution even when we vote in favour of the remuneration report. The spill resolution is designed to thwart the workings of the ‘two strikes rule’, a rule we are in favour of,” he added.

Drag on performance

In his letter to Orora chairman Rob Sindel, Sandon’s Radzyminski said shares had fallen from $3.39 when Lowe was appointed chief executive in October 2019 to close at $1.36 on Friday, a decline of 59.9 per cent. By comparison, the S&P/ASX 200 had increased by about 28 per cent.

“Our voting intentions reflect Orora’s operating and financial performance, the board’s capital allocation record and the disconnect between executive incentives and shareholder outcomes,” he wrote. “Our objection is that the board continues to offer substantial incentive opportunities while repeatedly resetting performance hurdles lower after poor outcomes.”

Sandon said it was concerned that the proposed short-term bonuses this year were “not disclosed quantitatively, preventing shareholders from assessing whether they are genuinely demanding”.

The acquisition of Saverglass, a French-based high-end spirits bottle maker whose customers include Grey Goose, Glenfiddich and Hennessy, from Carlyle has been a significant drag on Orora’s performance. It had been billed as a way for the company, one of the world’s largest bottle and can manufacturers, to shift into the market for high-end spirits amid a slump in wine and beer consumption. Instead, earnings fell, angering investors.

The company was in turn successfully targeted by short-sellers – including Gus Roberts, co-portfolio manager of Solaris Investment Management’s Australian equities long-short fund – who profit when a stock falls.

An Orora spokeswoman said the board was continuing “to engage regularly with its large shareholders and proxy advisers on all matters including executive remuneration, and remains committed to ensuring the remuneration framework aligns to shareholder expectations”.

Orora in April warned that earnings from Saverglass would be up to a third lower than expected due to interruptions from the Middle East war.

It was also forced to stop production at a major facility in the United Arab Emirates, representing about 15 per cent of Saverglass’ capacity, after the conflict closed shipping routes and made others inaccessible.

Orora shares dropped 2 per cent on its reporting day in August after the company’s full-year net profit dropped 6 per cent to $142.2 million.