Rexam to continue passing on aluminum costs

By Lorraine Heller

- Last updated on GMT

Related tags: Input costs, Aluminium, Rexam

Leading drinks can maker Rexam has said it is phasing European
contracts onto a pass-through system, which will result in
customers systematically bearing the brunt of increased aluminium
prices.

The company again saw profits suffer in 2007, a major cause of which was the continuing high aluminium cost. Over the past three years the firm has re-negotiated most of its contracts, raising the prices it charges for its beverage cans. These price hikes show no sign of slowing, with the new pass-through system designed "so we don't bear the full brunt of aluminium costs",​ according to the company. Profits slip ​ In its 2007 full year results, published today, Rexam reported a 7 percent drop in pre-tax profits, to £245m (€325m). "As anticipated, the pressure of continuing high aluminium and other input costs, along with the weaker US dollar, impacted our profit performance. A number of one off events made the year even more testing than expected,"​ said Rexam chairman Rolf Börjesson. The company reported an 11 per cent increase in sales, to £3.6bn (€4.8bn). Rexam highlighted efficiency savings of £32m (€42m), and said it expects to see top line growth this year as its investment in organic growth begins to bear fruit. "We will realise the synergies from our recent acquisitions and continue to deliver savings through our focus on operational efficiency. As a result, we look forward to a return to profits growth in 2008,"​ said Börjesson. Costs passed on ​Rexam, which produces over 50 billion cans a year for customers that include Coca-Cola, Carlsberg and Heineken, said it will continue to pass on higher aluminium and other input costs to customers. The company would not reveal the extent of its price hikes, but said "we are bringing our range of increases in line with our input costs." ​ A spokesperson told FoodProductionDaily.com that it has already renegotiated around 50 per cent of its European contracts to meet the new pass-through model requirements. Pass-through contacts is a system the company has already been using for its contracts in the United States, where the practice is standard, said the spokesperson. "In Europe we have not had that system but are now moving toward it,"​ he said. The European beverage can market is dominated Rexam, Bell Corp., and Crown Holdings, who hold 40, 23 and 20 percent of the market respectively. According to analysts Wachovia Capital Markets, these companies have a global "oligopoly"​ on beverage can manufacturing. This "oligopoly"​ is what gives the three companies leverage to recover higher input costs from processors, claims Wachovia. The result is that operating margins in Europe for beverage can manufacturers can be 300 to 500 basis points higher than in the US. However, Rexam denied that it is squeezing beverage manufacturers into a corner with its price hikes. "Customers have the choice to change their pack and mix to suit their various requirements. Beverage cans are popular but are not the only option - they can choose glass or plastic for example,"​ the firm told FoodProductionDaily.com. Europe's beverage can market experienced a growth rate of about 10 per cent in 2006 and 2007. Europe consumes 45 billion cans for 400 million people, while US consumption is 101 billion cans for 300 million people.

Related topics: Processing & Packaging

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