Impress is a metal packaging group with plants in 18 countries, a turnover of €1.5 billion in 2006 and around 8,000 employees. This month we talk to Paul Johns, Director of Treasury and Tax, about the refinancing carried out by Impress in 2006 and the challenges of working with a private equity company.

Can you give me some background information about the company’s operations?

We’re the second largest European supplier of food cans, worldwide leader in the sea food can market, European leader in cans for paints and coatings, and the second largest European producer of aerosol cans. We were set up in 1997 by combining the metal can operations of Pechiney and a German-Dutch group called Schmalbach-Lubeca. Doughty Hanson, the UK private equity company, put up the funding to create the group and started off by owning 60% of the equity. Pechiney and Schmalbach-Lubeca stayed in for 20% to begin with and the funding was via a syndicated bank loan plus a Eurobond of about DM 200m.

Impress’s history was rather chequered in terms of financial performance until around 2002. Since then we’ve done very well. Doughty Hanson has put more equity in to enable us to make acquisitions and they’ve also taken money out through a refinancing in September 2006.

What is your role?

I joined Impress in December 2000 as Director of Treasury and Tax. On the treasury side, I look after the typical treasury areas – funding, bank relationships and cash management. Obviously cash management is very important in a highly leveraged company. I also look after tax and I’m responsible for the shared service centre, which is based in Deventer in east Holland, and which manages the transaction processing for the majority of our plants in Europe. Lastly, I manage our insurance coverage.

We have a European cash management pooling system which is based in Holland, and I have an assistant treasurer who manages that from our offices in Deventer. My tax manager is also based there, as is the 2-3 person cash department in the shared service centre which manages the operations of the cash pool.

How was the debt originally set up in 1997 and how did it develop subsequently?

We had a syndicated bank loan arranged through Fuji Bank, as they were called then – they’re now called Mizuho. That provided funding of around €400m. On top of that we had a subordinated Eurobond of the equivalent of €100m. Our funding was increased in 2000 when Doughty Hanson put in some extra equity to allow us to make some acquisitions. Their original equity was around €70m and they put in another €60m of equity. We also raised an extra €100m as bank debt. We were basically tinkering with the original financing structure, which was due to expire in 2007.

In 2003, because we were finding the principal repayment bill on the bank debt very stretching, we issued a senior guaranteed bond for €150m in order to pay down some of the bank debt and reduce the annual repayment schedule. That was just basically replacing bank debt with bonds. Everything was then heading towards the maturity date of the whole financing package in 2007.

As regards the 2006 refinancing, initially, the idea was that Doughty Hanson would make an exit through a sale in 2005, but they didn’t get the offers at the level they were expecting. This was because our financial performance was improving but people hadn’t really bought into it as being long-term, so they weren’t prepared to give us the benefit of the multiples.

So the sale process turned into a refinancing process. Our debt, which was around €400m at that time, was repaid and we issued €1 billion of debt, mostly in FRNs (floating rate notes) and subordinated notes. That enabled Doughty Hanson and other shareholders to take out funds which more or less paid down what they’d invested. So Doughty Hanson got their money back and still owned a lot of the equity of the company. The refinancing deal was completed in September 2006.

How was the refinancing structured?

The structure of what we issued was about €750m of floating rate notes with a seven year maturity, so no repayments until 2014. Yes, our interest costs have increased, but we’ve got no scheduled debt repayments, which enables us to use our strong cash generation to grow the business. Our credit ratings were unchanged despite the big increase in debt levels.

The other part of the financing was €250m of senior subordinated notes, with an eight year maturity – again, this will be a bullet repayment. At the same time as we increased the debt level, we also issued €81m of preferred equity at the TopCo level, which was mostly subscribed to by the same investors who came into the debt.

We also have a small revolving credit facility through one bank, Halifax/Bank of Scotland (HBOS), which meets our liquidity requirements. JPMorgan was lead manager on the bond issue, with HBOS in support.

This structure was agreed between Doughty Hanson and Impress as a means of giving us the flexibility to grow the business; because the objective of private equity is to eventually exit the business, there has to be some sort of growth story behind the business. You hear stories about private equity taking over a company and bleeding it dry of cash, but it’s in their interests to keep it as a healthy business, and to get an attractive price when they eventually exit, so I’m rather dubious about some of these stories.

To summarise, in September 2006 we refinanced, and Doughty Hanson got their original investment back and still control the business.

So that brings us up to date?

Yes, nothing much has changed since then. I guess Doughty Hanson is now looking at what the final exit will be, and I expect they’re considering all the alternatives. I think they’ll just look at whichever option gives the best price on the day. They’ve got the money back that they originally invested in Impress, so they’re under no pressure to sell – but that’s their business, so if they get the right price, they’ll sell tomorrow.

What has your experience of working with private investors been like?

Generally, if things are going well, my experience is that they’ll let the management get on and run the business. We’ve made five or six acquisitions over the past five years – all of them have required the approval of the board of course, but the private equity people on the board have been very supportive of us making those acquisitions and have provided funding where necessary. In terms of management running the business, if the private equity people are happy with the management, then they’re willing to let them get on with it.

I think we’ve certainly had times when Impress hasn’t been performing so well, and the shareholders have taken a rather closer interest in what was going on, but it’s been supportive. They’ve involved people who are experts in cash generation in advising certain parts of the business, so yes, occasionally they take a more active role, but it’s all in the interests of improving the business. So generally my experience has been that private equity people have been supportive and do what’s required depending on the circumstances.

There’s a very high focus on cash management. Everything down to the EBITDA level gets a lot of attention. I also manage the tax charge, and the main focus is on cash tax rather than the income statement tax charge, because that doesn’t get a very high profile in a business run by private equity. Listed companies tend to pay more attention to the income statement down below the EBITDA line.

What challenges are associated with working in a highly leveraged company?

Our problems have come from the fact that when Impress was set up in 1997, no one expected the financing package to last anywhere near the length of time that it did. With hindsight, it is obvious the business plan it was based on was overly optimistic. By the time I joined in 2000, we were performing well below what the business plan had showed we should be doing. We had to do a lot of management of the covenants and the cash flow restrictions in order to allow the business to keep running without going into default under our funding package. If you inherit an overly restrictive funding package, then your task is made that much harder.

We’ve also done various things to relieve the pressure on our financing package. It’s been a very expensive process – I think financial advisors make a lot of money out of private equity! You could say that we’ve spent a lot of money on advisors over the years, but I guess we haven’t had the costs of the regulatory regime that listed companies are under. People talk about private equity as being under-regulated, and there’s obviously a lot of focus at the moment on whether a tighter regulatory regime should be brought in for private equity. I have to admit that a private company’s management is able to do things that a listed company’s management might not be able to do. But, I think that’s good in a way because there isn’t the short-term focus that you get with a listed company, managing the share price day-to-day. I think there are certain benefits for the business itself in not having that sort of short-term pressure.

What projects are you working on in the next 12 months?

We’re still very acquisitive. The metal packaging market has been ripe for rationalisation for many years and Impress has played a leading role in that rationalisation, making acquisitions and rationalising plants. There are still acquisitions we would like to make and we would still like to continue growing the business. We are very aware that we have to prepare for life after Doughty Hanson, whatever and whenever that may be, so we are busy making plans for that side of it.