Rexam warning shocks the City
Tuesday 21 November 1995
Rexam, the pounds 2bn packaging and printing group formerly known as Bowater, shocked the stock market by issuing its second profits warning in just over three months yesterday.
The shares plunged 37p to 335p as the company said profits are likely to be 20 per cent below last year's level, suggesting a figure of about pounds 185m, after a fall in the sales margin to 8 per cent. In August it warned the market to expect flat profits for 1995.
David Lyon, chief executive, said destocking by customers had gone on "perhaps longer than we expected" after a dramatic fall in raw materials prices. Polypropylene had fallen back to levels seen last year, after rising 100 per cent in the 12 months to June, Mr Lyon said. People were destocking below normal levels and the problem was being compounded by lower economic growth.
Rexam expects the combination to knock pounds 25m off profits this year, with a further pounds 7m or so from stock losses.
Destocking has been most pronounced in the coated products division, which operates mostly in the subdued US markets. The company's two specialty paper mills have also suffered from high paper pulp prices and low demand.
Mr Lyon said it was unlikely the "storms and squalls" of this year would be as bad in 1996. With raw materials accounting for 40 per cent of total costs, that would make it easier to manage the business.
Rexam said it remained committed to both capital and revenue expenditures both this year and projected for next. However, one analyst said the market's attention was now likely to shift to concerns over the group's balance sheet.
Investment Column, page 22
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