Rexam Declines as Costs, Aluminum Premium to Erode Profit

Rexam Plc fell the most in more than five months in London as the largest drinks-can maker said costs including aluminum prices were a threat to profit margins.

Rexam sank 6.3 percent to 451.1 pence at the close in London, the biggest drop since June 2. The premium buyers pay on top of market prices to secure aluminum supply rose to a record $500 a metric ton. Rexam costs will increase by 30 million pounds ($47.1 million) in 2015 if premiums stay as high, the London-based company said today in a statement.

“A series of external pressures are intensifying, notably the aluminum premium, the Russian ruble and energy costs in Brazil,” Fabio Lopes, a Bank of America Merrill Lynch analyst, said in a note. The business has underlying strength, he said.

The company is negotiating with some customers to help mitigate rising costs, Chief Executive Officer Graham Chipchase said today by phone.

“The premium costs are one of the headwinds we are facing,” he said. “The consensus view is that premiums will ease off over next year gradually but I don’t think we’ll see a dramatic reduction.”

If they “stay as high as they have been for a significant period of time that would be a factor but we think of other costs as well, like the energy costs in Brazil and reducing special cans’ margins in North America. These are all things we have to mitigate somehow.”

Brazilian Costs

Energy costs in Brazil are expected to increase by 15 million pounds in 2015 as Sao Paulo state’s worst drought in eight decades caused the price of hydroelectric power to increase, he said.

Rexam, which in February agreed to buy a stake in United Arab Can Manufacturing Ltd. in Saudi Arabia for $122 million, has increased sales volumes by 4 percent since the end of June compared with a year earlier, it said.

The company, which produces about 63 billion cans a year and supplies beverage companies including Coca-Cola Co., Anheuser-Busch InBev NV, Heineken NV, Carlsberg A/S and PepsiCo Inc., plans to increase output in the Middle East, Central America and Southeast Asia.

The company sees 3 percent to 4 percent volume growth this year, Chipchase said. “We expect low single-digit volume growth next year,” he said.

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