Rexam PLC (OTC: REXMY) is the worlds largest manufacturer of aluminum beverage cans, producing 45% of total beverage cans sold in Europe and 68% of beverage cans sold in South America. Rexam helps customers develop packaging specific to their own products - for example, Rexam helped the founders of the Arizona Beverage Company develop the brightly colored, extra tall cans the company is famous for.
Rexam also produces plastic packaging for the pharmaceuticals, cosmetics, and food products - but aluminum beverage cans remain its core business. Rexam competes with companies like Ball (BLL), Crown Cork & Seal Company (CCK), Silgan Holdings (SLGN), and Amcor (AMCR) in the packaging and container market. Contracts for metal beverage cans rarely change hands, as beverage distributors sign long-term deals with can manufacturers. Manufacturers tend to avoid one another geographically, to prevent price wars that could lower profit margins. Although this creates a steady client portfolio and revenue stream for Rexam, its earnings are influenced by external factors such as consumer preferences for packaged beverages like soft drinks and beer. Rexam's operating income is also affected by changes in the price of raw materials, specifically aluminum prices, and this is a particularly important issue in the European market, where most of Rexam's contracts do not allow the company to pass the cost of raw materials on to its customers.
In 2009, REXMY earned an operating income of £446 million on total revenue of £4.87 billion. This represents a 4.3% decrease in operating income and a 5.4% increase in total revenues from 2008, when the company earned £466 million on revenues of £4.62 billion.
Rexam's Beverage Cans segment consists of operations in Europe, North America, South America, and Asia. Rexam is the largest manufacturer of beverage cans in Europe and South America. They produce 45% of total beverage cans sold in Europe, 68% of beverage cans sold in South America, and 22% of beverage cans sold in North America. Rexam plans to grow its Beverage Cans segment by increasing its presence in emerging markets such as South America. In addition to this Rexam continues to develop new specialty cans to attract new customers and maintain their current ones. The production of specialty cans helps Rexam draw in new customers and produces higher margins than the production of standard cans. Customers such as Pepsico (PEP), Coca-Cola Company (KO), and Heineken N.V. (HINKY) use Rexam's beverage cans.
Rexam's Plastic Packaging segment produces plastic closures and containers in Europe, North America, South America, and Asia. Rexam makes plastic packaging products for the healthcare, closure, and personal care markets. Rexam's plastic health care packaging operations make drug delivery devices (asthma inhalers, etc) and prescription containers for companies such as Abbott Laboratories (ABT), Pfizer (PFE), and GlaxoSmithKline (GSK). They produce plastic closures like plastic bottle tops for companies like Coca-Cola Company (KO), Campbell Soup Company (CPB), and Pepsico (PEP). Rexam also makes products such as lipstick cases, compacts, and lotion pumps for companies in the personal care industry such as Avon Products (AVP), Colgate-Palmolive Company (CL), and L'oreal (LRLCY).
The price of Aluminum is affected by several factors including demand from other industries (transportation, construction, etc.) and aluminum manufacturing costs. Changes in the price of commodities such as Aluminum on the London Metal Exchange affect Rexam's profitability. In Europe however, only 50% of Rexam's European beverage can contracts let them adjust their prices when input costs change, which compresses Rexam’s margins in this market. In order to combat this, Rexam is renegotiating contracts in Europe to let them pass cost increases on to the customer.
Rexam's ten best customers account for 58% of Rexam's sales. The loss of anyone of these customers in the future would have a significantly negative effect on Rexam's revenues. Rexam combats this risk, and tries to build customer loyalty, by customizing its operations to fit each of its clients’ specific needs. One example is Rexam's construction of a new can factory in Ludesch, Austria built to provide cans specifically for Red Bull. Another way for Rexam to retain customers is to stay abreast of technological advances and to continue to adapt its approach despite the apparent stability of its long-term contracts - an example is the firm's implementation of an online ordering system in North America.
Because nearly all of Rexam's non-British contracts are negotiated in the common currency of that country, changes in the value of world currencies affect Rexam's profitability. If foreign currencies depreciate, Rexam's revenues in Pounds Sterling will decrease. On the other hand, if foreign currencies appreciate, Rexam's revenues in Pounds Sterling will increase. Because Rexam does a lot business with companies based in countries that use the Euro or the U.S. Dollar, they attempt to decrease this risk by negotiating foreign currency exchange contracts that reduce their exposure to change rate fluctuations.
The majority of Rexam's revenues come from manufacturing aluminum cans for beverage packaging. The demand for Rexam's beverage packaging products depends on the demand for the beer and soft drinks they hold. These shifts can be seasonal as consumers tend to demand more beverages during the hot summer months. The shifts also follow long-term trends. For example, if customers start consuming more wine and less Heineken, Rexam's sales will drop as Heineken N.V. (HINKY) orders less cans to make up for the loss in demand. On the other hand, if consumers start consuming less wine and more Heineken, Rexam's sales will increase as Heineken N.V. (HINKY) orders more cans to meet the increase in demand.
Rexam competes with other packaging manufacturers and with food and beverage companies that make their own packaging such as Anheuser-Busch Companies (BUD). Rexam's biggest competitors are: