Rexam results show price hikes beat higher costs

By Staff writer

- Last updated on GMT

Related tags: Company, Input costs, United states dollar

Strong results from Rexam show that the company is winning the
battle to beat higher costs, but its beauty packaging business
reports that there have been launch delays.

Plastic Packaging results, which incorporates the company's beauty packaging operation, were substantially up on the equivalent period last year benesfiting from organic profit growth and acquisitions. The company reported improved profit margins compared with the second half of 2005. The majority of its plastic operations performed strongly, notably pharmaceutical packaging and its high barrier food business. However, the company said that Beauty packaging operations continued to be affected by delays in the launch of new products. But to make up for this the company said that it expects to see a "promising" number of planned new products for its customers to be launched in the second half of this year. Organic sales and profit growth were two per cent and five per cent respectively. Results for the plastics division showed that sales grew from £250m in the first six months of 2005 to reach £379m in the equivalent period this year. Likewise underlying profit grew from £32m to reach £43m. The company said that it would continue to pursue its strategy to seek out further growth in the plastics packaging segment 'by consolidation attractive niches. The company has been cutting costs and improving efficiency across it manufacturing plants in a bid to tamper the effects of high input costs. Rising prices for raw ingredients such as aluminum and plastics has increased the cost of packing cosmetics players over the past year. Rexam is one of the world's top five consumer packaging companies and has been reorganizing to focus its global operations on beverage packaging in metal, glass and plastic. It has been on the acquisition trail over the past two years in a bid to expand across all packaging segments. Aluminium is by far the largest raw material cost for the group, which spends about £1bn (€1.5bn) a year on the metal for its beverage cans and other consumers goods. Aluminium prices, which are based in US dollars, rose steeply in the six months to 30 June 2006. In the Americas, Rexam is largely unaffected by the changes in the cost of aluminium as major customers agree the cost in advance with their suppliers, effectively resulting in a cost pass through. In Europe, the company hedges both the metal and the associated US dollar to euro currency exchange through a three year rolling programme, such that aluminium is fixed in euros, the principal transaction currency. In its financial report for the first six months of this year, the company said this year is now largely covered at prices well below recent peaks, while 2007 remains partially hedged. As part of its ongoing management of aluminium input costs, Rexam renegotiated a US contract for the future supply of aluminium which gave rise to a profit of £14m in the first half of 2006. This, together with price surcharges, has helped to mitigate the effect of the higher aluminium cost on the European beverage can operation, the company reported. "We intend to continue to manage actively the effect of aluminium costs through contract renegotiation, hedging and surcharges as appropriate," Rexam said this week. "Looking forward to 2007, we will be renegotiating contracts with our European customers later on this year and it is our intention to reflect the aluminium price prevailing at that time in our pricing structures." The company this week reported sales growth of 20 per cent from ongoing operations. Organic sales growth was nine per cent, with acquisitions contributing another eight per cent. About three per cent of the growth was due to the effects of positive currency exchange rate translation into the US dollar. Underlying profit from ongoing operations was up one per cent to £194m (€287m), reflecting volume growth and acquisitions. The profit was offset by the impact of higher input costs and the reduced prices of a major new beverage can contract won in North America, the company stated. Underlying profit before tax was £137m (€203m). The company benefited from a 11 per cent growth in its beverage can sales to £1,224m, benefiting from significant market share gains as well as strong overall market growth. For the full year 2006, the company says it is expecting to deliver strong top line growth and a solid profit performance, with current trading remaining in line with company forecasts made at the start of the year.

Related topics: Packaging & Design, Packaging

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