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Silgan CEO says Can Vision 2020 is not ‘defensive reaction’

By Joe Whitworth , 31-Jan-2013
Last updated on 05-Feb-2013 at 08:50 GMT

Silgan has identified a “couple of hundred million dollars of opportunities” as part of a project aimed at reducing systems costs of canned food products from steel to store.

In a conference call with analysts discussing the firms’ results, Silgan CEO Tony Allott said Can Vision 2020 was not a “defensive reaction” but was “recognition” of steel inflation, lower costs of food products and pressure put on customers through changes in the retail stream.

Can Vision 2020 is a multi-year initiative including parts of the system from package design, combined purchasing initiatives, can manufacturing and distribution, cooking and filling operations.

Pushing the can

Silgan said the aim is to further the cost advantage enjoyed by the metal can for shelf-stable food and to provide incentives for customers to grow can offerings.

Allott said the cost put into the project and a program with the Can Manufacturers Institute (CMI), to communicate the sustainable benefits of canned foods to customers, retailers and consumers, was between $3.5m-$4m and is likely to go up by about the same amount again this year.

“We’ve had a relentless pursuit on taking cost out of our product for our customers and every year that happens. And so, it is not in any way, it’s the defensive reaction. It is however a recognition,” said Allott in the conference call.

“And, I would tell you that thus far we’ve identified a couple of hundred million dollars of opportunities. Now, these are long-term in nature, so first thing is, these aren’t going to be here next year necessarily, some of these are very big ideas.”

2012 performance

Reporting full year results, the firm said the net sales of the Metal Containers business was $2.29bn in 2012, an increase of 3.7% compared to $2.21bn in 2011.

The increase was due to unit volumes rising due to acquisitions, and higher average selling prices due to the pass through of raw material costs, partially offset by lower price realization in the European markets largely in exchange for improved customer credit terms.

Income from the metal container business was $231.5m, a decrease of $24.8m compared to 2011, and operating margin decreased to 10.1% from 11.6% over the same periods.

These decreases were due to lower overhead absorption in 2012 as a result of planned inventory reductions and start-up costs of $6.4m for production facilities in eastern Europe and the Middle East.

Silgan completed two acquisitions in the high barrier plastic food container business from Rexam and Ontas, a Turkish producer of metal food cans and metal closures and commissioned food can plants in Stupino, Russia and in the Jordan Valley.

Closures decline

Net sales of the Closures business were $680.1m, a decrease of 1.1% compared to 2011 driven by lower net sales in Europe due to weak economic conditions and lower average selling prices as a result of the pass through of lower resin costs, partially offset by higher unit volumes in the single-serve beverage market in the US.

Income from operations of the closures business decreased $2.8m to $73.1m compared to 2011, and operating margin decreased to 0.3% to 10.7%.

These decreases were primarily attributable to price pressure and lower unit volumes in the European market and higher rationalization charges.

These decreases were offset by higher unit volumes in the single-serve beverage market in the US and benefits from ongoing cost reduction initiatives and improved manufacturing efficiencies.

Plastic Containers growth

Net sales of the Plastic Containers business were $614.5m in 2012, an increase of 0.8% compared to 2011.

This increase was driven by the inclusion of net sales from the plastic food container operations acquired in August 2012, partially offset by lower average selling prices as a result of the pass through of lower raw material costs and selectively lower unit volumes in the base business.

Income from operations of the plastic container business was $30.8m, an increase of $18.2m compared to 2011, and operating margin increased to 5% from 2.1%.

These increases were attributable to the improvement in operating performance, the favorable comparison of the year-over-year resin pass through lag effect, the inclusion of the acquired plastic food container operations and lower rationalization charges.

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