Ardagh Glass faces Quinn threat

Ardagh Glass Ltd has warned shareholders that it faces a dual threat of higher energy prices and significant competition in its core UK market from the Quinn Group.

The company, which was spun off from Ardagh plc last year, says it expects the UK glass market to be significantly disrupted when the Quinn group's new plant at Ince, near Chester, opens next year.

In his interim statement to shareholders, Ardagh chairman Mr Paul Coulson said: "It is believed that, at full production, the plant will be capable of producing the equivalent of circa 20 per cent of UK market demand. Clearly, the introduction of this new capacity will be very disruptive in the market and the your board is examining strategies to minimise the impact of the threat posed."

Quinn's decision to enter the Irish glass market, with the construction of a plant in Fermanagh, led to Ardagh plc's decision to exit the Irish market and demerge its UK glass-making operation. Ardagh plc has since been renamed South Wharf.

Turnover at Ardagh Glass - which also has operations in Italy and Poland - was €234 million in the first six months of the year, an increase of 8.3 per cent on the equivalent period last year. Operating profit was flat at €20 million. The company said this reflected downtime at its UK plants, which were refurbished.

Net cashflow from operating activities rose from €11.2 million to €25.2 million, but Ardagh spent €29.7 million on a share buyback. A third of the outstanding shares were bought back at €4 per share.

The company also incurred an exceptional cost of €2.3 million associated with the related cancellation of one-third of the share options granted to directors, other employees and independent consultants.

The company has around 13.3 million shares outstanding, compared with 34 million when it demerged from Ardagh plc at €1.17 per share. The share buyback boosted earnings per share from 29.6 per cent to 40.4 per cent.

The buyback and the €27.3 million capital expenditure programme were funded through borrowing and net debt rose €47.1 million to €264 million.

Ardagh agreed to buy 82.4 per cent of Polish glass-maker Huta Szkla Ujscie during the period for €8 million and expects to acquire the remaining 17.6 per cent over the next few months. The company has sales of €23 million and a 13 per cent share of Polish glass production.