Ardagh Glass should profit more than its smaller rivals, says Moody's
Published 02/02/2012 | 05:00
IRISH packaging firm Ardagh Glass should "fare better" in the current challenging economic environment than smaller rivals, according to ratings agency Moody's.
The agency said that Ardagh's large production footprint and strong pricing power should help it to maintain "solid profitability levels".
Ardagh Glass is controlled by Dublin financier Paul Coulson and is one of Europe's biggest packaging firms, with more than a 30pc share of markets in the UK, Germany and Scandinavia.
Moody's said that about 90pc of glass-packaging products were used in food and beverage items, which were largely non-discretionary items.
It added that while demand, therefore, was likely to remain relatively steady, industry players wouldn't be "completely immune" to volume losses.
Moody's said the chief risks to demand included destocking, weakening demand for certain consumer products as a result of consumers' diminished disposable income, and the substitution of glass with plastic or metal packaging.
Late last year, Ardagh agreed to pay €85m to buy an aluminium can manufacturer. Last month, it raised $410m (€311m) in the US via two bond issues. It hopes to use most of that money to fund two potential acquisitions. Last year, Ardagh pulled a US flotation due to the state of the stock markets.
Moody's said that Ardagh would be the "most suitable industry buyer" for Verallia, a unit of French firm Saint- Gobain. But the agency conceded that such an acquisition was not likely to materialise in the short term.
Moody's said that exposure to volatile energy costs was the biggest risk factor for glass- container producers in the coming 12 to 18 months.
The agency reckons that, on average, gas and electricity costs account for between 50pc and 60pc of a manufacturer's raw material costs and about 25pc of their total manufacturing costs. Higher costs are generally passed on to customers, but with a time lag.
Ardagh typically attempts to hedge about 80pc of its energy requirements at the start of the year.