'Treading water not good enough,' says boss at Hart's packaging, autoparts empires

New Zealand billionaire Graeme Hart's Reynolds Group Holdings packaging business and UCI Holdings 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 says good progress was made last year at Reynolds and more focus would be put on on UCI this year.

Mr Degnan added the role of UCI chief executive in June.

"While I was focused 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," Mr Degnan says.

"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 euros while UCI sold its Wells Vehicle Electronics business last month for $US251 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 $US13.96 billion at June 30, while UCI's was a more modest $US717 million, according to their respective second-quarter earnings reports.

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 $US43.3 million in the six months ended June 30, wider than the $US38.1 million loss a year earlier. Some $15.6 million of that loss came from UCI's exited Wells business. Adjusted earnings before interest, tax, depreciation and amortisation from continuing operations dropped 40% to $US21.6 million, while sales edged up 1.1% to $US403 million.

Mr Hart's Rank Group acquired UCI for $US980 million and FRAM Group for $US950 million in 2011 in leveraged buy-outs. This was at a time when Mr Hart was near the end of building his global packaging empire.

Reynolds is still looking to reduce its debt ratio to 5.5 times adjusted earnings and is contemplating what to do with the $US1.55 billion cash and equivalents it's sitting on. This includes paying off more debt, chief financial officer Allen Hugli told analysts. The company's total debt ratio was six times adjusted Ebitda at the June 30 balance date.

"We like to have a little bit of extra cash around. We like liquidity," Mr Hugli says. "Having said that, do we need as much as we have? Maybe not. We're considering all of the options, but we have made no decision at this time."

Reynolds reported a $US2.44 billion profit in the six months ended June 30, which included a $US2.89 billion gain on the sale of its SIG unit compared to a profit of $US12 million a year earlier. Adjusted Ebitda from continuing operations edged up 0.2% to $US961 million while revenue fell 3% to $US2.91 billion.

Mr Degnan says 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.

"We don't talk much about IPOs, so that's not really on the table. We have plenty of work to do to keep us busy in the next year to two - we're not really discussing exit strategies and things like that.

"Probably what we've said in terms of debt paydown is one of the major driving forces here."

Mr Hart began building the packaging empire in 2006 with the takeover of Carter Holt Harvey, and then going on to buy International Paper's beverage packing unit and Swiss company SIG the following year. He added Alcoa's packaging business in 2008. He then ramped up the expansion in 2010, spending $US6.5 billion on the leveraged buyout of Pactiv, and then $US4.5 billion for Graham Packaging in 2011.

Rank Group declined to comment.

(BusinessDesk)