Rexam: glass sales up 8% in 2006

Consumer packing giant Rexam PLC posted a slight fall in full-year underlying pretax profit on 20 February 2007, hurt by a large rise in input costs. Rexam, which makes a wide variety of products incl…

Consumer packing giant Rexam PLC posted a slight fall in full-year underlying pretax profit on 20 February 2007, hurt by a large rise in input costs. Rexam, which makes a wide variety of products including the Red Bull drink can, said the pressure of continuing high aluminum and other input costs together with a weak US dollar is likely to counteract progress in 2007, with most of the impact to be felt in the early part of the year. A company spokesperson said the market is forecasting 2007 pretax pre-items profit to be 2.6% lower than this year“s, at GBP 295 million, before a rebound in 2008 to reach GBP 330 million. However, it said it would make invest heavily during 2007 to set it up for a new phase of growth. It expects to start seeing results from the program in 2008. Rexam posted pretax pre-items profit of GBP 303 million for 2006, compared with GBP 307 million in 2005. Seymour Pierce analyst Kevin Lapwood said “the results were a touch better than estimates and in line with consensus” and “indicate there was nothing much wrong with top-line growth in 2006” except being affected by costs. Mr. Lapwood, who has a buy rating on the stock, added that capital expenditure is expected to rise significantly to about GBP 350 million in 2007. Aluminum is the largest raw material cost for the group by far, with a total annual spend currently at GBP 1.2 billion, against which the company is less hedged than previously. Higher energy and freight costs also hit results. In a statement, Chairman Rolf Borjesson said that “after many years of sustained profit growth, external forces conspired to create a challenging 2006” for the company. Sales from ongoing operations for the year to 31 December 2006 rose 17% to GBP 3.65 billion from GBP 3.11 billion in 2005, including 10% from existing businesses. In its glass business, Rexam said that after several years of decline and uncertainty, the European glass container market stabilised in 2006. Sales rose by almost 8% to GBP 437 million through a combination of price increases, higher volumes and mix improvements. All sites contributed to the upturn: Poland continued its long term positive trend; Scandinavia and the Netherlands both grew after a number of years of stagnation and Germany reversed a period of decline with the strongest growth figures of all. However, the unprecedented rise in energy costs was a formidable obstacle to progress, the company said. The increase in sales and moves by management to increase efficiency and reduce costs fully offset the effect of the rise in costs and underlying operating profit was maintained at GBP 36 million. With capacity in the glass market more in line with demand than at any time in recent history, Rexam says it continues to focus intently on further price increases and cost efficiencies exploiting valuable synergies through the exchange of operational excellence across its European sites. The UK-based company, one of the largest global glass and plastic bottle makers, said it will deliver organic profit growth in Plastics Packaging and a more favorable product mix in Beverage Cans, as well as raising prices in 2007. Its main markets are beverage, beauty, food and pharmaceuticals. CEO Leslie Van de Walle said that “2007 will bring further top line growth and efficiency savings” but “without earnings progress” hurt by continued increasing input costs. Rexam said its organic sales growth in beverage cans was driven by market share gains in the US and strong market demand in Europe and South America. The company has been expanding and investing heavily in Russia and Brazil, and said its plans are on track. The company said that, while these projects entail capital expenditure this and next year, it expects to see significant benefits in 2008. Rexam proposed a 5% increase in dividends to GBP 0.19 from GBP 0.1812 in the previous year.