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Rexam expands cosmetics plastic packaging in the US

By Simon Pitman and Ahmed ElAmin , 06-Sep-2005

Rexam is expanding its plastics packaging business in a tough market, announcing that today it has agreed to purchase a US maker of injection-moulded jars and closures for £83m (€123m) - a move that will expand its capabilities in both the beauty and food categories.

The purchase of US-based Delta Plastics is part of the company's strategy to achieve further economies of scale by growing its plastic packaging business and broadening the company's current productoffering to multinational food processors, Rexam's chief executive Lars Emilson stated in his announcement of the deal.The plastics packaging division includes the company's beauty, pharmaceutical and the plastic bottles operation (focused mainly on the beverage industry).

While prices of certain plastic resins, including polypropylene and polyethylene have declined in recent months, elevated oil and natural gas prices and efforts by petrochemical companies toaggressively implement price increases could lead to further increases in plastic resin prices in the remainder of the year, according to a report by Standard & Poor's.

 

"It will increase our presence in the important US market and we foresee a number of synergies in areas such as raw materials purchasing, technology access and additional sales,"Emilson stated.

 

In its quarterly report last month UK-based Rexam said it has been successfully passing on the increasing cost of raw materials in its plastic packaging division to its customers.

 

Companies that produce rigid plastic containers, such as Rexam, have been able to pass on the raw material price increases because they generally operate under contractual arrangements with mostcustomers, which allow for pass through of cost fluctuations.

 

The price pressures have affecting how processors are packing their products. Many have been downgauging to lower priced packaging, according to Standard and Poor's. Many have also been moreefficient in managing their inventory balances in anticipation of further price movements. Smaller order patterns have affected volume growth for plastic packaging suppliers.

 

Rexam is one of the world's top five consumer packaging companies and has been reorganising to focus its global operations on beverage packaging in metal, glass and plastic. The group hasoperations in 22 countries. The company has made a series of acquisitions over the past two years and says it is looking at other "opportunities" for growth.

However, the plastics packaging division has been showing strong growth in recent months, as the company moves out of glass packaging and continues to ride the wave of fluctuating aluminium prices.

The company's beauty business, which is one of the mainstays of the plastics packaging division, has continued its 'generally buoyant' performance, as sales of pumps continued to prove particularly strong.

 

Currently beauty packaging products are manufactured at 14 plants in Europe, Asia and the Americas - with Brazil, China and Indonesia accounting for its manufacturing interests in the developing markets.

 

This is in line with the company's increasing focus on emerging markets, which now account for nearly 15 per cent of the groups packaging operations. Currently its core emerging markets are Brazil, Russia and China.

 

Rexam's beauty packaging products include spray samplers, lipstick cases, fragrance closures, compacts, a series of closures as well as fragrance dispensing systems that centre around fine-mist pumps.

 

Delta is based in Arkansas. The company designs and manufactures plastic injection-moulded jars and closures, primarily for the personal care and food markets. The company holds a number ofpatented product designs.

 

The company has two injection-moulding plants in Hot Springs. It also has a research and development centre near Los Angeles, California, which designs, develops and manufactures moulds andautomation equipment.

 

In 2004 Delta reported sales of $50m and, as at 31 December, net operating assets of $49m. Delta's current majority shareholder is Stonebridge Partners, a private equity fund.

 

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