THE world's leading glass packaging supplier, Owens Illinois, could again be forced to shrink its Australian operations, leading to potential job losses, as it cites a sluggish local beer and wine market and protracted negotiations over contracts with customers and unions.
The Owens Illinois chief executive, Albert Stroucken, told investors in the US last week that local profitability had improved after a $25 million restructure in Australia - which included job cuts and a shutdown in excess capacity - but shipment levels in the Asia-Pacific had fallen nearly 6 per cent in the second quarter.
"We expect lower consumer confidence or low consumer confidence and high personnel savings rates will continue to weigh down the wine and beer markets in Australia and New Zealand," he said.
Despite its operating profit in the Asia-Pacific nearly doubling from $US9 million in the second quarter to $US16 million, a protracted slowdown in sales of beer and wine in Australia meant Owens Illinois might have to revisit redundancies and plant closures soon.
Incomplete sales contracts with large customers, presumably the brewers Foster's, Lion Nathan and wine groups, together with union deals, were also weighing on the company.
"Given the continued sluggishness of the Australian wine and beer markets, as well as the fact that we are still negotiating major customer and union contracts, further capacity actions may be necessary," Mr Stroucken said.
"To date, we have spent $25 million of the anticipated $50 million restructuring program in Australia. Additional activity to complete this program will be managed to ensure that further spending is offset by cost savings so that our cash-flow goals are achieved."
The pullback in consumer spending has hurt retailers, including beverage companies. A growing trend to bottle local wine offshore to take advantage of the stronger Australian dollar has also adversely affected bottle makers such as Owens Illinois.
The potential job losses could prove another serious blow for Australia's already trembling manufacturing base. Only last week it was announced that a Qantas engineering joint venture would close in September with the loss of 164 skilled jobs in Tullamarine. This came on top of 450 jobs lost at Ford and 112 at CMI, a Ford supplier.
Owens Illinois, which has its Asia-Pacific regional headquarters in Melbourne, and sites in NSW, South Australia and Queensland, has already shut down two blast furnaces due to the downturn in the beverage sector.
It is unclear how many Australian jobs could be at risk if Owens Illinois is forced to spend a further $25 million on restructuring its local business. A spokeswoman for Owens Illinois did not return calls.
Frequently Asked Questions about this Article…
What is happening to Owens Illinois' Australian operations and why should investors care?
Owens Illinois, the global glass packaging supplier, has warned it may need to shrink its Australian operations because of a sluggish local beer and wine market and prolonged contract negotiations with customers and unions. For investors, this matters because further restructuring or plant closures could affect the company’s regional profitability, cash flow and workforce stability.
Why is Owens Illinois considering more restructuring or plant closures in Australia?
The company cites weak consumer spending in beer and wine, lower consumer confidence, and a nearly 6% drop in Asia‑Pacific shipment levels in the second quarter. In addition, incomplete sales contracts with major customers and ongoing union talks are weighing on capacity planning, so further capacity actions may be necessary.
How much has Owens Illinois already spent on restructuring in Australia and what remains?
Owens Illinois has spent US$25 million so far of an anticipated US$50 million Australian restructuring program. The company says remaining activity will be managed so that further spending is offset by cost savings to meet its cash‑flow goals.
Could Owens Illinois’ restructuring lead to job losses in Australia?
Yes. The company has already carried out job cuts and shut excess capacity, and it warned further redundancies and plant closures could be revisited if the slowdown continues. The article notes it’s unclear exactly how many Australian jobs might be at risk.
How have consumer trends and the strong Australian dollar affected bottle makers like Owens Illinois?
A pullback in consumer spending has reduced demand for beverages, and a growing trend to bottle Australian wine offshore to take advantage of a stronger Australian dollar has reduced local bottling volumes. Both trends have adversely affected bottle makers such as Owens Illinois.
Which large customers are reportedly involved in negotiations with Owens Illinois?
The article mentions incomplete sales contracts with large customers and refers to brewers and wine groups. It specifically names Foster’s and Lion Nathan as the brewers presumed to be involved in negotiations.
What recent financial performance did Owens Illinois report for the Asia‑Pacific region?
Despite challenges, Owens Illinois said its Asia‑Pacific operating profit nearly doubled from US$9 million in the second quarter to US$16 million. However, shipment levels in the region fell by nearly 6% in the same quarter.
Where are Owens Illinois’ Australian sites and what production cutbacks have already occurred?
Owens Illinois has its Asia‑Pacific regional headquarters in Melbourne and sites in New South Wales, South Australia and Queensland. The company has already shut down two blast furnaces as a result of the downturn in the beverage sector.
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