“Total sales were flat at £2,496m but total underlying operating profit [after tax] rose 5 per cent to £280m, mainly owing to improved volumes in standard cans in Europe and in specialty cans in all our regions, supported by our continued focus on cost reduction and efficiencies,” reported the company.
Rising costs
Input cost inflation remains a big challenge in the packaging industry and Rexam has been wrestling with the impact of the rising cost of aluminium.
Aluminium prices hit a low of US$1,340 per tonne in February 2009 and have doubled since then to peak at around US$2,670 in April 2011, before dropping back slightly to around US$2,560 in June.
Rexam said it has been tackling the issue head on, with both commercial and technical solutions.
It has been increasing the use of “pass-through” contracts, for example. These protect the packaging company’s margins by passing any cost increases on to customers. Technical solutions such as “downgauging” or “lightweighting” its cans have also yielded efficiency savings.
“Over the last few years we have consistently delivered in the region of £30m of annual savings to offset input cost inflation.
We are on track to maintain this level of savings in 2011 as we continue to focus on three key areas: raw material cost reduction; lean manufacturing, such as investing in new equipment, optimising processes and labour efficiency; and supply chain savings, leveraging our global footprint with our suppliers,” said the statement.
“In all, efficiency savings from continuing operations for the first half totalled £16m.”
Mixed plastics
The news was less positive in the company’s plastic packaging operations.
Excluding its closures division, which Rexam is in the process of selling to Berry Plastics, organic sales were down 1 per cent, while resin costs rose by 10 per cent:
“As around one third of our contracts are on a non-pass-through basis, this equated to a non-recoverable cost of £3m in the first half. Underlying operating profit was £58m, 2 per cent down on an organic basis on the equivalent period last year.”
Emerging markets
In spite of its strong performance in Europe, Rexam is investing heavily in emerging markets as a route to future growth:
“Our plans for expansion in beverage cans in Brazil, further investment in our beverage can plant in India announced today, as well as investment in healthcare to make generic drug delivery devices for an Indian customer, are all indicative of our aim to increase the proportion of our sales in higher growth markets.”
“Some 32 per cent of our turnover from continuing operations now comes from higher growth and emerging markets.”