ORORA LIMITED — Annual Report 2020

Aug 19, 2020

Appendix 4E Rule 4.3A

Preliminary Final Report

ORORA LIMITED ABN 55 004 275 165

1. Details of the reporting period and the previous corresponding period

Reporting Period: Previous Corresponding Period:

Year Ended 30 June 2020 Year Ended 30 June 2019

2. Results for announcement to the market

Results for announcement to the market	Results for announcement to the market	Results for announcement to the market
Key information 30 June 2020 A$ million 30 June 2019 A$ million
Statutory results
2.1 Revenue from ordinary activities • From Continuing Operations 3,566.2 Up 5.2% from 3,390.2 • From Discontinued Operations 1,092.9 Down 20.3% from 1,371.3
2.2 Net profit/(loss) from ordinary activities after tax but before significant items, attributable to members • From Continuing Operations 127.7 Down 22.8% from 165.4 • From Discontinued Operations 40.6 Down 21.3% from 51.6
2.3 Net profit/(loss) for the period, after significant items, attributable to members • From Continuing Operations 27.6 Down 76.3% from 116.5 • From Discontinued Operations 212.3 Up 374.9% from 44.7
Dividends	Amount per security	Franked amount per security
Current period 2.4 Final dividend payable 12 October 2020 2.4 Special dividend 2.4 Interim dividend	5.5 cents 37.3 cents 6.5 cents	unfranked 50.0% 30.0%
Previous corresponding period 2.4 Final dividend 2.4 Interim dividend	6.5 cents 6.5 cents	30.0% 50.0%

2.5 Record date for determining entitlements to the dividend

Final dividend – 8 September 2020

2.6 Brief explanation of figures in 2.1 to 2.4:

• i) The current period final dividend is unfranked, the interim dividend 30% franked and special dividend 50.0% franked. ii) 100.0% of the current period final dividend and 70% of the current period interim dividend and 50% of the special dividend were sourced from the Conduit Foreign Income Account. Dividends to foreign holders are not subject to withholding tax.

• iii) Profit for the current period, for continuing operations, includes a significant income expense relating to restructuring activities and recoverable asset impairment charges in North America. Refer to the attached Preliminary Final Report Note 1.2. Profit in the comparative period includes significant expense items in respect of restructuring and impairment charges identified through a review of the Group’s cost structures in both Australasia and North America and an expense relating to additional decommissioning costs associated with the Petrie site.

iv) Refer to attached Preliminary Final Report and the Investor Results Release for further details relating to 2.1 to 2.4.

3. Income Statement and Statement of Comprehensive Income

Refer to the attached Preliminary Final Report

4. Statement of Financial Position

Refer to the attached Preliminary Final Report

5. Statement of Cash Flows

Refer to the attached Preliminary Final Report

6. Statement of Retained Earnings

Refer to the attached Preliminary Final Report, Note 2.4.3 Retained Earnings

7. Details of individual dividends and payment dates

Refer to the attached Preliminary Final Report, Note 2.2 Dividends and Note 2.4.3 Retained Earnings.

8. Details of dividend reinvestment plan

The Board has determined that the dividend reinvestment plan will be suspended and will not apply to the FY20 final dividend. The dividend will be paid to each shareholder in cash.

9. Net tangible assets

	Current period	30 June 2019
Net tangible asset backing per ordinary security	$0.60(1)	$0.85

(1) The net tangible asset backing per ordinary share of $0.60 presented above is inclusive of right-of-use assets and liabilities. The net tangible asset backing per ordinary share, as at 30 June 2020, would reduce to $0.38 if right-of-use assets were excluded, and right-of-use liabilities were included, in the calculation.

10. Control gained or lost over entities during the period having a material effect

Refer to the attached Preliminary Final Financial Report, Note 6.2 Business Divestments and Note 6.4 Business Acquisitions.

11. Details of associates and joint venture entities

• Not applicable.

12. Significant information

Refer to the attached Investor Results Release.

13. For foreign entities, which set of accounting standards is used in compiling the report

• International Financial Reporting Standards.

14. Commentary on results for the period

Refer to the attached Preliminary Final Report, Note 1.3 Earnings per Share and the attached Investor Results Release.

15 This report is based on accounts which are in the process of being audited

This report is based on accounts which are in the process of being audited. The audit report will be made available with the Company’s Annual Report.

............................................................ Ann Stubbings Company Secretary Dated: 20 August 2020

ORORA LIMITED ABN: 55 004 275 165

ANNUAL FINANCIAL REPORT

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020

20 August 2020

Financial Report

This is the financial report of Orora Limited (the Company) and its subsidiaries (collectively referred to as the Group).

The financial report has been prepared in a style that attempts to make the report less complex and more relevant to shareholders. The note disclosures have been grouped into a number of sections with each section also including details of the accounting policies applied in producing the relevant note, along with details of any key judgements and estimates used.

Notes to the financial statements provide information required by statute, accounting standards or Listing Rules to explain a particular feature of the financial statements. The notes which follow also provide explanation and additional disclosures to assist readers in their understanding and the interpretation of the Annual Report and the financial statements.

Contents

Contents
Financial statements	Income Statement					Page 1
	Statement of Comprehensive Income					Page 2
	Statement of Financial Position					Page 3
	Statement of Changes in Equity					Page 4
	Cash Flow Statement					Page 5
Notes to the financial statements	About this report					Page 6
						6.1 Principal subsidiary undertakings and investments 7.1 Share-based compensation 6.2 Business divestment 7.2 Auditors' remuneration 6.3 Orora Employee Share Trust 7.3 Commitments and contingent liabilities 6.4 Business acquisitions 7.4 Orora Limited 7.5 Deed of Cross Guarantee 7.6 Related party transactions 7.7 Key Management Personnel 7.8 New and amended accounting standards and interpretations Group structure Other notes to the financial statements
	Results for the year	Capital structure and financing	Assets and liabilities	Income tax	Financial risk management
	1.1 Segment results	2.1 Capital management	3.1 Trade and other receivables	4.1 Income tax expense	5.1 Market risks
	1.2 Significant items	2.2 Dividends	3.2 Inventories	4.2 Deferred tax balances	5.2 Credit risk
	1.3 Earnings per share (EPS)	2.3 Net debt	3.3 Trade and other payables		5.3 Liquidity and funding risk
	1.4 Income	2.4 Equity	3.4 Other assets		5.4 Hedging instruments
	1.5 Operating costs		3.5 Property, plant and equipment
			3.6 Leases
			3.7 Intangible assets
			3.8 Impairment of non-financial assets
			3.9 Provisions

Orora Limited

Income Statement

For the financial year ended 30 June 2020

$ million	Note	2020	2019
Continuing Operations
Sales revenue	1.1	3,566.2	3,390.2
Cost of sales		(2,912.7)	(2,704.2)
Gross profit		653.5	686.0
Other income	1.4	4.8	3.4
Sales and marketing expenses		(213.9)	(192.4)
General and administration expenses		(357.3)	(304.5)
Profit from operations(1),(2)		87.1	192.5
Finance income	1.4	0.6	0.4
Finance expenses(2)		(51.1)	(39.8)
Net finance costs		(50.5)	(39.4)
Profit before related income tax expense		36.6	153.1
Income tax expense	4.1	(9.0)	(36.6)
Profit from continuing operations		27.6	116.5
Discontinued Operations
Profit from discontinued operations, net of tax	6.2	212.3	44.7
Profit for the financial period attributable to the owners of Orora Limited		239.9	161.2
		Cents	Cents
Earnings per share for profit from continuing operations attributable to the ordinary equity holders of
Orora Limited
Basic earnings per share	1.3	2.9	12.1
Diluted earnings per share	1.3	2.8	12.0
Earnings per share for profit attributable to the ordinary equity holders of Orora Limited
Basic earnings per share	1.3	24.9	16.7
Diluted earnings per share	1.3	24.7	16.6

On 30 April 2020, the Group completed the sale of its Australasian Fibre business, refer note 6.2. Accordingly, the financial result of this business is presented separately as a discontinued operation within this consolidated income statement and the comparative period has been restated to reflect the current period presentation.

(1) Profit for the current period, for continuing operations, includes a significant item expense of $137.2 million (after tax $100.1 million) relating to restructuring activities and recoverable asset impairment charges in North America. Profit for the comparative period includes a significant item expense of $19.3 million (after tax $13.9 million) in respect of restructuring costs associated with re-sizing the business and $50.0 million (after tax $35.0 million) for additional decommissioning costs associated with the Petrie sale. Refer to 1.2 for further details.

(2) The Group has initially applied AASB 16 Leases using the modified retrospective approach. Under this method, the comparative information has not been restated. For the twelve months to 30 June 2020, profit from continuing operations of $87.1 million includes a depreciation charge of $46.4 million relating to right-of-use assets recognised on application of the new standard. Lease payments for the twelve months in respect of these right-of-use assets totalled $65.9 million. Prior to adoption of AASB 16 these payments would have been recognised as an expense in profit from operations. In addition, interest expense of $13.4 million has been recognised within finance expenses with respect to lease liabilities recorded under the new accounting standard.

The above Income Statement should be read in conjunction with the accompanying notes.

Page 1

Orora Limited

Statement of Comprehensive Income For the financial year ended 30 June 2020

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$ million Note 2020 2019
Profit for the financial period 239.9 161.2
Other comprehensive income/(expense)
Items that may be reclassified to profit or loss:
Cash flow hedge reserve
Unrealised (losses)/gains on cash flow hedges 2.4.2 (5.0) 0.2
Realised gains transferred to profit or loss 2.4.2 (0.9) (4.6)
Realised gains transferred to non-financial assets 2.4.2 (0.1) (0.1)
Income tax relating to these items 1.8 1.4
Exchange fluctuation reserve
Exchange differences on translation of foreign operations 10.4 16.7
Net investment hedge of foreign operations (35.6) 1.0
Net investment hedge reclassified to profit or loss on disposal of foreign operation 12.1 -
Tax effect (3.8) -
Other comprehensive (expense)/income for the financial period, net of tax (21.1) 14.6
Total comprehensive income for the financial period attributable to the owners of Orora Limited 218.8 175.8
Total comprehensive income for the financial period attributable to the owners of Orora Limited arises
Continuing operations (1.2) 131.4
Discontinued operations 6.2 220.0 44.4
218.8 175.8
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The consolidated statement of comprehensive income is presented on a total Group basis.

The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes.

Page 2

Orora Limited

Statement of Financial Position

As at 30 June 2020

$ million	Note	2020	2019(1)
Current assets
Cash and cash equivalents	2.3	107.3	70.3
Trade and other receivables	3.1	460.5	674.4
Inventories	3.2	412.9	642.0
Derivatives	5.4	1.0	4.0
Other current assets	3.4	36.2	55.5
Current tax receivable		37.7	-
Total current assets		1,055.6	1,446.2
Non-current assets
Property, plant and equipment	3.5	671.7	1,765.5
Right-of-use assets	3.6	217.3	-
Deferred tax assets	4.2	13.7	-
Goodwill and intangible assets	3.6	435.8	614.7
Derivatives	5.4	0.9	4.3
Other non-current assets	3.4	105.0	87.5
Total non-current assets		1,444.4	2,472.0
Total assets		2,500.0	3,918.2
Current liabilities
Trade and other payables	3.3	663.5	999.1
Borrowings	2.3	-	1.0
Lease liabilities	2.3, 3.6	50.8	-
Derivatives	5.4	7.0	3.0
Current tax liabilities		-	10.6
Provisions	3.8	95.8	146.9
Total current liabilities		817.1	1,160.6
Non-current liabilities
Other payables		-	12.8
Borrowings	2.3	399.4	959.3
Lease liabilities	2.3, 3.6	228.6	-
Derivatives	5.4	1.9	2.6
Deferred tax liabilities	4.2	-	82.3
Provisions	3.8	21.0	56.1
Total non-current liabilities		650.9	1,113.1
Total liabilities		1,468.0	2,273.7
NET ASSETS		1,032.0	1,644.5
Equity
Contributed equity	2.4.1	335.2	488.0
Treasury shares	2.4.1	(1.6)	(3.9)
Reserves	2.4.2	139.2	164.7
Retained earnings	2.4.3	559.2	995.7
TOTAL EQUITY		1,032.0	1,644.5

(1) The Group has initially applied AASB 16 Leases using the modified retrospective approach. Under this method, the comparative information has not been restated. Refer to note 7.8 for further details of the impact of application of the new standard.

The above Statement of Financial Position should be read in conjunction with the accompanying notes.

Page 3

Orora Limited

Statement of Changes in Equity For the financial year ended 30 June 2020

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Attributable to owners of Orora Limited
Share-based Exchange
Contributed Cash flow payment Demerger fluctuation Retained Total
$ million Note equity hedge reserve reserve reserve reserve earnings equity
Balance at 1 July 2018 479.9 2.9 17.5 132.9 (1.2) 998.5 1,630.5
Impact of change in accounting policy(1) 7.8 - - - - - (7.3) (7.3)
Restated balance at 1 July 2018 479.9 2.9 17.5 132.9 (1.2) 991.2 1,623.2
Net profit for the financial period 2.4.3 - - - - - 161.2 161.2
Other comprehensive income/(loss):
Unrealised gains on cash flow hedges 2.4.2 - 0.2 - - - - 0.2
Realised losses transferred to profit or
2.4.2 - (4.6) - - - - (4.6)
loss
Realised losses transferred to non-
2.4.2 - (0.1) - - - - (0.1)
financial assets
Exchange differences on translation of
- - - - 17.7 - 17.7
foreign operations
Deferred tax - 1.4 - - - - 1.4
Total other comprehensive income/(loss) - (3.1) - - 17.7 - 14.6
Transactions with owners in their capacity as owners:
Purchase of treasury shares 2.4.1 (10.5) - - - - - (10.5)
Proceeds received from
2.4.1 5.4 - - - - - 5.4
employees on exercise of options
Shares used to settle Team Member
2.4.1 1.3 - - - - - 1.3
Share Plan issue
Settlement of options and performance
2.4.1 8.0 - (8.0) - - - -
rights
Share-based payment expense 7.1 - - 6.0 - - - 6.0
Dividends paid 2.2 - - - - - (156.7) (156.7)
Balance at 30 June 2019 484.1 (0.2) 15.5 132.9 16.5 995.8 1,644.5
Impact of change in accounting policy(1) 7.8 - - - - - (69.8) (69.8)
Restated balance at 1 July 2019 484.1 (0.2) 15.5 132.9 16.5 925.9 1,574.7
Net profit for the financial period 2.4.3 - - - - - 239.9 239.9
Other comprehensive income/(loss):
Unrealised losses on cash flow hedges 2.4.2 - (5.0) - - - - (5.0)
Realised gains transferred to profit or
loss 2.4.2 - (0.9) - - - - (0.9)
Realised gains transferred to non-
2.4.2 - (0.1) - - - - (0.1)
financial assets
Exchange differences on translation of
- - - - (13.1) - (13.1)
foreign operations
Deferred tax - 1.8 - - (3.8) - (2.0)
Total other comprehensive income/(loss) - (4.2) - - (16.9) - (21.1)
Transactions with owners in their capacity as owners:
Capital return 2.4.1 (149.6) - - - - - (149.6)
Purchase of treasury shares 2.4.1 (18.6) - - - - - (18.6)
Proceeds received from
2.4.1 8.0 - - - - - 8.0
employees on exercise of options
Shares used to settle Team Member
2.4.1 0.7 - - - - - 0.7
Share Plan Issue
Settlement of options and performance
2.4.1 9.0 - (9.0) - - - -
rights
Share-based payment expense 7.1 - - 4.6 - - - 4.6
Dividends paid 2.2 - - - - - (606.6) (606.6)
Balance at 30 June 2020 333.6 (4.4) 11.1 132.9 (0.4) 559.2 1,032.0
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The consolidated statement of changes in equity is presented on a total Group basis.

(1) The Group has initially applied AASB 16 Leases using the modified retrospective approach from 1 July 2019. Under this method, the comparative information has not been restated. In the prior period the Group has initially applied AASB 15 Revenue from Contracts with Customers using the cumulative effect method from 1 July 2018. Refer to note 7.8 for further information.

The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.

Page 4

Orora Limited

Cash Flow Statement

For the financial year ended 30 June 2020

$ million	Note	2020	2019
Cash flows from/(used in) operating activities
Profit for the financial period		239.9	161.2
Depreciation	3.5, 3.6	137.3	122.9
Amortisation of intangible assets	3.7	12.1	10.0
Net impairment losses on property, plant and equipment, intangibles, receivables and inventory		11.3	2.2
Restructuring, asset impairment and decommissioning costs (non-cash significant item expense)	1.2	137.2	79.2
Net gain on disposal of businsses and controlled entities	1.2	(164.0)	-
Net finance costs		57.8	39.4
Net (gain)/loss on disposal of non-current assets		(0.3)	0.3
Fair value loss on financial instruments at fair value through income statement		0.2	0.5
Share-based payment expense		4.6	6.0
Other sundry items		15.7	6.4
Income tax expense		18.3	55.4
Operating cash inflow before changes in working capital and provisions		470.1	483.5
- (Increase)/Decrease in prepayments and other operating assets		(3.0)	3.8
- Increase/(Decrease) in provisions		(42.2)	(33.3)
- (Increase)/Decrease in trade and other receivables		(71.2)	14.9
- (Increase)/Decrease in inventories		(26.2)	(39.4)
- Increase/(Decrease)in trade and otherpayables		(115.3)	(36.9)
		212.2	392.6
Interest received		0.6	0.4
Interest and borrowing costs paid(1)		(57.8)	(43.6)
Income taxpaid		(136.1)	(51.5)
Net cash inflow from operating activities(1)		18.9	297.9
Cash flows from/(used in) investing activities
Repayment/(granting) of loans to associated companies and other persons		0.2	(0.2)
Payments for acquisition of controlled entities and businesses, net of cash acquired		(8.0)	(144.1)
Payments for property, plant and equipment and intangible assets		(167.5)	(190.2)
Net proceeds on disposal of controlled entities and businesses	6.2	1,637.0	-
Proceeds on disposal of non-current assets		12.8	2.7
Net cash flows from/(used) in investing activities		1,474.5	(331.8)
Cash flows from/(used in) financing activities
Capital return	2.4.1	(149.6)	-
Payments for treasury shares	2.4.1	(18.6)	(10.5)
Proceeds from exercise of employee share options	2.4.1	8.0	5.4
Proceeds from borrowings		1,951.6	2,534.4
Repayment of borrowings		(2,557.8)	(2,358.4)
Principal lease repayments		(80.6)	(0.8)
Dividendspaid	2.2	(606.6)	(156.7)
Net cash flows (used in)/from financing activities(1)		(1,453.6)	13.4
Net increase/(decrease) in cash held		39.8	(20.5)
Cash and cash equivalents at the beginning of the financial period		70.3	87.6
Effects of exchange rate changes on cash and cash equivalents		(2.8)	3.2
Cash and cash equivalents at the end of the financial period(2)	2.3	107.3	70.3

The consolidated cash flow statement is presented on a total Group basis. Refer to note 6.2 for further information on the cash flows of the divested Australasian Fibre business.

(1) The Group has initially applied AASB 16 Leases using the modified retrospective approach. Under this method, the comparative information has not been restated. As at 30 June 2020, the net cash inflow from operating activities includes an outflow of $20.6 million in respect of the interest expense relating to lease liabilities recognised under the new standard whilst the net cash flows used in financing activities includes principal lease repayments of $79.7 million. In the comparative period all cash flows relating to leasing activities were recognised in the net cash inflow from operating activities. Refer to note 7.8 for further information.

(2) For the purpose of the Cash Flow Statement, cash and cash equivalents includes cash on hand and at bank and short-term money market investments, net of outstanding bank overdrafts. Refer to note 2.3 for details of the financing arrangements of the Group.

The above Cash Flow Statement should be read in conjunction with the accompanying notes.

Page 5

30 June 2020

Orora Limited

Notes to the financial statements About this report

About this report

Orora Limited (the Company) is a for-profit entity for the purposes of preparing this financial report and is domiciled in Australia. The Company and its subsidiaries (collectively referred to as the Group) are primarily involved in the manufacture and supply of packaging products and services to grocery, fast moving consumer goods and industrial markets.

This financial report is a general purpose financial report which:

• has been prepared in accordance with Australian Accounting Standards (AASBs), including Australian Accounting Interpretations adopted by the AASB, and the Corporations Act 2001 . The financial report of the Group also complies with International Financial Reporting Standards (IFRSs) and Interpretations as issued by the International Accounting Standards Board (IASB);

• has been prepared under the historical cost basis except for financial instruments which have been measured at fair value. Non–derivative financial instruments are measured at fair value through the income statement;

• is presented in Australian dollars with values rounded to the nearest $100,000 unless otherwise stated, in accordance with the ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191;

• presents reclassified comparative information where required for consistency with the current period presentation;

• adopts all new and amended Accounting Standards and Interpretations issued by the AASB that are relevant to the operations of the Group and effective for reporting periods beginning on or after 1 July 2019;

• does not early adopt any Accounting Standards and Interpretations that have been issued or amended but are not yet effective; and

• has applied Group accounting policies consistently to all periods presented, with the exception of AASB 16 Leases , which is only applicable from 1 July 2019 (refer note 7.8).

This general purpose financial report for the Group for the year ended 30 June 2020 was authorised for issue in accordance with a resolution of the Directors on 20 August 2020. The Directors have the power to amend and reissue the financial report.

Basis of consolidation

The consolidated financial statements comprise the financial statements of the Company and its controlled entities. Details of the controlled entities (subsidiaries) of the Company are contained in note 6.1.

The financial statements of subsidiaries are included in the consolidated financial statements from the date that the Group obtains control until the date that control ceases. The subsidiary financial statements are prepared for the same reporting period as the parent company, using consistent accounting policies and all balances and transactions between entities included within the Group are eliminated.

Foreign currency

Items included in the financial statements of each of the entities included within the Group are measured using the currency of the economic environment in which the entity primarily generates and expends cash (the ‘functional currency’). These financial statements are presented in Australian dollars, which is the functional and reporting currency of the Company, Orora Limited.

Transactions in foreign currencies are initially recorded in the functional currency of the entity using the exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. Foreign exchange gains and losses arising from the translation of the monetary assets and liabilities, or from the settlement of foreign currency transactions, are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges or net investment hedges. The amounts deferred in equity in respect of cash flow hedges are recognised in the income statement when the hedged item affects profit or loss and for net investment hedges when the investment is disposed of.

As at the reporting date, the assets and liabilities of entities within the Group that have a functional currency different from the presentation currency, are translated into Australian dollars at the rate of exchange at the balance sheet date and the income statements are translated at the average exchange rate for the year. The exchange differences arising on the balance sheet translation are taken directly to a separate component of equity in the Exchange Fluctuation Reserve.

Judgements and estimates

The preparation of the financial statements requires management to exercise judgement in applying the Group’s accounting policies. It also requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses.

The areas involving a higher degree of judgement or complexity are set out below and in more detail in the related notes:

Page
26	Note	3.8	Impairment of non-financial assets
28	Note	3.9	Provisions
31	Note	4	Income tax
41	Note	6.2	Business divestment
46	Note	7.3	Commitments and contingent liabilities

Other accounting policies

Significant and other accounting policies that summarise the measurement basis used, and are relevant to an understanding of the financial statements, are provided throughout the notes to the financial statements.

The acquisition of subsidiaries is accounted for using the acquisition method of accounting when control is obtained by the Group.

Page 6

30 June 2020

Orora Limited

Notes to the financial statements About this report (continued)

Current Period Significant Events

Coronavirus (COVID-19) pandemic

The COVID-19 pandemic has developed rapidly in 2020, with restrictions imposed by the Australian, New Zealand and United States governments to contain the virus causing disruption to businesses and impacting economic activity. The Group’s response to the pandemic continues to be guided by local government and health advice across each jurisdiction in which Orora operates.

The Group has implemented a number of measures to mitigate the effects of COVID-19 and the business continues to monitor Orora’s response on the key focus areas including: safety, health and wellbeing of our people; ensuring continuity of quality and supply with customers and preserving ongoing supply chains, and active financial management.

In May 2020, the Group announced that the COVID-19 pandemic was adversely impacting the earnings of the business by approximately $25.0 million, of which approximately 90.0% of the disruption was occurred in the Group’s operations in North America which supplies and services retail, entertainment and convenience markets.

While the Group has worked hard to mitigate the impact of COVID19, and the majority of Orora’s businesses have been resilient during the pandemic, many of the end market segments serviced by the Orora Visual business were significantly impacted with widespread closure of retailers and many customers deferring promotional activities. The impact of COVID-19 upon the earnings of Orora Visual, and the uncertainty that remains over the timing of market recovery, has contributed to the lower estimation of future cash flows attributable to this business. As a result the Group has recognised an asset impairment charge of $106.2 million relating to the Orora Visual business, refer note 1.2 and 3.8.

The ongoing impact of COVID-19 has increased the uncertainty around accounting estimates applied in the preparation of these financial statements. The Group has developed various accounting estimates based on current economic conditions which reflect expectations and assumptions as at 30 June 2020 about future events that are believed to be reasonable in the current economic environment. There is a considerable degree of judgement involved around the impact of COVID-19 and uncertainty around the timing of economic recovery. Accordingly, actual economic conditions may be different from those forecasted and the effect of those differences may significantly impact accounting estimates included in these financial statements, including the recoverability of the Groups’ assets.

Sale of Australasian Fibre business

On 30 April 2020, the Group completed the sale of its Australasian Fibre (Fibre) business to a wholly owned subsidiary of Nippon Paper Industries Co., Limited for an enterprise value of $1,720.0 million, with net proceeds after tax and costs of approximately $1,550.0 million.

As a result of the sale, the Fibre business is classified as a discontinued operation in the financial statements. The comparative period has been restated to reflect the current period presentation.

Upon completion of the sale the Directors considered the capital structure and related financing requirements of the Group. A portion of the proceeds received from the sale were used to repay drawn borrowings under the Group’s debt facilities. In determining the timing and quantity of funds to return to shareholders, and the method to be used, the Directors considered a variety of factors, including: COVID-19 pandemic related uncertainty; tightening liquidity in debt markets and the terms of the Group’s debt facilities; retaining the Group’s strong balance sheet; and preserving flexibility to pursue potential growth opportunities. The Directors determined to return approximately $600.0 million to shareholders through payment of a special dividend and a return of capital

Special dividend

On 29 June 2020, $450.0 million was returned to shareholders via the payment of a special dividend franked at 50% and represented a return of 37.3 cents per share. The dividend reinvestment plan was suspended and did not apply to the special dividend.

Capital return and share consolidation

On 16 June 2020, the shareholders approved a capital return of 12.4 cents per share payable to each individual holding shares in Orora as at the record date of 22 June 2020. The payment of the capital return of $150.0 million occurred on 29 June 2020.

At the same time of approving the capital return, the shareholders also approved the share consolidation. Under the share consolidation every ordinary share was converted into 0.80 ordinary shares (5 shares became 4).

Net financial impact of divestment

The net gain on disposal, before tax, of $164.0 million ($171.7 million after tax) has been recognised and is presented in ‘profit from discontinued operations, net of tax’ in the income statement. Refer note 6.2 for further details of the divestment.

Business restructuring and impairment

Restructuring and asset impairment

Dividend

During the financial year the Group paid a 30% franked FY19 final dividend of $78.2 million and a 30% franked FY20 interim dividend of $78.4 million, both being 6.5 cents per ordinary share.

Upon completion of the sale of the Australasian Fibre business the Directors returned $450.0 million to shareholders via way of a special dividend. This dividend, paid on 29 June 2020, was 50% franked and represented a return of 37.3 cents per share.

Since 30 June 2020 the Directors have determined a final dividend for FY20 of $53.1 million, unfranked, of 5.5 cents per ordinary share. Refer note 2.2 for further details.

The Group has recognised a significant item expense of $31.0 million (after tax $22.6 million) relating to restructuring and impairment charges in North America. This expense includes costs associated with the closure of the Orora Visual Los Angeles site as part of a rationalisation of the Californian footprint, refer note 1.2. The significant item has been presented in ‘general and administration expenses’ in the income statement.

Recoverable amount impairment

The Group has recognised an impairment to the carrying value of the Orora Visual cash generating unit (CGU) of $106.2 million ($77.5 million after tax). The decrease in the recoverable amount of the CGU is a result of resetting the business to adjust to tough market condition, which were compounded by the impact of COVID-19 upon many end market segments serviced by Orora Visual and the uncertainty that remains in terms of recovery of the market, refer note 1.2 and 3.8. The significant item has been presented in ‘general and administration expenses’ in the income statement.

Page 7

30 June 2020

Orora Limited

Notes to the financial statements

About this report (continued)

Current Period Significant Events (continued) Refinancing

During the year, the Group entered into several new bilateral facilities, most of which matured, or were cancelled, at or shortly after the completion of the sale of the Australasian Fibre business. The following three facilities that were entered into during the year have been retained at 30 June 2020:

• a $35.0 million bilateral facility due to mature in January 2022 (reduced from $50.0 million);

• a $35.0 million bilateral facility due to mature in April 2021 (reduced from $50.0 million); and

• a $25.0 million bilateral facility due to mature in March 2021 (reduced from $35.0 million).

There were no material changes to banking syndicate counterparties or commercial terms across these facilities.

On completion of the sale of the Australasian Fibre business, Orora partly repaid some of its US Private Placement notes, reducing the total outstanding indebtedness on the notes maturing in July 2025 from USD150.0 million to USD143.0 million.

After the completion of the sale of the Australasian Fibre business, Orora also cancelled or reduced several of its facilities, including:

• cancelling a $50.0 million bilateral facility due to mature in September 2020;

• reducing the USD revolving facility due to mature in April 2024 from USD300.0 million to USD150.0 million; and

• reducing the revolving multicurrency facility due to mature in April 2022 from $450.0 million to $350.0 million.

The notes to the financial statements

The following notes include information which is material and relevant to the operations, financial position and performance of the Group. Information is considered material and relevant due to its size or nature or the information:

• is important for understanding the Group’s current period results;

• provides an explanation of significant changes in the Group’s business – for example, business acquisitions; or

• it relates to an aspect of the Group’s operations that are important to its future performance.

The notes are organised into the following sections:

• Results for the year – provides details on the results and performance of the Group for the year;

• Capital structure and financing - outlines how the Group manages its capital structure and related financing activities;

• Assets and liabilities – provides details of the assets used to generate the Group’s trading performance and the liabilities incurred as a result;

• Income tax – provides information on the Group’s tax position and the current and deferred tax charges or credits in the year;

• Financial risk management – provides information on how the Group manages financial risk exposures associated with holding financial instruments;

• Group structure – explains the characteristics of and changes within the group structure during the year;

• Other notes to the financial statements – provides additional financial information required by accounting standards and the Corporates Act 2001, including details of the Groups employee reward and recognition programs and unrecognised items.

Subsequent Events

Share Buy-Back

On 20 August 2020, the Group announced an on-market buy-back of up to 10.0% of issued share capital. This represents approximately 96.5 million shares. The buy-back will commence in September 2020. The Dividend Reinvestment Plan will be suspended while the on-market buy-back is undertaken.

Page 8

30 June 2020

Orora Limited

Notes to the financial statements Section 1: Results for the year

In this section This section focuses on the results and performance of the Group. On the following pages you will find disclosures explaining the Group’s results for the year, segmental information, significant items and earnings per share.

This section also analyses the Group’s profit before tax by reference to the activities performed by the Group and an analysis of key operating costs. Earnings before significant items, interest and related income tax expense (EBIT) is a key profit indicator for the Group. This measure excludes discontinued operations and the effects of individual significant non-recurring gains/losses that may have an impact on the quality of earnings, and reflects the way the business is managed and how the Directors assess the performance of the Group.

1.1 Segment results

The Group’s operating segments are organised and managed according to their geographical location. Each segment represents a strategic business that offers different products and operates in different industries and markets. The Corporate Executive Team (the chief operating decision-makers) monitor the operating results of the businesses separately for the purpose of making decisions about resource allocation and performance assessment.

On 30 April 2020, the Group completed the sale of its Australasian Fibre business. Accordingly, the financial performance and position of these operations have been presented as discontinued operations within this financial report.

The following segment information has been presented for continuing operations only. Refer to note 6.2 for the financial results and position of the divested Australasian Fibre business.

The following summary describes the operations of each reportable segment.

Orora Australasia

This segment focuses on the manufacture of beverage packaging products within Australia and New Zealand. The products manufactured by this segment include glass bottles, beverage cans and wines closures.

Orora North America

This segment, predominately located in North America, purchases, warehouses, sells and delivers a wide range of packaging and other related materials. The business also includes integrated corrugated sheet and box manufacturing and equipment sales capabilities and point of purchase retail display solutions and other visual communication services.

The results of the reportable segments for the year ended 30 June 2020 and 30 June 2019 are set out below:

$ million	Australasia	North America	Total Reported
	2020 2019(1)	2020 2019(1),(2)	2020 2019(1)
Reportable segment revenue Revenue from external customers	785.9 778.7	2,780.3 2,611.5	3,566.2 3,390.2
Total reportable segment revenue from continuing operations(3)	785.9 778.7	2,780.3 2,611.5	3,566.2 3,390.2
Reportable segment earnings Earnings before significant items, interest, tax, depreciation and amortisation Depreciation and amortisation	192.3 201.0 (45.1) (42.0)	157.5 135.9 (80.4) (33.1)	349.8 336.9 (125.5) (75.1)
Earnings before significant items, interest and tax Allocated finance expense - lease liabilities interest(1)	147.2 159.0 (0.9) -	77.1 102.8 (12.5) -	224.3 261.8 (13.4) -
Earnings before significant items, unallocated interest and tax	146.3 159.0	64.6 102.8	210.9 261.8
Capital spend on the acquisition of property, plant and equipment and intangibles	94.6 55.4	22.8 34.9	117.4 90.3
Receivables Inventory Payables	100.7 95.4 193.4 184.8 (237.8) (241.7)	343.4 417.3 219.5 211.6 (393.4) (484.0)	444.1 512.7 412.9 396.4 (631.2) (725.7)
Working capital Inter-segment workingcapital	56.3 38.5 - 0.3	169.5 144.9 - (0.3)	225.8 183.4 - -
Total reportable segment working capital	56.3 38.8	169.5 144.6	225.8 183.4
Average funds employed(4)	543.8 519.8	858.7 819.4	1,402.5 1,339.2
Operating free cash flow(5)	99.4 134.4	28.3 83.1	127.7 217.5

(1) The Group has initially applied AASB 16 Leases using the modified retrospective approach. Under this method, the comparative information has not been restated. The depreciation and amortisation expense for the twelve months to 30 June 2020, for continuing operations, includes a depreciation charge of $46.4 million relating to right-of-use assets recognised. Lease payments for the twelve months to 30 June 2020, in respect of these right-of-use assets, totalled $65.9 million. Prior to adoption of AASB 16 these payments would have been recognised as an expense in ‘earnings before significant items, interest, tax, depreciation and amortisation’. Refer note 7.8 for further details.

(2) For the period to 30 June 2019 the North America segment includes the results of Pollock Investments acquired in November 2018 and Bronco Packaging acquired in August 2018 (refer note 6.3).

(3) Across all segments, in accordance with AASB 15 Revenue from contracts with Customers , the timing of revenue recognition materially occurs at a point in time.

(4)Average funds employed excludes intersegment balances and represents net assets less net debt and assets under construction, at the beginning and end of the reporting period.

(5) Operating free cash flow represents the cash flow generated from the Group’s operating and investing activities, including lease payments but before interest, tax and dividends. In the current period, the operating free cash flow of the Australasia segment, includes an outflow of $20.6 million representing expenditure on the decommissioning of the Petrie site, refer note 1.2.

Page 9

30 June 2020

Orora Limited

Notes to the financial statements Section 1: Results for the year (continued)

1.1 Segment results (continued)

Accounting policies

Segment performance is evaluated based on earnings before significant items, interest and related income tax expense (EBIT). This measure excludes the effects of significant items which are typically gains or losses arising from events that are not considered part of the core operations of the business whilst including items directly attributable to the segment as well as those that can be allocated on a reasonable basis.

Interest income and expenditure and other finance costs, other than interest on lease liabilities, are not allocated to the segments, as this type of activity is managed at the Group level. Transfer prices between segments are priced on an ‘arms-length’ basis, in a manner similar to transactions with third parties, and are eliminated on consolidation.

Geographical segments

In presenting information on the basis of geographical location both segment revenue and non-current assets are based on the location of the Orora business. This information has been presented for continuing operations only.

Revenue

Revenue by product

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$ million 2020 2019
Fibre and paper-based packaging 672.0 719.4
Beverage packaging 785.9 778.7
Traded packaging products 2,108.3 1,892.1
Total sales revenue 3,566.2 3,390.2
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No single customer, within an operating segment, generates revenue greater than 10% of the Group’s total revenues.

Reconciliation of segmental measures

The following segmental measurements reconcile to the financial statements as follows:

Profit before related income tax expense

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----- Start of picture text -----

$ million 2020 2019
Reported segment earnings 210.9 261.8
Significant items before related income tax (refer
(137.2) (69.3)
note 1.2)
Unallocated net finance costs (37.1) (39.4)
Profit before related income tax expense 36.6 153.1
----- End of picture text -----

$m

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----- Start of picture text -----

$2,633.0
$2,493.5 2020
2019
$683.6
$685.4
$102.4 $93.3 $147.2 $118.0
Australia New Zealand United States of America Other
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Non-current assets[(1) ] $m

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----- Start of picture text -----

$774.1 2020
$703.1 2019
$522.7
$386.9
$71.6 $77.8
$27.8 $20.5
Australia New Zealand United States of Other
America
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Capital spend on the acquisition of property, plant and equipment and intangibles

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----- Start of picture text -----

$ million 2020 2019
Reported segment capital spend 117.4 90.3
Capital spend of discontinued operations 50.2 99.9
Total group capital spend 167.6 190.2
Movement in capital creditors - (4.1)
Movement in prepaid capital items (0.7) (2.3)
Capitalised asset restoration costs - (0.7)
Other non-cash adjustments 0.9 5.0
Acquisition of property, plant and equipment
and intangibles for total operations(1) 167.8 188.1
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(1) Excludes balances acquired through business combinations. Refer notes 3.5 and 3.7.

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Operating free cash flow
$ million 2020 2019
Reported segment operating free cash flow 127.7 217.5
Operating free cash flow of discontinued
(114.0) 25.9
operations
Total group operating free cash flow 13.7 243.4
Add back capital expenditure activities included in
117.9 149.2
segment operating free cash flow
Add back principal lease repayments including in
80.6 -
segment operating free cash flow
Less operating activities excluded from operating
free cash flow:
Interest received 0.6 0.4
Interest and borrowing costs paid (57.8) (43.6)
Income tax paid (136.1) (51.5)
Net cash flows from operating activities 18.9 297.9
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(1) Non-current assets exclude deferred tax assets and non-current financial instruments. Non-current assets in the current period include right-of-use assets on application of AASB 16, refer note 7.8.

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30 June 2020

Orora Limited

Notes to the financial statements Section 1: Results for the year (continued)

1.1 Segment results (continued)

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Working capital
$ million 2020 2019
Reported segment working capital 225.8 183.4
Add working capital of discontinued operations - 184.9
Total group working capital 225.8 368.3
Add/(Less) amounts included in working capital
for management reporting purposes:
Derivatives 6.0 (1.1)
Add/(Less) amounts excluded from working
capital for management reporting purposes:
Net capital receivables and payables 11.5 3.5
Loan receivables and other assets - 0.3
Other payables (6.3) (11.7)
237.0 359.3
Reconciles to the financial statements as follows:
Trade receivables (note 3.1) 460.5 674.4
Inventories (note 3.2) 412.9 642.0
Trade and other payables (note 3.3) (663.5) (999.1)
Current prepayments (note 3.4) 27.1 42.0
237.0 359.3
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1.2 Significant items

Significant items are typically gains or losses arising from events that are not considered part of the core operations of the business.

$ million	2020	2019
	Before tax Tax (expense)/ benefit Net of tax	Before tax (expense)/ benefit Net of tax
Continuing operations Restructuring and asset impairment Recoverable amount impairment Decommissioning costs	(31.0) 8.4 (22.6) (106.2) 28.7 (77.5) - - -	(19.3) 5.4 (13.9) - - - (50.0) 15.0 (35.0)
Discontinuing operations Net profit on sale of Australasian Fibre businesses Restructuring activities	(137.2) 37.1 (100.1) 164.0 7.7 171.7 - - -	(69.3) 20.4 (48.9) - - - (9.9) 3.0 (6.9)
	164.0 7.7 171.7	(9.9) 3.0 (6.9)
Total significant item income/(expense)	26.8 44.8 71.6	(79.2) 23.4 (55.8)

2020

Restructuring and asset impairments

The majority of the restructuring and asset impairment expense ($20.7 million before tax) is a result of the decision to close the Orora Visual Los Angeles site as part of a rationalisation of the California footprint in response to the businesses performance being below expectations. This includes impairments of property, plant and equipment of $9.4 million and provisions for redundancy, restructuring and relocation costs of $11.3 million. The remainder of the restructuring and asset impairment charge relates to the write off of investments no longer considered recoverable as a result of the impacts of COVID-19 and restructuring charges incurred to improve business performance. The significant item has been presented in ‘general and administration expenses’ in the income statement.

Recoverable amount impairments

The Group has recognised an impairment to the carrying value of the Orora Visual cash generating unit (CGU) of $106.2 million ($77.5 million after tax). The decrease in the estimated recoverable amount compared to prior years reflects the difficulty of management turnaround initiatives, implemented to address the below expectations business performance, to gain traction in the current year which was materially compounded by the impact of COVID-19. Whilst the majority of Orora’s businesses have been resilient during COVID-19, many of the end market segments serviced by Orora Visual were more significantly impacted and uncertainty remains over the timing of recovery of these markets. These factors have contributed to a lower estimation of future cash flows attributable to this business resulting in the impairment charge. The impairment was recognised in respect of Orora Visual goodwill ($89.4 million), other intangible assets ($7.3 million) and property, plant and equipment ($9.5 million). The significant item has been presented in ‘general and administration expenses’ in the income statement, refer to note 3.8.

Page 11

30 June 2020

Orora Limited

Notes to the financial statements Section 1: Results for the year (continued)

1.2 Significant items (continued)

Net profit on sale of Australasian Fibre business

On 30 April 2020, the Group completed the sale of its Australasian Fibre business to a wholly owned subsidiary of Nippon Paper Industries Co., Limited for an enterprise value of $1,720.0 million, with net proceeds after tax and costs of approximately $1,550.0 million received. The net gain on disposal, before tax, of $164.0 million ($171.7 million after tax) is presented net of transaction costs, exchange fluctuation reserve reclassified on disposal, writeoff of Group assets relating to the Fibre business, allowances for post close completion accounts adjustments and provisions for indemnities. The net gain on disposal has been recognised and is presented in the ‘profit from discontinued operations, net of tax’ in the income statement. Refer note 6.2 for further details of the divestment.

2019

Restructuring and asset impairment

In May 2019, the Group announced that in response to the slow start to earnings experienced early in calendar 2019, cost structures in both Australasia and North America were reviewed. This review identified that certain parts of the business required restructuring to ensure operations are optimised and the cost base aligns with the expected market outlook. As a result a significant item expense of $29.2 million ($20.8 million after tax) was recognised in respect of restructuring and impairment charges. This included the recognition of an impairment charge of $5.2 million ($3.7 million after tax). This significant item expense is presented in ‘general and administration’ expense.

Decommissioning costs

In 2019 the Group recognised a significant item expense of $50.0 million (after tax $35.0 million) relating to additional costs associated with the decommissioning of the former Petrie Mill site. This significant item expense is presented in ‘general and administration’ expense. Refer note 3.9.

1.3 Earnings per share (EPS)

Earnings per share (EPS) is the amount of post-tax profit attributable to each share.

Basic EPS is calculated on the Group profit for the year attributable to ordinary shareholders of the Company of $239.9 million (2019: $161.2 million) divided by the weighted average number of shares on issue during the reporting period, excluding ordinary shares purchased by the Company and held as Treasury Shares, being 964.1 million (2019: 963.1 million)[(1)] .

Diluted EPS reflects any commitments made by the Group to issue shares in the future and so it includes the effect of the potential conversion of share options and rights granted to employees. To calculate the impact it is assumed that all share options and rights are exercised and new shares are issued.

Basic and Diluted EPS, before significant items, is presented below in order to show the business performance of the Group in a consistent manner and reflect how the business is managed and measured on a day-to-day basis. It is also a measure that is considered by the Board in determination of dividend payments.

(1)The weighted average number of shares has been restated to reflect the change in the capital structure of the Company as a result the share consolidation, as if the change had occurred at the beginning of the comparative period.

Calculation of EPS

Calculation of basic and diluted earnings per share has been based on the following profit attributable to ordinary shareholders and weighted average number of ordinary shares outstanding.

EPS attributable to the ordinary equity holders of Orora Limited

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million 2020 2019
Continuing operations
Profit for the financial period from continuing
$127.7 $165.4
operations before significant items
Significant items (refer note 1.2) ($100.1) ($48.9)
$27.6 $116.5
Discontinued operations
Profit for the financial period from discontinued
$40.6 $51.6
operations before significant items
Significant items (refer note 1.2) $171.7 ($6.9)
$212.3 $44.7
Profit for the financial period $239.9 $161.2
Weighted average number of ordinary shares for
basic earnings per share(1) 964.1 963.1
Dilution due to share options and rights 6.9 10.9
Weighted average number of ordinary shares for
971.0 974.0
diluted earnings per share
Earnings per share
Basic earnings per share 24.9c 16.7c
Diluted earnings per share 24.7c 16.6c
Basic earnings per share, before significant items 17.4c 22.5c
Diluted earnings per share, before significant
17.3c 22.3c
items
Earnings per share for continuing operations
Basic earnings per share 2.9c 12.1c
Diluted earnings per share 2.8c 12.0c
Basic earnings per share, before significant items 13.2c 17.2c
Diluted earnings per share, before significant
13.1c 17.0c
items
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(1) The weighted average number of shares has been restated to reflect the change in the capital structure of the Company as a result the share consolidation (refer note 2.4.1), as if the change had occurred at the beginning of the comparative period.

1.4 Income

The information presented in this note is for continuing operations only.

$ million	2020	2019
Revenue from sale of goods	3,566.2	3,390.2
Sub-lease income	1.3	0.7
Other	3.5	2.7
Total other income	4.8	3.4
External interest income	0.6	0.4
Total finance income	0.6	0.4

Page 12

30 June 2020

Orora Limited

Notes to the financial statements Section 1: Results for the year (continued)

1.4 Income (continued)

Accounting policies

The Group generates revenue primarily from the sale of packaging materials and products providing customers with an extensive range of tailored packaging and visual communication solutions.

The Group provides standard packaging materials to its customers as well as customer specific (made-to-order) packaging products. The Group also sources and provides packaging equipment/solutions to customers who enter into long-term agreements under bundled contract arrangement.

Revenue is recognised when control of the goods or services are transferred to the customer and the Group’s right to payment arises. Revenue is measured on the consideration to which the Group expects to be entitled to in a contract with a customer.

For certain customers the Group provides retrospective rebates once the quantity of product purchased during the period exceeds a threshold specified in the contract. For contracts that include rebates the amount of revenue recognised is adjusted to the anticipated rebates payable, which is based on the historical purchase history of the customer.

Standard packaging products

Customers obtain control of standard packaging products when the goods are delivered to and have been accepted at their premises. Invoices are generated at that point in time with payment terms varying depending on the customer, ranging from 30 to 90 days. Some contracts allow for volume discounts/rebates.

Made-to-order packaging products

Made-to-order packaging products are usually long-term contracts which contain several elements. In the vast majority of cases these elements represent only one performance obligation to the customer.

In some cases the Group produces these products in advance of delivery. Typically control over these goods remain with the Group until shipment or when the customer takes physical possession of the goods. The right to payment arises only at the point in time when control over the good is transferred to the customer.

The Group has determined that for made-to-order products the customer obtains control of the products when the goods are delivered to and have been accepted at their premises. This represents the point in time when invoices are generated as the right to payment arises. Payment terms varying depending on the customer, ranging from 30 to 90 days.

Some contracts allow for volume discounts/rebates.

Bundled packaging solutions

1.5 Operating costs

The information presented in this note is for continuing operations only.

Employee benefit expense

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$ million 2020 2019
Wages and salaries 540.2 507.8
Workers' compensation and other on-costs 31.3 27.7
Superannuation costs - accumulation funds 7.7 7.5
Other employment benefits expense - 0.2
Share-based payments expense
- Options 0.8 1.5
- Performance rights and other plans 3.8 4.5
Total employee benefits expense 583.8 549.2
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The Group’s accounting policy for liabilities associated with employee benefits is contained in note 3.9, whilst the policy for share-based payments is set out in note 7.1.

Depreciation and amortisation

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$ million 2020 2019
Depreciation 66.9 65.8
Amortisation of right-of-use assets 46.4 -
Amortisation of finance leased assets 0.5 0.5
Amortisation of intangibles 11.7 8.8
Total depreciation and amortisation 125.5 75.1
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Refer to notes 3.5, 3.6 and 3.7 for the Group’s accounting policy and details on depreciation and amortisation.

Finance expenses

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$ million 2020 2019
Interest paid/payable:
- Finance charges on right-of-use assets 13.4 -
- Unwinding of discount 0.3 0.1
- External interest expense 35.7 40.8
Amount capitalised (1.3) (1.7)
Total interest paid/payable 48.1 39.2
Borrowing costs 3.0 0.6
Total finance expenses 51.1 39.8
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Refer to note 3.6 for the Group’s accounting policy and details on right-of-use assets and note 2.3 regarding the Group’s external borrowings.

The Group sources and provides packaging equipment/solutions to customers who enter into long term product supply arrangements. The customer obtains control of the equipment and product when the goods are delivered to and have been accepted at their premises. Invoices are generated at that point in time with payment terms varying depending on the customer, ranging from 30 days to 60 days.

Page 13

30 June 2020

Orora Limited

Notes to the financial statements Section 2: Capital structure and financing

In this section This section outlines how the Group manages its capital structure and related financing, including its balance sheet liquidity and access to capital markets.

The Directors determine the appropriate capital structure of the Group, specifically, how much is raised from shareholders (equity) and how much is borrowed from financial institutions (debt) in order to finance the Group’s activities both now and in the future. Maintaining capital discipline and balance sheet efficiency remains important to the Group, as seen through the refinancing activities undertaken during the year. Any potential courses of action in respect of the Group’s structure take into account the Group’s liquidity needs, flexibility to invest in the business and impact on credit ratings.

The Directors consider the Group’s capital structure and dividend policy at least twice a year ahead of announcing results, and do so in the context of its ability to continue as a going concern, to execute the strategy and to invest in opportunities to grow the business and enhance shareholder value.

2.1 Capital management

Capital is defined as the combination of shareholders’ equity, reserves and net debt. The key objective of the Group when managing its capital is to safeguard its ability to continue as a going concern, so that the Group can continue to provide returns for shareholders and benefits for other stakeholders, and maintain an optimal capital and funding structure.

The aim of the Group’s capital management framework is to maintain an investment grade credit profile, and the requisite financial metrics, to secure access to alternate funding sources with a spread of maturity dates and sufficient undrawn committed facility capacity and optimise, over the long term and to the extent practicable, the weighted average cost of capital to reduce the cost of capital to the Group while maintaining financial flexibility.

The Group uses a range of financial metrics to monitor the efficiency of its capital structure, including on-balance sheet gearing and leverage ratios, and to ensure that its capital structure provides sufficient financial strength to allow it to secure access to debt finance at reasonable cost. At 30 June 2020, the Group’s on-balance sheet gearing and leverage ratios, excluding lease liabilities, were 22.1% (2019: 35.1%) and 0.9 times (2019: 1.9 times), respectively.

Australasian Fibre divestment

On 30 April 2020, the Group completed the sale of its Australasian Fibre business to a wholly owned subsidiary of Nippon Paper Industries Co., Limited for an enterprise value of $1,720.0 million, with net proceeds after tax and costs of approximately $1,550.0 million (refer note 6.2).

Upon completion of the sale the Directors considered the capital structure and related financing requirements of the Group. In determining the timing and quantity of funds to return to shareholders, and the method to be used, the Directors considered a variety of factors, including: COVID-19 pandemic related uncertainty; tightening liquidity in debt markets and the terms of the Group’s debt facilities; retaining the Group’s strong balance sheet; and preserving flexibility to pursue potential growth opportunities. In light of these factors the Directors determined to return $600.0 million to shareholders. This return included a special dividend of $450.0 million (37.3 cents per share) and a capital return of $150.0 million (12.4 cents per share).

Subsequent Event - On-market Share Buy-Back

On 20 August 2020, the Group announced an on-market buyback of up to 10.0% of issued share capital. This represents approximately 96.5 million shares. The buy-back will commence in September 2020. The Dividend Reinvestment Plan will be suspended while the on-market buy-back is undertaken.

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$ million Note 2020 2019
Financial borrowings
Total borrowings 2.3 399.4 960.3
Less: Cash and cash equivalents 2.3 (107.3) (70.3)
Net debt 292.1 890.0
Lease liabilities 2.3 279.4 -
Net debt including lease liabiilties 571.5 890.0
Equity and reserves
Contributed equity 2.4.1 335.2 488.0
Treasury shares 2.4.1 (1.6) (3.9)
Reserves 2.4.2 139.2 164.7
Retained earnings 2.4.3 559.2 995.7
1,032.0 1,644.5
Net Capital 1,603.5 2,534.5
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In order to optimise the capital structure, the Group may:

• adjust the amount of ordinary dividends paid to shareholders;

• maintain a dividend investment plan;

• raise or return capital to shareholders; and

• repay debt or raise debt for working capital and capital expenditure requirements, or to facilitate acquisitions in line with the strategic objectives and operating plans of the Group.

Further information regarding the special dividend and capital return can be found within this Annual Report and also in the Notice of General Meeting lodged with the Australian Stock Exchange on 8 May 2020.

Page 14

30 June 2020

Orora Limited

Notes to the financial statements

Section 2: Capital structure and financing (continued)

2.2 Dividends

2.2 Dividends
Cents per share	Total $ million
Declared and paid during the period For the year ended 30 June 2020 Final dividend for 2019 (30% franked) 6.5 Interim dividend for 2020 (30% franked) 6.5 Special dividend for 2020 (50% franked) 37.3 For the year ended 30 June 2019 Final dividend for 2018 (30% franked) 6.5 Interim dividend for 2019 (50% franked) 6.5 Proposed and unrecognised at period end(1) For the year ended 30 June 2020 Final dividend for 2020 (unfranked) 5.5 For the year ended 30 June 2019 Final dividend for 2019 (30% franked) 6.5	78.2 78.4 450.0
	606.6 78.3 78.4
	156.7
	53.1
	78.4

• (1) Estimated final dividend payable, subject to variations in the number of shares up to record date.

Shareholder distributions – cents per share

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14.0
12.0
6.5c
10.0 6.5c 30% 5.5c
30% franked unfranked
6.0c franked
8.0 30%
5.0c
franked
30%
franked
6.0
4.0 6.5c 6.5c
6.0c 50% 30%
4.5c 5.0c 30% franked franked
2.0 franked30% franked30% franked
-
FY16 FY17 FY18 FY19 FY20
Interim dividend Final dividend (FY20: proposed)
share
per
Cents
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Special Dividend

On 30 April 2020, the Group completed the sale of its Australasian Fibre business, refer note 6.2, for an enterprise value of $1,720.0 million, with net proceeds after tax and costs of approximately $1,550.0 million. The Directors determined to return $600.0 million to shareholders upon the completion of this transaction which included the payment of a special dividend of $450.0 million.

The dividend was paid on 29 June 2020, represents a return of 37.3 cents per share and was partially franked at 50%. The dividend reinvestment plan was suspended and did not apply to the special dividend.

Dividend reinvestment plan

The Group operates a dividend reinvestment plan which allows eligible shareholders to elect to invest dividends in ordinary shares. All holders of Orora Limited ordinary shares with Australian or New Zealand addresses registered with the share registry are eligible to participate in the plan. The allocation price for shares is based on the average of the daily volume weighted average price of Orora Limited ordinary shares sold on the Australian Securities Exchange, calculated with reference to a period of not less than ten consecutive trading days as determined by the Directors.

Franking Account

Franking credits are available to shareholders of the Company at the 30% (2019: 30%) corporate tax rate. The interim dividend for 2020 was 30% franked (2019 Interim: 50.0% franked), the special dividend paid on 29 June 2020 was 50% franked and the proposed final dividend for 2020 is unfranked (2019 final: 30% franked). The balance of franking credits available as at 30 June 2020 is nil (2019 $4.5 million).

Conduit Foreign Income Account

For Australian tax purposes, non-resident shareholder dividends will not be subject to Australian withholding tax to the extent that they are franked or sourced from the Company’s Conduit Foreign Income (CFI) Account. For the 2020 dividends, 70% of the interim dividend, and 50% the special dividend was sourced from the Company’s CFI account, with 100% of the 2020 final dividend (2019: 70%) to be sourced from the CFI account. As a result all of the 2020 dividends paid to a non-resident will not be subject to Australian withholding tax. The balance of the conduit foreign income account as at 30 June 2020 is $69.4 million (2019: $141.5 million), and it is estimated that this will reduce by $53.1 million (2019: $55.0 million) after payment of the estimated final dividend on 12 October 2020.

2.3 Net debt

In addition to the US Private Placement of notes of USD243.0 million, of which USD100.0 million matures in July 2023 and USD143.0 million in July 2025, the Group had access to the following committed facilities as at 30 June 2020:

• a $350.0 million revolving multicurrency facility through a syndicate of domestic and international financial institutions, maturing in April 2022;

• a USD150.0 million five-year USD revolving facility, through a syndicate of domestic and international financial institutions, maturing in April 2024; and

• three bilateral agreements, one for $25.0 million and two for $35.0 million each, all with separate domestic institutions, with one maturing in March 2021, one maturing in April 2021 and the other in January 2022.

These facilities are unsecured. During both the current and comparative reporting period Orora Limited has complied with the financial covenants of its borrowing facilities.

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30 June 2020

Orora Limited

Notes to the financial statements

Section 2: Capital structure and financing (continued)

2.3 Net debt (continued)

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$ million 2020 2019
Cash on hand and at bank 84.5 70.2
Deposits at call 22.8 0.1
Total cash and cash equivalents 107.3 70.3
Borrowings
Finance lease liabilities due within one year - 1.0
Current borrowings - 1.0
Finance lease liabilities due after one year 0.2 0.3
Bank loans due after one year 48.0 604.1
US Private Placement due after one year 351.2 354.9
Non-current borrowings 399.4 959.3
Total borrowings 399.4 960.3
Lease liabilities (1)
Due within one year 50.8 -
Due after one year 228.6 -
Total lease liability 279.4 -
Total debt 678.8 960.3
Net debt 571.5 890.0
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(1) The Group has initially applied AASB 16 Leases using the modified retrospective approach. Refer to note 7.8 for further details of the impact of application of the new standard.

Accounting policies

Cash and cash equivalents

three months or less and are classified as financial assets held at amortised cost

Cash at bank earns interest at floating rates based on daily bank deposits. Short-term deposits are made for varying periods, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates.

The carrying value of cash and cash equivalents is considered to approximate fair value due to the assets liquid nature.

Bank loans

All loans and borrowings are initially recognised at the fair value of the consideration received, less directly attributable transaction costs. Subsequent to initial recognition, interest-bearing liabilities are measured at amortised cost using the effective interest rate method.

Interest-bearing liabilities are derecognised when the obligation specified in the contract is discharged, cancelled or expires. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid is recognised in profit or loss.

Interest-bearing liabilities are classified as current liabilities, except for those liabilities where the Group has an unconditional right to defer settlement for at least 12 months after the reporting period which are classified as non-current liabilities.

The US Private Placement notes have a carrying value of $352.1 million (excluding borrowing costs) while the fair value of the notes is $386.0 million. For all other borrowings, the fair values are not materially different to their carrying amount since the interest payable on those borrowings is either close to current market rates or the borrowings are of a short-term nature.

Cash and cash equivalents include cash at bank and on hand and short-term money market investments with an original maturity of

2.3.1 Net debt reconciliation

The following table illustrates the cash and non-cash movements of net debt:

$ million	Assets Cash and cash equivalents Lease liabilities Bank loans US Private Placement Total Liabilities from financing activities
Net debt at 1 July 2018 Business acquisitions Cash flows Other non-cash movements Effect of movements in foreign exchange rates	87.6 (1.7) (415.3) (338.1) (667.5) 7.9 (0.3) - - 7.6 (28.4) 0.8 (176.0) - (203.6) - - 2.0 1.0 3.0 3.2 (0.1) (14.8) (17.8) (29.5)
Net debt at 30 June 2019 Impact of change in accounting policy (refer note 7.8)	70.3 (1.3) (604.1) (354.9) (890.0) - (595.3) - - (595.3)
Restated net debt at 1 July 2019 Cash flows Disposal of businesses and controlled entities Other non-cash movements Effect of movements in foreign exchange rates	70.3 (596.6) (604.1) (354.9) (1,485.3) 39.8 101.3 595.8 10.4 747.3 - 245.6 - - 245.6 - (29.0) (2.9) (0.3) (32.2) (2.8) (0.9) (36.8) (6.4) (46.9)
Net debt at 30 June 2020	107.3 (279.6) (48.0) (351.2) (571.5)

Page 16

30 June 2020

Orora Limited

Notes to the financial statements

Section 2: Capital structure and financing (continued)

2.3.2 Borrowings

The maturity profile of the Group’s external borrowings drawn down, excluding the impact of capitalised borrowing costs, as at 30 June 2020 is illustrated in the following chart:

Maturity profile of drawn debt by facility

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A$ million
$207.2m
200
150 $144.9m
100
$48.0m
50
0
FY21 FY22 FY23 FY24 FY25 FY26
Bank Loans Private Placement
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Loans due after one year

At 30 June 2020, bank loans due after one year include:

• $20.0 million and NZD30.0 million drawn under a $350.0 million committed global syndicated multicurrency facility maturing in April 2022 (2019: $295.0 million and USD19.0 million drawn under a $450.0 million committed global syndicated multicurrency facility maturing in April 2022);

• nil drawings under the USD150.0 million committed syndicated facility maturing in April 2024 (2019: USD200.0 million drawn under a USD300.0 million committed syndicated facility maturing in April 2024);

• nil drawings under the three bilateral agreements, one for $25.0 million maturing in March 2021, and two for $35.0 million each, one maturity in April 2021 and the other in January 2022. Each bilateral agreement is held with a separate domestic financial institutions.

The amounts have been drawn under Australian, US dollars and NZ dollars and bear interest at the applicable BBSY, LIBOR and BKBM rate plus an applicable credit margin.

The US Private Placement of notes of USD243.0 million, consists of USD100.0 million which matures in July 2023 and USD143.0 million which matures in July 2025.

Page 17

30 June 2020

Orora Limited

Notes to the financial statements

Section 2: Capital structure and financing (continued)

2.4 Equity

This section explains material movements in shareholders’ equity that are not explained elsewhere in the financial statements. The movements in equity and the balance at 30 June 2020 are presented in the statement of changes in equity.

2.4.1 Contributed equity

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Ordinary shares Treasury shares
No. '000 $ million No. '000 $ million
At 1 July 2018 1,206,685 499.7 (6,767) (19.8)
Acquisition of shares by the Orora Employee Share Trust (note 6.3) - - (3,000) (10.5)
Proceeds received from employees on exercise of options - 5.4 - -
Treasury shares used to settle Team Member Share Plan - - 357 1.3
Treasury shares used to satisfy issue of CEO Grant - (0.2) 50 0.2
Exercise of vested grants under Employee Share Plans 8,233 8.0 - -
Treasury shares used to satisfy exercise of vested grants under Employee Share Plans (8,233) (24.9) 8,233 24.9
At 30 June 2019 1,206,685 488.0 (1,127) (3.9)
Capital return and share consolidation(1) (241,322) (150.0) 164 0.4
Acquisition of shares by the Orora Employee Share Trust (note 6.3) - - (6,920) (18.6)
Proceeds received from employees on exercise of options - 8.0 - -
Treasury shares used to settle Team Member Share Plan - - 234 0.7
Treasury shares used to satisfy issue of CEO Grant - (0.7) 209 0.7
Exercise of vested grants under Employee Share Plans 6,785 9.0 - -
Treasury shares used to satisfy exercise of vested grants under Employee Share Plans (6,785) (19.1) 6,785 19.1
At 30 June 2020 965,363 335.2 (655) (1.6)
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(1) On 16 June 2020, the shareholders approved a capital return of 12.4 cents per share payable to each individual holding shares in Orora as at the record date of 22 June 2020. The payment of the capital return of $150.0 million return occurred on 29 June 2020. At the same time of approving the capital return the shareholders also approved the share consolidation. Under the share consolidation every ordinary share was converted into 0.80 ordinary shares (5 shares became 4).

Ordinary shares

Ordinary shares are classified as equity. The Company does not have authorised capital or par value in respect of its issued shares. All issued shares are fully paid, all shares rank equally with regard to the Company’s residual assets. Ordinary shares entitle the holder to participate in dividends, as declared from time to time, and are entitled to one vote per share at meetings of the Company. Incremental costs directly attributable to the issue of new shares or the exercise of options are recognised as a deduction from equity, net of any related income tax benefit effects.

Treasury shares

Where the Orora Employee Share Trust purchases equity instruments in the Company that have been identified as treasury shares, the consideration paid, including any directly attributable costs is deducted from equity, net of any related income tax effects. When the treasury shares are subsequently sold or reissued, any consideration received, net of any directly attributable costs and the related income tax effects, is recognised as an increase in equity, and the resulting surplus or deficit on the transaction is presented in retained earnings. Refer to note 6.3.

2.4.2 Reserves

2.4.2 Reserves
$ million	2020	2019
Cash flow hedge reserve	(4.4)	(0.2)
Share-based payment reserve	11.1	15.5
Demerger reserve	132.9	132.9
Exchange fluctuation reserve	(0.4)	16.5
Total reserves	139.2	164.7

Accounting policies

Cash flow hedge reserve

The cash flow hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred.

During the 12 months to 30 June 2020 the following movements were recognised in the cash flow hedger reserve:

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$ million 2020 2019
Unrealised (losses)/gains on cash flow hedges
Forward exchange contract (loss)/gain (5.0) 0.3
Interest rate swap contracts (loss)/gain - (0.1)
(5.0) 0.2
Realised (gains)/losses transferred to profit or loss
Forward exchange contract loss/(gain) (0.9) (6.9)
Interest rate swap contracts loss/(gain) - 2.3
(0.9) (4.6)
Realised (gains)/losses transferred to non-
financial assets
Forward exchange contract loss/(gain) (0.1) (0.1)
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Refer to note 5.4 for further information on these derivative instruments.

Details of movements in each of the reserves is presented in the statement of changes in equity.

Page 18

30 June 2020

Orora Limited

Notes to the financial statements Section 2: Capital structure and financing (continued)

2.4 Equity (continued)

2.4.2 Reserves (continued)

Accounting policies (continued)

Share-based payment reserve

The share-based payment reserve is used to recognise the fair value of options and rights recognised as an expense. The Company provides benefits to employees of the Group in the form of sharebased payments, whereby employees render services in exchange for options or rights over shares. Refer to note 7.1 for further details of the Groups share-based payment plans.

The fair value of options and rights granted is recognised as an employee benefit expense in the income statement with a corresponding increase in the share-based payments reserve in equity and is spread over the vesting period during which the employees become unconditionally entitled to the option or right. Upon exercise of the options or rights, the balance of the sharebased payments reserve, relating to the option or right, is transferred to share capital.

Demerger reserve

The demerger reserve represents the difference between the consideration paid by Orora under an internal corporate restructure and the assets and liabilities acquired, which were recognised at their carrying value under a common control transaction.

Exchange fluctuation reserve

For controlled entities with a functional currency, that is not Australian dollars, their assets and liabilities are translated at the closing exchange rate at reporting date while income and expenses are translated at year to date average exchange rates.

2.4.3 Retained earnings

Retained earnings comprises profit for the year attributable to owners of the Company and other items recognised directly in equity as presented on the statement of changes in equity.

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$ million 2020 2019
Retained earnings at the beginning of the period 995.7 998.5
Impact of change in accounting policy (note 7.8) (69.8) (7.3)
Restated retained earnings at beginning of the
925.9 991.2
period
Net profit attributable to the owners of Orora
239.9 161.2
Limited
1,165.8 1,152.4
Ordinary dividends:
- Final paid (refer note 2.2)(1) (78.2) (78.3)
- Interim paid (refer note 2.2)(2) (78.4) (78.4)
- Special dividend (refer note 2.2)(3) (450.0) -
(606.6) (156.7)
Retained earnings at the end of the period 559.2 995.7
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(1) 2019 Final dividend paid on 12 October 2019 (2019: 2018 Final dividend paid on 15 October 2018).

(2) 2020 Interim dividend paid on 9 April 2020 (2019: 2019 Interim dividend paid on 11 April 2019).

(3) Special dividend was paid on 29 June 2020 representing 37.3 cents per ordinary share. Refer note 2.2 for further information.

On consolidation all exchange differences arising from translation are recognised in other comprehensive income and accumulated in the exchange fluctuation reserve.

In addition, foreign exchange gains or losses are deferred in equity if they relate to qualifying cash flow hedges, qualifying net investment hedges or are attributable to part of the net investment in a foreign operation. When a foreign operation is disposed of, the cumulative amount recognised within the reserve relating to that foreign operation is transferred to the income statement as an adjustment to the profit or loss on disposal.

Page 19

30 June 2020

Orora Limited

Notes to the financial statements Section 3: Assets and liabilities

In this section This section details the assets used to generate the Group’s trading performance and the liabilities incurred as a result. On the following pages there are notes covering working capital, other assets, non-current assets and provisions.

Liabilities relating to the Group’s financing activities are set out in Section 2, whilst the assets and liabilities recognised in respect of derivative instruments, used to hedge financial risks, are contained in Section 5. Information pertaining to deferred tax assets and liabilities is provided in Section 4.

3.1 Trade and other receivables

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$ million 2020 2019
Trade receivables 360.4 609.8
Less loss allowance provision (3.3) (3.2)
357.1 606.6
Other receivables(1) 103.4 67.8
Total current trade and other receivables 460.5 674.4
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(1) These amounts generally arise from transactions outside the usual operating activities of the Group. Interest may be charged at commercial rates where the terms of repayment exceed six months. Collateral is not normally obtained.

Accounting policies

Trade receivables and other receivables are all classified as financial assets held at amortised cost.

Trade receivables

Trade receivables are initially recognised at fair value and subsequently at amortised cost using the effective interest rate method, less a loss allowance provision. The Group, from time to time, enters into trade financing instruments in respect of trade receivables.

The carrying value of trade and other receivables, less impairment provisions, is considered to approximate fair value, due to the shortterm nature of the receivables.

Impairment of trade receivables

The collectability of trade and other receivables is reviewed on an ongoing basis. Individual debts which are known to be uncollectable are written off when identified.

The Group recognises an impairment provision based upon anticipated lifetime losses of trade receivables. The anticipated losses are determined with reference to historical loss experience and is regularly reviewed and updated.

The amount of the impairment loss is recognised in the income statement within ‘general and administration’ expense.

Credit risks related to receivables

In assessing an appropriate provision for impairments of receivables consideration is given to historical experience of bad debts, the ageing of receivables, knowledge of debtor insolvency or other credit risk and individual account assessment.

Customer credit risk is managed by each business group in accordance with the procedures and controls set out in the Group’s credit risk management policy. Credit limits are established for all customers based on external and internal credit rating criteria and letters of credit or other forms of credit insurance cover are obtained where appropriate. In monitoring customer credit risk, customers are grouped according to their credit characteristics, including whether they are an individual or a legal entity, whether they are a wholesale, retail or end-user customer, their geographic location, industry and existence of previous financial difficulties.

For some trade receivables the Group may also obtain security in the form of guarantees, deeds of undertaking or letters of credit which can be called upon if the counterparty is in default under the terms of the agreement. The Group does not otherwise require collateral in respect of trade and other receivables.

The following tables sets out the ageing of trade receivables, according to their due date:

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Loss allowance Gross carrying
provision amount
$ million 2020 2019 2020 2019
Not past due - - 297.5 511.8
Past due 0-30 days - 0.1 40.1 65.0
Past due 31-120 days - 0.5 18.4 27.8
More than 121 days past due 3.3 2.6 4.4 5.2
3.3 3.2 360.4 609.8
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The Group has recognised a net loss of $7.6 million (2019: $2.8 million) in respect of the trade receivables written off in the

financial year. The loss has been included in ‘general and administration’ expense in the income statement.

3.2 Inventories

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$ million 2020 2019
At cost
Raw materials and stores 95.2 210.5
Work in progress 6.0 20.7
Finished goods 271.7 329.8
Total inventory carried at cost 372.9 561.0
At net realisable value
Raw materials and stores 33.7 46.2
Work in progress - 1.8
Finished goods 6.3 33.0
Total inventory carried at net realisable value 40.0 81.0
Total inventories 412.9 642.0
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Accounting policies

Inventories are valued at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

Costs incurred in bringing each product to its existing location and condition are accounted for as follows:

• Raw materials – purchase cost on a weighted average cost formula;

• Manufactured finished goods and work in progress – cost of direct material and labour and an appropriate proportion of production and variable overheads incurred in the normal course of business.

Page 20

30 June 2020

Orora Limited

Notes to the financial statements Section 3: Assets and liabilities (continued)

3.2 Inventories (continued)

Accounting policies (continued)

Cost may also include transfers from equity of any gain or loss on qualifying cash flow hedges of foreign currency purchases of inventory.

During the period the Group recognised a net write-down of $9.4 million (2019: $4.5 million) with regard to the net realisable value of inventories which has been recognised in ‘cost of sales’ expense in the income statement.

3.3 Trade and other payables

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$ million 2020 2019
Trade creditors 436.3 714.2
Other creditors and accruals 227.2 284.9
Total current trade and other payables 663.5 999.1
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Accounting policies

Trade and other payables are all classified as financial liabilities held at amortised cost. Trade and other payables represent liabilities for goods and services provided to the Group prior to the end of the financial year which were unpaid at the end of the financial year and these amounts are unsecured. The Group, from time to time, enters into trade financing instruments in respect of trade payables.

The carrying value of trade and other payables is considered to approximate fair value due to the short-term nature of the payables. Trade and other payables are included in current liabilities, except for those liabilities where payment is not due within 12 months from reporting date which are classified as non-current liabilities.

3.4 Other assets

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$ million 2020 2019
Current
Contract incentive payments(1) 9.1 13.5
Prepayments and other current assets 27.1 42.0
Total other current assets 36.2 55.5
Non-Current
Contract incentive payments(1) 22.0 31.4
Other non-current assets 83.0 56.1
Total other non-current assets 105.0 87.5
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(1) Contract incentives are provided to customers to secure long-term sale agreements and are amortised over the period of the contractual arrangement.

Page 21

30 June 2020

Orora Limited

Notes to the financial statements Section 3: Assets and liabilities (continued)

3.5 Property, plant and equipment

The following note details the physical assets used by the Group to operate the business to generate revenues and profits. The cost of these assets is the amount initially paid for them with a depreciation charge recognised in the income statement to reflect the wear and tear of the assets as they are used which reduces the value of the asset over time.

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Land Plant and Finance leased
$ million Land improvements Buildings equipment assets Total
Cost
At 1 July 2018 51.9 12.9 491.0 2,886.9 3.5 3,446.2
Additions for the period - - 4.4 177.1 - 181.5
Disposals during the period (0.1) - (0.5) (62.6) - (63.2)
Additions through business acquisitions - - 0.1 2.2 0.9 3.2
Other transfers 0.2 0.2 14.3 (14.7) - -
Effect of movements in foreign exchange rates 0.1 0.1 3.2 33.3 0.2 36.9
At 30 June 2019 52.1 13.2 512.5 3,022.2 4.6 3,604.6
Additions for the period - - 0.5 161.5 - 162.0
Disposals during the period (0.2) - (15.2) (39.9) (0.1) (55.4)
Disposal of businesses and controlled entities (38.0) (5.5) (281.5) (1,875.1) - (2,200.1)
Other transfers - 0.7 31.1 (31.8) - -
Effect of movements in foreign exchange rates - (0.1) - (1.7) 0.1 (1.7)
At 30 June 2020 13.9 8.3 247.4 1,235.2 4.6 1,509.4
Accumulated depreciation and impairment
At 1 July 2018 (0.4) (4.1) (144.2) (1,602.8) (1.0) (1,752.5)
Depreciation charge (0.1) (0.3) (15.6) (106.3) (0.6) (122.9)
Disposals during the period 0.1 - 0.3 60.2 - 60.6
Impairment loss - - - (1.2) - (1.2)
Effect of movements in foreign exchange rates - - (2.1) (20.4) (0.6) (23.1)
At 30 June 2019 (0.4) (4.4) (161.6) (1,670.5) (2.2) (1,839.1)
Depreciation charge - (0.2) (10.9) (70.6) (0.6) (82.3)
Disposals during the period - - 15.3 34.5 - 49.8
Disposal of businesses and controlled entities 0.4 1.9 79.2 973.2 - 1,054.7
Impairment loss(1) - - - (20.6) (1.5) (22.1)
Other transfers - - (0.9) 0.9 - -
Effect of movements in foreign exchange rates - - (0.1) 1.4 - 1.3
At 30 June 2020 - (2.7) (79.0) (751.7) (4.3) (837.7)
Net book value
At 30 June 2019 51.7 8.8 350.9 1,351.7 2.4 1,765.5
At 30 June 2020 13.9 5.6 168.4 483.5 0.3 671.7
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(1) The impairment loss recognised during the period includes $9.5 million included in significant items relating to restructuring in North America, $9.4 million recoverable amount impairments, and $3.1 million write-off of Group assets relating to the Fibre business refer note 1.2.

At 30 June 2020, no property, plant and equipment was provided as security for any interest-bearing borrowings (2019: nil).

Accounting policies Property, plant and equipment is stated at cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the item including borrowing costs that are related to the acquisition, construction or production of an asset. Cost may also include transfers from equity of any gain or loss on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment.

Subsequent costs are included in the asset’s carrying amount, or recognised as a separate asset, only when it is probable that future economic benefits associated with the item will flow to the Group. All other repairs and maintenance are charged to the income statement during the financial year in which they are incurred.

Depreciation

Property, plant and equipment, excluding freehold land, is depreciated at rates based upon the expected useful lives, or in the case of leasehold improvements and certain leased plant and equipment the lease term, using the straight-line method. Land is not depreciated. Depreciation rates used for each class of asset for the current and comparative periods are as follows:

• Buildings 1% - 5%

• Land improvements 1% - 3%

• Plant and equipment 2.5% - 25%

Page 22

30 June 2020

Orora Limited

Notes to the financial statements

Section 3: Assets and liabilities (continued)

3.5 Property, plant and equipment (continued)

Accounting policies (continued)

Depreciation

Depreciation is calculated by estimating the number of years the Group expects an asset to be used over. At each reporting date depreciation methods, residual values and useful lives are reassessed and adjusted if necessary. In addition, assets subject to depreciation are reviewed for impairment whenever events or changes in circumstances indicate that an asset carrying amount may not be recoverable. If an asset’s value falls below its depreciated value an additional one-off impairment charge is made against profit. Refer note 3.8 for further details.

3.6 Leases

During the period the Group adopted AASB 16 Leases, the new accounting standard for leases, which changed the Group’s accounting policy in respect of leases. Refer to note 7.8 for details of the impact of the new accounting policy upon the Group.

The following note details leased right-of-use assets utilised used by the Group as a lessee to operate the business to generate revenues and profits. This includes the lease of warehouse, office and factory facilities, vehicles and other items of plant and equipment.

The cost of these assets represents the net present value of the future lease payments with an amortisation charge recognised in the income statement to reflect the utilisation of the right-of-use asset over the term of the lease arrangement. Other than minor sub-lease arrangements, the Group is not a lessor of assets.

The lease for premises typically run for a period of 10 to 15 years with an option to renew the lease after that date. Lease payments for premises are adjusted annually either through a fixed rental increase, typically 3.0% per annum, or are linked to changes in the consumer price index or as a result of a market rent review process.

The leases for items of plant and equipment, which includes vehicles, typically run for periods of three to five years. In the majority of instances when these lease contracts expire they are replaced by new leases for identical underlying assets.

Right-of-use assets

		Plant and
$ million	Property	Equipment	Total
Cost
At 1 July 2019	-	-	-
Impact of change in accounting policy (note 7.8)	470.0	34.7	504.7
Restated balance at 1 July 2019	470.0	34.7	504.7
Additions	2.7	5.0	7.7
Derecognition of right-of-use assets	(0.1)	(0.6)	(0.7)
Disposal of businesses and controlled entities	(222.4)	(12.5)	(234.9)
Effect of movements in foreign exchange rates	(1.5)	1.1	(0.4)
At 30 June 2020	248.7	27.7	276.4
Accumulated depreciation and impairment
At 1 July 2019	-	-	-
Impact of change in accounting policy (note 7.8)	(16.6)	-	(16.6)
Restated balance at 1 July 2019	(16.6)	-	(16.6)
Depreciation charge for the period	(46.2)	(8.8)	(55.0)
Derecognition of right-of-use assets	0.1	0.5	0.6
Reversal of impairment loss	2.1	-	2.1
Disposal of businesses and controlled entities	7.4	1.1	8.5
Effect of movements in foreign exchange rates	1.1	0.2	1.3
At 30 June 2020	(52.1)	(7.0)	(59.1)
Net book value
At 1 July 2019	453.4	34.7	488.1
At 30 June 2020	196.6	20.7	217.3

Page 23

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Orora Limited

Notes to the financial statements Section 3: Assets and liabilities (continued)

3.6 Leases (continued)

Amounted recognised in the income statement

The following amounts, for continuing operations, were recognised in the income statement:

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$ million 2020
Depreciation of right-of-use assets 46.4
Expenses relating to short-term leases 15.8
Expenses relating to low-value assets 1.2
Income from sub-leasing right-of-use assets (1.3)
Interest on lease liabilities 13.4
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In the comparative period the expense recognised in the income statement for continuing operations, in accordance with AASB 117 Leases, relating to operating leases was $70.4 million. Payments recognised in the income statement were recognised on a straightline basis over the term of the lease. There were no contingent rental payments.

Lease liabilities

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||||
|---|---|---|
|$ million|2020|1 July 2019|
|Current lease liabilities|50.8|44.9|
|Non-current lease liabilities|228.6|550.4|
|279.4|595.3|

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The following table sets out the maturity analysis of future lease payments. Lease liabilities are monitored within the Group’s Treasury function.

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||||
|---|---|---|
|$ million|2020|2019|
|Within one year|62.4|103.7|
|Between one and five years|180.5|299.3|
|More than five years|92.3|88.3|
|335.2|491.3|

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Accounting policies

Assets and liabilities arising from a lease are initially measured on a present value basis.

right-of-use asset in a similar economic environment with similar terms, security and conditions.

The Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use asset.

Lease payments are allocated between principal and finance cost. The finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

Right-of-use Asset

Right-of-use assets are measured at cost comprising the following:

• the amount of the initial measurement of lease liability

• any lease payments made at or before the commencement date less any lease incentives received

• any initial direct costs; and

• restoration costs

Right-of-use assets are generally depreciated over the shorter of asset’s useful life and the lease term on a straight-line basis. If the Group is reasonably certain to exercise a purchase option, the right-ofuse asset is deprecated over the underlying asset’s useful life.

Lease term

Extension and termination options are included in a number of property leases across the Group. These are used to maximise operational flexibility in terms of managing the assets used in the Group’s operations. The majority of extension and termination options held are exercisable only by the Group and not the respective lessor.

Deferred tax

A lease transaction is considered a single transaction in which the recognition of the right-of-use asset and the lease liability are integrally linked. As a result differences that arise between the settlement of the lease liability and the amortisation of the leased asset result in a net temporary difference on which deferred tax is recognised in accordance with the Group’s deferred tax accounting policy.

Lease liability

Lease liabilities include the net present value of the following lease payments:

• fixed payments (including in-substance fixed payments), less any lease incentive receivable

• variable lease payments that are based on an index or a rate, initially measured using the index or rate as at the commencement date

• amounts expected to be payable by the group under residual value guarantees

• the exercise price of a purchase option if the group is reasonably certain to exercise that option; and

• payments of penalties for terminating the lease, if the lease term reflects the group exercising that option.

Payments associated with short-term leases of equipment and vehicles and all low-value assets are recognised on a straight-line basis as an expense in the income statement. Short-term leases are leases with a lease term of 12 months or less.

Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the Group’s incremental borrowing rate is used, being the rate that the Group would have to pay to borrow the funds necessary to obtain an asset of similar value to the

Judgements and estimates

In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).

For leases of properties and equipment, the following factors are normally the most relevant:

• if there are significant penalties to terminate (or not extend), the Group is typically reasonably certain to extend (or not terminate)

• if any leasehold improvements are expected to have a significant remaining value, the Group is typically reasonably certain to extend (or not terminate)

• otherwise, the Group considers other factors including historical lease durations and the costs and business disruption required to replace the leased asset.

The lease term is reassessed if an option is actually exercised (or not exercised) or the Group becomes obliged to exercise (or not exercise) it. The assessment of reasonable certainty is only revised if a significant event or a significant change in circumstances occurs, which affects this assessment, and that is within the control of the Group.

Page 24

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Orora Limited

Notes to the financial statements Section 3: Assets and liabilities (continued)

3.7 Intangible assets

The following note details the non-physical assets used by the Group to generate revenue and profits.

These assets include computer software and licences, customer relationships and goodwill. The cost of these assets is the amount that the Group has paid or, where there has been a business combination, the fair value of the specific intangible assets identified. In the case of goodwill, its cost is the amount the Group has paid for acquiring a business over and above the fair value of the individual assets and liabilities acquired. The value of goodwill is ‘intangible’ value that comes from, for example, synergies available with the integration of the acquired business into the Group, a skilled and knowledgeable assembled workforce, proprietary technologies and processes and uniquely strong market positions.

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----- Start of picture text -----

Other intangible assets
Computer
$ million software Other Goodwill Total
Cost
At 1 July 2018 201.3 23.0 426.2 650.5
Additions for the period 6.6 - - 6.6
Additions through business acquisitions - 5.2 95.8 101.0
Disposals during the period (0.6) - - (0.6)
Effect of movements in foreign exchange rates 4.5 1.2 19.1 24.8
At 30 June 2019 211.8 29.4 541.1 782.3
Additions for the period 5.8 - - 5.8
Disposals during the period (1.1) - - (1.1)
Disposal of business and controlled entities (69.6) (1.0) (80.3) (150.9)
Effect of movements in foreign exchange rates 0.8 0.6 7.4 8.8
At 30 June 2020 147.7 29.0 468.2 644.9
Accumulated amortisation and impairment
At 1 July 2018 (137.3) (10.3) (8.2) (155.8)
Amortisation charge (7.7) (2.3) - (10.0)
Disposals during the period 0.6 - - 0.6
Effect of movements in foreign exchange rates (1.9) (0.5) - (2.4)
At 30 June 2019 (146.3) (13.1) (8.2) (167.6)
Amortisation charge (9.5) (2.6) - (12.1)
Disposals during the period 1.1 - - 1.1
Disposal of business and controlled entities 63.9 0.4 7.9 72.2
Impairment loss(1) (9.7) (7.3) (89.4) (106.4)
Effect of movements in foreign exchange rates 1.0 0.2 2.5 3.7
At 30 June 2020 (99.5) (22.4) (87.2) (209.1)
Net book value
At 30 June 2019 65.5 16.3 532.9 614.7
At 30 June 2020 48.2 6.6 381.0 435.8
----- End of picture text -----

(1) The impairment loss recognised during the period includes $96.7 million recoverable amount impairments, and $9.7 million write-off of Group assets relating to the Fibre business refer note 1.2.

Accounting policies

Other intangible assets

Other intangible assets include computer software, customer relationships and software licences. The cost of these assets is the amount that the Group has paid or, where there has been a business combination, their fair value at the date of acquisition.

Internal spend on computer software is only capitalised within the development phase, when the asset is separate and it is probable that future economic benefits attributable to the asset will flow to the Group.

Following initial recognition, other intangible assets are carried at cost less amortisation and any impairment losses.

Other intangible assets are amortised on a straight line basis over their useful life and tested for impairment whenever there is an indication that they may be impaired. Refer to note 3.8 for further details on impairment.

Computer software and licences are amortised over a period of between three to ten years whilst customer relationships are amortised over a period of up to 20 years. The amortisation period and method is reviewed each financial year.

The Group does not hold any indefinite life other intangible assets.

Page 25

30 June 2020

Orora Limited

Notes to the financial statements Section 3: Assets and liabilities (continued)

3.7 Intangible assets (continued)

Accounting policies (continued)

Goodwill

The goodwill recognised by the Group has arisen as a result of business combinations and represents the future economic benefits that arise from assets that are not capable of being individually identified and separately recognised.

Goodwill is initially measured as the amount the Group has paid in acquiring a business over and above the fair value of the individual assets and liabilities acquired.

Goodwill is not amortised but is instead tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less any accumulated impairment losses.

Where there has been a change in the Group’s circumstances such as, technological changes or a decline in business performance, a review of the value of the intangible assets, including goodwill, is undertaken to ensure the assets’ value has not fallen below its amortised value. Should an assets’ value fall below its amortised value an additional impairment charge is made against profit and the carrying value of the asset. Refer note 3.8.

3.8 Impairment of non-financial assets

Testing for impairment

The Group tests property, plant and equipment, intangibles and goodwill for impairment:

• where there is an indication that an asset may be impaired (which is assessed each reporting date);

• where there is an indication that previously recognised impairments (on assets other than goodwill) have changed; and

• at least annually for goodwill.

In testing for impairment, the recoverable amount is estimated for an individual asset or, if it is not possible to estimate the recoverable amount for the individual asset, the recoverable amount of the cash generating unit (CGU) to which the asset belongs. CGUs are the smallest identifiable group of assets that generate cash inflows that are largely independent from the cash flows of other assets or group of assets. Each CGU is no larger than an operating segment.

Assets are impaired if their carrying value exceeds their recoverable amount. The recoverable amount of an asset or CGU is determined as the higher of its fair value less costs of disposal or value in use. An impairment loss is recognised in the income statement if the carrying amount of an asset or a CGU exceeds its recoverable amount. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs) and then, to reduce the carrying amount of the other assets in the CGU (group of CGUs).

using estimated growth rates which are determined with regard to the long-term performance of each CGU in their respective markets and are not expected to exceed the long-term average growth rates for the industry in which each CGU operates.

The discount rate used in performing the value in use calculations reflects the Group’s weighted average cost of capital, as adjusted for specific risks relating to each geographical region in which the CGU’s operate.

Reversal of impairment

Where there is an indication that previously recognised impairment losses may no longer exist or may have decreased, the asset is tested for impairment. The impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount of the asset and is reversed only to the extent that the carrying amount of the asset does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, had no impairment loss been recognised. Impairments recognised for goodwill are not reversed.

Goodwill impairment tests

For the purpose of impairment testing, goodwill is allocated to CGUs or groups of CGUs according to the level at which management monitors goodwill. Goodwill is tested annually or more regularly if there are indicators of impairment.

The recoverable amounts of the CGUs were based on the present value of the future cash flows expected to be derived from the CGU (value in use calculation). Value in use is calculated from cash flow projections for five years using data from the Group’s latest internal forecasts. The key assumptions for the value in use calculations are those regarding the expected changes in earnings during the initial five-year period, discount rates and growth rates applied to the extrapolated periods of the value in use calculation.

The following table presents a summary of the goodwill allocation and the key assumptions used in determining the recoverable amount of each CGU:

amount of each CGU:
		Orora
		Packaging
2020	Australasia	Solutions Orora Visual
Goodwill allocation ($million) Pre-tax discount rate (%) Terminal growth rate (%)	32.7 9.1 1.5	281.4 9.0 1.5	66.9 9.0 1.5
2019
Goodwill allocation ($million)	105.9	276.9	150.1
Pre-tax discount rate (%)	9.7	9.5	9.5
Terminal growth rate (%)	2.0	2.0	2.0

Impairment calculations

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the risks specific to the asset or CGU and the market’s current assessment of the time value of money.

Value in use is assessed using cash flow projections for five years using data from the Group’s latest internal forecasts and is management’s best estimate of income, expenses, capital expenditure and cash flows for each CGU. Changes in selling prices and direct costs are based on past experience and management’s expectation of future changes in the markets in which the Group operates. Cash flows beyond the five-year period are extrapolated

Page 26

30 June 2020

Orora Limited

Notes to the financial statements Section 3: Assets and liabilities (continued)

3.8 Impairment of non-financial assets (continued)

Goodwill impairment tests (continued)

Orora Visual CGU

In applying the Group’s accounting policy in respect of reviewing for impairment of non-financial assets, management’s assessment has identified an impairment to the carrying value of the Orora Visual CGU of $106.2 million (refer note 1.2).

The decrease in the estimated recoverable amount of this CGU compared to prior years reflects the difficulty of management turnaround initiatives, implemented to address the below expectations business performance, to gain traction in the current year which was materially compounded by the impact of COVID-19. Whilst the majority of Orora’s business have been resilient during COVID-19, many of the end market segments serviced by Orora Visual were more significantly impacted and uncertainty remains over the timing of recovery of these markets. These factors have resulted in a lower estimation of future cash flows resulting in the impairment charge.

The recoverable amount of the CGU is based on the present value of the future cash flows expected to be derived from the CGU (value in use calculation). The key assumptions used in assessing the recoverable amount, as set out in the table above, include a pre-tax discount rate of 9.0% and a terminal growth rate of 1.5%.

Judgements and estimates

The determination of impairment involves the use of judgements and estimates that include, but are not limited to, the cause, timing and measurement of the impairment. Management is required to make significant judgements concerning the identification of impairment indicators, such as changes in competitive positions, expectations of growth, increased cost of capital, and other factors that may indicate impairment, such as a business restructuring.

Management is also required to make significant estimates regarding future cash flows and the determination of fair values when assessing the recoverable amount of assets (or groups of assets). Inputs into these valuations require assumptions and estimates to be made about forecast earnings and related future cash flows, growth rates, applicable discount rates, useful lives and residual values.

The judgements, estimates and assumptions used in assessing impairment are management’s best estimates based on current and forecast market conditions. Changes in economic and operating conditions impacting these assumptions could result in changes in the recognition of impairment charges in future periods.

Within the value in use calculations, EBIT growth over the five year forecast period reflects management’s expectations that the markets that Orora Visual serves will continue to be impacted by COVID-19 in the short term and then slowly recover. These market conditions, coupled with the positive cost benefits from a program of approved business restructuring and improvement strategies, lead to an improved cash flow profit but at lower levels than previously forecast. For the current period impairment assessment a terminal growth rate of 1.5% was applied beyond the Groups’ five year internal forecast. This rate is based on market estimates of the long-term average growth rate in the market in which the Orora Visual operates.

The cash flows of the Orora Visual CGU are sensitive to the uncertainty that remains around the impact and recovery of the market due to COVID-19. This uncertainty, and any adverse movements in key assumptions, may lead to an additional impairment.

Other CGUs

Based on current economic conditions and performance of the Australasia and Orora Packaging Solutions CGUs, no reasonably possible change in a key assumption used in the determination of the recoverable value of these CGUs would result in a material impairment to the Group.

Page 27

30 June 2020

Orora Limited

Notes to the financial statements

Section 3: Assets and liabilities (continued)

3.9 Provisions

==> picture [473 x 298] intentionally omitted <==

----- Start of picture text -----

Workers'
compensation, Asset restoration,
insurance and other restructuring and
$ million Employee entitlements claims decommissioning Total
2020
Opening balance 90.5 6.2 106.3 203.0
Provisions made during the period(1) 34.9 3.3 28.0 66.2
Payments made during the period (35.6) (2.1) (38.3) (76.0)
Released during the period (1.2) (0.5) (12.2) (13.9)
Disposal of businesses and controlled entities (61.8) - (1.2) (63.0)
Unwinding of discount - - 0.2 0.2
Effect of movement in foreign exchange rate 0.1 - 0.2 0.3
Closing balance 26.9 6.9 83.0 116.8
Current 24.9 6.9 64.0 95.8
Non-current 2.0 - 19.0 21.0
2019
Opening balance 87.7 10.0 60.8 158.5
Provisions made during the period(1) 31.6 0.8 74.9 107.3
Payments made during the period (30.4) (3.2) (29.2) (62.8)
Released during the period (0.9) (1.5) (0.7) (3.1)
Additions through business acquisitions 1.7 - - 1.7
Unwinding of discount - - 0.4 0.4
Effect of movement in foreign exchange rate 0.8 0.1 0.1 1.0
Closing balance 90.5 6.2 106.3 203.0
Current 82.4 6.2 58.3 146.9
Non-current 8.1 - 48.0 56.1
----- End of picture text -----

(1) During the period a significant item expense of $7.6 million in respect of restructuring charges in North America was recognised, of which the majority ($7.2 million) is a result of the decision to close the Orora Visual Los Angeles site. In addition, included in the significant item profit on sale of the Australasian Fibre business are provisions of $19.9 million regarding remaining transaction charges, transition costs and indemnities. In the comparative period a significant item expense of $24.0 million was recognised in respect of restructuring charges that were identified through a review of the Group’s costs structures in both Australasia and North America were recorded as well as a significant item expense of $50.0 million for additional decommissioning costs associated with the Petrie site.

Accounting policies

A provision is recognised when: the Group has a present legal or constructive obligation arising from past events; it is probable that cash will be paid to settle it; and a reliable estimate can be made of the amount of the obligation.

Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as a finance cost in the income statement.

The liability for annual leave and long service leave is measured as the present value of estimated future cash outflows to be made in respect of services provided by the employee up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and period of service. Expected future payments that are not expected to be settled within 12 months are discounted using market yields at the reporting date of high-quality corporate bonds. The rates used reflect the terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.

Employee entitlements

The provision for employee entitlements represents the obligation for annual leave, long service leave entitlements and incentives accrued by employees.

Liabilities for employee benefits such as wages, salaries and other current employee entitlements represent present obligations arising from employees’ services provided to the reporting date and are calculated at undiscounted amounts based on remuneration wage and salary rates, including related on-costs, such as workers compensation insurance and payroll tax, and are presented in other payables.

Workers’ compensation, insurance and other claims

The Group self-insures for various risks, including risks associated with workers’ compensation. Provisions are recognised for claims received and expected to be received in relation to incidents occurring prior to reporting date and are measured based upon historical claim rates.

Estimated net future cash flows are based on the assumption that all claims will be settled and the weighted average cost of historical claims adjusted for inflation will continue to approximate future costs.

Page 28

30 June 2020

Orora Limited

Notes to the financial statements Section 3: Assets and liabilities (continued)

3.9 Provisions (continued)

Asset restoration, restructuring and decommissioning Asset restoration and decommissioning

Where the Group has a legal or constructive obligation to restore a site on which an asset is located, either through make-good provisions included in lease agreements or decommissioning of environmental risks, the present value of the estimated costs of dismantling and removing the asset and restoring the site is recognised as a provision with a corresponding increase in the related item of property, plant and equipment.

At each reporting date, the liability is remeasured in line with changes in discount rates, estimated cash flows and the timing of those cash flows. Any changes in the liability are added to or deducted from the related asset, other than the unwinding of the discount, which is recognised as a financing cost in the income statement. If there is no related asset in respect of the restoration or decommissioning activity changes in the liability are recognised in the income statement.

In the current period, the asset restoration provision includes amounts that have been recognised in respect of certain environmental contamination indemnities provided under the Australian Fibre sale and purchase agreement. The indemnity relates to certain pre-existing contamination that may exist at the Australasian Fibre sites as at 30 April 2020, where after this date the contamination is either a) required to be remediated by a regulatory agency or b) the site is subject to regulatory enforcement action that is directly related to pre-existing contamination.

At the date of this Report, the Group has recognised a provision for potential future costs that may be incurred in relation to any identified environmental contamination using all currently available information, which requires significant judgement in respect of determining a reliable estimate.

In the comparative period the Group recognised a significant item expense of $50.0 million relating to additional costs associated with the decommissioning of the former Petrie Mill site (refer note 1.2).

The decommissioning of the Petrie site is a significant and complex exercise involving multiple government agencies. The Group continues to use a specialist environmental consulting firm to manage the completion of the remaining remediation works.

At the date of this Report, decommissioning work continues on site with the estimated costs to complete the decommissioning contingent on final remediation requirements which require significant judgement in respect of determining a reliable estimate.

Management have measured the Petrie decommissioning provision at 30 June 2020 using all currently available information and considering applicable legislative and environmental regulations. However, given the complexity and multiple stakeholders involved in the decommissioning of the Petrie site, there remains a risk of further currently unidentified costs in the future.

Restructuring

A provision for restructuring is recognised when the Group has a detailed formal restructuring plan and the restructuring has either commenced or has been publicly announced, including discussions with affected personnel. Future operating costs in relation to the restructuring are not provided for. Payments falling due greater than 12 months after reporting date are discounted to present value.

Costs totalling $7.6 million have been recognised in relation to the restructuring activities in North America of which the vast proportion of this ($7.2 million) is a result of the decision to close the Orora Visual Los Angeles Site (refer note 1.2). The majority of the North American restructuring initiatives will be implemented during the first half of FY21.

The restructuring provision in the current period includes $14.9 million relating to remaining transaction and transitions costs associated with the sale of the Australasia Fibre business (refer note 6.2). The majority of the costs will be incurred during FY21 as the sale and separation of the Fibre business is finalised.

Judgements and estimates

A provision is recognised by the Group where an obligation exists relating to a past event, it is probable that a cash payment will be required to settle it, and the Group is not certain how much cash will be required to settle the liability. The value of that provision is based upon estimates and assumptions with regards to the amount and timing of cash flows required to settle the obligation, which are dependent on future events. The key assumptions applicable to the determination of the provisions are as follows:

Employee entitlements

The provision for employee entitlements is based on a number of management estimates, which include:

• future increase in salaries, wages and on-cost rates

• future probability of employee departures

• future probability of years of service (long service leave provision)

Workers’ compensation

The self-insured workers’ compensation provision is based on a

number of management estimates including, but not limited to:

• future inflation

• claim administration expenses

• historical weighted average size of claims

• claim development

Asset restoration and decommissioning

Asset restoration and decommissioning provisions require assessments to be made of lease make-good conditions and decommissioning and environmental risks. The provisions require estimates to be made of costs to dismantle and remove equipment and to restore the site to the condition required under the terms of the lease or contract and as required by environmental laws and regulations.

The recognition and measurement of asset restoration and decommissioning provisions is a complex area and requires significant judgement and estimates. The measurement of the provision can vary as a result of many factors, including, but not limited to:

• changes in the relevant legal or local/national government requirements and any other commitments made to stakeholders;

• review of remediation and restoration options

• identification of additional remediation requirements identified during the restorative process

• the emergence of new restoration techniques

In determining an appropriate provision management gives consideration to the results of the most recently completed surveying data in respect of the remediation process, current cost estimates and appropriate inclusion of contingency in cost estimates to allow for both known and unknown residual risks.

Page 29

30 June 2020

Orora Limited

Notes to the financial statements Section 3: Assets and liabilities (continued)

3.9 Provisions (continued)

Judgements and estimates (continued) Asset restoration and decommissioning (continued)

Estimates can be impacted by the emergence of new restoration techniques and experience at other operations. This is compounded by the fact that there has been limited restoration activity and historical precedent within the Group against which to benchmark estimates of the costs to remediate.

All the uncertainties discussed above may result in future actual expenditure differing from the amounts currently provided for in the balance sheet.

Restructuring

Restructuring provisions require assessments to be made regarding the timing of recognition, specifically are plans sufficiently detailed, approved and communicated to support recognition at a point in time. The provisions also require estimates to be made of the cost of restructuring and the timing of these cash outflows.

The judgements, estimates and assumptions used in the booking of all provisions are evaluated on an ongoing basis and are based on historical experience and other factors, including expectation of future events that are believed to be reasonable under the circumstance and are management’s best estimates based on currently available information, legislation and environmental laws and regulations. The actual result may differ from these account estimates. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

Page 30

30 June 2020

Orora Limited

Notes to the financial statements Section 4: Income tax

In this section

This section sets out the Group’s tax accounting policies, the current and deferred tax charges or credits in the year (which together make up the total tax charge or credit in the income statement), a reconciliation of profit before tax to the tax charge for the period and the movements in the deferred tax assets and liabilities.

4.2 Deferred tax balances

4.1 Income tax expense

Deferred income tax in the balance sheet relates to the following:

The total taxation charge in the income statement for continuing operations is analysed as follows:

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$ million 2020 2019
Deferred tax assets
Net right-of-use lease accounting 16.9 -
Trade receivable loss allowance provision 0.4 0.9
Valuation of inventories 14.7 14.6
Employee benefits 27.3 44.2
Provisions 22.9 31.1
Financial instruments at fair value 2.7 1.5
Accruals and other items - 11.9
84.9 104.2
Tax set off (71.2) (104.2)
Deferred tax asset 13.7 -
Deferred tax liabilities
Property, plant and equipment 57.6 134.2
Intangible assets 4.6 24.3
Other items 9.0 28.0
71.2 186.5
Tax set off (71.2) (104.2)
Deferred tax liability - 82.3
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$ million 2020 2019
Current tax expense
Current period (32.5) (42.3)
Adjustments relating to prior periods 1.7 0.5
Total current tax expense (30.8) (41.8)
Deferred tax expense
Origination and reversal of temporary differences 21.8 5.2
Total income tax expense (9.0) (36.6)
Deferred income tax expense included in income
tax expense comprises:
Increase/(Decrease) in deferred tax assets 32.1 12.1
(Increase)/Decrease in deferred tax liabilities (10.3) (6.9)
Deferred income tax expense included in total
21.8 5.2
income tax expense
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The following table provides a numerical reconciliation of income tax expense for continuing operations to prima facie tax payable:

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$ million 2020 2019
Profit before related income tax Deferred income tax in the income statement from continuing
(expense)/benefit 36.6 153.1 operations relates to the following:
Tax at the Australian tax rate of 30% (2019: 30%) (11.0) (45.9) $ million 2020 2019
Net tax effect of amounts which are non-
2.0 5.5 Property, plant and equipment (3.9) 6.9
deductible/non-assessable for tax Net right-of-use lease accounting 1.7 -
(9.0) (40.4) Trade receivable loss allowance provision 0.1 1.1
Intangible assets (19.7) 3.6
Over provision in prior period 1.7 0.5
Foreign tax rate differential (1.7) 3.3 Valuation of inventories (4.2) (2.8)
Employee benefits (1.4) (1.9)
Total income tax expense(1) (9.0) (36.6) Provisions 8.5 (9.5)
Financial instruments at fair value 0.1 -
(1) Total income tax expense in the current period includes an income tax benefit of Total income tax expense in the current period includes an income tax benefit of Accruals and other items (3.0) (2.6)
$37.1 million in respect of the significant items recognised during the period. The
Deferred tax expense (21.8) (5.2)
comparative periods includes net income tax benefit $20.4 million relating to
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(1) Total income tax expense in the current period includes an income tax benefit of Total income tax expense in the current period includes an income tax benefit of $37.1 million in respect of the significant items recognised during the period. The comparative periods includes net income tax benefit $20.4 million relating to significant items (refer note 1.2).

.

Page 31

30 June 2020

Orora Limited

Notes to the financial statements Section 4: Income tax (continued)

Accounting policies

Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised directly in equity or in other comprehensive income, in which case it is recognised directly in equity or in other comprehensive income respectively.

Current tax

Current tax is the expected tax payable on taxable income for the period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous periods. Current tax is also adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and by the availability of unused tax losses.

Current tax assets and liabilities are offset where the Group has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Deferred tax

Deferred tax is recognised using the balance sheet method in which temporary differences are calculated based on the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for:

• taxable temporary differences arising on the initial recognition of goodwill;

• taxable differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit; and

• temporary differences relating to investments in subsidiaries to the extent that the Group is able to control the timing of the reversal of the temporary difference and it is probable that they will not reverse in the foreseeable future.

Deferred tax is measured at the tax rates that are expected to be applied when the temporary difference reverses, that is, when the asset is realised or the liability is settled, based on the laws that have been enacted or substantively enacted at the reporting date. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only to the extent that it is probable that future taxable profits will be available against which the assets can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Unremitted earnings of the Group’s international operations are considered to be reinvested indefinitely and relate to the ongoing operations. Upon distribution of any earnings in the form of dividends or otherwise, the Group may be subject to withholding taxes payable to various foreign countries, however, such amounts are not considered to be significant. As the Group controls when the deferred tax liability will be incurred and is satisfied that it will not be incurred in the foreseeable future, the deferred tax liability has not been recognised. There are no unrecognised deferred tax assets.

Judgements and estimates

The Group is subject to income taxes in Australia and foreign jurisdictions and as a result the calculation of the Group’s tax charge involves a degree of estimation and judgement in respect of certain items, including assumptions made in respect of the application of tax legislation. There are many transactions and calculations relating to the ordinary course of business for which the ultimate tax determination is uncertain. The Group recognises liabilities for uncertain tax positions based on management’s best estimate of whether additional taxes will be due. Where the final outcome of these matters is different from the amounts that were initially recorded, these differences impact the current and deferred tax provisions in the period in which such determinations are made.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable profits are available to utilise those temporary differences and losses, and the tax losses continue to be available having regard to the nature and timing of their origination and compliance with the relevant tax legislation associated with their recoupment. The assumptions regarding the future realisation, and therefore the recognition of deferred tax assets, may change due to future operating performance and other factors.

The assumptions made in respect of the recognised tax balances are subject to risk and uncertainty and there is a possibility that changes in circumstances or differences in opinion will alter outcomes which may impact the amount of deferred tax assets and deferred tax liabilities recognised and the amount of tax losses and timing differences not yet recognised.

Offsetting deferred tax balances

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset and when the deferred tax balances relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but the Group intends to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

Unrecognised deferred tax assets and liabilities

Deferred tax liabilities have not been recognised in respect of temporary differences arising as a result of the translation of the financial statements of the Group investments in subsidiaries. The deferred tax liability will only arise in the event of disposal of the subsidiary, and no such disposal is expected in the foreseeable future.

Page 32

30 June 2020

Orora Limited

Notes to the financial statements Section 5: Financial risk management

In this section The following section outlines how the Group manages the financial risks it is exposed to associated with holding financial instruments that arise from the Group’s need to access financing (bank loans and overdrafts and unsecured notes), from the Group’s operational activities (cash, trade receivables and payables) and instruments
held as part of the Group’s risk management activities (derivate financial instruments).
Financial risk management is carried out by Orora Group Treasury under policies that have been approved by the Board for managing each of
the below risks including principles and procedures with respect to risk tolerance, delegated levels of authority on the type and use of
derivative financial instruments and the reporting of these exposures. The Treasury function reports regularly to the Audit, Risk & Compliance
Committee and treasury procedures are subject to periodic reviews.
In accordance with Board approved policies the Group typically uses derivative financial instruments to hedge underlying exposures arising
from the Group’s operational activities relating to: changes in foreign exchange rates on foreign currency commercial transactions (transaction
risk), exposure to changes in commodity prices, changes in interest rates on net borrowings and changes in the Company’s share price.

The Group’s overall financial risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance as set out in the table below:

Risk	Exposure	Management
Market risks
- Interest rate risk	The Group is exposed to interest rate risk in respect of short and	The Group mitigates interest rate risk primarily by maintaining an
	long-term borrowings where interest is charged at variable rates.	appropriate mix of fixed and floating rate borrowing
		arrangements. Where necessary the Group hedges interest rate
		risk using derivative instruments – eg interest rate swaps. Refer
		notes 5.1.1 and 5.4.
- Foreign exchange	The Group is exposed to foreign exchange risk because of its	Where possible, loans are drawn in foreign currency by foreign
risk	international operations. These risks relate to future commercial	entities to create a natural hedge of foreign currency assets and
	transactions, financial assets and liabilities not denominated in A$	liabilities. Where this is not possible the Group’s policy is to
	and net investments in foreign operations.	hedge contractual commitments denominated in a foreign
		currency by entering into forward exchange contracts. Refer
		notes 5.1.2 and 5.4.
- Commodity price	The Group is exposed to changes in commodity prices in respect of	Where possible, the Group mitigates raw material commodity
risk	the purchase of aluminium raw materials and the price of	price risk by contractually passing rise and fall adjustments
	electricity.	through to customers. To mitigate the variability of wholesale
		electricity prices in Australia, the Group utilises Power Purchase
		Arrangements (PPAs). Refer notes 5.1.3 and 5.4.
- Employee share	The Group’s employee share plans require the delivery of shares to	The Group has established the Orora Employee Share Trust which
plan risk	employees in the future when rights vest or options are exercised.	manages and administers the Group’s responsibilities under the
	The Group currently acquires shares on market to deliver these	employee share plans through acquiring, holding and transferring
	shares exposing the Group to cash flow risk – ie as the share price	shares or rights to shares in the Company to participating
	increases it costs more to acquire the shares on market.	employees. Refer note 5.1.4, 6.3 and 7.1.
Credit risk	The Group is exposed to credit risk from financial instrument	The Group manages credit risk through a robust system of
	contracts and trade and other receivables. The maximum exposure	counterparty approval, granting and renewal of credit limits,
	to credit risk at reporting date is the carrying amount, net of any	regular monitoring of exposures against such credit limits and
	provision for impairment, of each financial asset in the balance	assessing the overall financial stability and competitive strength
	sheet.	of the counterparty on an ongoing basis. Refer to notes 5.2 and
		3.1 for credit risk exposures relating to trade and other
		receivables.
		The Group only enters into financial instrument contracts with
		high credit quality financial institutions with a minimum long-
		term credit rating of A- or better by Standard & Poor’s.
Liquidity and	The Group is exposed to liquidity and funding risk from operations	The Group mitigates funding and liquidity risks by ensuring that:
funding risk	and from external borrowings, where the risk is that the Group may	 a sufficient range of funds are available to meet working
	not be able to refinance debt obligations or meet other cash	capital and investment objectives;
	outflow obligations when required.	 adequate flexibility within the funding structure is maintained
		through the use of bank overdrafts, bank loans and unsecured
		notes;
		 through regular monitoring of rolling forecast of cash inflows
		and outflows, the cost of funding is minimised and that the
		return on any surplus funds is maximised through efficient
		cash management;
		 there is a focus on improving operational cash flow and
		maintaining a strong balance sheet.
		Refer note 5.3.

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30 June 2020

Orora Limited

Notes to the financial statements

Section 5: Financial risk management (continued)

5.1 Market risks

5.1.1 Interest rate risk

The Group’s main interest rate risk arises from long-term borrowings with variable rates, which expose the Group to cash flow interest rate risk. The Group’s Treasury risk management policy is to maintain an appropriate mix between fixed and floating rate borrowings, monitoring global interest rates, and where appropriate, hedging floating interest rate exposures or borrowings at fixed interest rates through the use of interest rate swaps and forward interest rate contracts.

The Group’s policy is to hold up to 85.0% fixed rate debt. At 30 June 2020, approximately 88.0% (2019: 39.6%) of the Group’s debt is fixed rate. This is due to the sale of the Australasian Fibre business extinguishing almost all bank debt, while the fixed US Private Placement notes remain outstanding.

Exposure

The Group had the following variable rate borrowings and interest rate swap contracts outstanding at 30 June:

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||||
|---|---|---|
|Weighted average|Balance|
|interest rate|$million|
|2020|
|Bank loans|1.6%|48.0|
|Interest rate swaps (notional principal amount)|-|-|
|Net exposure to cash flow interest rate risk|48.0|
|2019|
|Bank loans|3.0%|607.0|
|Interest rate swaps (notional principal amount)|3.7%|(25.0)|
|Net exposure to cash flow interest rate risk|582.0|

----- End of picture text -----

Interest rate derivatives used for hedging

The Group did not hold any derivative instruments as at 30 June 2020 in respect of hedging interest rate risk. The below carrying values represent the fair value of instruments used to hedge interest rate risk together with the associated nominal volume as at 30 June 2019:

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||||
|---|---|---|
|Balance|
|Notional item|$million|
|2019|
|Cash flow hedge|AUD25.0 floating to fixed|(0.1)|
|Total derivatives in a liability position|(0.1)|

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All of the Group’s interest rate swaps are predominantly classified as cash flow hedges so any movement in the fair value is recognised directly in equity. The amounts accumulated in equity are transferred to the income statement in the period in which the hedged item affects profit or loss. During the period no amounts were recognised directly in equity in relation to interest rate swaps (2019: $0.1 million loss).

Sensitivity

At 30 June 2020, if Australian and US interest rates had increased by 1.0% (100 bps), post-tax profit for the year would have been $0.3 million lower (2019: $4.2 million lower), net of derivatives. If interest rates on Australian and US dollar denominated borrowings had decreased by 1.0% (100 bps), post-tax profit for the year would have been $0.3 million higher (2019: $4.2 million higher), net of derivatives.

Amounts recognised in profit or loss and other comprehensive income

During the year no amounts, relating to cash flow hedges on interest rate swaps were recognised in other comprehensive income (2019: $0.1 million loss). In addition, during the period there were no amounts relating to cash flow hedges that were transferred from equity to operating profit (2019: $2.3 million loss). During the period there was no amount recognised in the income statement in respect of hedge ineffectiveness on interest rate swaps contracts (2019: nil).

5.1.2 Foreign exchange risk

The Group operates internationally and is therefore exposed to currency risk arising from movements in foreign currency rates, primarily with respect to the US Dollar and NZ Dollar. The foreign exchange risk arises from:

• recognised monetary assets and liabilities held in a nonfunctional currency and net investments in foreign operations (translation risk); and

• differences in the dates foreign currency commercial transactions are entered into and the date they are settled (transaction risk).

The Group’s exposure to foreign currency risk at the end of the reporting period in respect of foreign denominated monetary items, expressed in Australian dollars, was as follows:

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|||||
|---|---|---|---|
|2020|USD|NZD|CAD|
|Trade receivables|25.4|0.2|12.2|
|Trade payables|(11.0)|(0.4)|-|
|Foreign currency forwards|
|Cash flow hedges|
|Buy foreign currency|88.2|-|-|
|Sell foreign currency|-|0.3|-|
|Held for trading|
|Buy foreign currency|1.6|0.1|-|
|2019|USD|NZD|EUR|
|Trade receivables|35.5|0.1|-|
|Bank loans|(312.0)|-|-|
|Trade payables|(19.7)|(0.3)|(16.5)|
|Foreign currency forwards|
|Cash flow hedges|
|Buy foreign currency|75.2|-|-|
|Sell foreign currency|-|70.9|-|
|Held for trading|
|Buy foreign currency|2.1|0.2|6.6|
|Sell foreign currency|-|8.7|-|

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Page 34

30 June 2020

Orora Limited

Notes to the financial statements

Section 5: Financial risk management (continued)

5.1 Market risks (continued)

5.1.2 Foreign exchange risk (continued)

The following sensitivity illustrates how a reasonably possible change in the US dollar and NZ dollar would impact post-tax profit as at 30 June:

• if the Australian dollar had weakened by 10% against the US dollar with all other variables held constant, post tax profit would have been $1.2 million higher (2019: post-tax profit $1.3 million higher, equity $34.7 million higher).

• if the Australian dollar had weakened by 10% against the NZ dollar with all other variables held constant, there would have been no impact upon post tax profit (2019: $0.1 million lower)

Further details regarding foreign currency translation and translation risk is set out below.

Translation risk

To limit translation risk exposure the Group’s borrowings are generally denominated in currencies that match the cash flows generated by the underlying operations of the Group, which are primarily Australian and US dollars. Interest payable on those borrowings is denominated in the currency of the borrowing. In respect of the US operations this provides a natural economic hedge without requiring derivatives to be entered into.

Exposure

The summary quantitative data about the Group’s exposure to translation currency risk, as reported to the management of the Group, is as follows:

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----- Start of picture text -----

2020 2019
$ million USD NZD USD NZD
Funds employed 791.8 119.5 806.7 243.6
Net Debt (269.3) (23.3) (625.8) 6.5
34.0% 19.5% 77.6% (2.7%)
----- End of picture text -----

Transaction risk

To manage foreign currency transaction risk the Group’s policy is to hedge material foreign currency denominated expenditure at the time of commitment and to hedge a proportion of foreign currency denominated forecasted exposures on a rolling 18-month basis (mainly relating to export sales and the purchase of inventory), using either a natural hedge where one exists, or through the use of forward foreign exchange contracts or foreign currency options taken out for up to two years from the forecast date.

Forward exchange derivatives used for hedging

The below carrying values represent the fair value of instruments used to hedge foreign exchange risk together with the associated nominal volume:

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----- Start of picture text -----

Notional Weighted $million
item Average Asset Liability
2020
Cash flow hedges
AUD/USD USD69.3 0.6600 0.5 (5.1)
NZD/USD USD20.5 0.6279 0.2 (1.0)
NZD/AUD AUD0.4 0.9555 - -
Total derivatives in an asset/(liability) position 0.7 (6.1)
2019
Cash flow hedges
AUD/USD USD63.7 0.7184 1.8 (0.1)
AUD/NZD NZD(1.7) 1.0834 - (0.1)
AUD/EUR EUR22.6 0.6177 0.3 (0.1)
NZD/USD USD13.6 0.6784 0.2 (0.1)
NZD/EUR NZD0.1 0.5577 - -
NZD/AUD AUD82.7 0.9398 0.1 (1.3)
Total derivatives in an asset/(liability) position 2.4 (1.7)
----- End of picture text -----

Sensitivity

The following sensitivity illustrates how a reasonably possible change in the US dollar and NZ dollar would impact the fair value of the derivative financial instruments (refer note 5.4) held for future commercial transactions as at 30 June:

• if the Australian dollar had weakened by 10% against the US dollar with all other variables held constant, equity would have been $6.5 million higher (2019: $11.8 million higher).

• if the Australian dollar had weakened by 10% against the NZ dollar with all other variables held constant, there would have been no impact upon equity (2019: $0.2 million lower).

Amounts recognised in profit or loss and other comprehensive income

During the year, the Group recognised a foreign currency gain of $1.2 million (2019: $1.0 million loss) and a loss of $0.2 million (2019: $0.5 million loss) relating to foreign currency derivatives, that did not qualify as hedges, within general and administrative expenses in the income statement.

In addition, a loss of $5.0 million (2019: $0.3 million gain) relating to cash flow hedges and a $25.2 million loss (2019: $17.7 million gain) on the translation of foreign operations was recognised in other comprehensive income. Gains of $0.9 million (2019: $6.9 million gain) and a gain of $0.1 million (2019: $0.1 million gain), relating to cash flow hedges, were transferred from equity to operating profit and non-financial assets, respectively.

Upon the divestment of the Australasian Fibre business a foreign currency loss of $12.1 million ($8.3 million after tax) relating to the net investment hedge of the foreign operations of this disposed business was reclassified to profit on disposal. Refer note 6.2.

Page 35

30 June 2020

Orora Limited

Notes to the financial statements

Section 5: Financial risk management (continued)

5.1.3 Commodity price risk

The Group is exposed to commodity price risk arising from the purchase of aluminium and the price of electricity.

Electricity prices

To manage the risk associated with the variability of wholesale electricity prices in Australia the Group utilises Power Purchase Arrangements (PPAs). These contracts are entered into in order to economically hedge exposure to fluctuations in electricity prices by purchasing electricity at predetermined prices.

These derivative instruments meet the requirements for hedge accounting. Settlement of the contracts require exchange of cash for the difference between the contracted and spot market price. The contracts are measured at fair value and the resultant gains or losses that effectively hedge designated risk exposures are deferred within the cash flow hedge reserve.

At 30 June 2020 the net carrying value, and fair value, of the instruments used to hedge commodity price risk in respect of electricity prices is a net liability of $1.5 million (2019: net asset $2.1 million).

Aluminium purchases

In managing commodity price risk associated with aluminium purchases the Group is able to pass on the price risk contractually to customers through rise and fall adjustments. In the case of aluminium some hedging is undertaken using fixed price swaps on behalf of certain customers. Hedging undertaken is upon customer instruction and all related benefits and costs are passed onto the customer on maturity of the transaction.

The movements in commodity hedges are recognised in equity and the cumulative amount of the hedge is recognised in the income statement when the forecast transaction is realised. There is no impact on profit as a result of movements in commodity prices where hedges have been put in place as the Group passes the price risk contractually through to customers. As the Group ultimately passes on the movement risk associated with commodity prices to customers, no sensitivity has been performed.

5.1.4 Employee Share Plan risk

The Group is exposed to movements in the value of ordinary shares of the Company in respect of the obligations under the Group’s Employee Share Plans (refer note 7.1). To mitigate this risk the Group has established the Orora Employee Share Trust (the Trust) to manage and administer the Group’s responsibilities under the Employee Share Plans through the acquiring, holding and transferring of shares, or rights to shares, in the Company to participating employees.

As at 30 June 2020, the Trust held 655,046 treasury shares in the Company (2019: 1,126,545), 168,000 allocated shares in respect of the CEO Grant (2019: 264,040) and 180,600 allocated shares in respect of vested shares held on trust that contain a post-vesting holding lock (2019: nil). Refer to note 6.3 for further details.

5.2 Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. It arises principally from the Group’s receivables from customers, cash and cash equivalents and in-the-money derivatives. There is also credit risk relating to the Group’s own credit rating as this impacts the availability and cost of future finance.

The Group manages credit risk through the maintenance of procedures such as the utilisation of systems of approval, granting

and renewal of credit limits, regular monitoring of exposures against such credit limits and assessing the overall financial stability and competitive strength of the counterparty on an ongoing basis.

Trade and other receivables

Credit risk exposures related to trade and other receivables are discussed in note 3.1.

Cash and cash equivalents and derivatives

Credit risk related to balances with banks and financial institutions is managed by Orora Group Treasury in accordance with Group policy. The policy only allows financial derivative instruments to be entered into with high credit quality financial institutions with a minimum long-term credit rating of A- or better by Standard & Poor’s. In addition the Board has approved the use of these financial institutions, and specific internal guidelines have been established with regards to limits, dealing and settlement procedures.

The maximum exposure to credit risk by class of recognised financial assets at the end of the reporting period, excluding the value of any security held, is equivalent to the carrying amount and classification of the financial assets (net of any provisions) as presented in the statement of financial position.

Guarantees

The Group’s policy is to provide financial guarantees only to certain parties securing the liabilities of subsidiaries, and are only provided in exceptional circumstances (refer note 7.3).

5.3 Liquidity and funding risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s financing policy is to fund itself for the long term by using debt instruments with a range of maturities and to ensure access to appropriate short-term facilities. Orora Group Treasury aims to maintain flexibility within the funding structure through the use of bank overdrafts and bank loans.

Management manages liquidity risk through maintaining minimum undrawn committed liquidity of at least $175.0 million that can be drawn upon at short notice and regularly monitoring rolling forecasts of cash inflows and outflows in relation to the Group’s activities. This monitoring includes financial ratios to assess possible future credit ratings and headroom and takes into account the accessibility of cash and cash equivalents.

Financing arrangements

At 30 June 2020, the Group had access to:

• $350.0 million revolving multicurrency facility through a syndicate of domestic and international financial institutions maturing in April 2022.

• US Private Placement of notes USD243.0 million of which USD100.0 million matures in July 2023 and USD143.0 million matures in July 2025.

• USD150.0 million five-year USD revolving facility, through a syndicate of domestic and international financial institutions, maturing in April 2024.

• Three bilateral agreements, one for $25.0 million and two for $35.0 million, each with separate domestic institutions, with one maturing in March 2021, one maturing in April 2021 and the other in January 2022.

These facilities are unsecured.

Page 36

30 June 2020

Orora Limited

Notes to the financial statements

Section 5: Financial risk management (continued)

5.3 Liquidity and funding risk (continued)

Financing arrangements (continued)

The committed and uncommitted standby arrangements and unused facilities of the Group are set out below:

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----- Start of picture text -----

2020 2019
$ million Committed Uncommitted Total Committed Uncommitted Total
Financing facilities available:
Bank overdrafts - 6.3 6.3 - 6.3 6.3
US Private placement 352.2 - 352.2 356.1 - 356.1
Loan facilities and term debt 662.3 73.0 735.3 977.4 116.3 1,093.7
1,014.5 79.3 1,093.8 1,333.5 122.6 1,456.1
Facilities utilised:
Bank overdrafts - - - - - -
US Private placement 352.2 - 352.2 356.1 - 356.1
Loan facilities and term debt 48.0 - 48.0 607.0 - 607.0
400.2 - 400.2 963.1 - 963.1
Facilities not utilised:
Bank overdrafts - 6.3 6.3 - 6.3 6.3
US Private placement - - - - - -
Loan facilities and term debt 614.3 73.0 687.3 370.4 116.3 486.7
614.3 79.3 693.6 370.4 122.6 493.0
----- End of picture text -----

Maturity of financial liabilities

The table below analyses the Group’s financial liabilities, including derivatives, into relevant maturity groupings based on the period remaining until the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows (including interest), so will not always reconcile with the amounts disclosed in the statement of financial position:

$ million 1 year or less 1-2 years 2-5 years	More than 5 years Total contractual cash flows	Carrying amount (assets)/ liabilities
2020 Non-derivative financial instruments Trade and other payables 663.5 - - Lease liabilities 62.7 53.4 128.0 Borrowings 14.2 61.6 171.8	- 663.5 93.3 337.4 207.5 455.1	663.5 279.4 399.4
Total non-derivatives 740.4 115.0 299.8	300.8 1,456.0	1,342.3
Derivatives Net settled (interest rate swaps and commodity contracts) (0.7) (0.6) (0.2) Gross settled forward exchange contracts - Inflow 130.2 6.8 0.2 -Outflow (135.5) (7.0) (0.2)	- (1.5) - 137.2 - (142.7)	(1.5) (5.5)
Total gross settled forward exchange contracts (5.3) (0.2) -	- (5.5)
Total derivatives (6.0) (0.8) (0.2)	- (7.0)	(7.0)
2019 Non-derivative financial instruments Trade and other payables 999.1 8.8 3.5 Borrowings 32.8 30.6 817.1	0.5 1,011.9 221.3 1,101.8	1,011.9 960.3
Total non-derivatives 1,031.9 39.4 820.6	221.8 2,113.7	1,972.2
Derivatives Net settled (interest rate swaps and commodity contracts) 0.5 0.5 1.0 Gross settled forward exchange contracts - Inflow 209.1 18.9 1.6 - Outflow (208.4) (19.0) (1.5)	- 2.0 - 229.6 - (228.9)	2.0 0.7
Total gross settled forward exchange contracts 0.7 (0.1) 0.1	- 0.7
Total derivatives 1.2 0.4 1.1	- 2.7	2.7

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Notes to the financial statements Section 5: Financial risk management (continued)

5.4 Hedging instruments

Hedging activities and the use of derivatives

What is a derivative?

A derivative is a type of financial instrument typically used to manage risk. A derivative’s value changes over time in response to underlying variables, such as exchange rates or interest rates, and is entered into for a fixed period of time. A hedge is where a derivative is used to manage exposure in an underlying variable.

• The Group is exposed to certain market risks which include foreign exchange risk, interest rate risk and commodity price risk. In accordance with Board approved policies the Group manages these risks by using derivative financial instruments to hedge the underlying exposures.

Why do we need them?

• The key market risks facing the Group:

• Foreign currency transaction risk is the risk that currency fluctuations will have a negative effect on the value of the Group’s future cash flows due to changes in foreign currency between the date a commercial transaction is entered into and the date at which the transaction is settled

• Interest rate risk arises from fluctuations in variable market interest rates impacting the fair value or future cash flows on long-term borrowings

• Commodity price risk arises from significant changes in the price of electricity and key raw material inputs, in particular the purchase of aluminium.

How do we use them?

• The Group employs the following derivative financial instruments when managing its foreign currency and interest rate risk:

• Forward exchange contracts and options are derivative instruments used to hedge transaction risk so they enable the sale or purchase of foreign currency at a known fixed rate on an agreed future date. The Group holds forward exchange contracts and options denominated in US Dollar, Euro and NZ Dollar to hedge highly probable forecast sale and purchase transactions (cash flow hedges);

• Interest rate swaps are derivative instruments that exchange a fixed rate of interest for a floating rate, or vice versa, or one type of floating rate for another, and are used to manage interest rate risk. These derivatives are entered into to optimise the Group’s exposure to fixed and floating interest rates arising from borrowings. These hedges incorporate cash flow hedges, which fix future interest payments, and fair value hedges, which reduce the Group’s exposure to changes in the value of its assets and liabilities arising from interest rate movements.

• Power Purchase Arrangements are derivative instruments that are used to hedge transaction risk associated with the variability of wholesale electricity prices in Australia. These forward commodity contracts exchange a variable wholesale price of electricity for a fixed electricity price.

• In respect of managing commodity price risk associated with aluminium purchases the Group uses forward commodity contracts. Forward commodity contracts are derivative instruments used to hedge price risk so they enable the purchase of aluminium raw materials at a known fixed rate on an agreed future date. On behalf of customers, aluminium hedging is undertaken using fixed price swaps. The Group passes on the price risk of commodities contractually through to customers, including any benefits and costs relating to swaps upon their maturity (fair value hedge).

All derivative financial instruments utilised by the Group are hedges of highly probable forecast transactions with a hedge ratio of 1:1, therefore the change in the hedging instrument is equal to the change in the value of the underlying hedged item. Derivative financial instruments are only undertaken if they relate to underlying exposures, the Group does not use derivatives to speculate. Analysis of the derivatives used by the Group to hedge its exposure and the various methods used to calculate their respective fair values are detailed in this section.

Accounting policies

Derivative financial instruments are recognised initially at fair value on the date the instrument is entered into and are subsequently remeasured at fair value or ‘marked to market’ at each reporting date. The gain or loss on remeasurement is recognised immediately in the income statement unless the derivative is designated as a hedging instrument in which case the remeasurement is recognised in equity.

Hedge accounting

At the inception of the hedge relationship, the Group formally designates the relationship between hedging instruments and hedged items, as well as its risk management objective for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, as to whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items. Where option

contracts are used to hedge forecast transactions, only the intrinsic value of the option contract is designated as the hedging instrument.

Rebalancing

If the hedging ratio for risk management purposes is no longer optimal but the risk management objective remains unchanged and the hedge continues to qualify for hedge accounting, the hedge relationship will be rebalanced by adjusting either the volume of the hedging instrument or the volume of the hedged item so that the hedge ratio aligns with the ratio used for risk management purposes. Any hedge ineffectiveness is calculated and accounted for in profit or loss at the time of the hedge relationship rebalancing.

For the purposes of hedge accounting, hedges are classified as fair value hedges, cash flow hedges or net investment hedges and are accounted for as set out in the table below.

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Orora Limited

Notes to the financial statements

Section 5: Financial risk management (continued)

5.4 Hedging instruments (continued)

Hedge accounting (continued)

Hedges that meet the criteria for hedge accounting are accounted for as follows:

	Fair value hedge	Cash flow hedge	Net investment hedge
What is it?	A derivative or financial instrument	A derivative or financial instrument hedging the	Financial instruments hedging
	designated as hedging the change in	exposure to variability in cash flow attributable to a	changes in foreign currency when the
	fair value of a recognised asset or	particular risk associated with an asset, liability or	net assets of a foreign operation are
	liability or firm commitment.	forecasted transaction.	translated from their functional
			currency into Australian dollars.
Movement in	Changes in the fair value of the	The effective part of any gain or loss on the derivative	On consolidation, foreign currency
fair value	derivative are recognised in the	financial instrument is recognised in other	differences arising on the translation
	income statement, together with the	comprehensive income and accumulated in equity in	of financial assets and liabilities
	changes in fair value of the hedged	the hedging reserve. The change in the fair value that	designated as net investment hedges
	asset or liability attributable to the	is identified as ineffective is recognised immediately in	of a foreign operation are recognised
	hedged risk.	the income statement within ‘other income’ or	in other comprehensive income and
	The gain or loss relating to the effective portion of interest rate swaps, hedging fixed rate borrowings, is recognised in the income statement	‘general and administration expenses’. Amounts accumulated in equity are transferred to the income statement in the periods when the hedged item affects profit or loss (for instance, when the	accumulated in the foreign exchange reserve, to the extent that the hedge is effective. Any ineffective portion is recognised in the income statement.
	within ‘finance costs’, together with	forecast sale that is hedged takes place). However,
	changes in the fair value of the	when the forecast transaction that is hedged results in
	hedged fixed rate borrowings	the recognition of a non-financial asset (for example,
	attributable to interest rate risk. The	inventory), the gains and losses previously deferred in
	gain or loss relating to the ineffective	equity are transferred from equity and included in the
	portion is recognised in the income	measurement of the initial cost or carrying amount of
	statement within ‘other income’ or	the asset.
	‘general and administration expenses’.	Where options are used, changes in the fair value of the option are recognised in other comprehensive
		income depending on whether it is designated as the
		hedging instrument in its entirety, or it’s intrinsic
		value only. If only the intrinsic value is designated,
		the option’s time value that matches the terms of the
		hedged item is be recognised in equity and released
		to profit or loss over the term of the hedged item.
Discontinuation	If the hedge no longer meets the	When a hedging instrument expires or is sold,	Upon disposal of the foreign
of hedge	criteria for hedge accounting, the	terminated or exercised, or when a hedge no longer	operation, which is subject to the
accounting	adjustment to the carrying amount of	meets the criteria for hedge accounting, any	net investment hedge, the
	a hedged item, for which the effective	cumulative gain or loss existing in equity at that time	cumulative amount that has
	interest method is used, is amortised	remains in equity and is recognised when the forecast	been recognised in equity in
	to the income statement over the	transaction is ultimately recognised in the income	relation to the hedged net
	period to maturity using a	statement. When a forecast transaction is no longer	investment is transferred to the
	recalculated effective interest rate.	expected to occur, the cumulative gain or loss that	income statement and
		was reported in equity is immediately transferred to	recognised as part of the gain or
		the income statement.	loss on disposal.

Fair value measurement

The following table sets out the fair value of derivative financial instruments utilised by the Group, analysed by type of contract. There were no transfers between level 1 and 2 for recurring fair value measurements during the year. The Group does not hold any material level 3 financial instruments.

$ million Note	Level 2 Fair Value Hierarchy	Level 2 Fair Value Hierarchy
	2020	2019
	Asset Liability	Asset Liability
Cash flow hedges Interest rate swap contracts 5.1.1 Foreign exchange derivative contracts 5.1.2 Electricityand commodityderivatives 5.1.3	- - 0.6 (6.1) 1.3 (2.8)	- (0.1) 2.4 (1.7) 5.9 (3.8)
Total derivatives in an asset/(liability) position	1.9 (8.9)	8.3 (5.6)
Current asset/(liability)	1.0 (7.0)	4.0 (3.0)
Non-current asset/(liability)	0.9 (1.9)	4.3 (2.6)

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Orora Limited

Notes to the financial statements Section 5: Financial risk management (continued)

5.4 Hedging instruments (continued)

Fair value measurement (continued)

Judgements and estimates

The Orora Group Treasury team performs the financial instrument valuations and reports directly to the Chief Financial Officer (CFO) and the Audit, Risk & Compliance Committee. Discussions of valuation processes and results are held with the CFO and Orora Group Treasury at least once every six months, in line with the Group’s half-yearly reporting requirements. Significant valuation issues are reported to the Audit, Risk & Compliance Committee.

When measuring the fair value of an asset or liability, the Group uses market observable data as far as possible. Fair values are categorised into three levels as prescribed under accounting standards, with each of these levels indicating the reliability of the inputs used in determining fair value. The levels in the fair value hierarchy are:

Level 1: Financial instruments traded in an active market (such as publicly traded derivatives, and trading and available-for-sale securities). Fair value is from a quoted price, for an identical asset or liability at the end of the reporting period, traded in an active market. The quoted market price used for assets is the last bid price.

Level 2: Financial instruments that are not traded in an active market (for example over-the-counter derivatives). Fair value is determined using valuation techniques that maximise the use of observable market data and rely as little as possible on entity-specific estimates. All significant inputs used in the valuation method are observable.

Level 3: Financial instruments for which no market exists in which the instrument can be traded. Where one or more of the significant inputs in determining fair value for the asset or liability is not based on observable market data (unobservable input), the instrument is included in level 3.

Determining fair value

The specific valuation techniques used to value derivative financial instruments are as follows:

• the fair value of forward exchange contracts and currency options is determined by using the difference between the contract exchange rate and the quoted exchange rate at the reporting date;

• the fair value of interest rate swaps calculated as the present value of the estimated future cash flows – ie the amounts that the Group would receive or pay to terminate the swap at the reporting date, based on observable yield curves;

• the fair value of electricity and aluminium commodity forward contracts is determined by using the difference between the contract commodity price and the quoted price at the reporting date.

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Notes to the financial statements Section 6: Group Structure (continued)

In this section

This section provides information on those subsidiaries whose results principally affect the financial results of the Group, including details of the divestments and acquisitions that occurred during the period. Details of the Orora Employee Share Trust are also discussed below.

6.1 Principal subsidiary undertakings and investments

The ultimate parent of the Group is Orora Limited, a company incorporated in Australia. The companies listed below are those whose results, in addition to the parent Company, principally affect the figures shown within the Annual Report:

==> picture [219 x 32] intentionally omitted <==

----- Start of picture text -----

Country of Ownership interest
Controlled entities incorporation 2020 2019
Specialty Packaging Group Pty Ltd(1) Australia - 100%
----- End of picture text -----

Specialty Packaging Group Pty Ltd	Australia	-	100%
Orora Packaging Australia Pty Ltd	Australia	100%	100%
Orora Packaging New Zealand Ltd	New Zealand	100%	100%
Orora Packaging Solutions	United States	100%	100%
Landsberg Orora	United States	100%	100%
Orora Visual TX LLC	United States	100%	100%
Orora Visual LLC	United States	100%	100%
Pollock Investments Incorporated	United States	100%	100%

(1) The divestment of the Australasian Fibre business consisted of an asset sale and the disposal of a number of wholly owned subsidiaries including Specialty Packaging Group Pty Ltd (refer note 6.2).

6.2 Business divestment

On 30 April 2020, the Group completed the sale of its Australasian Fibre business (Fibre) to a wholly owned subsidiary of Nippon Paper Industries Co., Limited for an enterprise value of $1,720.0 million, with net proceeds after tax and costs of approximately $1,550.0 million.

The Fibre business is classified as a discontinued operation, accordingly the financial statements have been presented in the following manner:

• the consolidated income statement presents the Fibre business, and the profit on disposal of this business, as a discontinued operation. As a consequence the financial results of the Fibre business are presented separately within the consolidated income statement. The comparative period has been restated to reflect the current period presentation;

• the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement have been presented on a total Group basis.

Results of discontinued operation

The results of the Fibre business, which have been included in the profit for the year, were as follows:

==> picture [227 x 184] intentionally omitted <==

----- Start of picture text -----

$ million 2020 2019
External revenue 1,092.9 1,371.3
External expenses (1,035.3) (1,307.7)
Profit from operations 57.6 63.6
Income tax expense (17.0) (18.9)
Profit from operations, net of tax 40.6 44.7
Gain on sale of discontinued operation(1) 164.0 -
Income tax benefit on gain on sale of
7.7 -
discontinued operation
Profit from discontinued operations, net of
tax(2) 212.3 44.7
Total comprehensive income from discontinued
operations(2) 220.0 44.4
Basic earnings per share 22.0c 4.6c
Diluted earnings per share 21.9c 4.6c
----- End of picture text -----

(1) The net gain on disposal, before tax, of $164.0 million is presented net of transaction costs, exchange fluctuation reserve reclassified on disposal, write-off of Group assets relating to the Fibre business, allowances for post closed completion accounts adjustments and provisions for indemnities.

• (2) The profit from discontinued operations, net of tax, and total comprehensive income from discontinued operations is entirely attributable to the owners of Orora Limited.

Cash flows from/(used in) discontinued operations

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$ million 2020 2019
Net cash flow (used)/from operating activities (87.1) 101.2
Net cash flows from/(used) in investing
activities(1) 1,589.7 (100.7)
Net cash flow from in financing activities 103.3 3.5
Net cash inflow for the period 1,605.9 4.0
----- End of picture text -----

(1) The cash inflows from investing activities includes a net inflow of $1,637.0 million from the sale of the Fibre business.

Financial information relating to the discontinued operation is set out below.

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Notes to the financial statements Section 6: Group Structure (continued)

6.2 Business divestment (continued)

Effect of disposal on the financial position of the Group The following table sets out the carrying amounts of assets, liabilities and equity disposed of at 30 April 2020:

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----- Start of picture text -----

$ million April 2020
Property, plant and equipment 1,145.4
Right-of-use assets 226.4
Intangible assets 78.7
Inventories 245.3
Trade and other receivables 243.0
Other assets 26.5
Assets disposed 1,965.3
Trade and other payables 177.2
Lease liabilities 245.6
Provisions 63.0
Liabilities disposed 485.8
Exchange fluctuation reserve, net of tax (8.3)
Reserve recycled to income statement on disposal (8.3)
----- End of picture text -----

At 30 June 2020, the accounting for the divestment of the Fibre business has been provisionally determined as the customary postclose completion accounts adjustment process remains in progress. This process may result in adjustments to the value attributable to the profit on sale as reported above.

Included within the sale and purchase agreement is an indemnity with regards to potential environmental contamination. The indemnity relates to certain pre-existing contamination that may exist at the Australasian Fibre sites as at 30 April 2020, where, after this date, the contamination is either a) required to be remediated by a regulatory agency or b) the site is subject to regulatory enforcement action that is directly related to pre-existing contamination.

The Group has recognised a provision for potential future costs that may be incurred in relation to any identified environmental contamination as part of the net profit on sale of $164.0 million. The provision as at 30 June 2020 represents management’s best estimate of the potential liability under the indemnity, using all currently available information and considering the scope of the indemnity.

6.3 Orora Employee Share Trust

The Group holds shares in itself as a result of shares purchased by the Orora Employee Share Trust (the Trust). The Trust was established to manage and administer the Company’s responsibilities under the Group’s Employee Share Plans (refer note 7.1) through the acquiring, holding and transferring of shares, or rights to shares, in the Company to participating employees. In respect of these transactions, at any point in time the Trust may hold ‘allocated’ and ‘unallocated’ shares.

As at 30 June 2020, the Trust held 655,046 treasury shares in the Company (2019: 1,126,545), 168,000 allocated shares in respect of the CEO Grant (2019: 264,040) and 180,600 shares held on trust in respect of vested grants that contain a post-vesting holding lock (2019: nil).

Allocated shares

Allocated shares represent those shares that have been purchased and awarded to employees under the CEO Grant (refer note 7.1) and shares that are held on trust in respect of vested grants that contain a post-vesting holding lock.

Shares granted to an employee under the CEO Grant, and vested shares that contain a post-vesting holding lock, are restricted in that the employee is unable to dispose of the shares for a period of up to five years (or as otherwise determined by the Board). The Trust holds these shares on behalf of the employee until the restriction period is lifted at which time the Trust releases the shares to the employee. Allocated shares are not identified or accounted for as treasury shares.

Where the Orora Employee Share Trust purchases equity instruments in the Company, as a result of managing the Company’s responsibilities under the Group’s CEO Grant Employee Share Plan award and for those vested shares with a post-vesting holding lock, the consideration paid, including any directly attributable costs is deducted from equity, net of any related income tax effects.

Unallocated shares

Unallocated shares represent those shares that have been purchased by the Trustee on-market to satisfy the potential future vesting of awards granted under the Groups Employee Shares Plans, other than the CEO Grant. As the shares are unallocated they are identified and accounted for as treasury shares (Treasury Shares) refer note 2.4.1.

Accounting policies

Judgements and estimates

The determination of the outcomes of the post-close completion accounts adjustment processes and future indemnity claims involves significant management judgement. The judgements, estimates and assumptions used in determining the profit on sale as at 30 June 2020 are management’s best estimate based on currently available information.

Transactions with the Group-sponsored Trust are included in these financial statements. In particular, the Trust’s purchases of shares in Orora Limited are debited directly to equity. The shares are held in the Trust until such time as they may be transferred to participants of the various Group share schemes.

In accordance with the Trust Deed, the Trustees have the power to exercise all voting rights in relation to any investment (including shares) held within the Trust.

The actual outcomes may differ from the accounting estimates made at 30 June 2020. Any revisions to accounting estimates will be recognised in net profit/loss from discontinued operations in the period in which the estimate is revised.

The Group did not dispose of any controlled entities or businesses during the comparative period.

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Orora Limited

Notes to the financial statements Section 6: Group Structure (continued)

6.4 Business acquisitions

The Group did not acquire any controlled entities or businesses during the 12-month period ending 30 June 2020. The following investments were acquired in the comparative period and the accounting for these acquisitions has been completed.

Pollock Investments Incorporated

On 28 November 2018, the Group acquired 100% of the issued share capital of Pollock Investments Incorporated (Pollock), a market leading provider of packaging and facility supplies head quartered in Texas, USA. In addition to six distribution centres located throughout Texas the business has distribution centres in Georgia, North Carolina, New Jersey and California. Pollock predominantly services industrial, retail and facility supplies market segments and also operates a corrugated box manufacturing plant and in-house packaging design service in Dallas, Texas.

From the date of acquisition to 30 June 2020 consideration of $111.9 million (USD80.4 million) has been paid. This includes a deferred consideration USD5.0 million indemnity holdback of which USD3.0 million was paid during the period to 30 June 2020, whilst USD2.0 million was paid in the comparative period.

Accounting policies

The acquisition method of accounting is used to account for all business combinations regardless of whether equity instruments or other assets of a business are acquired.

In accordance with the acquisition method the Group measures goodwill, at acquisition date, as the fair value of the consideration transferred less the fair value of the identifiable assets and liabilities acquired. The fair value of the consideration transferred comprises the initial cash paid and an estimate for any future contingent or deferred payments the Group may be liable to pay.

The application of the acquisition method requires certain estimates and assumptions to be made particularly around the determination of fair value of: any contingent or deferred consideration; the acquired intangible assets; property, plant and equipment; and liabilities assumed. Such estimates are based on the information available at the acquisition date and valuation techniques which require considerable judgement in forecasting future cash flows and developing other assumptions.

The fair value of the net identifiable assets acquired was $44.9 million (USD32.9 million). The resulting goodwill of $67.0 million (USD47.8 million) is mainly attributable to the synergies expected to be achieved from integrating the business purchased into the Group’s existing North American operations and the skills and talent of the workforce in the newly acquired businesses.

The results of Pollock are included in the North America segment from the date of acquisition.

Bronco Packaging

On 31 August 2018, the Group acquired the assets and operations of Bronco Packaging Corporation, a business which serves corporate accounts in the fresh food and manufacturing industry and provides an ‘on-demand’ packaging delivery service to its customers which are predominately located in Texas.

From the date of acquisition to 30 June 2020 consideration of USD20.6 million ($28.4 million) has been paid. This includes a deferred consideration payment of USD1.6 million arising as a result of customary completion processes. The fair value of the net identifiable assets acquired was USD1.9 million. The resulting goodwill recognised represents the synergies expected to be achieved from integrating the Bronco business into the Group’s existing North American operations.

The results of the business are included in the North America segment from the date of acquisition.

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Orora Limited

Notes to the financial statements

Section 7: Other Notes to the Financial Statements

In this section This section includes additional financial information that is required by the accounting standards and the Corporations Act 2001, including details about the Group’s employee reward and recognition programs.

7.1 Share-based compensation

The Group provides benefits to employees (including senior executives) of the Group in the form of share-based incentives. The Orora employee incentive plans have been established to ensure employees are motivated and incentivised to develop and successfully execute against both short and long-term strategies that grow the business and generate shareholder returns. The plans provide an appropriate level and mix of short and long-term incentives to appropriately recognise and reward employees creating a high performance culture and Orora’s ability to attract and retain talent. Orora’s remuneration strategy is competitive in the relevant markets to support the attraction and retention of talent.

The following information provides details of Orora’s employee incentive plans. During the period the Group recognised a share-based payment expense of $4.6 million (2019: $6.0 million). Employee expenses and employee provisions are shown in note 1.5 and 3.9 respectively. This note should be read in conjunction with the Remuneration Report, as set out in the Directors’ Report, which contains detailed information regarding the setting of remuneration for Key Management Personnel.

The following table details the total movement in the CEO Grant, Share Options, Performance Rights or Performance Shares issued by the Group:

	CEO Grant	Long Term In	No. $(2) No. $(2) centive Plans Short Term Incentive Plan Performance Rights and Performance Shares Deferred Equity(1)
		Share Options
	No. $(2)	No. $(2)
2020 Outstanding at beginning of period Granted during the period Exercised during the period Forfeited duringtheperiod	264,040 2.96 210,000 3.23 (306,040) 2.99 - -	14,431,770 0.50 - - (3,937,062) 0.42 (1,056,500) 0.47	5,773,391 2.06 1,318,936 3.05 1,839,400 2.06 293,893 2.65 (1,882,916) 1.85 (977,671) 2.99 (839,537) 2.14 (53,469) 3.06
Outstanding at end of period	168,000 3.23	9,438,208 0.54	4,890,338 2.14 581,689 2.94
Exercisable at end of period	- -	881,628 0.44	- - - -
2019 Outstanding at beginning of period Granted during the period Exercised during the period Forfeited duringtheperiod	385,446 2.65 80,000 3.09 (171,406) 2.28 (30,000) 3.20	17,134,808 0.47 2,124,500 0.38 (4,405,185) 0.31 (422,353) 0.54	7,635,916 1.76 1,822,418 2.87 1,483,500 1.99 593,157 3.15 (2,819,166) 1.22 (1,009,022) 2.79 (526,859) 2.31 (87,617) 3.04
Outstanding at end of period	264,040 2.96	14,431,770 0.50	5,773,391 2.06 1,318,936 3.05
Exercisable at end of period	- -	384,561 0.23	- - - -

(1) The equity outcomes for the 2020 financial year short-term incentive will be determined and allocated in September 2020 and are therefore not included in the above table.

(2) The above weighted average fair value is determined in accordance with AASB 2 Share-based Payment in respect of recognising the share-based payment expense of the award granted.

The exercise price of the CEO Grant, Performance Rights and Performance Shares and Deferred Equity Awards are nil. The exercise price of Share Options outstanding at the end of the year are set out below:

Options outstanding at the end of the year are set out below:
Grant date Vesting Date Expiry date Exercise price	Number
	2020 2019
19 Feb 2014 30 Sept 2016 30 Sept 2021 1.22 19 Feb 2014 30 Sept 2018 30 Sept 2023 1.22 30 Oct 2015 30 Sept 2019 30 Sept 2024 2.08 20 Oct 2016 29 Aug 2020 29 Aug 2025 2.69 20 Oct 2017 30 Aug 2021 30 Aug 2026 2.86 22 Oct 2018 31 Aug2022 31 Aug2027 3.58	179,561 199,561 - 185,000 307,567 4,039,629 4,024,580 4,273,580 3,509,000 3,723,000 1,417,500 2,011,000
Share options outstanding at end of period	9,438,208 14,431,770
Weighted average contractual life of options oustanding at end of period	5.8 years 6.4 years

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Orora Limited

Notes to the financial statements Section 7: Other Notes to the Financial Statements (continued)

7.1 Share-based compensation (continued)

A description of the equity plans in place during the year ended 30 June 2020 is described below:

	Retention/Share Payment plan CEO Grant	Long-term incentives Share Options Performance Rights and Performance Shares	Short-term incentive
			Deferred Equity
Overview	The Board endorses certain employees as eligible to receive ordinary shares in part satisfaction of their remuneration for the relevant financial year. The number of shares issued is at the discretion of the Board. The restrictions on these shares do not allow the employee to dispose of the shares within the vesting/restriction period. The shares subject to the CEO Grant carry full dividend entitlements and voting rights.	Under the long-term incentive plan, share options or performance rights over ordinary shares in the Company, or performance shares, may be issued to employees. The exact terms and conditions of each award are determined by the Directors of the Company at the time of grant. The Group has ceased offering share options under the long- term incentive plan. The last share option grant was issued in FY19, with a vesting date of 30 June 2022. Give the employee the right to acquire a share at a future point in time upon meeting specified vesting conditions, described below, and require payment of an exercise price. The share options are granted at no consideration and carry no dividend entitlement or voting rights until they vest and are exercised to ordinary shares on a one-for-one basis. Give the employee the right to receive a share at a future point in time upon meeting specified vesting conditions, as described below, no exercise price is payable. The rights are granted at no consideration and carry no dividend entitlement or voting rights until they vest and convert to ordinary shares on a one-for-one basis.	Provides an additional short-term incentive opportunity to selected employees, in the form of rights to ordinary shares. The number of rights that are allocated to each eligible employee is based on:  33.3% of the value of the cash bonus payable under the Short Term Incentive Plan, following the end of the performance period;  the volume weighted average price of Orora Limited ordinary shares for the five trading days up to and including 30 June, being the end of the performance period; and  where cash bonuses are determined in currencies other than Australian dollars, the average foreign exchange rate for the same five-day period.
Vesting conditions	Subject to alignment of performance with Orora’s Values as assessed by the Board and the employee remaining in employment of the Group at the vesting date.	Subject to meeting an Earnings per Share (EPS) hurdle, the satisfaction of a Return on Average Funds Employed (RoAFE) gateway test, and the employee remaining in employment of the Group at the vesting date. For grants issued FY20 onwards, 50% are subject to meeting a relative Total Shareholder Return (TSR) and the satisfaction of an absolute TSR gateway test, and 50% are subject to meeting an EPS hurdle and the satisfaction of a RoAFE gateway test. For grants issued prior to FY20, two-thirds are subject to meeting a relative Total Shareholder Return test, the remaining one-third is subject to meeting an EPS hurdle and the satisfaction of a RoAFE gateway test. Vesting of the rights is subject to the employee remaining in employment of the Group at vesting date.	Remain in employment of the Group at vesting date.
Vesting period	Up to 5 years	4 years 4 years	2 years
Vested awards	Restriction lifted upon vesting.	Vested share options will remain exercisable until the expiry date. On expiry, any vested but unexercised share options will lapse. Shares are issued upon vesting.	Shares issued upon vesting.

Unvested Unvested awards are forfeited if the employee voluntarily ceases employment or is dismissed for cause or poor performance.

awards

Page 45

30 June 2020

Orora Limited

Notes to the financial statements

Section 7: Other Notes to the Financial Statements (continued)

7.1 Share-based compensation (continued)

Accounting policies

The cost of the share-based compensation provided to employees is measured using the fair value at the date at which the option or right is granted and is recognised as an employee benefit expense in the income statement with a corresponding increase in the sharebased payment reserve in equity. The expense is spread over the vesting period during which the employees become unconditionally entitled to the option or right granted. Upon exercise of the option or right, the balance of the share-based payment reserve, relating to the option or right, is transferred to share capital.

At each reporting period the Group revises the estimate of the number of options that are expected to vest based on the nonmarket vesting conditions. Any impact to the revision of an original estimate is recognised in the income statement with a corresponding adjustment to the share-based payment reserve. The employee expense, recognised each period, reflects the most recent estimate. The fair value of options is measured at grant date taking into account market performance conditions, but excludes the impact of any non-market conditions (eg profitability and sales growth targets). Non-market vesting conditions are included in the assumptions about the number of options that are expected to be exercisable.

The fair value of each option granted is measured on the date of grant using the Black Scholes option pricing model that takes into account the exercise price, the vesting and performance criteria, and where applicable the market condition criteria, term of the option, impact of dilution, the non-tradeable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option.

The fair value of rights is measured at grant date using a MonteCarlo valuation model which simulates the date of vesting, the percentage vesting, the share price and total shareholder return. Once the simulated date of vesting is determined a Black-Scholes methodology is utilised to determine the fair value of the rights granted.

The following weighted average assumptions were used in determining the fair value of options and rights granted during the period:

period:
	2020	2019
Expected dividend yield (%)	4.10	3.70
Expected price volatility of the Company's	23.00	22.00
shares (%)
Share price at grant date ($)	2.98	3.30
Exercise price ($) - options only(1)	-	3.58
Risk-free interest rate - options (%)(1)	-	2.61
Expected life of options (years)(1)	-	4.00
Risk-free interest rate - rights (%)	0.62	2.12
Expected life of rights (years)	3.31	3.58

(1) No options were granted during the period.

The dividend yield reflects the assumption that the current dividend payout will continue with no anticipated changes. The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected price volatility, of the Company’s shares, reflects the assumption that the historical volatility is indicative of future trends, which may not necessarily be the actual outcome.

7.2 Auditors’ remuneration

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$ thousand 2020 2019
Auditors of the Company - PwC Australia
Audit and other assurance services
Audit and review of financial reports 1,027.0 907.9
Other assurance services 30.5 29.0
Other services
Taxation services and advice 232.5 557.3
Fibre divestment advisory services(1) 796.8 -
Total PwC Australia 2,086.8 1,494.2
Network firms of PwC Australia
Audit and other assurance services
Audit and review of financial reports 5.0 10.0
Other services
Taxation services and advice 61.0 97.2
Fibre divestment advisory services(1) 25.0 -
Total Network firms of PwC Australia 91.0 107.2
Total Auditors' remuneration 2,177.8 1,601.4
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(1) Taxation and other related services provided in respect of the sale of the Australian Fibre business.

7.3 Commitments and contingent liabilities

Capital expenditure commitments

At 30 June 2020, the Group has capital commitments contracted but not provided for in respect of the acquisition of property, plant and equipment of $8.5 million (2019: $25.6 million).

Other expenditure commitments

At 30 June 2020, the Group had other expenditure commitments of $38.8 million (2019: $79.1 million) in respect of other supplies and services yet to be provided.

Contingent liabilities

A contingent liability is a liability that is not sufficiently certain to qualify for recognition as a provision where uncertainty may exist regarding the outcome of future events.

Guarantees

The Group has issued a number of bank guarantees to third parties for various operational and legal purposes. In addition, Orora Limited has guaranteed senior notes issued by Landsberg Orora in the US private placement market, the notes have maturities between 2023 and 2025 (see note 2.3). It is not expected that these guarantees will be called on.

Asset restoration and decommissioning

Asset decommissioning

The decommissioning of the Petrie site is a significant and complex exercise involving multiple government agencies. At the date of this Report, decommissioning work continues on site with the estimated costs to complete the decommissioning contingent on final remediation requirements which require significant judgement in respect of determining a reliable estimate. Refer to note 1.2 and 3.9 for further information pertaining to the decommissioning process.

Page 46

30 June 2020

Orora Limited

Notes to the financial statements Section 7: Other Notes to the Financial Statements (continued)

7.3 Commitments and contingent liabilities (continued)

Contingent liabilities (continued)

Asset restoration and decommissioning (continued)

Environmental indemnity

The Australasian Fibre Sale arrangement includes an indemnity with regards to potential pre-existing environmental contamination that may exist at the Australasian Fibre sites at the date of sale, 30 April 2020. The indemnity is in relation to the future requirement to either: a) remediate a site by a regulatory agency; or b) the site is subject to regulatory enforcement action. Refer to note 3.9 and 6.2 for further information.

Other

Certain entities in the Group are party to various legal actions and exposures that have arisen in the ordinary course of business. The actions are being defended and the Directors are of the opinion that provisions are not required as no material losses are expected to arise.

Judgements and estimates

Legal proceedings

The outcome of currently pending and future legal, judicial, regulatory and other proceedings of a litigious nature cannot be predicted with certainty. Legal proceedings can raise difficult and complex issues and are subject to many uncertainties and complexities including, but not limited to, the facts and circumstances of each particular case, issues regarding the jurisdiction in which each proceeding is brought and differences in applicable law.

An adverse decision in a legal proceeding could result in additional costs that are not covered, either wholly or partially, under insurance policies, which could significantly impact the business and the results of operations of the Group.

Each legal proceeding is evaluated on a case-by-case basis considering all available information, including that from legal counsel, to assess potential outcomes. Where it is considered probable that a future obligation will result in an outflow of resources, a provision is recognised in the amount of the present value of the expected cash outflows, if these are deemed to be reliably measurable.

7.4 Orora Limited

Orora Limited financial information

The financial information for the parent entity Orora Limited has been prepared on the same basis as the consolidated financial statements, except as set out below.

Investments in subsidiaries

In the Company’s financial statements, investments in subsidiaries are carried at cost less, where applicable, accumulated impairment losses.

Nature of tax sharing agreement

Upon tax consolidation, the entities within the tax-consolidated group entered into a tax sharing agreement. The terms of this agreement specify the methods of allocating any tax liability in the event of default by the Company on its group payment obligations and the treatment where a subsidiary member exits the group. The tax liability otherwise remains with the Company for tax purposes.

Orora Limited and its wholly-owned Australian resident entities have formed a tax-consolidated group and are therefore taxed as a single entity. The head entity within the tax-consolidated group is Orora Limited.

The Company, and the members of the tax-consolidated group, recognise their own current tax expense/income and deferred tax assets and liabilities arising from temporary differences using the ‘stand-alone taxpayer’ approach by reference to the carrying amounts of assets and liabilities in the separate financial statements of each entity and the tax values applying under tax consolidation. In addition to its current and deferred tax balances, the Company also recognises the current tax liabilities (or assets), and the deferred tax assets arising from unused tax losses and unused tax credits assumed from members of the tax-consolidated group, as part of the tax-consolidation arrangement. Assets or liabilities arising as part of the tax consolidation arrangement are recognised as current amounts receivable or payable from the other entities within the tax-consolidated group.

Summarised income statement and comprehensive income

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Orora Limited
$ million 2020 2019
Continuing Operations
Profit before related income tax expense 474.8 121.8
Income tax expense (28.9) (8.5)
Profit for the financial period from continuing
445.9 113.3
operations
Discontinued Operations
Profit from discontinued operations, net of tax 8.8 30.8
Profit for the financial period 454.7 144.1
Comprehensive income for the financial period
Continuing operations 441.2 112.3
Discontinuing operations 9.3 28.6
Total comprehensive income 450.5 140.9
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On 30 April 2020, the Group completed the sale of its Australasian Fire business, refer note 6.2. Accordingly the financial results of this business are presented separately as a discontinued operation and the comparative period has been restated to reflect the current period presentation.

Page 47

30 June 2020

Orora Limited

Notes to the financial statements

Section 7: Other Notes to the Financial Statements (continued)

7.4 Orora Limited (continued)

Summarised balance sheet

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Orora Limited
$ million 2020 2019
Total current assets 237.0 526.7
Total non-current assets 1,246.5 2,059.1
Total assets 1,483.5 2,585.8
Total current liabilities 472.9 605.3
Total non-current liabilities 57.6 691.0
Total liabilities 530.5 1,296.3
Net assets 953.0 1,289.5
Equity
Contributed equity 333.6 484.1
Reserves:
Share-based payment reserve 11.1 15.5
Cash flow hedge reserve (3.7) 0.5
Retained profits(1) 612.0 789.4
Total equity 953.0 1,289.5
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(1) In the current period the opening position for retained profits was reduced by $25.5 million as a result impact of the adoption of AASB 16 Leases . In the comparative period the opening position for retained profits was reduced by $6.9 million as a result of the impact of the adoption of AASB 15 Contracts with Customers. Refer note 7.8 for more information.

Contingent liabilities of Orora Limited

Deed of Cross Guarantee

Pursuant to the terms of the ASIC Corporations (Wholly-Owned Companies) Instrument 2016/785, which relieved certain whollyowned subsidiaries from specific accounting and financial reporting requirements, Orora Limited and all of the Company’s Australian wholly-owned subsidiaries entered into an approved deed for the cross guarantee of liabilities. No liabilities subject to the Deed of Cross Guarantee at 30 June 2020 are expected to arise to Orora Limited and subsidiaries, as all such subsidiaries were financially sound and solvent at that date.

Details of the deed and the consolidated financial position of the Company and the subsidiaries party to the Deed are set out in note 7.5.

Other guarantees

Orora Limited has guaranteed senior notes issued by Landsberg Orora in the US private placement market, the notes have maturities between 2023 and 2025 (see note 2.3). It is not expected that these guarantees will be called on.

7.5 Deed of Cross Guarantee

The Company, Orora Limited, and the subsidiaries listed below are subject to a Deed of Cross Guarantee (Deed) under which each company guarantees the debts of the others:

Orora Packaging Australia Pty Ltd PP New Pty Ltd[(1)] Pak Pacific Corporation Pty Ltd AP Chase Pty Ltd[(1)] Fibre Containers (Queensland) Pty Ltd Lynyork Pty Ltd Speciality Packaging Group Pty Ltd[(1)] Chapview Pty Ltd ACN 002693843 Box Pty Ltd AGAL Holdings Pty Ltd ACN 089523919 CCC Pty Ltd Rota Die Pty Ltd Rota Die International Pty Ltd[(1)] Envirocrates Pty Ltd Orora Closure Systems Pty Ltd

Under the terms of ASIC Corporations (Wholly-Owned Companies) Instrument 2016/785, those wholly-owned subsidiaries that have entered into the Deed are granted relief from the Corporations Act 2001 requirement to prepare and lodge audited Financial Reports and Directors’ Reports.

Financial statements for the Orora Limited Deed of Cross Guarantee

The consolidated income statement, statement of comprehensive income and statement of financial position of the entities party to the Deed for the year ended and as at 30 June, are set out below.

Consolidated income statement, statement of comprehensive income and retained earnings

income and retained earnings
$ million	2020	2019(1)
Continuing Operations Sales revenue	683.6	684.4
Profit from operations	338.6	92.6
Net finance costs	(22.4)	(15.3)
Profit before related income tax expense	316.2	77.3
Income tax expense	(35.1)	(12.4)
Profit from continuing operations	281.1	64.9
Discontinued Operations (Loss)/profit from discontinued operations, net of tax(1)	(5.0)	38.0
Profit for the financial period	276.1	102.9
Other comprehensive income/(expense) Items that may be reclassified to profit or loss: Cash flow hedge reserve Unrealised (losses)/gains on cash flow hedges, net of tax	(3.5)	0.1
Realised gains transferred to profit or loss, net of tax	(0.6)	(3.2)
Realised (gains)/losses transferred to non-financial assets, net of tax	(0.1)	(0.1)
Other comprehensive loss, net of tax	(4.2)	(3.2)
Total comprehensive income for the financial period	272.0	99.7
Total comprehensive income/(loss) for the financial period attributable to: Continuing operations	276.4	63.9
Discontinuingoperations	(4.4)	35.8
Total comprehensive income for the financial period	272.0	99.7
Retained profits at beginning of financial period	1,042.4	1,103.1
Impact of change in accounting policy (refer 7.8)	(27.5)	(6.9)
Restated retained profits at beginning of financial period	1,014.9	1,096.2
Profit for the financial period	276.1	102.9
Dividends recognised duringthe financialperiod	(606.6)	(156.7)
Retained profits at end of the financial period	684.4	1,042.4

(1) On 30 April 2020, the Group completed the sale of its Australasian Fire business, refer note 6.2. Accordingly the financial results of this business are presented separately as a discontinued operation and the comparative period has been restated to reflect the current period presentation.

(1) These subsidiaries were disposed of on 30 April 2020 as part of the Australasian Fibre business divestment, refer note 6.2.

Page 48

30 June 2020

Orora Limited

Notes to the financial statements

Section 7: Other Notes to the Financial Statements (continued)

7.5 Deed of Cross Guarantee (continued)

Consolidated Balance Sheet

Consolidated Balance Sheet
$ million	2020	2019
Current assets
Cash and cash equivalents	19.4	26.3
Trade and other receivables	45.0	247.1
Inventories	174.3	350.0
Derivatives	1.0	4.0
Other current assets	11.8	26.2
Current tax receivable	32.6	-
Total current assets	284.1	653.6
Non-current assets
Investments in controlled entities	567.7	687.0
Property, plant and equipment	469.9	1,446.1
Right-of-use assets	20.3	-
Deferred tax assets	16.8	-
Goodwill and intangible assets	20.0	100.9
Derivatives	0.9	4.3
Other non-current assets	46.1	19.2
Total non-current assets	1,141.7	2,257.5
Total assets	1,425.8	2,911.1
Current liabilities
Trade and other payables	212.4	462.2
Borrowings	4.2	47.3
Lease liabilities	5.6	-
Derivatives	7.0	3.0
Current tax liabilities	-	9.0
Provisions	71.2	115.2
Total current liabilities	300.4	636.7
Non-current liabilities
Other payables	-	3.4
Borrowings	19.0	604.2
Lease liabilities	20.2	-
Derivatives	1.9	2.6
Deferred tax liabilities	-	31.5
Provisions	19.4	50.7
Total non-current liabilities	60.5	692.4
Total liabilities	360.9	1,329.1
NET ASSETS	1,064.9	1,582.0
Equity
Contributed equity	335.2	488.0
Treasury shares	(1.6)	(3.9)
Reserves	46.9	55.5
Retained earnings	684.4	1,042.4
TOTAL EQUITY	1,064.9	1,582.0

7.6 Related party transactions

The related parties identified by the Directors include investments and key management personnel. Details of investment in subsidiaries are disclosed in note 6.1 and details of the Orora Employee Share Trust are provided in note 6.3. The Group does not hold any interests in associates or joint ventures.

7.6.1 Parent entity

The ultimate parent entity within the Orora Group is Orora Limited, which is domiciled and incorporated in Australia. Transactions with entities in the wholly-owned Orora Group are made on normal commercial terms and conditions and during the year included:

• purchases and sales of goods and services;

• advancement and repayment of loans;

• interest expense paid by Orora Limited for money borrowed;

• transfer of tax related balances for tax consolidation purposes;

• provision of transactional banking facilities on behalf of subsidiaries;

• provision of payroll, superannuation, share-based remuneration and managerial assistance.

7.6.2 Other related parties

Contributions to superannuation funds on behalf of employees are disclosed in note 1.5.

7.7 Key Management Personnel

Key Management Personnel (KMP) consists of Orora Limited Executive and Non-Executive Directors and the Chief Financial Officer. Key management personnel compensation is as follows:

$ thousand	2020	2019
Short-term employee benefits	4,613	3,623
Long-term employee benefits	127	54
Post employment benefits	170	159
Payments on retirement	520	-
Share-basedpayment expense	1,340	1,835
	6,770	5,671

Detailed remuneration disclosures are provided in the Remuneration Report section of the Directors’ Report. Apart from the information disclosed in this note, no Director has entered into a material contract with the Group this financial year and there were no material contracts involving Directors’ interests existing at year end (2019: nil).

At 30 June 2020, no individual KMP or related party holds a loan with the Group (2019: nil).

Page 49

30 June 2020

Orora Limited

Notes to the financial statements Section 7: Other Notes to the Financial Statements (continued)

7.8 New and amended accounting standards and interpretations

7.8.1 Adopted from 1 July 2019

All new and amended Australian Accounting Standards and Interpretations mandatory as at 1 July 2019 to the Group have been adopted, including AASB 16 Leases. The adoption of AASB 16 has resulted in a change to the Group’s accounting policies, more detail is provided below and in note 3.6.

AASB 16 Leases

This note explains the impact of the impact of the adoption of AASB 16 upon the Group’s financial statements.

AASB 16 replaces the dual operating/finance lease accounting model for leases under AASB 117 Leases and the guidance contained in Interpretation 4 Determining whether an Arrangement contains a Lease . The new standard introduces a single, on-balance sheet accounting model, similar to the finance lease accounting under AASB 117. Under the new standard the Group recognises a ‘right-of-use’ asset and a lease liability for all identified leases, unless the lease term is 12 months or less or the underlying asset has a low value. The Group has had to change its accounting policies as a result of adopting AASB 16. Refer to note 3.6 for the Group’s accounting policies on lease accounting.

Under AASB 16 the operating lease expense recognised in the income statement, in accordance with AASB 117, is replaced with a depreciation charge in respect of the right-of-use assets recognised and an interest charge on the recognised lease liability. Short-term leasing costs will continue to be recognised in the income statement. In addition, under AASB 16 lease payments are allocated between principal and finance costs. The principal component of the lease payment is classified as a financing cash flow rather than the operating cash flow presentation under AASB 117.

The new lease standard impacts leases held by the Group that were classified under AASB 117 as operating leases, these are represented mainly by leases over properties, equipment and vehicles.

Impact on the adoption of AASB 16

The Group has elected to use the modified retrospective approach with respect to the adoption of AASB 16. As permitted under the specific transition provisions within the standard, under the modified retrospective approach the cumulative effect of adoption of AASB 16 is recognised as an adjustment to the opening balance of retained earnings at 1 July 2019. There is no restatement of comparative information.

In applying AASB 16 for the first time, the Group has used the following practical expedients permitted by the standard:

• accounting for operating leases with a remaining lease term of less than 12 months at 1 July 2019 as short-term leases;

• excluding initial direct costs form the measurement of the right-of-use asset at the date of initial application; and

• using hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

On transition to the new lease accounting standard the Group has applied the practical expedient to grandfather the definition of a lease. This means that on transition the Group has retained the lease classifications of existing contracts under AASB 117 and Interpretation 4 and has not reassessed whether existing contracts are or contain a lease.

Adjustments recognised in the statement of financial position on 1 July 2019

The impact upon the financial position of the Group of transition to AASB 16 is summarised as follows:

$ million Right-of-use asset	1 July 2019
Property	453.4
Plant and Equipment	34.7
Deferred tax asset	29.6
Total assets	517.7
Onerous lease provision	0.8
Other payables	7.0
Lease liabilities	(595.3)
Total liabilities	(587.5)
Retained earnings	69.8

Page 50

30 June 2020

Orora Limited

Notes to the financial statements Section 7: Other Notes to the Financial Statements (continued)

7.8 New and amended accounting standards and interpretations (continued)

7.8.1 Adopted from 1 July 2019 (continued)

AASB 16 Leases (continued)

Measurement of lease liabilities

On adoption of AASB 16, the Group recognised lease liabilities in relation to leases which had previously been classified as ‘operating leases’ under the principles of AASB 117. The liabilities were measured at the present value of the remaining lease payments, discounted, the weighted average rate applied was 3.92%.

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----- Start of picture text -----

$ million 1 July 2019
Operating lease commitments as at 30 June 2019 491.3
Discounted using the incremental borrowing rate at 1 July 2019 (37.9)
Less short-term or low-value leases not recognised as a liability (8.9)
Add adjustments as a result of different treatment of extension options and rental increases(1) 139.7
Other 11.1
Lease liabilities recognised at 1 July 2019 595.3
Of which are:
Current lease liabilities 44.9
Non-current lease liabilities 550.4
595.3
----- End of picture text -----

(1) The operating lease commitments recognised by the Group as at 30 June 2019 of $491.3 million represented the minimum future lease payments payable under the Groups lease arrangements, in most cases this represented the non-cancellable period of the lease. In addition to including the non-cancellable period, AASB 16 requires option periods to extend to also be included in the computation of the lease liability, if it is reasonably certain that the group will exercise that option.

Measurement of right-of-use assets

The Group has elected to measure the right-of-use asset for certain property leases on a retrospective basis, as if the new lease standard has always been applied, whilst the lease liability is measured at the present value of future lease payments on the initial date of application, being 1 July 2019. All other right-of-use assets were measured at the amount of the lease liability on adoption. Refer to note 3.6 for further details of the amounts recognised at 30 June 2020 in respect of right-of-use assets.

Amounts recognised in the consolidated income statement for the twelve months to 30 June 2020

$ million	Continuing	Discontinuing(1)	Total
Depreciation charge of right-of-use assets
Property	38.7	7.5	46.2
Plant and Equipment	7.7	1.1	8.8
	46.4	8.6	55.0
Interest expense (included in finance expenses)	13.4	7.2	20.6
Expenses relating to short-term or low-value assets	17.0	4.6	21.6

(1) In accordance with AASB 5 Non-current Assets Held for Sale and Discontinued Operations , depreciation and amortisation of non-current assets ceases from the date a disposal group is classified as held for sale. This includes depreciation of right-of-use assets recognised in accordance with AASB 16. Refer not 6.2 for further information on the discontinued operations.

During the twelve months to 30 June 2020 lease payments of $100.3 million were paid by the Group in respect of leases recognised in accordance with AASB 16, of which $65.9 million is attributable to continuing operations and $34.4 million to discontinued operations. These payments are not recognised in the income statement but reduce the value of the lease liability recognised on balance sheet.

Upon adoption of AASB 16, the lease payments of $100.3 million previously recognised in the Group’s earnings before significant items, interest, tax, depreciation and amortisation, is now replaced with a depreciation charge of $55.0 million and an interest expense of $20.6 million. The following table illustrates the impact on current period results as a result of the accounting change.

$ million	Australasia	North America	Continuing	Discontinuing	Total
Increase in earnings before interest, tax, depreciation and amortisation	6.1	59.8	65.9	34.4	100.3
Increase in earnings before interest and tax	1.1	18.4	19.5	25.8	45.3
Increase in net profit before tax	0.2	5.9	6.1	18.6	24.7
Increase in net profit after tax	0.1	4.2	4.3	13.0	17.3

Page 51

30 June 2020

Orora Limited

Notes to the financial statements Section 7: Other Notes to the Financial Statements (continued)

7.8.1 Adopted from 1 July 2018

AASB 15 Revenue from Contracts with Customers

AASB 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaced AASB 118 Revenue, AASB 111 Construction Contracts and related Interpretations. Under AASB 15 revenue is recognised when a customer obtains control of the goods or services. Determining the timing of the transfer of control – at a point in time or over time – requires judgement.

The Group adopted AASB 15 using the cumulative effective method in respect of initially applying this standard at the date of application of 1 July 2018. The impact, net of tax, of transition to AASB 15 on retained earnings at 1 July 2018 was $7.3 million. In assessing the impact of AASB 15 on contract incentives paid to customers and, with specific reference to individual customer contracts, it was identified that in a limited number of instances, previous upfront incentives did not represent modifications of previous contracts and therefore should not be carried forward and allocated to the transaction price under the terms of the current contract.

AASB 15 did not have a significant impact on the Group’s accounting policies with respect to other revenue streams. As allowed by AASB 15, the Group did not provided information about remaining performance obligations at 30 June 2019 given its contracts with customers have an expected duration of one year or less.

Refer note 7.8.1 of the Group’s Annual Report for 30 June 2019 for further information on the adoption of AASB 15.

7.8.2 Issued but not yet effective

There are a number of new and amending accounting standard issued by the AASB that are effective for annual reporting periods beginning after 1 January 2020, with early adoption permitted. These standards have not been early adopted and have therefore not been applied in preparing this financial report. The following amending standards are not expected to have a significant impact upon the Groups’ consolidated financial statements:

• AASB 2018-6 Amendments to Australian Accounting Standards – Definition of a Business

• AASB 2018-7 Amendments to Australian Accounting Standards – Definition of Material

• AASB 2019-1 Amendments to Australian Accounting Standards – References to the Conceptual Framework

• AASB 2019-3 Amendments to Australian Accounting Standards – Interest Rate Benchmark Reform

• AASB 2019-5 Amendments to Australian Accounting Standards – Disclosure of the Effect of New IFRS Standards Not Yet Issued in Australia

• AASB 2020-1 Amendments to Australian Accounting Standards – Classification of Liabilities as Current or Non-Current

• AASB 2020-3 Amendments to Australian Accounting Standards – Annual Improvements 2018-2020 and Other Amendments

• AASB 2020-4 Amendments to Australian Accounting Standards – COVID-19 Related Rent Concessions

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