Ardagh has earmarked most of a US$250 million cash injection to boosting capacity at its canmaking plants, but stopped short of joining competitors in building new plants to meet surging global demand for beverage cans.
Despite the Ireland-based company’s production lines being “fully sold out” in 2019, Ardagh has no plans to open “greenfield operations”, chief executive Paul Coulson said.
“We will prioritise growth investments in existing production facilities,” Coulson told analysts. “These investments have materially lower implementation times and start-up risks, thereby resulting in enhanced returns.”
Ardagh’s shares fell 7 per cent on Friday after announcing that 2019 revenue and profit were flat within the metal packaging business, despite selling more cans to customers. The company cited lower prices paid for cans in Europe, an “unfavourable product mix” and increased operating costs. Even so, Coulson said he was pleased with the company’s performance, especially in the American division, where revenue increased 6 per cent. Ardagh’s shares have since regained some ground.
The company also makes glass packaging, and while that accounts for a little less than half of Ardagh’s revenue, the sector helped buoy 2019 earnings.
The $250m investment would be in addition to the $350m earmarked for maintenance investment, Coulson said. Even so, Ardagh’s plans are less ambitious than those of the company’s rivals.
Canmaking competitor Ball estimates similar growth in demand for beverage cans this year – at between 4 and 5 per cent. But the American giant intends to build new factories and lines on both sides of the Atlantic. Ball has two plants under construction in Arizona and Brazil and a third is planned for the US northeast.
Coulson said Ardagh’s investment plans might change, depending on the market’s development, but for now the canmaker will concentrate on increasing production at existing facilities. Particular focus will be placed on Brazil where the company has plants in Alagoinhas and Jacareí and an end-making plant in Manaus. Growth in the South American country reached into double digits last year and is forecast for further expansion this year, Coulson explained.
“There are structural changes in the marketplace down there with people moving from one type of packaging to another – you’ve seen movement from glass to cans there,” he said. “We’re lucky that we can significantly increase capacity within those existing factories without having to build any new facilities.”
Chief financial officer David Matthews warned that the benefits of any new investment would take time to be realised.
“We have seen investments going in, but they will take a little bit of time,” he said. “Their effect in the current year will be limited in terms of volume.”
Coulson also added that Ardagh was preparing for a shift in the European beverage market similar to that in the US, where a wider variety of products is stimulating demand for beverage cans. He pointed in particular to alcoholic fruit drinks and waters such seltzers, which are challenging beer volumes in the American market but have yet to take off across the Atlantic.
“Clearly, the demand-supply situation in North America and Brazil is tighter than it is in Europe, but it is tightening in Europe as well as we see increased demand for beverage can products,” he said. “We probably will see some migration of seltzer volume into Europe as well, which will provide growth opportunities as we go forward.”