Packaging company Orora says it faces a power bill blowout of up to $8 million at its NSW recycled paper mill once a current electricity contract expires and it feels the brunt of a recent surge in energy costs.
Orora shares surged on Thursday as the company reported a lift in profits and sales revenue but the company warned increasing gas and electricity costs remain a substantial burden.
Higher electricity costs for its paper recycling mill in the southern Sydney suburb of Botany will deliver a hit to earnings of $6 million to $8 million in 2018, once a legacy contract expires in December.
In January 2016, the Botany mill started paying higher gas prices which reduced earnings by around $3 million in the first-half of 2017.
"A high degree of volatility and uncertainty remains in the Australian electricity market," Orora said on Thursday.
"This is expected to continue for the foreseeable future and represents further potential downside risk to earnings before interest and tax."
Orora said a number of initiatives are being implemented to offset rising costs, including a $23 million investment in a waste water treatment plant to generate renewable energy by converting biogas to electricity.
It said it will continue to assess further energy efficiency projects and supply options.
Orora on Thursday lifted its full-year profit by 1.5 per cent to $171.1 million, while sales revenue was up 4.9 per cent on the previous year at $4.04 billion.
The company's power price warning comes as Australia's second-largest energy retailer, AGL Energy, on Thursday said prices are likely to remain high until there is more investment in power production, which requires certainty from government policy.
AGL chief executive Andrew Vesey said wholesale electricity prices have moderated in recent months but the energy market needs more investment for wholesale and retail energy prices to really ease.
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