Klockner Pentaplast's capital structure becomes further unsustainable

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Kloeckner Pentaplast (KP), the German packaging manufacturer, reported lower-than-expected FY18 EBITDA and a sequential decline from FY17 (unaudited), as a result of higher raw materials prices, FX impact, restructuring costs and a shift to PET/rPET from higher-margin PVC. Free cash flow (FCF) was negative for FY18, just as it was for FY17. Revenue, gross profit and EBITDA margins were all weaker year-on-year (YoY). On its FY18 results call, management said it expects double-digit EBITDA growth in FY19 and positive FCF; however, the company has historically missed guidance. FY18 EBITDA was guided at EUR 260m-280m in the FY17 results call, but scaled back to EUR 245m250m in August 2018, and further revised down to EUR 215m-220m in November 2018, before coming in at EUR 215m. For FY19, we expect lower EBITDA, negative FCF, higher leverage and weaker interest cover (table on page 2).