Glossing the consumer packaging group’s performance for the quarter from July 1 2011 in an interim management statement released today, Chipchase said that Rexam’s overall performance was in line with expectations, with the firm on track for the full year.
But he sounded a clear warning note: “Looking into next year we will have to contend with lower GDP growth in several of our major markets, and as previously indicated, some specific challenges as we absorb £20m [€23.36m] of higher metal conversion costs in European beverage cans and the impact of a key healthcare product coming off patent."
Discussing these challenges during an investor call this morning, Chipchase told Ross Gilardi from Merril Lynch: "We've still got 'GDP plus' growth next year, it's just a question of what we think GDP will be."
He added: "In terms of our footprint within countries around the world, the GDP forecast was 2.7 per cent in June. People are now thinking it's 1.4 per cent, but it's still positive...We should still expect some volume growth, and since we're pretty well capitalised, and trying to improve asset utilisation, I think we can still see progress on that."
"The other key one is the fact that we're still focused on costs and efficiency - so that £30m [€35m] a year should still be coming through."
Tight cost controls
Tight cost controls meant that beverage cans performed slightly better than anticipated, Rexam said, with European volume growth in line with the first half (H1) of 2011 (6 per cent).
Chipchase told investors and analysts why Rexam thought this segment continued to grow robustly in Q3, despite market challenges.
He said: "If you look at the European market, I think it's growing at 4 per cent today, we're growing at 5 per cent. We are just ahead of the market, which has been happening for the whole year.
"That's partly driven by the fact that we said we would take some share we lost last year in certain markets, where we stepped back from some business because the margins weren't good enough for us. And we said we would win it back in these same territories with different customers and better margins. That's part of the effect."
Another reason Rexam was able to out-perform competitors in European beverage cans, Chipchase said, was the company's greater presence in Northwest Europe and (in particular) Scandinavia, which had performed well relative to Southern Europe. "That's obviously why we're putting our new plant in Finland," he said.
Rexam described Russian volumes sales as soft, relative to a strong prior year performance. But US standard can volume sales were in line with H1, and specialty cans saw strong growth in this region.
As a result, Rexam predicted that the US can business (the country is the largest world market for beverage cans) remained on track to deliver underlying operating profits for 2011 ahead of 2010.
Shift of emphasis
Within South America, market growth slowed compared with previous years, and Rexam said its full-year performance in the key Brazilian market (where the firm has a 60 per cent market share) would be determined by an important summer season.
Introducing Rexam’s Consumer Packaging Report 2011/12 in September, Chipchase identified a “shift of emphasis” from mature markets towards emerging markets such as the BRIC nations (Brazil, Russia, India, China) and Asia.
Within Asia, Chipchase noted that the total market value for packaging now equaled that of Europe.
He added:“Much has been made of the BRIC countries…and few can deny that their growth is promising…but new acronyms are appearing.”
Chipchase identified ‘MAVINS’ (Mexico, Australia, Vietnam, Indonesia and South Africa) as well as Poland and Turkey as “new frontiers in growth potential”, driven by consumer demand for sustainable packaging that prevented waste and spoilage.
Rexam identified “further weaknesses” in plastic packaging (which includes high-barrier food) during the reporting period – with overall results lower than expected.
The company said it was “exploring all options…including divestment” for its personal care segment.
With the $360m (€267.3m) all-cash sale of its closures business (to Berry Plastics) completed on September 1, Rexam said it had used the proceeds to pay down net debt (£1.4bn or €1.64bn as of September 30).