Paul Coulson’s Ardagh Group has slashed its full-year earnings forecast for its glass bottles business, adding to the challenge faced by the packaging giant as it weighs options to cut its almost $12.5 billion (€11.5bn) debt pile.
The multinational glass and metal containers manufacturer for the drinks industry, built up by Irish financier Paul Coulson over the past 25 years, moved on Tuesday to downgrade the full-year earnings before interest, tax, depreciation and amortisation (ebitda) projection for its glass bottles unit to $680 million from $750 million-$780 million previously.
This was driven by weaker-than-expected demand among consumers in Europe so far this year, but also reflects a move by drinks manufacturers from glass to aluminium cans, a cheaper option.
The lowered forecast was outlined by group chairman Herman Troskie on a call with debt investors on Thursday afternoon, after the company reported quarterly figures.
Still, Ardagh’s New York Stock Exchange-listed cans unit, Ardagh Metal Packaging, in which the group holds a 75 per cent stake, has grown more confident in its full-year outlook, now predicting that its ebitda will come in between $640 million and $660 million – after nudging the lower end of its previous range up by $10 million.
The weaker outlook for glass, following a slump in sales volumes last year, means the group is now forecasting total earnings growth of only 1.6-3.1 per cent this year.
Group executives signalled on the call that they plan to reduce its glassmaking capacity in Europe in the second half of the year. This follows its recent move to close a glass bottle manufacturing plant in Texas and indefinitely halt production at another site in Seattle, Washington. Ardagh took a $131 million impairment charge against those facilities in the second quarter, according to its latest report.
Mr Troskie, who took over the helm late last year as Mr Coulson stepped down as chairman, reiterated that Ardagh is looking at “all options” to reduce the burden of its debt. However, he indicated on the call that establishing a capital structure that the group can sustain was challenging as the “trajectory” of the business remains unclear.
“We continue to evaluate all our options,” he said.
Mr Coulson remains on the board of the group and holds an effective 36 per cent stake.
Net borrowings at Ardagh Group, the operating business, rose to $10.6 billion at the end of June from $10.1 billion in December. This, together with an earnings decline over the first six month of this year, saw its net debt rise to 8.1 times ebitda over the previous 12 months from a ratio of 7.3.
However, the ultimate parent group at the top of the Ardagh corporate tree – Luxembourg-based ARD Holdings SA – is estimated to have close to a $12.5 billion total level of borrowings.
The group’s riskiest debt, some $1.7 billion of subordinated bonds, are currently trading at between 19 cents and 26 cents on the dollar, reflecting a view in the market that holders of these bonds will not get all of their money back.
The group has other levers it can pull to lower its debt burden. Ardagh and its joint venture partner in a food cans business are known to be looking to sell the company, called Trivium. Ardagh owns 42 per cent. Mr Troskie declined to comment on the potential sale.
