Rexam Plc in the Beverage Industry - Report Example

REXAM PLC BUSINESS ANALYSIS By School Rexam Plc (Business Report Introduction The beverage industry isarguably on the rise, with many new investors entering the market by the day. This increased beverage production has been facilitated by enhanced demands for both alcoholic and non-alcoholic drinks across the globe. The increased beverage production develops the vital need for can production to facilitate the packaging and consequent transport of the products. In addition, the nature and design of the cans plays an important role in attraction of clients, and consequent promotion of acceptability of the products. This business opportunity has led to the rise of Rexam Plc into a global leader in can manufacturing. This British firm, with its headquarters in London, was founded in 1923, and has since warded off stiff competition to become a prominent player within the industry, with a presence in over four continents (Bloomberg, 2014). Through critical analysis of the firm’s profit and cash flow structures, it is evident that the firm has a large financial capacity, and is also an employer of over 8000 personnel in different sections of operations. Currently, the firm is under the stewardship of a competent managerial team, with Graham Chipchase as the CEO (Google Finance, 2014). 2. Limitations This analysis is heavily reliant on statistics provided by Rexam Plc and its affiliates. Such over-reliance on primary data from the firm may be misleading, especially in instances where the firm is under financial strains, which it would not want exposed. In many cases, firms tend to keep vital information to prevent such key data from reaching their competitors. In addition, some data in various sections of this analysis were limited in scope, with no clear competitor data and strategic counter-mechanisms elaborately outlined by the firm. Also, the efficiency data attained are discontinuous, with the 2012 projections and achievements missing. 3. Profitability The profit trends encountered in the Rexam plc have been subject to a wide array of influences; some due to internal business environment, while other influences are from activities external to Rexam. Basically, factors such as discontinued business operations, disposals, competitions, financial crises and currency fluctuations have had a remarkable share of influence on the firm. In 2009, the company recorded decimal returns, with an all time low profit of £65, the lowest in the five-year period under review. This is directly attributable to the global financial crisis, which led to lower purchasing power from beverage users, hence lower beverage intake as many people strived to save the little extra penny for other essential expenditure. Due to strategic realignments and the slow, but steady recovery of the world economy, the intake of beverages increased, and the profit margin of the firm increased to £215 in 2010, a figure which surged further forward to £341 in 2011. In 2012, Rexam’s profit index after accounting for all the deviations resultant from the aforementioned factors rose by 1% (Rexam, 2013). This was in line with increased beverage usage observed across the same period which consequently facilitated increased production of the cans. In addition, the same time scale encountered negative returns in some sections of business run by the same firm, though such depreciations were well accounted for by the increased returns in the other sectors. However, 2012 recorded a decrease in profitability by the firm, a prospect that could have been due to financial hard times that forced the company into selling part of its unit for $709, as outlined by the Bloomberg respondent. While 2013 was a good financial year for the firm, recording large profit margins, 2014 proved a little tricky, with arguable increase in costs of production due to the increase in aluminum prices in the European market. However, it can be expected that the firm will make more profit as key players like Heineken continue to order more plastic products from REXMY. 4. Efficiency From the available data, it is notable that the firm is committed to various aspects of efficiency. Prominent sectors in which Rexam Plc’s commitment to efficiency in operations are in the CO2 generation and in energy usage efficiency (Rexam Sustainability Report, 2012). In 2011, the conglomerate’s CO2 production reduced remarkably from 1.06m equivalents in the preceding year to 1.00m equivalent tones (Rexam, 2014). This is commendable for a firm that had just begun formulating environmental conservation efforts. This reduction could be attributable to the firm’s decision to effect usage of a more efficient supply chain management. For instance, the company had identified the use of sea transport as a key measure in limiting carbon release during transport of its products. This reduction in CO2 could also be an effect of the company’s initiative to become a member of the CPD. Further, Rexam is committed to realizing energy efficiency. In this respect, the firm attained a reduction in energy usage by up to 3% in 2011 compared to 2010 (Rexam Sustainability Report, 2012). This figure was however expected to rise to a conservation index of 8% in 2013 relative to 2010, though there is no clear data indicative of whether this target was achieved. The carbon conservation level, on the other hand, was expected to increase to 10% by 2013. These conservation efforts are directly attributable by the efforts of world bodies to combat global warming and climate change, a venture towards which the European firms are mandated to contribute towards financially and operationally. In this respect, it is commendable that the firm has been up to date in payments of conservation levies required of it. 5. Liquidity From the facts and figures in the table above, it is conclusible that Rexam Plc is currently adequately liquid. However, the sustainability of the liquidity is a major concern (Reuters, 2012). Notably, the firm is focused on shareholder needs, and is equally committed to the realization of client needs. As a result, the firm has undoubtedly developed an acquisitive approach, which may not be sustainable in long term. As it stands, the asset value of the firm is adequate enough to cover all expenditures and credit facilities. In addition, the firm is currently running at profitable margins, with a net income of about 1% in 2013 (Rexam, 2013). In addition, the firm is operating under a free operative cash flow strategy. This strategy, according to Reuters, has often posed sustainability challenges in firms that have ever adopted it in prior time. In addition, the Reuters analysis cites the volatility of the input costs in the business sect in which the firm is operating as a call for alarm over the sustainability of the projects (Reuters, 2012. P5.). Further, the firm was started in the 1930s. Such old companies are faced with the challenge of adapting to changes in business setup at the expense of derailing traditional cultures. 6. Investor analysis The firm offers different share categories; hence giving investors a chance to run the affairs, and consequently benefit from the business (Rexam, 2013). According to the chairman’s statement, investors in the firm are highly valued. As a result, there has been increasing investment in the firm. In 2014 though, the Investor Chronicle noted concerning deviations in the demands and prices of the firm’s shares. This could be as a result of uncertainty in various business fronts. 7. Conclusion and recommendation In view of the analyses and findings above, it is notable that Rexam is a profitable firm despite the few hurdles it has had to cope with from time to time. In 2009, the firm recorded decimal returns due to global crises. Therefore, this surge in returns should not be used as a foundation to rule against investing in the firm. From then, there have been marked improvements in sales, production, returns, and client and employee benefits. Further, the adoption of can technology, and plastic bottle tops by key players in the beverage industry is but a promise for a better future for the firm. However, there is questioning in regards to the firm’s efforts to ensure long-term liquidity and sustainability. Having been in the market for long, and with continued customer support, it is undoubtable that the firm is working behind the scenes to develop sustainable strategies (Rexam, 2012). Moreover, the asset value of the firm is promising and is effectively able to cover all debts and costs. In view of the above factors, I would strongly recommend an investor to invest in Rexam Plc due to its strategic global positioning, profitability and commendable investor relations. In addition, the firm has a strong backing from corporate players which makes it ideal. Rexam Plc Investing in traditional companies has often been a gamble that most investors are often forced to adopt. In many cases, such traditional companies do have established cultures which are difficult to break. Such hardliner resistance to change has seen many such firms unable to adopt change initiatives leading to their consequent collapse (Denning, 2014). However, some firms are often quick to innovate are re-strategize to fit into the constantly changing business world. Such innovative traditional firms, though few, have enjoyed immeasurable success in the various business niches in which they operate. In this line, Rexam Plc, a British firm established in the early 20th century, has defied all odds to become a global leader in a rather competitive can making industry. In some localities, the firm has enjoyed an enormous market share of as much as 60% (Rexam, 2013). The major question posed, however, is whether such pseudo-successful traditional firms are worth investing in and whether their strategic realignments are sustainable over long-term. Without a doubt, most traditional firms have large asset base that positions them strategically to acquire credit facilities and support. Such asset capacity is equally a detrimental factor noting that it may lead the firm into borrowing credit that it may not be able to effectively service. As a result, many traditional firms have often ended up being auctioned to service the debts. Such occurrences have made investing in the firms a tricky risk. Consequently, most investors have often shied away from investing in the traditional firms despite the great profit potential they may possess (Ullah and Ahmed, 2014. P68.). In the context of REXMY though, the firm is solvent, with a debt value that can be effectively serviced with the assets and financial returns of the firm (Rexam, 2014). In addition, statistical from the firm have shown that the financial returns from the firm have been on the rise following the 2009 decline which is directly attributable to the universal impacts of the 2009 global economic crisis. It is, therefore no doubt that the global brand-Rexam is living by its vision: to become the prime can maker across the globe (Rexam, 2014). When operating in the current world setting, old industries are challenged with energy conservation techniques. Thus far, many such firms are blamed for the constantly increasing global warming, with the industrial discharges from such firms being directly involved in environmental pollution. Besides, some of the products produced by the industry players, including the Rexam, are non-biodegradable. This makes management of such wastes a great challenge. Rexam has however taken to conservation initiatives through enrolment as member of energy and environmental conservation bodies such as CRC and CPD (Rexam, 2014). The firm has equally remained compliant to the set down procedures and levy thus making it an ideal investment platform. Indeed, every investor would dream of investing in a firm that is compliant to the governing rules of a locality and Rexam plc proves to be a good fit. From liquidity point of view, Rexam remains one of the most liquid entities available within the current competitive business setup (Rexam, 2014). While most companies are serving on loans and lending which arguably exceed their asset value, this British firm whose headquarters is in London defies this aspect, effectively possessing a larger asset value. To ensure this liquidity, the firm has been using rather questionable strategies. In many cases, it has bought off competitor firms to ward off competition from rising firms which are in any case a threat to its continued success and dominance. However, this strategic development of acquisitive nature by the firm has been criticized by many pundits who view it as an aspect of short-sightedness in business perspective. In fact, the questions about the long-term business positioning of the Rexam firm are unlikely to evade public debate any time sooner. In view of the above perspectives, it is conclusible that the firm as currently constituted is highly profitable even if long- term profitability is questionable. In this regard, it is strongly advisable that investors take the bold move and invest in this firm. Such investment would allow them to be part of the success story that this noble, environment friendly firm has enjoyed for decades. In a second perspective, it is worth noting that with the current competition in business setups, there hardly exists a venture that is secure. As a result, companies are forced into adopting short-term and middle term strategies. As such, there is no need for alarm in regards to the strategies employed by the firm under review. In fact, the major aim of any business venture is to generate profits to the investors while equally suppressing competition. Therefore, programs conducted by the Rexam are fully committed to this strategic course. References Bloomberg Business Week, 2014. Rexam PLC. Bloomberg. [Online] Available at: [Accessed 02 January 2014]. Denning, S., 2014. Can Hierarchical bureaucracy become a 21st century network? Forbes LLC. [Online] Available at: [Accessed 02 January 2014]. Google Finance, 2014. Rexam PLC: LON: REX quotes and news. Google Finance. [Online] Available at: [Accessed 02 January 2014]. Investor Chronicle, 2014. Rexam PLC. Investor Chronicle. [Online] Available at: [Accessed 02 January 2014]. Reuters, 2014. TEXT S&P Summary: Rexam PLC. Reuters US. [Online] Available at: [Accessed 02 January 2014]. Rexam Sustainability Report, 2012. Our commitments. Rexam PLC. [Online] Available at: [Accessed 02 January 2014]. Rexam, 2012. Sustainability: operations. Rexam PLC. [Online] Available at: http://www.rexam.com/files/reports/2012ar/index.asp?pageid=35 Rexam, 2012. Annual report 2012. Rexam PLC. [Online] Available at: [Accessed 02 January 2014]. Rexam, 2012. Governance and remuneration report of 2012. Rexam PLC. [Online] Available at: [Accessed 02 January 2014]. Rexam, 2013. Annual Report 2013. Rexam PLC. [Online] Available at : [Accessed 02 January 2014]. Rexam, 2014. About us: the Rexam story. Rexam PLC. [Online] Available at: [Accessed 02 January 2014]. Rexam, 2014. Five year financial summary. Rexam PLC. [Online] Available at: [Accessed 02 January 2014]. Ullah, G., and Ahmed, W., 2014. A review of European sovereign debt crisis: causes and consequences. International Journal of Business and Economic Research. [Online] Available at: [Accessed 02 January 2014]. Read More