UPDATE 2-Rexam to sell personal care unit, return cash

Wed Feb 22, 2012 4:42am EST

Related Topics

* FY underlying pretax profit up 15 pct to 450 mln stg

* To sell personal care business, keep healthcare unit

* Analysts say personal care could fetch about 350 mln stg

* To combine reinvesting with cash returns to shareholders

* Shares rise 4.7 percent to their highest since May 2008

By Adveith Nair

LONDON, Feb 22 (Reuters) - Europe's largest drinks can maker Rexam put its underperforming personal care business up for sale and said it would look to return cash to shareholders, sending its shares to their highest level in nearly four years.

The British firm, which also reported full-year profits largely in line with expectations on Wednesday, said strength in its core beverage cans business offset continued weakness at plastic packaging, which includes the personal care and healthcare operations.

Rexam, which makes Red Bull and PepsiCo cans as well as packaging for food, healthcare and cosmetic products, said it had decided to hive off the underperforming personal care unit as it did not expect a turnaround in the near term. The unit has been hit by rising costs and lower volumes.

The firm plans, however, to retain the healthcare unit.

Chief Executive Graham Chipchase declined to say how much the business could be sold for, or give a timeframe. Analysts have said the personal care unit could fetch up to 350 million pounds ($554 million).

Full-year operating profit at the company's plastic packaging unit was down 14 percent at 102 million pounds, with the business accounting for 19 percent of group underlying operating profit, down from 23 percent the year before.

"Current trading is weak, but we expect it (personal care) to be sold," BofA-Merrill Lynch analyst Ross Gilardi said. "We think most of the potential proceeds will go back to holders in the form of share buybacks and dividends."

The analyst pointed to Rexam's U.S.-based peer, packaging products maker Ball Corp, whose stock hit an all-time high earlier this month after the company instituted a share buyback and raised its dividend 43 percent.

Shares in Rexam climbed 4.7 percent to 402.8 pence, their highest levels since May 2008, and were the top percentage risers on Britain's blue-chip FTSE index.

"Over the last two years, we have succeeded in strengthening the balance sheet and protecting our credit rating," the company said in a statement. "We will maintain an appropriate financial position but will shift focus to a combination of reinvestment in the business and cash returns to shareholders."

Jefferies analyst Sandy Morris said reinvestment could be funded by future operating cash flows, implying the majority of any disposal proceeds could be returned to shareholders.

Full-year pretax profit rose 15 percent to 450 million pounds, in line with a consensus forecast of 447 million pounds, according to a company-supplied poll.

The rise was driven by a 14 percent jump in underlying operating profit at Rexam's beverage cans unit, which now accounts for 81 percent of group profit.

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