Rexam ends speculation and announces 350.7m rights issue

Rexam’s share price fell 7.24% to 256.25p following the announcement this morning.

The announcement came after speculation in The Sunday Telegraph at the weekend that Rexam was planning to launch a £350m rights issue in a bid to avoid its debt being reclassified as ‘junk’, speculation it played down in a statement on Monday.

Today Rexam reported that underlying profit before tax fell by 15% to £135m in the six months ending 30 June 2009, affected mostly by the impact of the recession of premium parts of the business, such as cosmetics.

“Companies like L’Oréal have put out slightly disappointing results so it’s not surprising their suppliers are also putting out disappointing results,” said packaging specialist at Europa Partners Nicholas Mockett.

“We’ve also seen cosmetics doing reasonably well in a recession, but I think what we are seeing here is people trading down to cheaper brands,” he added.

Packaging industry commentator Tim Rothwell agreed: “Rexam is a world leader, but this doesn’t mean that it’s insulated from what’s happening with its customer base.”

Yet favourable foreign exchange rates, due to the strengthening of the US dollar and the euro, increased sales by 15% to £2.5bn in the first half of the year.

The company has continued to taking decisive action by closing plastics operations and cutting executives by one third.

“We have taken a significant and appropriate action to mitigate the effect of the downturn and the Rights issue announced today will strengthen our financial position with regard to our investment grade rating,” said Rexam president and chief executive Leslie Van de Walle.

“We see no clear upturn through the rest of the year in current trading conditions,” he added.

Rexam H1 2009 results

Turnover £2.5bn (2008: £2.2bn)
Operating profit £218m (£217m)
Pre-tax profit £135m (£158m)

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