Rexam shocks market with profits warning
Thursday 10 August 1995
Deputy City Editor
Shares in Britain's largest packaging company crashed yesterday as the market worried that a profits warning from Rexam, formerly known as Bowater, marked a serious deterioration in the economic climate.
Rexam, which makes packaging for a range of industrial products, from bread to ice cream and computers, is seen as a bellwether of the wider economy.
Market strategists were especially concerned because, as a cyclical company, Rexam would have been expected to be enjoying strong trading.
The shares, which had been rising strongly since March, slumped 73p to 422p, a fall of 15 per cent, as analysts took the red pen to their previous forecasts.
Profits, which had been expected to rise to about pounds 260m this year, are now forecast to roughly match last year's pounds 226m.
The market took the news harder than the string of mainly consumer-related profits warnings that have punctuated the normally quiet summer months.
Rexam's warning, following hot on the heels of Wilson Bowden's earlier this week, suggested problems in the wider economy outside the high street.
David Lyon, chief executive, warned: "After a good start to the year, demand eased surprisingly in the second quarter and results were below our expectations. We now see much flatter demand in the second half as our customers' stocks are run down and consumer demand in our main trading areas is restrained."
Richard Kersley, equity strategist at BZW, said the market had already taken on board stock problems in the retailing sector but had been slow to recognise that the industrial side of the economy had been just as weak.
He saw the sharpest inventory rises among textiles, metal manufacturing and building companies.
Mr Lyon described the profits shortfall as "a pause in our growth" and said the company was still confident.
"We have developed a reputation for being something of a Jonah over the years. I just hope we prove to be wrong because we supply packaging across such a wide range of industries."
About 40 per cent of Rexam's packaging ends up in the food and drink and health and beauty markets, a third is general packaging and the remainder goes to manufacturers of building, photographic printing and electronics equipment.
Rexam brought forward the announcement of its interim figures, which showed flat profits of pounds 111m, by three weeks.
It said the downturn in trading had happened quite suddenly in June, well after it accompanied full-year figures in March with a bullish trading statement.
Investment Column, page 22
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