Treading water won't do, says Reynolds UCI boss

Graeme Hart's Reynolds Group Holdings had debt of US$13.96 billion as at the end of June. Photo / Martin Sykes

New Zealand billionaire Graeme Hart's Reynolds Group Holdings packaging business and UCI Holdings, an autoparts business, are under pressure to cut and sustain lower operating costs after recent asset sales that reduced debt.

Briefing analysts on Reynolds' and UCI's newly published second-quarter earnings, joint chief executive Tom Degnan said good progress was made last year at Reynolds and he would focus more on UCI this year.

"While I was focused very heavily on Pactiv and Reynolds last year, I don't have to spend that much time this year, which turns out to be a good thing here at my role with auto," Degnan said at the UCI briefing. "I don't think treading water is good enough - when I talk about getting to low cost, we need to get to low cost, and the limitation on that may be capital."

Late last year Reynolds Group sold its SIG Comnibloc unit for €3.6 billion ($6.1 billion) while UCI sold its Wells Vehicle Electronics business last month for US$251 million ($382 million), with the proceeds used to pay some of the debt Hart's Rank Group used to build the companies.

Reynolds had total debt of US$13.96 billion at June 30, while UCI's was a more modest US$717 million, according to their respective second-quarter earnings reports published last week.

Reynolds put three of its divisions under the microscope last year, stoking speculation the packaging group was being prepared for an initial public offering, while UCI embarked on a strategic review of its businesses in 2014 before amending its credit agreements to allow for asset sales this year.

UCI reported a loss of US$43.3 million in the six months ended June 30, wider than the US$38.1 million loss a year earlier, of which US$15.6 million came from its exited Wells business.

Adjusted earnings before interest, tax, depreciation and amortisation (ebitda) from continuing operations dropped 40 per cent to US$21.6 million, while sales edged up 1.1 per cent to US$403 million.

Reynolds reported a US$2.44 billion profit in the six months ended June 30, which included a US$2.89 billion gain on the sale of its SIG unit compared with a profit of US$12 million a year earlier. Adjusted ebitda from continuing operations edged up 0.2 per cent to US$961 million while revenue fell 3 per cent to US$2.91 billion.

Degnan told the Reynolds conference call repaying debt will be a driving force for the company, and that Rank doesn't plan to get out of the business any time soon.