1st Aug 2014 08:42
LONDON (Alliance News) - Rexam PLC said Friday its half-year results were in line with expectations, despite reporting a marginal decline in revenue and pretax profit as good volume growth was offset by the strength of sterling and metal premium costs reaching an all-time-high.
Shares in Rexam rose at the market open Friday, trading 0.8% higher at 505.00 pence per share, amongst the top three gainers on the FTSE 100.
The world's biggest can maker said revenue in the half-year to June 30, 2014, declined 5% to GBP1.90 billion from GBP2.0 billion last year while pretax profit logged a 2% decline to GBP166 million from the GBP169 million reported for the period in 2013.
The company has increased its interim dividend by 2% to 5.8 pence per share from 5.7 pence paid last year.
The company returned approximately GBP450 million to shareholders in June this year after it sold off its Healthcare business and shifted to focus solely on the global beverage can business. "While our strategy has not changed markedly, we can now give our absolute focus to our strategic priorities and the challenges of our industry as we look to achieve our vision to be the best beverage can maker in the world," said the company Friday.
Trading in the second quarter improved in all regions, said the company, with volume growth in Europe improving as anticipated and North America performing in line with the market. South America grew very strongly, said the company, as it saw a significant benefit from customer activity around the FIFA World Cup.
Rexam said that volumes in the first-half, especially in the second quarter, improved across the business, with beverage can volumes coming in 4% higher. However, the benefit of good volume growth and a one-off indirect tax benefit in South America was offset mainly by the effect of foreign exchange translation and higher aluminium premiums and organic operating profit was therefore flat as anticipated, said Rexam.
The 4% volume growth and the non-recurring indirect tax benefit in Brazil were offset by the impact of GBP20 million of foreign exchange translation headwinds and higher aluminium premium cost. During the first-half, the premiums reached an all-time high in Europe and North America bringing the net additional cost for the first half to GBP7 million, said the can maker. "We expect that premiums, which are contractually passed through in North America and in some cases with European customers, will result in a headwind of [approximately] £30m for the full year 2014," said the Rexam.
The drop in revenue on last year can be attributed to foreign exchange currency headwinds, said Rexam, as all three of its major trading currencies - the US dollar, euro and Russian rouble - continued to depreciate against sterling.
Rexam said its new strategic focus for the business is progressing well following the Healthcare business sell-off. In the first-half of 2014, it recorded GBP8 million in savings and said that it remains on track to deliver its target of GBP20 million in savings per year. "Our core manufacturing skills are based on converting sheet metal into beverage cans. That is where we create the vast majority of our value and are able to generate sustainable competitive advantage," said the company.
Rexam Chief Executive, Graham Chipchase, said that while sales and profit growth in the first-half have been challenging, the company is still generating good cash flow. Looking ahead, "Despite ongoing foreign exchange translation headwinds and metal premium cost at an all-time high, the business is in good shape operationally and we continue to expect to make further progress in 2014 on a constant currency basis," he said.
According to Jefferies analyst Sandy Morris, while a GBP3 million decline in pretax profit may not look impressive, in the face of an adverse foreign exchange hit of GBP20 million, a significant headwind from an elevated metal premium, and what Morris calls a "scratchy" trading backdrop in many markets, Rexam's results are "not bad at all."
"We believe the trading backdrops faced by Rexam in its major markets were challenging, unpredictable and probably quite volatile through 1H14," the analyst said. Overall, "we believe Rexam is delivering on its strategy of seeking to generate consistent and attractive returns for shareholders," he adds.
By Alice Attwood; [email protected]; @AliceAtAlliance
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