Rexam PLC Annual Report 2011

22 Rexam annual report 2011 directors’ reportoperating reviewmetal efficiency mattersImproving resource efficiency in our operations is at the coreof our manufacturing processes, not least because of thecost benefit it brings to us and the packaging supply chain.In beverage can production, approximately 90% of our rawmaterial cost is metal. Metal efficiency is therefore a key areaof priority throughout our can business and we are focused onthe twin processes of lightweighting and downgauging.The gauge of the metal determines the thickness of the dome atthe base of the can. Downgauging – reducing the thickness ofthe metal used – means that more cans can be produced fromthe same amount of metal, whether it is aluminium or steel.Reducing the thickness of the can wall is called lightweighting.Using finite element analysis we can evaluate any proposedrefinements to can design before we set up a line. This hasreduced the risk and the associated cost of tooling development.Another significant advance resulting from the metal efficiencyprogramme in Europe is the adoption of the 'non round cutedge'. A complex modification to the shape of the blankspressed from the coil means less metal is wasted and lessexcess is trimmed from the top of the can body.beverage can North AmericaNorth America remains the largest single can market in the worldat around 95bn cans and we are the second largest can makerwith a c 20% share. In 2011, our overall volumes declined 14%impacted by the contract losses announced last year. As previouslystated, we have signed contracts to recover most of the volumeloss by 2013, which will help improve asset utilisation.Encouragingly, specialty cans, which now account for some 23%of our overall volume, grew 16% driven mainly by increasedconsumption of energy drinks, beer and iced teas as well as newinnovative beverage categories. Standard cans were down 20% ofwhich 15% related to the loss of contracts and the remaining 5% toweakness in the US soft drinks market.Overall profit in the business, which at the start of the year weexpected to be comparable to that in 2010, was significantlyhigher. The faster than expected growth in specialty cans and therelentless pursuit of efficiencies and cost reduction across ourentire product and manufacturing platform, combined with theimprovement in margins on retained as well as newly securedvolumes, helped drive this strong performance.Our good cash conversion continued and we maintained the strongreturn on net assets that characterises this part of the business.beverage can South AmericaSouth America is a c 25bn beverage can market dominated byBrazil. Rexam is the leading can maker in the region. Following avery strong performance in 2010 when the main market, Brazil,grew 18%, our volumes in 2011 were flat as the beverage canmarket in Brazil faced a number of challenges. These included aslowdown in Brazilian GDP growth (from 7% to 3% pa), priceincreases by our customers and particularly unfavourable winterweather conditions. Volumes were also affected by the directimport of cans by our customers. In addition, we lost some volumeshare as customers reallocated their volume requirements closer totheir filling locations to optimise freight costs as new capacity cameon line.Growth in Rexam’s specialty cans remained strong at 16%driven primarily by beer producers seeking new formats for theirproducts. Specialty cans now account for 21% of our sales.