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Rexam warns of beverage can weak spots

By Guy Montague-Jones , 17-Feb-2010

Rexam has warned that beer taxes in Russia and specialty can uncertainty may hold back its European beverage can sales in 2010.

In its full year trading update, Rexam said volumes appear to be stabalising but the can manufacturer said business conditions are expected to remain tough in a number of its operations.

For the full year 2009, Rexam reported a 5 per cent increase in total reported sales to £4,866m and a 9 per cent increase in beverage can sales to £3,573m. But these robust increases were chiefly due to favourable foreign exchange translation.

In the beverage can business organic sales were flat and volumes actually fell in the European and North American businesses. Offsetting these declines were lower prices and volume improvements in South America.

Weak points

In Europe, the two weak points were exposure to the economic decline in Russia and weakness in specialty cans. Rexam said specialty can volumes were down 14 per cent as consumers moved away from premium priced canned drinks and brand owners launched fewer new products.

Rexam CEO Graham Chipchase expects Russia and specialty cans to continue to cause problems in 2010. He said: “In Beverage Can Europe, there is ongoing uncertainty as to the development of specialty cans, and in Russia, to the continued impact of the recession and the impact of new taxes on beer.”

To protect profits from the effects of the recession, Rexam has completed a cost reduction programme that it says is running ahead of schedule.

Restructuring

In the beverage can business, the planned closure of 15 per cent of its North American capacity was completed in July and in Europe restructuring plans have also been fully implemented.

The Dmitrov can plant in Moscow, Russia, was closed in August and the Dunkirk plant in France closed in December. Rexam said these measures will reduce costs by £20m per year from 2010 for one off cash costs of around £30m.

These cost saving measures have yet to translate into profit improvements. Rexam’s total underlying operating profit fell from £466m in 2008 to £446m last year, while underlying operating profit for beverage cans rose by £4m to £310m.

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