Growth opportunities highlighted by Rexam

Rexam’s management has revealed insights into the canmaking firm’s global growth strategies, including an interest in the Middle East, and its position in China, one of the fastest growing regions for beverage cans.

Lead by chief executive Graham Chipchase, the top brass were speaking at Rexam’s yearly investor seminar held on November 22. Rexam makes about 56 billion beverage cans a year, about a fifth of the global market, and is the leading manufacturer in Europe and South America.

In North America, the biggest market for beverage cans where Rexam has a 20 percent share of 97 billion units a year, it has already announced a plan in which by 2013 it will have tightened up long-term contracts for standard 12oz cans and increased volumes of speciality sizes for energy, teas and juices, said Rich Grimley, operational chief at Rexam Beverage Can Americas. Speciality can growth has been 7 percent which is the measure of success necessary to compensate for the industry-wide loss of carbonated soft drinks volumes.

Productivity is being improved by increasing US utilisation rates and cutting production costs with lightweighting, and the use of predictive rather than preventive maintenance programmes.

Grimley detailed the changes: utilisation rates will be improved from 80 to 90 percent along with reduction of spoilage. Typically, the Fairfield plant [in California] has reduced spoilage from 3 to 2 percent. The change of the can mix has improved profitability. While the metal used for 12oz cans has been cut by 6 percent, the metal used for 24oz cans has been cut by 13 percent. Beverage ends have been lightweighted by 13.5 percent. Also the output of plants has been improved by 12 percent, measured at constant line speeds.

“These are significant achievements,” said Grimley, “but there is still more to do.” At the Guatemala plant, utilisation is being raised from a “low 70 percent to 90 percent, while spoilage will be cut from 5 to 1.5 percent”.

An example of how Rexam makes best use of resources was when it took a redundant steel can line from Dunkirk in France and converted it to aluminium at its Chicago technical centre for installation at a plant in Brazil. The project took nine months and was an “exceptional experience”, said Grimley.

In the fast-growing South American market, where Rexam operates 10 plants in Argentina, Brazil, and Chile, chief executive of Rexam Beverage Can Americas André Balbi said that beer defined the business in which cans had increased their share from 27 percent in 2008 to 35 percent in 2010, replacing returnable glass.

To meet this gowing demand, between 2010 and the end of 2012 additional capacity of some 4bn cans a year will have been installed, 45 percent of which is speciality sizes. By the end of 2012 Rexam’s total capacity in Brazil will be about 14bn, or about 60 percent of the country’s capacity.

Growth this year had been impacted by price increases at brewer Ambev, its largest customer, which along with bad weather had hit sales, because other brewers had held prices. “October was a very good month” and expectations were strong, he said.

Current capacity is 90 percent utilised, he said. “With any additional capacity we are being very cautious,” which was why the completion of a new line at Belém in the north of Brazil had been delayed to the end of 2012.

Sports events in Brazil such as the Confederation football cup in 2013, the FIFA world cup in 2014 and the Olympics in 2016 would provide growth from tourism while in the longer term a demographic bonus would push sales as 53 percent of Brazilians become part of the middle class.

Elsewhere in South America, Rexam is evaluating an opportunity to expand into Colombia while it is possible that it could further develop in Venezuela where it has a technical agreement with canmaker Envases Aragua.

Covering Europe’s 55bn beverage can market, Tomas Sjölin, director for Rexam Beverage Can Europe & Asia highlighted Rexam’s project to build a new plant in Finland, a market into which cans are increasingly being exported. There is demand in Finland for two billion cans so Rexam’s two new lines and Can-Pack’s new plant will supply this market, while current imports would move to other Scandinavian markets.

In Russia where Rexam is the largest domestic beverage can manufacturer, sales are recovering again after the decline in 2009. The opportunity is in the east, where Rexam owns land at Novosibirsk that could be used for a new canmaking plant.

The Middle East and North Africa offer opportunities. High market growth of 6 to 8 percent in the Middle East, where carbonated soft drinks and juices are most popular, is expected to continue. Many of the 11 canmakers in the region are unconsolidated and vertically integrated with drinks manufacturers.

“There is an opportunity for an international player to take a stake in the market,” said Richard Peachey, VP legal counsel based in the UK. “The fillers are now concentrating on their core activities because their lines are less efficient.”

Customers are also actively seeking a credible independent source of supply, he said,

In Iran, where Rexam has a technical agreement at the Kaveh canmaking plant jointly-owned by drinks manufacturer Aujan Industries, there is 15 percent growth. Capacity at the Kevah plant will be doubled next year to meet this growth

In neighbouring Iraq, drinks fillers are consuming between two and three billion cans a year. “A lot of people are seeking opportunities although the plant at Baghdad has had its difficulties,” said Peachey. “We are looking at ways to support [Aujan] in that market, if we can.”

Rexam already has a base in north Africa with its Egypt plant near Cairo which will have its capacity increased to 1.5bn next year. Demand exceeds supply, said Peachey, and there are opportunities for greenfield sites: interruptions because of the ‘Arab Spring’ had been short lived and demand was recovering.

In sub-Saharan Africa Rexam has a technical agreement at a new plant in Nigeria, where there are opportunities to progress further.

In Asia the beverage can growth rate is 7 to 10 percent. Peachey said that although Rexam has no plant in south east Asia today, it was, “spending more time looking at opportunities. We are following our global customers by working with our key account managers. We shouldn’t ignore our joint venture with Hanil Can in South Korea and the technical licence agreement with Visy in Australia.”

While other global canmakers have been expanding their canmaking capacity in China, the biggest growth market in the region, it is not an investment priority for Rexam, said Peachey. “We have a small plant near Guangzhou and the experience has not been entirely positive,” he said. The presentation slide said it all: “Investment in China is not considered a priority at this time due to the scarcity of investment opportunities delivering the necessary returns.”

Vietnam has a lot of beverage can investment but other countries are showing opportunities, such as India which is being developed through Rexam’s connections with United Breweries.

Rexam was the first global canmaker to take a beverage canmaking stake in India with HTW. It will be building a high-speed aluminium can line for opening at the end of 2012 to meet demand growth that is expected to be 20 percent a year “for the foreseeable future”.

But “emerging markets are never easy, particularly when state licensing laws restrict beer growth,” said Peachey.