Business News
Rexam PLC is issuing this Interim Management Statement for the 3 months ending 31 March 2009
Friday 08. May 2009 - Group results for the first quarter benefited from foreign exchange translation gains which offset weaker organic1 performance and as a result, underlying2 operating profit was broadly in line with last year.
At the end of the quarter, net debt was £2.7bn, better than our plans at this stage of the year, and cash flow is progressing well as we reduce capital expenditure and improve working capital. The negotiation for the refinancing of the £775m revolving credit facility expiring in November 2010 is on track and is expected to be completed in the first half.
The performance of our Beverage Cans business held up reasonably well. The overall market in Europe declined due to lower demand in both Western and Eastern Europe. Rexam’s own performance reflected that of the market together with weakness in Russia and the impact of customer buy forwards in late 2008 ahead of January 2009 price increases. In North America, the market decline experienced in the last quarter of 2008 eased. In South America volumes were robust, although results were affected by a weaker Brazilian Real. In our cans business globally, we have reduced inventory levels in the first quarter to meet market demand and optimize cash flow, although this has resulted in some curtailment costs. We expect the second half of 2009 to improve on the first half as we head into the traditionally busier summer season.
Plastic Packaging continued to be affected by customer destocking and the impact of the economic downturn, but overall performance was in line with expectations. The Healthcare division performed well but there was sustained weakness in the Personal Care and Closures divisions. In order to reduce fixed costs and in response to a 10% overall decline in volumes in Plastic Packaging, we are initiating a restructuring programme. The exceptional restructuring charge in 2009 will be around £40m, of which £35m will be cash costs, with expected annualised savings of £30m from 2010 onwards.
Rexam remains committed to delivering positive free cash flow after dividends in 2009. The cash costs of the reorganisation announced today will be met by reduced capital expenditure and working capital improvements. The ratio of net debt/ EBITDA for banking covenant purposes at March 31 2009 was 2.9x (Q1 2008: 3.2x), well within our covenant limits of 3.5x. We repaid the £370m bond that expired in March and currently have £3.3bn in borrowing facilities. As previously anticipated, we are incurring higher interest and retirement benefit obligations net finance costs.
Commenting on current trading, Leslie Van de Walle, Rexam’s Chief Executive Officer said:
“Rexam’s first quarter underlying operating profit was in line with last year, albeit with the benefit of foreign exchange translation. Our Beverage Cans business is holding up reasonably well, although we are seeing weaker than expected volumes in Europe, especially Russia. In Plastic Packaging, we are reducing our cost base. We continue to monitor the situation carefully to ensure supply and demand are in balance across both our businesses.
“Our longer term strategy remains unchanged; we will continue to focus on the core drivers which have made Rexam successful – the efficiency of our operations, the quality of our products, the level of service we offer and our ability to innovate. In the shorter term, the full extent to which the economic downturn will affect our trading in 2009 remains unclear, but we will continue to focus on generating cash and reducing costs by proactively managing the variables over which we do have control.”
1 Organic adjusts for the impact of acquisitions, excludes disposals and is at constant currency.
2 Underlying excluding exceptional items, the amortisation of certain acquired intangible assets, fair value changes on financing derivatives and discontinued businesses.