Quinn Glass and Ardagh, led by Irish business rivals Sean Quinn and Paul Coulson, could hold 60% between them of the UK“s glass packaging market, worth GBP 600 million (EUR 879 million) by the end of…
Quinn Glass and Ardagh, led by Irish business rivals Sean Quinn and Paul Coulson, could hold 60% between them of the UK“s glass packaging market, worth GBP 600 million (EUR 879 million) by the end of 2006. For this to occur, Quinn Glass needs its new plant at Ince in Cheshire to overcome a legal challenge and become fully operational over the next few months. The plant will have the capacity to produce 1.2 billion glass containers per year, or 16% of the UK market. Industry research suggests that Ardagh“s share of the market will fall from 50% to between 40 and 45% when Quinn is in full production. In 2004, Ardagh had a turnover of about GBP 322 million, of which GBP 180 million came from the UK. Quinn says glass operations account for less than 10% of group“s turnover (last year about EUR 270 million) and will continue to do so even after the new business is in full production. In February 2006, two international ratings agencies have mentioned the threat posed by Quinn when expressing concerns about Ardagh“s credit ratings. The most recent statement, from Standard & Poor“s, brought a cut in the glass-maker“s ratings and a warning about the possible loss of contracts to Quinn Glass in the short to medium term. The problem, said the analysts, is one of overcapacity at a time where costs are rising. Margins are being cut, particularly because of higher gas prices. Customers are also highly concentrated, with ten clients accounting for two-thirds of Ardagh“s sales. While Standard & Poor“s had no immediate concerns about Ardagh“s liquidity, it suggested that necessary capital expenditure at the firm (about EUR 35 million) could lead to it being “free cashflow negative” in 2006. In response to the threat to its market, Ardagh has gone on the offensive by buying up the third-largest UK producer, Redfearn, for GBP 50 million and adding it to its own business, Rockware. Redfearn had a turnover of about GBP 101 million in 2004, most of which was made in the UK. The consolidation reduced the number of large players in the market from four to three, the other two being Quinn and United Glass, a division of world container glass leader Owens Illinois (O-I). The second aspect of Ardagh“s strategy to deal with the newcomer has been to hinder the development of Quinn“s new Cheshire plant, at which it has had some success: in June 2005 the UK high court decided to overturn Quinn“s planning permission for the GBP 200 million plant. Quinn received planning permission from Cheshire city council in 2003 to operate two furnaces and eight glass making lines. Later plans were more ambitious: the company now wanted to have two larger furnaces and 13 production lines. The council, no doubt aware of the employment implications of any planning decision, allowed the changes without an environmental impact statement, but the approval was obstructed by Rockware“s court challenge. Rockware argued that the plant was being built illegally, a contention which is the subject of a counter-challenge. Quinn subsequently submitted a new planning application that included an environmental impact statement and which is currently the subject of a local public inquiry. The inquiry is due to conclude towards the end of March 2006 and will then report to the office of UK deputy prime minister John Prescott within the following 12 weeks. Prescott then has another 12 weeks to make his decision, with most expecting a result before the end of the summer. Quinn has proceeded to fire up its plant and is currently running at 50% glass manufacturing capacity. Full production is scheduled for the end of 2006. “There is nothing illegal in Quinn Glass proceeding in this manner,” a spokesman said for the company. “Had the councils or the office of the deputy prime minister considered that Quinn Glass was doing anything illegal or of detriment to the local environment, they were at liberty to take enforcement action to stop the development. They have not considered this necessary.” The spokesman also said that when Prescott “called in” the matter for his consideration, it was almost built, with more than 100 local staff already recruited. Quinn was so confident of its position that at one stage it threatened legal action against Prescott“s office. It now takes the view that “the quickest way to resolve the issue was to allow the public inquiry to proceed”. The spokesman added: “This is the most environmentally friendly container glass plant in Europe. We look forward to the completion of the inquiry and to our position being fully vindicated”. In regard to the environmental impact of its own, older glass plants, Rockware points out that in 2005 it invested more than GBP 25 million in the environmental aspects of the plants. Future UK demand for glass containers will “remain broadly stable or at best show modest growth of 1 to 2% a year”, according to the Competition Commission“s determination on Ardagh“s purchase of Redfearn. This estimate for demand is echoed by the British Glass Manufacturers“ Confederation, the Sheffield-based representative body for the UK“s glass industry. Director general David Workman says growth in the industry over the past 20 years has averaged at between 1 and 3% annually, although he noted that the trend towards manufacturers also filling the containers it makes, which Quinn can do, could grow the market.