Rexam sees year in line as aluminium stabilises

LONDON - Rexam, the world's biggest maker of drinks cans, posted an expected fall in first-half profits and said it expected the full year to be in line with expectations as the price of aluminium stabilises. Rexam said on Tuesday its results had been hit by steeply rising aluminium prices, the weak dollar and a strike at nine U.S. beverage can plants, which is now over but will cost the company up to 15 million pounds for the full year. "We are now at the bottom of the external environment (cycle) ... the aluminium price is stabilising," Chief Executive Leslie Van de Walle said in an interview, adding that Rexam was in a good position to benefit from a recent portfolio overhaul. The price of aluminium, Rexam's largest single raw material need, averaged $2,770 (1,300 pounds) per tonne in the first half and is forecast to slip to between $2,600 and $2,700 in the second half, the company said, quoting market experts. Shares in Rexam were up 1.9 percent at 499 pence by 9:30 a.m., valuing the company at about 3.15 billion pounds. The stock has underperformed the general industrials index by about 2 percent in the past 12 months. Underlying pretax profit fell to 98 million pounds in the six months to June 30 from a restated 121 million a year ago, the packaging company said. That matched an average forecast of 98.53 million in a Reuters Estimates poll of four analysts. "With the fall in profits already greatly anticipated, an upbeat outlook statement combined with a more positive market has seen the shares make early progress," Hargreaves Lansdown analyst Keith Bowman said in a note. Sales from continuing operations climbed by 5 percent to 1.67 billion pounds. INTEGRATION THE FOCUS Rexam is looking to expand in fast-growing emerging markets to offset tougher trading in the United States, where health concerns and changing tastes have hit demand for fizzy drinks. The company, which produces more than 50 billion cans a year, said its drinks can business had increased volumes 3 percent as strong demand in Europe and South America offset a weaker performance in North America. Its customers include Coca-Cola, Carlsberg and Heineken. During the first half, Rexam sold its glass business and agreed to buy Russian drinks can maker Rostar and the plastic packaging business of Owens-Illinois Inc.. "There will be more acquisitions, but in the next six to 12 months the priority is to integrate the acquisitions," Van de Walle told Reuters. The company has also been investing in existing businesses, with capital expenditure rising 50 percent in the first half to 120 million pounds and set to climb to 300 million for the year. "We're putting our money where our mouth is," Van de Walle said. The market expects Rexam to deliver underlying full-year profits of 255 million to 260 million pounds, down from 303 million last year. After a challenging first half, the company now expects margins to improve as it will be able to pass on more of the rise in aluminium prices to customers as contracts are renewed. "Margins will start to improve for the second half of the year and continue to improve in 2008," Van de Walle added. The group proposed a 5 percent hike in the interim dividend to 8.3 pence, which Van de Walle said reflects confidence in the company's prospects.