Rexam reports £124M net profit in 2010 compared to loss of £29M in 2009 on cost reductions and beverage can volume and mix improvements; sales up 1.9% to £4.96B as higher can sales offset flat plastic packaging growth

Philip Goldsmith

Philip Goldsmith

Feb 23, 2011 – Rexam

LONDON , February 23, 2011 (press release) – Rexam, the global consumer packaging company, announces its audited results for 2010.


* Underlying profit before tax £412m – up 45%
* Strong free cash flow of £316m – net debt down to £1.68bn
* Return on capital employed (ROCE) improved to 12.3%
* Cost efficiencies and restructuring savings total £88m
* Beverage Cans 25% organic profit growth
* Plastic Packaging 16% organic profit growth
* Closures division being marketed for divestment
* Total 2010 dividends 12.0p including proposed final dividend of 8.0p
Commenting, Graham Chipchase, Rexam’s chief executive, said:

"In 2010 we delivered record profits and cash flow, improved ROCE and significantly strengthened our balance sheet.

"Going forward, we will remain focused on increasing our return on capital, optimising cash and controlling costs, while making disciplined investments to improve our growth and returns over time.

"We expect 2011 to be a year of continued progress."


I am pleased and much encouraged to report an excellent performance in 2010, with total sales (including discontinued operations) up 2% to £4,962m and total underlying profit before tax up 45% to £412m. The board is proposing a final dividend of 8p per share, making a total dividend of 12p for the year.

Our successful focus on the fundamentals – controlling costs, optimising cash and improving our return on capital employed – generated these record results, and led to a much stronger balance sheet at the year end. We have reduced net debt to £1.68bn, down from £1.83bn a year ago.

This performance follows an especially difficult year in 2009, when our trading was impacted heavily by the global economic turbulence. The actions we took in 2009 and 2010 mean that our business is now in a much stronger position going forward. We are not complacent about the challenges that lie ahead. Although the trading environment is more stable, the global economy remains fragile. We have no power over consumer spending so we will remain focused on managing the levers over which we do have control. One of those levers is portfolio management and we are currently marketing the beverage and specialty operations of the Closures division for disposal.

Having strengthened the foundations of our business, we are looking ahead with confidence. In his chief executive’s review, Graham details how we believe we can achieve our vision to be the best global consumer packaging company and how we shall measure our progress towards this goal.

Financially, we aim to continue to generate profitable revenue growth and increase our return on capital. To do this, we need to deepen further our relationships with customers and suppliers, ensuring we deliver value through providing excellent products and services. We shall foster a culture that drives performance, pursuing efficiencies relentlessly across all areas of our business with a high awareness of, and focus on, safety and risk management.

These are not just short term aspirations – they are long term objectives. Whilst our board must not lose sight of shareholders’ immediate needs, we must also plan for the future. We are embedding a focus on Rexam’s long term sustainability – environmentally and socially, as well as economically – in everything we do.

Environmentally, we delivered further efficiencies in our use of resources – and we see this trend of improvement continuing. We have made strides in our objective to build a winning organisation – creating a culture where our people can flourish – and we continue to develop relationships within the communities in which we operate.

During the year, the board commissioned an independent third party to conduct the annual board performance evaluation. I believe we shall benefit from giving even more time to long term strategic deliberations and wider management succession planning. Our risk management processes were recognised as being very effective and, aware of how important first rate risk management is to the long term prosperity of the Company, the board and the management team will ensure that this area remains a high priority.

In conclusion, the excellent 2010 performance has strengthened our platform for the future, and I am confident that we are well placed for 2011 and beyond. It only remains for me to thank those responsible for 2010’s achievements. I should like to thank my colleagues on the board for their wise counsel. The loyalty of our customers, suppliers and shareholders continues to play a significant part in Rexam’s success, and I thank them too. And, I should like to pay a particular tribute to our people. In spite of the recent challenges in the trading and operating environments, the energy, enthusiasm and professionalism of our employees delivered this excellent set of results. I thank them all for their contribution to Rexam.


2010 was a year of focusing on the fundamentals – controlling costs, optimising cash and improving our return on capital employed. Before turning our attention to the longer term, and thoughts of expansion, we needed to strengthen our foundations today in order to create a solid platform for growth tomorrow.

You will see in the operating and financial reviews (on pages 6 to 11 and 12 to 23 respectively) that this focus delivered excellent results for the year: record profit and cash performances, resulting in return on capital employed (ROCE) of over 12% and a strengthened balance sheet. These results allow us to consider the future from a stronger position than a year ago.

Our vision is to be the best global consumer packaging company, with the aim of enhancing shareholder value. This will be delivered through the generation of profitable revenue growth slightly above GDP which, together with operational cost efficiencies, will drive an improved ROCE. In the next three years, our target is to achieve Group ROCE in a range of 12% to 15%.

We will maintain a focus on the key factors for success. Strong customer and supplier relationships are necessary to consolidate and grow sales, including in new markets. Operational excellence is essential if we are going to utilise our assets effectively and efficiently, to make the best choices regarding our portfolio of operations and to innovate. And, to achieve the best performance, we need the best people working in a winning organisation.

Underpinning everything we do are the Rexam Way values: continuous improvement, recognition, teamwork and trust. These core values reflect who we are, and how we want to approach each other and everyone we deal with. They are aligned with the Rexam leadership practices which have been developed to drive enhanced performance throughout the organisation.

These common values and practices unite us. We are nurturing throughout the Company a sense of ‘One Rexam’ – that the whole of Rexam is greater than the sum of the individual parts. This will be key to achieving our vision.


In 2010, our focus on the fundamentals of cost control, cash optimisation and return on capital resulted
in excellent organic profit growth and a stronger balance sheet.

Full details of the financial performance as well as the statutory results can be found in the financial review on pages 12 to 23 but, in summary, total sales (including discontinued operations) were £4,962m, up 2% on last year. Excluding the impact of pass through of metal and plastic resin costs to customers, sales grew by 3% in Beverage Cans and were broadly flat in Plastic Packaging. Total underlying operating profit rose 20% to £535m, mainly due to the impact of cost reduction and restructuring programmes as well as the improved volumes and better product mix in Beverage Cans.

We reduced costs by £88m compared with last year. In line with our achievements in recent years, and consistent with our core value of continuous improvement, we delivered further efficiencies of £39m from total operations.

Return on capital employed improved to 12.3%, up from 9.5% in 2009. We are committed to further improving this measure, and our strategic priorities and internal metrics are geared to achieving this.

Total underlying profit before tax increased 45% to £412m (2009: £285m). Free cash flow was £316m and net debt reduced to £1.68bn.

Beverage Cans
Beverage Cans, which accounts for 77% of the Group’s continuing operating profit, is a global business that operates in three main regions, Europe & Asia, North America and South America. This gives us exposure to a good mix of developed and emerging markets and we are highly focused on the dynamics and needs of each region. Our businesses collaborate on a global basis to ensure that we leverage areas such as supply chain, engineering, innovation, research and development and marketing intelligence.

Beverage can making is a high speed, high precision business. The focus on manufacturing and engineering excellence and on cost reduction, six sigma and lean enterprise methodologies and best practice sharing, along with world class customer service, are key to our success.

Rexam’s overall beverage can volumes grew 2%, driven by strong volume growth in specialty cans across all our regions and good growth in South America. Reported sales were up 3% on 2009 due to good pricing in Europe and South America. Adjusted for currency translation, growth was 2%.

The improvement in underlying operating profit of 27% arose from better pricing, volume growth, a better product mix along with continued cost reductions and further cost efficiencies. For example, our unrelenting efforts to lightweight the can, which, according to industry statistics, is already 15% lighter than it was in the mid nineties, led to a reduction in 2010 of c. 6,500 tonnes in aluminium usage across our can making business.

Beverage Can Europe & Asia
Europe is a 56bn beverage can market and Rexam is the leading can maker with more than 45% market share. The European beverage can market returned to growth in 2010 with volumes increasing 5% mainly driven by growth in cans for carbonated soft drinks (CSDs). Cans also made some gains against other types of containers in the beverage pack mix.

Growth trends varied across western Europe. The UK enjoyed strong growth in standard cans supported by the promotion of multipacks for CSDs. The Nordic markets continued to grow as the beverage can consolidated its position in the pack mix supported by successful can recycling systems in the different countries in the region. Germany also saw good growth, albeit from a low base, as retailers started to restock cans on their shelves.

Rexam’s own volumes grew 1%. Our standard can volumes declined following the closure last year of plants in Dunkirk, France, and Dmitrov, Russia. Additionally, in line with our focus on returns, we relinquished some lower margin business. We have already secured volumes in standard cans to regain the 2010 volume loss and recover our market position in 2011.

Our specialty cans returned to growth due to restocking by our customers in the first half of the year as well as a recovery in underlying demand.

In Russia, predictions about the negative impact of an increase in beer duty on beverage can volumes showed themselves to be at the lower end of the expected range as the Russian economy fared better than expected, and there was a long, hot summer.

Our own volumes in Russia were down due to the weak demand and the presence of a new beverage can maker in this market. We remain optimistic about Russia in the longer term. The market fundamentals continue to be good: there is a growing middle class, and the shift away from spirits to beer continues. To our advantage, we were the first beverage can maker to establish ourselves there, in 1998, having opened up the market with exports from our Scandinavian business in 1994. We are focused on further strengthening our relationships with our existing customer base by investing in new sizes to make Rexam an even more attractive partner for our customers in this market.

Towards the end of the year we converted a line in Egypt from steel to aluminium can production and we are due to complete conversion of the second line in Egypt and an additional line in northern Spain in the first half of 2011. The Middle East and North Africa are becoming predominantly aluminium can markets and the switch will enable us to capture growth in this vibrant region, while in Spain the conversion enables us to meet local demand that would otherwise have been satisfied by imports.

Innovation in sizes and decorative techniques are a key part of how we make a positive difference to our customers’ brand portfolios. It was therefore particularly rewarding to see the first commercial Rexam Fusion™ aluminium bottles being made at our Ejpovice plant in the Czech Republic. Fusion™ is a technological breakthrough and with the increased interest for niche products, represents an opportunity to create a whole new category of beverage packaging.

Beverage Can North America
With its c.100bn cans per year, North America is the largest beverage can market in the world with important global customers. We are the number two player with a 21% share of the market. It is a very attractive market in terms of cash generation and return on net assets. Growth is mainly in specialty cans and we are realigning our manufacturing capability to ensure that we are well placed to capture this growth.

In 2010, the beverage can market in North America was flat as an increase in volumes of cans for alcoholic beverages was offset by a slight decline in cans for non alcoholic beverages. At the start of the year retailers’ promotions boosted volumes of beverage cans for CSDs. With the reduction in such activities in the second half, CSD volumes reverted to the region’s normal volume trend.

Our own volumes of standard cans were down compared with the market partly because we chose to lose some lower margin volume. We continued to see excellent growth in our specialty can volumes. There was strong growth in 24oz cans across iced tea, energy drink and beer categories. In addition, our Rexam Sleek™ package continued to attract great interest in CSDs, energy drinks and beer. To support growth in specialty cans, we are investing in a new 24oz can line in our Mexico plant where we are currently satisfying domestic needs with imports from the US system. This new capacity is part of an increase of more than 10% in 24oz capacity that we are implementing in North America through to 2012 to support customer growth.

We are encouraged by the outcome of our contract negotiations in North America during 2010. Although there will be a net volume loss in 2011, underlying operating profit for that year for the North American business is expected to be comparable with 2010, as improved pricing, new customers, continued growth in specialty cans and further cost control initiatives, including manufacturing efficiencies and lightweighting, will offset the impact of lower 12oz volumes. As a result of various negotiations, we have diversified the customer base for all can sizes and have signed medium term contracts to recover most of the 2011 volume loss by 2013.

Beverage Can South America
Beverage can volumes in the South American market continued to grow strongly with the total market growing 16% for the year. The Brazilian can market grew almost 18%. Growth was broad based across both standard and specialty cans and across categories such as beer, CSDs, energy drinks and juices. It was driven by continued and stable growth in GDP, higher employment, the availability of credit and the growth of the middle class.

Rexam is the market leader in Brazil with just over 60% market share in an 18bn can market. Our well located manufacturing footprint provides us with strong competitive advantage in terms of logistics. The market in 2010 was sold out and during the year we imported close to 1bn cans from our North American business to meet demand. The market is expected to continue to grow at a high single digit rate over the next three years. The awarding of the FIFA World Cup in 2014 and the Olympic games in 2016 to Brazil underpins the likelihood of further economic growth and our customers are investing in new production and filling facilities. To meet the growth in the market, all can makers in the region are installing or have installed capacity. This includes the need to provide for the cans currently imported from North America by the market as a whole.

Rexam is investing to capture these growth opportunities and support our customers. Mindful of how we deploy our capital expenditure, we have increased efficiency, speeded up a number of our existing lines and, in December 2010, we reopened the Pouso Alegre plant in Minas Gerais which has a capacity of 800m 12oz cans. We have now started to build a second line at this plant. By the end of 2012, our can making capacity will have increased to c. 14bn compared with c. 11bn at the end of 2009. In 2010, we signed a long term contract with our largest customer in Brazil which underpins returns on our current and future capital investment plans.

Our ability to meet our customers’ needs is not only predicated on assuring the proper amount of capacity for existing sizes, but on our ability to innovate and provide full product, service, and logistics solutions to help strengthen their business. Rexam is the clear innovation leader, delivering 8.4oz, 16oz, Slim and Sleek™ options in cans, innovations in graphics, special inks and varnishes as well as new coloured and laser engraved tabs to support customer needs for differentiation.

Plastic Packaging
Consistent with Rexam’s ongoing policy to manage its portfolio of businesses, we are currently marketing the beverage and specialty operations of the Closures division for disposal. We have previously highlighted the issues in these operations, which are almost exclusively North American, and in 2010 they continued to experience challenging conditions. There was an anticipated reduction in sales to the CSD segment and a further decline (almost 30%) in our volumes of closures for water bottles in the US. As a consequence of our marketing activity, the business has been reclassified to discontinued operations. (More details can be found on page 18). We will retain the High Barrier food containers business as well as certain closures for our Healthcare customers.

Going forward, Plastic Packaging will consist of Personal Care (into which High Barrier food containers will be consolidated) and Healthcare. Together they comprise a portfolio of high quality, rigid plastic packaging businesses with better opportunities for growth. In 2010, they accounted for 23% of Rexam’s underlying operating profit from continuing operations. The keys to success in this area are the ability to innovate and remain entrepreneurial while leveraging a global network of production and technical capabilities to bring value to our customers both locally and globally; a focus on operational excellence and the use of leading edge technology; the anticipation of market trends and the provision of packaging solutions.

In 2010, against the backdrop of a major restructuring programme, Plastic Packaging traded in line with our expectations as the general economic environment in both the US and Europe improved and overall volumes stabilised. Organic sales grew 4%, almost entirely due to the pass through to customers of higher resin costs. The good volume recovery in parts of Personal Care and the growth of new drug delivery devices in Healthcare were partly offset by pricing pressure in the parts of the business operating in an increasingly competitive environment.

One of the main areas of focus during the year was the successful execution of the restructuring plan introduced at the end of 2009 and implemented fully during 2010. In total, including the Closures division, the restructuring programme in Plastic Packaging saw the closure of eight plants in the US and Europe and an overall reduction in employees of around 10%. These measures which were delivered on time and on budget have resulted in total annual savings to date of some £34m at a total cash cost of £39m.

Organic underlying operating profit was up 16%, benefiting from the higher volumes in Personal Care together with efficiency gains from operational efficiencies and the impact of the restructuring programme offset by inflationary cost increases, the absence of some of the cost benefits achieved in 2009 from shortened working hours as well as competitive sales price pressure.

Our Healthcare division is a leading provider of pharmaceutical packaging, drug delivery devices, dispensing systems and general medical devices. We have facilities in Europe, the US, Mexico, China and India where we manufacture a range of products including dry powder inhalers, pharmaceutical pumps and valves, eye droppers, nasal sprays, medical devices, diagnostic disposables and injectable devices, infusion pumps and insulin pens, and pill jars and closures.

In 2010, sales increased by 3%. Volume growth in the Pharma business was driven by the ramp up of new products together with the sustained growth of existing product lines such as inhalers and insulin pens. This was offset by overall lower volumes in Primary Packaging where new business gains did not offset the loss of a significant contract in 2009. In the Prescription business both volumes and sales were flat year on year, and there was some price pressure. Consolidation in the pharmaceutical industry and general government pressure on healthcare costs, such as a switch to generic drugs, are expected to lead to continued pricing pressure.

New product development is essential in a business such as Healthcare. Our aim is to provide customers with innovative and cost effective products which are safe, reliable and user friendly. One example was the launch in 2010 of a multidose eyedropper, Novelia™. Preservatives in eye dropper solutions maintain the solution’s integrity but they have been associated with side effects and allergic reactions. Novelia’s design and construction allow for the use of multidose preservative free solutions and represents a major innovation in ophthalmic drug delivery devices in a patient friendly package.

Personal Care
Personal Care is a global business with manufacturing facilities in Europe, the US, China, Indonesia and Brazil. We make a range of products for end markets such as cosmetics, toiletries and household care. Applications include lipstick cases, compacts, dispensing systems (pumps), shaving trays, laundry spouts and air fresheners.

Our sales recovered well during the year, up 4% overall, primarily driven by volume growth in Dispensing Systems. There was an element of restocking in this growth and it appears that the supply chain has become leaner. Customers, in their efforts to improve their own working capital management, are realising that they can operate efficiently with lower stock levels.

Increased volumes in Dispensing Systems sales were driven by improved sales in pumps for fragrances and lotions as well as foam pumps and samplers. Make Up volumes decreased in a market where new programme activity remained modest. Among Household Care products, volumes recovered primarily due to restocking.

New product development is a key requirement and the Personal Care Innovation Centre in Chicago, Illinois, has enhanced our capability in this area. From product development to retail display, the centre underscores our dedication to customer centric, consumer focused innovation and the growth of long term business partnerships.

Examples of new product development during the year include extending the EZiTM foamer’s range of applications and the launches of Glossy DaysTM, a collection of eight patented new gloss applicators, and the Sliding MirrorTM, a combined lipstick applicator and mirror. We are also successfully exploring further uses of the foam pump for different applications such as laundry detergent, spot cleaner, and other cleaning products.

Sales in High Barrier food containers grew 8%. The full commercialisation during the year of a plastic can that replicates a conventional metal can was an industry first by Rexam. This new product development has aroused interest in the food canning industry where escalating tin plate prices along with consumers’ and retailers’ desire for modern, convenient packaging are driving brand owners to look for alternative types of packaging.

Industry Intelligence Editor’s Note: In an omitted table, the company reported full-year 2010 net income attributable to shareholders of £124 million. In the same period a year ago, the company reported a net loss of £29 million. 

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