Advisors Circle Frigoglass on Supply Chain Concerns; Perella Weinberg Rumored to Be Working With Company

Frigoglass Distressed update from Reorg's EMEA Middle Market team.

Financial and legal advisors are circling Greek glass and cooler manufacturer Frigoglass and Perella Weinberg is rumored to be working with the company, several sources told Reorg.

At the start of March, the group said that it was facing supply chain disruptions on movements of products and the import of raw materials because of the Russian invasion of Ukraine. Frigoglass operates a production facility in Russia and told investors that Russia and Ukraine accounted for 14.5% and 2.4% of the group’s sales, respectively.

Frigoglass’ subsidiary in Russia currently represents its main production facility in Europe after a fire at its Romanian plant in June 2021. The subsidiary in Russia maintains credit facilities with banks, including international and state-owned banks. As of Dec. 31, the Russian subsidiary had €34 million gross debt. About €20 million of debt is expected to be rolled over in 2022 and €10 million is expected to be repaid.

Frigoglass purchases raw materials in Russia, representing around 23% of total purchases of the commercial refrigeration segment in 2021. The raw materials are used by the local subsidiary.

In its latest call with investors, the company said that it anticipates construction work to begin on its Romanian plant in May and expects the plant to ramp up in early 2023.

In the meantime, the group has increased capacity at its Russian plant and is using an enhanced assembly line in Romania to compensate for the reduction in capacity. Management clarified that it had started to build stock ahead of the fire, so it was able to meet the biggest part of customer demand.

Regarding sanctions and the impact on the business, Frigoglass explained that its Russian subsidiary has local lines with Russian banks but that it is in full compliance with any sanctions and the company continues to monitor the situation.

Operationally, the war in Ukraine has led to longer delivery times as the company has to take longer routes bypassing Ukraine to deliver to customers in Europe from Russia, for example.

Frigoglass said raw material price increases, transportation cost growth as well as a potential impact on demand will impact margins in 2022. It added that for glass, there is more flexibility to cover this inflation and that on the cooler side, it is able to pass through some costs throughout the year. However, it also said raw material costs are around 65% of the cost base in the cooler segment and that there will be pressure.

In the fourth quarter, EBITDA margins in the cooler segment were negative 2.4% compared with negative 4.4% a year earlier. In the glass operations segment, EBITDA margins fell by 9.2 percentage points to 25.4%.

In terms of liquidity, Frigoglass said it had around €59 million cash at the end of March and about €15 million undrawn lines. Of that amount, about €42 million is in Nigeria and related to Frigoglass’ Nigeria glass business (the Nigeria subsidiary’s cash balance is 30% “hard currency”).

Additionally, the group received €25 million from the insurance claim relating to the fire at the Romanian plant. It will receive another €17 million throughout the year as it starts reconstruction of the plant, management said.

Frigoglass’ capital structure is below:

-- Luca Rossi, Andrew Ross