Rexam loses its fizz as soaring aluminium prices start to bite

Can maker Rexam has seen its profit margins squeezed below 6pc due to the soaring cost of aluminium, the weaker dollar and health drives that have meant less demand for fizzy drinks. The company posted a 19pc fall in first-half pre-tax profits to £98m. This was on the back of a 5pc rise in sales to £1.67bn. Chief executive Leslie Van de Walle said: "The high aluminium price has been challenging for us but it is stabilising." The price of aluminium averaged $2,770 (£1,361) per tonne in the first half of the year and is forecast to slip to between $2,600 and $2,700 in the second half. The company, which produces more than 50bn cans a year for the likes of Coca-Cola and Heineken, expects to be able to pass on some of the increase to customers as contracts are renewed. Volumes grew 3pc due to strong European growth which helped offset poorer performance in the US where demand for fizzy drinks was weaker. Rexam also had to contest with a strike at nine of its US plants which will cost £15m for the full year. John Middleton, analyst at Cazenove, said: "Overall it is a solid set of numbers that were slightly better than feared." In due course, Mr Van de Walle hopes Rexam will return to an underlying profit margin of about 14pc. Rexam plans to invest £300m on acquisitions, product development and expansion into emerging markets such as China. During the first half, it agreed to buy Russian drinks can maker Rostar and the plastic packaging business of Owens-Illinois. Capital expenditure totalled £120m, 50pc more than the same period last year. Mr Van de Walle said one growth area is the production of specialist cans. The group will pay an 8.3p interim dividend, up 5pc, on November 6. Rexam's shares closed up 13 at 503p.