Rexam O-I purchase complete amid muted H1 results
acquisition of the plastic packaging arm of US company O-I, shortly
after releasing somewhat lacklustre results for the first half of
the financial year.
The purchase boosts Rexam's plastic packaging business, following the firm's sale of its glass division earlier this and increased focus on growing markets and higher margin segments. The company reported operating profits of £146m (€216m) for the first six months of year, almost £30m down on the equivalent period in 2006. However, Rexam was keen to point out that the numerous portfolio updates and structural changes that have taken place at the company over the last year make direct comparison with 2006 a little tricky. Although primarily active in beverage can manufacture, the company's plastics division serves the pharma industry, activities which will become more pronounced following the O-I purchase. Although the high price of aluminium, a weak US dollar and a four-week strike at nine of the company's can facilities had a negative impact on Rexam's profits, the plastic packaging division managed a healthy six months. Sales at the division were up 4 per cent to reach £369m, with an underlying operating profit of £41m (£3m up on H1 2006). Increased sales in the unit's pharma division helped maintain the steady growth, along with good performance from dispensing systems, both of which contributed to off-setting decreased demand in the closures/containers and home/personal care segments. As a result of the O-I acquisition, Rexam will be implementing a new structure within its plastic packaging business, combining the six divisions that currently comprise the unit into three larger segments: healthcare, closures and personal care. The new structure is intended to "provide further opportunities to streamline the business and leverage [its] international scale." The new plastics division is expected to generate sales of around £1.1bn, with the addition of O-I hoped to boost Rexam revenues by around $40m (€29.9m) each year by 2010. The purchase is set to transform Rexam's plastics business, providing them with a host of manufacturing facilities and ensuring them a significant foothold in the US market. As over 90 per cent of O-I Plastics' sales and profits were generated in the US market, the Rexam purchase will also help globalise the unit's products. O-I Plastics operated 19 manufacturing plants (including one under construction in Malaysia), 14 in the US and Puerto Rico, and the others in Brazil, Mexico, Hungary and Singapore According to Rexam, the rigid healthcare packaging market in the US alone is worth around $4bn, and is growing at an annual rate of around 7 per cent with demand for some products (such as dry powder inhalation devices) anticipated to experience double-digit growth. The markets for pre-fillable syringes and medical and diagnostic components and containers are estimated to be growing at over 10 per cent each year, while the market for prescription containers is more modest, at 1-2 per cent per annum. Despite the somewhat muted financial results reported by the company this week, Rexam maintained that it had expected the first half of 2007 to be "challenging," and that the lower results masked positive improvements in various aspects of the business. Thanks to O-I acquisition, the sale of the glass unit and the purchase of Russian beverage can manufacturer Rostar earlier in the year, Rexam believes it is poised for good growth, and anticipates that the firm's full year results will be in line with expectations. The second half is likely to be characterised by hefty capital investments, particularly in support of the growing demand in the pharmaceutical market.