Ardagh Group: Q2 2018 results
‘US glass market impacted by rise in glass containers from China & Mexico’
The company saw constant currency revenue decline by 4% with a reduction of 3% in Glass Packaging Europe and 4% in Glass Packaging North America.
Targeted investments
The results show the second quarter volume/mix in Glass Packaging decreased by 5% compared to the same period last year.
In Glass Europe, broad-based growth in the Glass Packaging of 2% in the quarter was more than offset by lower year-on-year glass engineering volumes.
Glass Packaging North America volume/mix declined by 5% in the second quarter, with growth in spirits and beverages being more than offset by declines in food, wine and beer.
Paul Coulson, CEO, Ardagh Group, said the reduction was attributable to lower-than-expected volumes, increased freight and logistics costs, and $12m cost of production downtime under a program, which it initiated to bring inventories down from elevated levels.
He said it was likely to see further capacity rightsizing initiatives across the industry and recently suspended production at one of its furnaces at its Ruston, Louisiana plant.
- Revenue of $2,347m increased by 6% and 1% on a reported and constant currency basis respectively;
- Adjusted EBITDA of $392m, declined by 6%, primarily driven by Glass Packaging North America;
- Group volume/mix declined by 1% in the quarter and increased by 1% in the half year to June 30;
- Earnings per share growth of 79% to $0.25 (2017: $0.14);
- Adjusted earnings per share declined by 6% to $0.51 (2017: $0.54);
- Quarterly cash dividend of $0.14 per common share, payable on August 31, 2018;
- Investment projects at Rugby, UK and Manaus, Brazil, completed on schedule during the quarter;
- $440m 2021 Senior Notes called for redemption in July, $1.2bn of cash/liquidity used to repay fixed term debt since January 2017;
“We are targeting investments at further orientating our business mix towards stronger-performing end markets by enhancing our capability to best serve evolving customer requirements,” he said.
“We're also working on freight and logistics initiatives which are intended to mitigate the very steep inflation in this area, which has led to the increase in costs of over $20m in glass in the first half of 2018. And this initiative will entail repositioning certain production to better match plants and customer locations.
“We've also implemented a program of cost reduction and performance improvement across our entire US Glass network. And we are working on improving the commercial arrangements with customers relating to the recovery of freight and related overheads.
“Now, these and other initiatives are expected to improve operational and financial performance in Glass Packaging North America, although they will take longer than we previously expected to have meaningful effect.”
Importation tariffs
Coulson added, whilst in the short-term, they (the initiatives) will give rise to some increased costs and disruption, these are the right initiatives to pursue and they should be implemented without delay.
“We've previously noted the level of what we believe are effectively subsidized import glass containers being sold into the North American Glass market. And we welcome the recent inclusion of glass containers on the proposed list of Chinese-manufactured products to be subject to new importation tariffs,” he said.
“As a leading and committed player in the US Packaging sector directly providing over 7,000 permanent skilled roles in the US, we view initiatives to ensure a level playing field and fairness and trade practices as essential to the long-term future of the North American Glass Packaging industry.
“Our immediate objective remains returning Glass Packaging in North America to an appropriate and sustainable level of profitability, regardless of the operating environment.
“Our multipronged initiatives to improve profitability at Glass Packaging North America continued during the quarter and these included capacity management measures where we closed our Milford, Massachusetts facility in March and have since seen a competitor announce a further plant closure.”
