Constar warns it may lack funds to repay debts

US packaging producer Constar, which emerged from Chapter 11 bankruptcy protection in the US in May last year, has warned it may not have sufficient funds to repay $220m of Secured Notes, due to mature in 2012, if the net losses in recent years continue.

“For the fiscal years ended December 31 2009 and 2008 we incurred net losses… of $27.2m and $48.6m, respectively, and we may not generate net income in the future,” the company said in its annual report. “Continuing net losses may limit our ability to service our debt and fund our operations.”*When contacted by European Plastics News, Constar declined to comment on how it planned to restore profitability to its operations in the US and Europe. However, in its SEC 10-K filing it refers to cost reductions, plant consolidations and retaining the preform volume at acceptable margins.

Constar plans to increase its presence in the custom category of the market, which it says has higher variable profit margins. It will also focus on oxygen barrier technology, including its oxygen scavenging DiamondClear technology, and adding value through innovative bottle design.

For the year ending December 31 2009, total net sales dropped 25.6% to $219.5m. Sales in Europe and the US fell 25.2% and 25.7% respectively. The fall was driven primarily by lower volumes of $92.1m, the negative impact of a mix shift to preforms from bottles and passing lower resin costs onto customers.

Gross profit fell 3.9% to $31.3m, despite a 6.8% rise in profits in Europe, where reduced electricity and manufacturing costs helped offset a reduced sales volume.

Constar blamed a variety of problems for the losses, including price competition, delays in conversions to PET from other forms of packaging and operating difficulties in its European businesses.

In addition, demand for Constar’s conventional PET products has dropped due to beverage firms choosing to manufacture bottles themselves.

“[We believe] that this trend for water bottles is reaching the end of its cycle, with the majority of single serve water bottles now being produced in-house,” says the SEC 10-K filing. “Water bottle revenue represented 3% of the company’s 2009 net sales as compared to 12% of net sales in 2006.”

Constar produces PET containers, mainly for the food and beverage industry, with bottles accounting for 71% of volume and preforms 29%. The company has 181 employees in the UK, compared with 1,057 in the US, and its largest customer is PepsiCo.