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ARDAGH GROUP

COMPANY DESCRIPTION:
Ardagh Group founded in 1932 is a Luxembourg based leading supplier of rigid packaging solutions. The company’s
products include glass and metal containers largely for food and beverage markets. Its client base includes
companies which make beer, wine, spirits, CSD, energy drinks, juices and flavoured waters in addition to food,
seafood and nutrition. The company also supplies the paints & coatings, chemicals, pharmaceuticals, personal care,
and general household products.
The company has a customer base of over 2,000 customers across more than 100 countries, comprising of multi-
national companies, large and regional companies and small local businesses. The company operates 109
production facilities in 22 countries and has over 23400 employees. The company has established its leading global
position through acquiring 23 companies over the past 30 years. It recently completed the Beverage Can
Acquisition which comprises 22 beverage can production Facilities in Europe, North America and Brazil, which
combined together is believed to be the third largest beverage can business worldwide.
The company has also expanded through investments in new capacity including, a glass furnace investment in UK.
An investment of approximately $220 million in can-making facilities in Roanoke, Virginia and Reno, Nevada, as well
as a substantial expansion of the Conklin, New York, ends plant to meet substantially all of the U.S. food can
requirements of a major U.S. customers and it has also completed construction of a beverage can ends plant in
Manaus, Brazil, to supply its two can-making facilities in that market.

KEY STATISTICS

Current Market Price $17.71 EPS 0.89

Shares Outstanding 18.65M Market Cap $4.1B

P/E Ratio 19.41 Net Debt $8.01B

Price to Sales Ratio 0.4470 Enterprise Value $12.20B

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INDUSTRY:
Global packaging industry is a consumer-driven industry with stable growth. Both the metal and the glass container
markets have been marked by progressive downgauging (metal cans) and light weighting (glass containers), which
have generated material savings in input costs and logistics and enhancing the consumer experience.
The consumer metal packaging industry can be divided into (i) the processed food and specialties segments and (ii)
the beverage segment. The company is currently focused on the processed food and specialties markets, as well as
the beverage can market. The food can sector, which includes cans for a variety of food is a stable market. The
specialty can sector is categorized by a number of different products and applications, including paints & coatings,
aerosol, nutrition and other cans. The beverage can sector is growing in Europe and Brazil, while North America is
stable. Growth in unit volumes of specialty beverage cans has exceeded growth in standard beverage cans, thereby
increasing specialty can penetration, a trend that is expected to continue.

SWOT ANALYSIS
STRENGHTS:
 Leader in Rigid Packaging: Ardagh is one of the leading suppliers of metal and glass packaging solutions,
capable of supplying multi-national CPGs in target markets
 Long Term Relationship with diverse customer base: The company has a long-standing relationship with
major customers including leading multinational companies, large national and regional food and beverage
companies, etc.
 Geographic Presence in different regions: The company operates 109 strategically located production
facilities in 22 countries which enables them to serve customers efficiently.
 Highly contracted revenue base: Two-thirds of sales are made pursuant to multi-year contracts with the
remainder largely pursuant to annual arrangements.

WEAKNESS:
 Poor Waste Management Practices: The company can draw criticism from environmentalists for its poor
waste management practices and inability to integrate sustainability in business operations.
 Cash Shortage: The cash shortage or insufficient current assets negatively affect the liquidity position and
harms the overall business performance.

 Poor Customer Service: The cash shortage or insufficient current assets negatively affect the liquidity
position and harms the overall business performance.
 Poor Governance: Lack of organisational commitment and high employee turnover can increase
recruitment costs and reduce organisational productivity.

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ARDAGH GROUP

OPPORTUNITY:

 Exponential Growth: The exponential growth in the population, and particularly in the existing or potential
customer segments is a great growth opportunity for the business organisation.

 Development of New Technologies: The development of new technologies to assist the product/service
production and delivery process can be exploited to embed the innovation in business operations.

 Rise in Customer’s Income: Rise in the customers’ income and increase in the affluent customer base can be
taken as an opportunity to introduce more high-end products.

 Emergence of E-Commerce: The emergence of e-commerce and social media marketing as a trend can be a
great opportunity for Ardagh Group S A if it can ensure strong online presence on different social
networking sites.

THREATS:
 Regulatory Framework: The changing regulatory framework and introduction of new stricter regulations
impose a major threat to the Ardagh Group S A. It makes compliance with legal standards more complex
and challenging for the business organisation. Inability to comply with changed regulations raises the risk of
expensive law suits.

 Increasing Competition: The increasing number of direct and/or indirect competitors affects the
organisation's ability to sustain and expand the customer base.

 Rise in Inflation: The rise in inflation increases the cost of production and affects the business profitability.

 Deteriorating Economic Conditions: The deteriorating economic conditions affect business performance
when they directly influence the customers' spending patterns and purchasing power.

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ARDAGH GROUP

FINANCIAL STATEMENTS
INCOME STATEMENT:
Net Income
All numbers in millions of US Dollars
2018 (12/31/18) 2017 (12/31/17) 2016 (12/31/16) 2015 (12/31/15)
Sales/Turnover (Net) 9,097 9,190 6,695 5,646
Cost of Goods Sold 7,214 7,164 5,167 4,369
Gross Profit (Loss) 1,883 2,026 1,528 1,277
Selling, General and Administrative Expenses 426 450 337 317
Operating Income Before Depreciation 1,457 1,576 1,191 960
Depreciation and Amortization – Total 714 735 518 438
Operating Income After Depreciation 743 842 673 522
Interest and Related Expense 445 475 469 450
Non–operating Income (Expense) – Total 3 -50 91 -84
Interest Income – Total 0 0 0 --
Special Items Income (Expense) (351) (293) (297) (73)
Pretax Income (50) 23 (1) (84)
Expense (Credit)
Income Taxes Expense (Credit) -- -- -- --
Minority Interest – Income Account 0 0 0 0
Income Before Extraordinary Items (94) 65 (58) (152)
Dividends – Preferred/Preference 0 0 0 0
Income Before Extraordinary Items – (94) 65 (58) (152)
Available for Common
Common Stock Equivalents – Dollar Savings 0 0 0 0
Income Before Extraordinary Items – (94) 65 (58) (152)
Adjusted for Common Stock Equivalents
Extraordinary Items and Discontinued Operations Credit (Expense) 0 0 0 0
NET INCOME (LOSS) (94) 65 (58) (152)

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ARDAGH GROUP

BALANCE SHEET:
Assets
All numbers in millions of US Dollars
2018 (12/31/18) 2017 (12/31/17) 2016 (12/31/16) 2015 (12/31/15)
Current Assets

Cash and Short-Term Investments – Total 530 786 815 601

Receivables – Total 983 1,017 971 660

Inventories – Total 1,284 1,356 1,188 896

Current Assets – Other – Total 239 275 238 485

Current Assets Total 3,036 3,435 3,212 2,642

Non-Current Assets

Property Plant and Equipment – Total (Net) 3,388 3,376 3,086 2,505

Intangible Assets – Total 3,601 4,114 4,104 1,965

Non-Current Assets – Other – Total 280 244 419 201

Non–Current Assets Total 7,278 7,743 7,615 4,679

ASSETS TOTAL 10,314 11,178 10,827 7,321

Liabilities and Shareholders' Equity
All numbers in millions of US Dollars
Liabilites
Current Liabilities

Debt in Current Liabilities 118 2 8 8

Account Payable/Creditors – Trade 1,517 1,473 1,113 578

Income Taxes Payable 114 162 153 83

Current Liabilities – Other 668 664 672 522

Current Liabilities Total 2,417 2,301 1,947 1,190

Long–Term Liabilities

Long-Term Debt Total 7,761 8,326 9,302 6,947

Deferred Taxes and Investment Tax Credit 543 584 735 501

Liabilities (Other) 1,102 1,345 1,013 834

Long-Term Liabilities Total 9,406 10,256 11,050 8,281

Liabilities Total 11,823 12,557 12,997 9,471

Minority Interest – Balance Sheet 0 0 0 0

Shareholders' Equity

Shareholders' Equity Total -1,510 -1,380 -2,172 -2,152

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ARDAGH GROUP

LIABILITIES AND SHAREHOLDERS' EQUITY 10,314 11,178 10,827 7,321

TOTAL

CASH FLOW STATEMENT:

Operating Activities
All numbers in millions of US Dollars
2018 (12/31/18) 2017 (12/31/17) 2016 (12/31/16) 2015 (12/31/15)
Income Before Extraordinary Items (94) 65 (58) (152)
Extraordinary Items and Discontinued Operations 0 0 0 0
Depreciation and Amortization 714 735 518 438
Adjustments to Net Income 211 126 (92) 233
Accounts Receivable – Decrease (Increase) -- -- -- --
Inventory – Decrease (Increase) -- -- -- --
Accounts Payable and Accrued Liabilites – Increase (Decrease) -- -- -- --
Other Changes in Operation Activities 24 77 127 98
OPERATING ACTIVITIES - NET CASH FLOW 855 1,003 495 617
Investing Activities
All numbers in millions of US Dollars
2018 (12/31/18) 2017 (12/31/17) 2016 (12/31/16) 2015 (12/31/15)
Sale of Investments 0 0 0 0
Capital Expenditures 555 507 327 330
Other Cash Flow from Investing Activites (20) (17) (2,842) 0
INVESTING ACTIVITIES – NET CASH FLOW (575) (524) (3,169) (330)
Financing Activities
All numbers in millions of US Dollars
2018 (12/31/18) 2017 (12/31/17) 2016 (12/31/16) 2015 (12/31/15)
Common and Preferred Stock – Sale 0 368 6 0
Cash Dividends 132 178 285 0
Other – Increase (Decrease) (56) (94) 704 78
FINANCING ACTIVITIES - NET CASH FLOW (521) (582) 2,853 (137)
Change in Cash and Cash Equivalents
All numbers in millions of US Dollars
2018 (12/31/18) 2017 (12/31/17) 2016 (12/31/16) 2015 (12/31/15)
CASH AND CASH EQUIVALENTS - INCREASE (DECREASE) (254) (142) 231 151

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ARDAGH GROUP

INVESTMENT THESIS:
Ardagh Group’s revenue for 2018 increases by $501 million to $9,097 million, compared with $8,596 million in
2017. The increase in revenue represents favorably foreign currency translation effects of $220 million. Cost of
Sales increased by 8% to $7,778 million compared to $7,210 million in the previous year. This is mainly due to
unfavorable currency translation effect, higher input and other operating costs. The growth in the revenue and
profit on year on year basis is 6% in the current year compared to 22.55% last year and 24.22% in 2016.
Hypergrowth in previous years has been due to the Beverage Can acquisition in 2016 which increased revenue by
657 Euros. Revenue in the metal packaging industry has grown by more than 9 % last year whereas its glass
packaging sector is very much stagnant with hardly any growth in the last three years.

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ARDAGH GROUP

Represented above are the charts depicting the growth in the revenue of Ardagh Group.

From the charts above it can be concluded that Ardagh’s main growth is in Metal packaging whereas its glass
packaging sector shows hardly any growth thereby giving a possibility that profitability may decline in its glass
sector in the next few years.
Below is a table showing common size income statement which can help us conclude about the profit margin of the
company.
COMMON SIZE INCOME STATEMENT:
Particulars 2015 2016 2017 2018
Revenues 100% 100% 100% 100%
Cost of Revenue 82.42% 82.28% 82.71% 84.14%
Gross Profit 17.58% 17.72% 17.29% 15.86%
Operating 9.77% 9.87% 9.27% 8.17%
Income
Interest Expense (7.92%) (7.09%) (5.14%) (4.89%)
EBT (1.48%) (0.27%) 0.27% (0.55%)
Income Tax 1.21% 0.78% (0.47%) 0.48%
Expense
PAT (2.69%) (1.06%) 0.73% (1.03%)

From the income statement above it can be said that the gross profit margin and the operating profit is decreasing
as the cost of revenue increase which means that the firm has not been able to reduce its cost thereby affecting its
profitability. The Net profit for the year has been negative in the last 3 out of 4 years, however the positive profit in
2017 could be due to its recent acquisition of Beverage Can.
The Firms Free Cash Flow has been increasing every year concluding that the firm has increased its operating cash
flow and the amount available to its debt and equity holder. The Levered Cash flow increased from $220.5 million
in 2015 to $456.3 in 2018. Its Unlevered Cash flow increased from $486 million in 2015 to $734 million in 2018.

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The company’s sales and cash flows are subject to seasonal fluctuations. Demand for Metal beverage and glass cans
is strongest during summers. The investment in working capital for metal beverage and Glass Packaging typically
peaks in the first quarter. The seasonality is managed by supplementing operating cash flow with drawings under
credit facilities
Facility Currency Maturity Date Facility Type Amount Drawn($M)
2.75% Senior Secured Notes EUR 15-Mar-24 Bullet 859
4.625% Senior Secured Notes USD 15-May-23 Bullet 1000
4.125% Senior Secured Notes EUR 15-May-23 Bullet 504
4.25% Senior Secured Notes USD 15-Sept-22 Bullet 715
4.75% Senior Loan GBP 15-Jul-27 Bullet 512
6% Senior Loan USD 15-Feb-25 Bullet 1685
7.25% Senior Loan USD 15-May-24 Bullet 1650
6.75% Senior Loan EUR 15-May-24 Bullet 859
Global Asset Based Loan USD 7-Dec-22 Revolving 100
Finance lease obligation USD/GBP/EUR - Amortizing 36
Other Borrowings EUR/USD - Amortizing 15
Net Borrowings 7935

The company has Long Term Capital debt of $7784m and long-term interest payment of $2312m left,

Recommendation: The Ardagh Group is a Stable, Predictive and Cash Generative company with strong financials
and geographical presence all over the world. It is amongst the highest EBITDA cash conversions among its peers. It
has a track record of successful acquisition and capability to exceed market growth and can be invested in with a
Long Time Horizon.