Highly leveraged Metro GlassTech buys time from banks, bets on construction pick up

By Gareth Vaughan

Despite seeing its annual loss balloon out 54% to NZ$48 million, the highly leveraged glass supplier Metro GlassTech has bought itself some time from its banks and is betting on a construction sector pick up in 2011 and 2012.

Metro GlassTech, formerly Metropolitan Glass, was bought by Australia's Catalyst Investment Managers for NZ$366.2 million in 2006 from Aucklanders Andrew Smith, John Bedogni and Cameron Gregory who had founded the business in 1987. Catalyst snapped the business up from under the nose of Fletcher Building, outbidding the more natural buyer of the business with potential cost savings to extract, by about NZ$100 million.

Accounts filed to the Companies Office by its parent company show Metro GlassTech’s after tax loss widened to NZ$48 million in the year to March 2010 from NZ$31.1 million the previous year. Revenue fell 12% to NZ$137.3 million.

The company, which provides flat glass products to the residential and commercial building markets competing against the CSR owned Viridian, coughed up NZ$40.1 million of finance costs in the March year, down from NZ$45.8 million the previous year. This included NZ$32.8 million of payments on its bank loans, which stood at NZ$277.7 million at March 31, down from NZ$286.95 million a year earlier. It’s paying 7.8% interest on the bulk of its debt, down from 12% a year ago.

Chairman Kim Ellis, the former Waste Management managing director, told interest.co.nz Metro GlassTech had seven or eight banks in its syndicate in total, including a couple holding mezzanine debt. Ellis declined to name them although interest.co.nz understands they're likely to include Bank of Scotland, ANZ, BNZ and Westpac. Macquarie Investment Management is listed as one of the group's shareholders.

After the group breached its banking covenants - on its interest cover and gearing ratios - in the year to March 2009, its entire bank debt was classified as a current liability, meaning it was due for repayment within 12 months.

However, after renegotiating the terms of its senior and junior loan facilities last October, NZ$269.76 million of the debt has been pushed out, and is now due for repayment in between two to three years time. Ellis says this means the debt issues are to one side and it’s a matter of the business delivering on its latest forecasts.

“And that’s going to require a continuing improvement in the construction industry and the economy,” he said.

Tough times for construction

Asked how the business had traded since March, Ellis said Metro GlassTech was a reflection of the construction industry generally.

“It’s definitely moving forward, it’s definitely on an incline upwards but it’s hell of a flat incline and it isn’t bouncing back as we thought it might have,” said Ellis.

“It may be a better recovery next year and certainly a strong 2012.”

The group’s capital restructuring also included the issuing of 73.4 million ordinary shares in March this year in exchange for the redemption of 104.8 million preference shares in March. That came after it amended the terms of the preference shares in July 2009, resulting in their reclassification to equity from liability. This saw equity increase by NZ$104.75 million. This year the issued another NZ$15 million worth of preference shares to shareholders. It had total equity of NZ$74.5 million at March 31.

“We don’t have much debt that’s accumulating compound interest now that we’ve switched all those preference shares into equity so time is on our side,” Ellis said.

Earthquake boost expected

Statistics New Zealand’s latest building consent figures show 16,426 consents for dwelling units were issued in the year to July. Although that’s up from 13,954 in the year to July 2009, it’s well down on the 26,553 in the year to July 2007. Ellis said he hoped to see the annual building consents figure get back up to around 25,000 but it was hard to say when this might happen.

In the meantime, rebuilding work in Christchurch after the September 4 earthquake, the increased use of higher margin double glazing in new buildings and retro fitting of double glazing in existing buildings, were among the reasons for Metro GlassTech to be optimistic.

Meanwhile, the annual results included a hit from a NZ$30.8 million goodwill impairment on its upper North Island business. Ellis said the group’s Christchurch and lower North Island operations had faired much better than its Auckland business.

“We test our business units (for goodwill impairment) and the other ones flew through. The upper North Island, we couldn’t project with any real confidence sufficient to hold that goodwill that we had in the balance sheet so we took a write-down there.”

Catalyst's purchase of Metro GlassTech was one of several raids by overseas private equity funds, high on cheap credit, on major New Zealand businesses between 2005 and 2007.

Others snapped up in heavily leveraged deals during the period include Independent Liquor, Yellow Pages, TV3's parent MediaWorks, Hirepool, Hirequip, EnviroWaste and Healtheries.

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