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Hart's Reynolds Group posts 1H loss as margins shrink

Friday 27th August 2010

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Graeme Hart’s packaging company Reynolds Group, which has bid US$6 billion for Pactiv Group, posted a first-half loss as rising production costs squeezed its margins.

Reynolds is looking to raise US$4 billion of new debt and will take on US$1 billion of debt from Pactiv in a deal that will help Hart challenge the world’s biggest packaging baron, Tetra Laval.

Reynolds posted a net loss of 103.3 million euros in the six months ended June 30, from a year-earlier profit of 35.2 million euros, according to results posted to the Irish Stock Exchange, where its bonds trade.

Revenue rose 10% to 2.1 billion euros amid increased demand out of Asia and South America, though earnings before interest, tax, depreciation and amortisation sank 15% to 372.1 million euros.

Hart is using Reynolds to front his biggest deal yet with the acquisition of New York Stock Exchange-list Pactiv. The deal would see Reynolds put up between US$500 million and US$750 million of equity, including US$200 million of cash from Hart, and some US$5 billion of debt.

Financing for the deal will be settled in coming months, chief executive Tom Degnan said in a conference call to analysts. He predicted the deal would be completed before year-end.

Hart became the world’s No. 2 packaging investor with the acquisition of Switzerland’s SIG, which is now part of Reynolds.

“SIG is stable in Europe and we’re continuing to see strong growth in Asia and South American emerging markets,” Degnan said. “There have been higher resin costs in this quarter, but if resin doesn’t move there will be a benefit from that,” he said, referring to the lag between shifting commodity prices and how the company feeds that into its products.

The company’s level of debt and how it will be structured came under scrutiny from analysts earlier this month after Standard & Poor’s put both Reynolds’ and Pactiv’s credit ratings on CreditWatch with negative implications.

Reynolds’ debt climbed 37% in the past six months to 4.6 billion euros. Interest costs rose 31% to 143.7 million euros.

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