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Rexam canned after costs fizz higher

Thu, 13th Nov 2014 09:00

A challenging market and exposure to fizzing metals prices has led drinks can maker Rexam to warn that increasing costs will put a significant dent in next year's profits.Although overall global beverage can volumes were up 4% since 1 July and overall performance for the period remained in line with management plans, the market was more concerned with news of £45m in extra costs for 2015, representing around 12% of consensus pre-tax profits for that year.The price of aluminium surging further to $500 per tonne is expected to add an extra £30m to costs compared to this year, while Brazilian energy costs are expected to increase by £15m after an unprecedented drought has raised the cost of hydroelectric power.The FTSE 250 company said it was anticipating margins on certain sizes of US specialty cans to reduce next year and for the trend towards global procurement contracts by our customers to continue."In light of these developments, we are reviewing our cost base further and will provide an update at the full year results in February."Focusing on the current year, chief executive Graham Chipchase said, despite ongoing foreign exchange headwinds and high metal costs, the business "is in good shape operationally and we continue to expect to make further progress in 2014 on a constant currency basis".Rexam enjoyed strong performances in India and Egypt following recent investments and the market recovered well in Turkey.In North America, standard volumes were down in line with the market while specialty volumes continued to grow, driven by strength in energy drinks.South America performed strongly although volumes slowed towards the end of the period as the World Cup effect tailed off.Mike van Dulken, head of research at Accendo Markets, said: "Rexam shares are being canned by investors this morning"."While volumes appear solid, costs remain key in a margin-conscious world and while the base is likely always under review, it is likely even more so now, especially while FX translation remains a thorn in the side."The stock was down 7.1% at 447.1p by 11:28.

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