Rexam PLC
24 August 2006
Rexam delivers solid performance in challenging cost climate
Rexam, the global consumer packaging group and the world's No 1 beverage can
maker, announces its results for the six months to 30 June 2006.
Underlying performance 1
6 months to 6 months to
30.06.06 30.06.05
Change
Sales from ongoing operations 2 £1,811m £1,504m +20%
Underlying operating profit from ongoing £194m £192m +1%
operations 2
Underlying profit before tax £137m £141m -3%
Underlying earnings per share 18.4p 17.8p +3%
Dividends per share 7.9p 7.52p +5%
Highlights
• Strong sales growth - ahead by 20% ongoing, 9% organic
• Beverage can market share gains help drive 11% volume increase
• Plastics acquisitions integrating well
• Further acquisitions in emerging markets
• Stable profits: high input costs offset by growth from acquisitions
• Free cash flow good at £30m
• Significant investments in growth initiatives
• £18m cost efficiencies achieved
Rolf Borjesson, Rexam's Chairman, commented:
'During the first half of 2006 Rexam delivered strong top line growth, good cash
flow, significant market share gains and a solid profit performance. Our
ongoing pricing, innovation and cost efficiency initiatives are proceeding
according to plan. Despite the challenging cost climate our industry is facing,
trading remains in line with our expectations and we expect to make progress in
the second half. Looking forward, we will focus on managing our margins through
pricing and cost efficiencies and strengthening our businesses through our
strategy for organic and acquisitional growth.'
Statutory results 3
6 months to 6 months to
30.06.06 30.06.05
Sales £1,845m £1,564m
Operating profit £212m £167m
Profit before tax £170m £119m
Basic earnings per share 22.5p 13.3p
Notes
1 Underlying performance is before exceptional items.
2 Ongoing operations reflect underlying performance excluding businesses that have been disposed or that are
held for sale in either 2006 or 2005.
3 For statutory results, profits and earnings include exceptional items.
Enquiries
Rexam PLC 020 7227 4100
Lars Emilson, Chief Executive
David Robbie, Finance Director
Andrew Mills, Group Communications Director
Financial Dynamics 020 7269 7121
Richard Mountain/David Yates
24 August 2006
Rexam will hold a conference call today August 24 at 14:30 (UK time) for
international investors on the company's first half 2006 results and
performance.
The number for the call for those in the US is +1 718 354 1171
Other callers should dial +44(0)20 7138 0816
There will be a video interview with Lars Emilson, Chief Executive, available on
www.rexam.com at 07.00 (UK). A synchronised on demand video and slide show of
the half year presentation will be available late afternoon (UK), on the day of
the announcement.
INTERIM STATEMENT
Rexam had an encouraging first six months of 2006 reporting strong top line
growth, significant gains in beverage can market share and the rapid integration
of acquisitions, all against the background of an unprecedented rise in input
costs, especially aluminium.
The Group delivered strong sales growth of 20% from ongoing operations. Organic
sales growth was 9%, acquisitions contributed 8% and 3% of the growth came from
currency translation. Underlying operating profit from ongoing operations was up
1% at £194m, reflecting volume growth and acquisitions offset by the impact of
higher input costs and the reduced prices of the major new Beverage Can contract
won in North America. Underlying profit before tax was £137m and underlying
earnings per share rose 3% to 18.4p as the Group benefited from a lower tax
charge.
Following 2005's notable performance, free cash flow generation was again good
even allowing for higher capital expenditure to fund growth projects and
interest cost. Interest cover remains robust at just under 5 times. Rexam is on
track to deliver the expected amount of annual cost efficiencies, having
achieved £18m in the first half of the year compared with £15m in the same
period last year.
The net effect of currency movements was positive, increasing sales and
underlying operating profit by £46m and £5m respectively, owing mainly to the
movement in the US dollar against sterling.
On a statutory basis, including the effect of acquisitions, disposed businesses
and currency, sales were £1,845m, up 18%. On this basis, profit before tax
(including exceptional items) was up 43% at £170m. The principal exceptional
gain arose from a change in US retiree medical benefits. The resulting basic
earnings per share was 22.5p compared with 13.3p for the equivalent period last
year.
Beverage Cans
6 months to 6 months to
30.6.06 30.6.05
Sales £1,224m £1,059m
Underlying operating profit £137m £143m
Return on sales 11.2% 13.5%
On a global basis, our beverage can volumes grew 11%, benefiting from
significant market share gains as well as strong overall market growth. Capacity
utilisation is extremely high in all our beverage can plants, and efficiency
savings remain similar to last year as we continue to identify further
opportunities to ensure best practice manufacturing across our 42 can and end
making plants around the world.
In the Americas, which includes the US, Mexico and South America, we saw strong
top line growth with volumes moving ahead 12% including the effect of the new
long term contract with one of our main customers. We also saw good market
development in all three regions as well as further growth in non-standard can
sizes. To capture this growth, we are investing further in converting four
additional can lines to produce non standard can sizes in the US.
The new beverage can plant in the Mato Grosso region of Brazil is nearing
completion and we are pleased to announce that work is starting on an additional
can end plant in Manaus, in the Amazon, which will help consolidate our end
manufacturing.
In Europe, our beverage can volume gains were equally positive, increasing by 7%
on the same period last year. We benefited from further growth in the energy
drinks sector and the generally favourable market development, buoyed by the
fine early summer weather in Europe and the FIFA World Cup. The can started its
comeback in Germany on 1 May 2006 and the early signs are encouraging.
To meet increased demand in the global energy drinks market, we have announced
the building of a new can making plant close to Red Bull's contract filling
partner in Austria. Representing an investment of £45m over 2006 and 2007, the
new plant will have a capacity of some 1bn cans and is expected to come on line
by the end of 2007.
In Russia, which continues to show good growth, we have decided to invest in a
second can plant. Located in the Urals, it is expected to come on stream in mid
2008. We are also installing a new line at our Naro Fominsk facility to produce
innovative one litre cans to meet the market demand for larger container sizes
for beer.
Our recently acquired Egyptian beverage can plant is bedding in well and the
results of our focus on efficiency and spoilage reduction are already having a
positive effect in the shape of increased output to meet growing demand. We have
also moved into can making in the emerging Indian market following the formation
of a joint venture with a local industrial company.
Aluminium is by far the largest raw material cost for the Group with a total
annual spend of more than £1bn. Prices for this commodity, which are based in US
dollars, rose steeply in the six months to 30 June 2006. In the Americas, Rexam
is largely unaffected by the changes in the cost of aluminium as major customers
agree the cost in advance with their suppliers, effectively resulting in a cost
pass through. In Europe, both the metal and the associated US dollar/euro
currency requirements are hedged through a three year rolling programme, such
that aluminium is fixed in euros, the principal transaction currency. This year
is now largely covered at prices well below recent peaks, while 2007 remains
partially hedged.
As part of our ongoing management of aluminium input costs, we renegotiated a US
contract for the future supply of aluminium which gave rise to a profit of £14m
in the first half of 2006. This, together with price surcharges, has helped to
mitigate the effect of the higher aluminium cost on the European beverage can
operation. We intend to continue to manage actively the effect of aluminium
costs through contract renegotiation, hedging and surcharges as appropriate.
Looking forward to 2007, we will be renegotiating contracts with our European
customers later on this year and it is our intention to reflect the aluminium
price prevailing at that time in our pricing structures.
As we indicated in the 2005 results, the overall margin of our beverage can
business reduced due to the impact of the major new contract in the US, along
with the effect of the pass through to customers for increased aluminium costs
in the Americas and higher energy and freight costs. We expect the margin to
increase over the medium term.
Plastic Packaging
6 months to 6 months to
30.6.06 30.6.05
Sales £379m £250m
Underlying operating profit £43m £32m
Return on sales 11.3% 12.8%
Plastic Packaging in Rexam is focused on the more value added and faster growing
sectors of the rigid plastic packaging sector. It includes beauty packaging
operations, pharmaceutical packaging, closures and food and beverage plastics,
as well as recently acquired businesses serving the home and personal care
markets. These businesses are united by their common technologies, their focus
on innovation and shared customers.
Plastic Packaging results were substantially up on the equivalent period last
year benefiting from organic profit growth and acquisitions. Profit margins
improved in the ongoing Plastic Packaging businesses compared with the second
half of 2005. The majority of our operation performed strongly, notably
pharmaceutical packaging and our high barrier food business. While our beauty
packaging operations continued to be affected by delays in the launch of new
products, as previously indicated, we see a promising number of planned new
products from our customers which we expect to be launched in the second half of
this year. Organic sales and profit growth were 2% and 5% respectively.
The acquisitions are being integrated rapidly and successfully into our existing
operations. We believe there is scope to improve margins in these businesses
over time.
We successfully managed to recover the majority of resin and energy price
increases through price and cost efficiencies. The anticipated new product
launches, along with the benefits from synergies arising from acquisitions and
increased operational efficiency, should enable us to make further progress
during the remainder of the year.
We will continue to pursue our strategy to capture growth in Plastic Packaging,
consolidating attractive niches with high barriers to entry, focusing on
innovation and adding complementary products and technologies. This will enhance
our capability to serve our customers as one of the major players in the global
rigid plastic packaging industry. This is evidenced by the acquisition of a
pharmaceutical packaging operation in India, the opening of a plant in Poland to
serve the home and personal care packaging market, the introduction of high
barrier food container production in Europe and the construction of a purpose
built dispensing systems manufacturing facility in Tournus, France, to replace
the existing plants there.
Glass
6 months to 6 months to
30.6.06 30.6.05
Sales £208m £195m
Underlying operating profit £14m £17m
Return on sales 6.7% 8.7%
Sales from our glass operations in the first six months rose by 7% through a
combination of successful price increases, higher volumes and improvements to
the mix. The demand for glass remains good and the industry in Europe is now in
better balance than for a number of years. These increased sales were, however,
insufficient to offset the significant £11m increase in energy costs and, as a
result, operating profit was lower than the equivalent period in 2005.
Most of our sales growth came from increased volumes for wine and spirits
bottles and better pricing in other beverage containers. Sales to food markets
are weighted towards the second half of the year in line with European harvests.
We continue to focus keenly on cost efficiencies and further price increases to
help mitigate the exceptional rise in energy costs.
Acquisitions and disposals
In line with our strategy to expand in emerging and faster growing markets, we
added to both the beverage can and plastic packaging businesses during the first
six months of 2006. In January 2006 we acquired Ecanco, the sole beverage can
maker in Egypt, for £59m, including cash acquired. The acquisition gives us a
leading position in beverage cans in Egypt and North Africa and provides a base
to develop these and other growing markets in the Middle East.
Late in the second quarter of 2006 we completed the acquisition of two plastic
packaging companies: Airspray, the world leader in non-aerosol foam pumps, and
FangXin, a Chinese cosmetics company, for £103m and £28m respectively, including
borrowings acquired.
Taken together, these three acquisitions, along with Delta Plastics and Precise
Technology which were acquired in late 2005, added £119m of sales and £12m of
operating profit in the first half and are trading in line with our expectations
with integration plans on track.
We announced in June 2006 that we had started the process to sell our
non-barrier thin wall plastics operations - one in the UK and two in
Scandinavia. There has been a good deal of interest in these businesses from
prospective buyers and the disposal process is proceeding to plan.
Since the end of the half year, we have formed a joint venture with a quoted
Indian industrial company, the Hindustan Tin Works, to manufacture beverage cans
in India, primarily for the beer market. The plant, close to Mumbai, is the
first of its kind in India. We have also announced the acquisition of a plastic
pharmaceutical packaging company in Bangalore, India. Both of these acquisitions
give us key footholds in the growing Indian packaging market.
Cash flow
Our free cash flow remained good at £30m with cash generated from operations at
£202m, 16% ahead of the corresponding period last year reflecting a good working
capital performance. Net borrowings were £1.4bn with interest cover at 4.7
times; higher than our target to be above 4 times.
Retirement benefit obligations
As at 30 June 2006, net retirement benefit obligations were £379m (December
2005: £548m). The reduction in net liabilities is principally due to the
increase in bond yields over the period which have reduced the value of
liabilities. In addition, the net liability for the US retiree medical has
reduced and additional cash contributions are being made to reduce the deficit
in defined benefit pension plans.
Dividends
The Board has approved an interim dividend of 7.9p per ordinary share, an
increase of 5% on last year. The dividend will be paid on 2 November 2006 to
holders of ordinary shares registered on 13 October 2006.
Changes to the Board
In March 2006, Noreen Doyle joined the Board as an independent non executive
director. Noreen sits on the boards of Credit Suisse Group, Newmont Mining
(NYSE) and QinetiQ. Up until 2005, she was the First Vice President at the
European Bank for Reconstruction & Development (EBRD). She was responsible for
banking operations and, chairing the Operations Committee, helped shape the
EBRD's overall strategy and management.
In June 2006, Jean-Pierre Rodier was appointed to the Board as an independent
non executive director. Jean-Pierre was Chairman and Chief Executive of
Pechiney, the international aluminium and packaging group, from 1994 to 2003
when Pechiney merged with Alcan. Prior to that he was Chief Executive of Union
Miniere, a Belgian subsidiary of the Groupe Suez, and Chairman and Chief
Executive of MetalEurop France.
Outlook
During the first half of 2006 Rexam delivered strong top line growth, good cash
flow, significant market share gains and a solid profit performance. Our
ongoing pricing, innovation and cost efficiency initiatives are proceeding
according to plan. Despite the challenging cost climate our industry is facing,
trading remains in line with our expectations and we expect to make progress in
the second half. Looking forward, we will focus on managing our margins through
pricing and cost efficiencies and strengthening our businesses through our
strategy for organic and acquisitional growth.
FINANCIAL REVIEW
Group financial performance
The basis of preparation of the interim consolidated financial statements is set
out in note 1 to the interim consolidated financial statements.
The summary Group consolidated income statements for the six months to 30 June
2006 and six months to
30 June 2005 are set out below.
6 months to 30 June 2006:
Underlying
business Exceptional
performance* items Total
£m £m £m
Sales 1,845 - 1,845
Operating profit 194 18 212
Share of associates profit after tax - 8 8
Total net finance cost** (57) 7 (50)
Profit before tax 137 33 170
Profit after tax 102 23 125
Basic earnings per share (p)
22.5
Underlying earnings per share (p)
18.4
Dividend per ordinary share (p)***
7.9
6 months to 30 June 2005, restated:
Sales 1,564 - 1,564
Operating profit/(loss) 191 (24) 167
Share of associates profit after tax 1 - 1
Total net finance cost** (51) 2 (49)
Profit/(loss) before tax 141 (22) 119
Profit/(loss) after tax 98 (25) 73
Basic earnings per share (p)
13.3
Underlying earnings per share (p)
17.8
Dividend per ordinary share (p)
7.52
* Underlying business performance is the primary performance measure used by management, who believe that
exclusion of exceptional items aids comparison of underlying performance. Exceptional items include the
gains and losses on disposal of businesses, the restructuring and integration of businesses, major asset
impairments and disposals, the subsequent recognition of acquired deferred tax assets, the amortisation of
certain acquired intangible assets and non hedge accounted fair value movements on financing derivatives.
** Comprises interest and retirement benefit obligations net finance cost.
*** Declared on 23 August 2006 and payable on 2 November 2006. This dividend has not been accrued in these
interim consolidated financial statements.
A summary of underlying business performance is set out below.
6 months to 6 months to
30.6.06 30.6.05
restated
£m £m
Ongoing operations 1,811 1,504
Disposals 34 60
Sales 1,845 1,564
Ongoing operations 194 192
Disposals - (1)
Underlying operating profit 194 191
Share of associates profit after tax - 1
Underlying total net finance cost (57) (51)
Underlying profit before tax 137 141
Underlying profit after tax 102 98
Underlying earnings per share (p)
18.4 17.8
The following tables, showing sales and underlying operating profit, compare on
a consistent basis the ongoing Consumer Packaging segments. This basis excludes
disposals and businesses held for sale (described as 'Disposals') but includes
prior year acquisitions as if acquired on 1 January 2005, by adding their
pre-acquisition results (described as 'Acquisitions 2005'). It also highlights
currency fluctuations arising on translation. Organic change is the year on year
change arising on businesses owned since the beginning of 2006.
Analysis of sales movement
Total Beverage Plastics Glass
Cans
£m £m £m £m
Sales reported 6 months to 30.6.05 1,564
Disposals 2005 and 2006 (60)
Ongoing operations 6 months to 30.6.05 reported in 2006 1,504 1,059 250 195
Acquisitions 2005 103 - 103 -
Currency fluctuations 46 33 13 -
Ongoing operations 6 months to 30.6.05 pro forma basis 1,653 1,092 366 195
Acquisitions 2006 16 12 4 -
Organic change in sales 142 120 9 13
Ongoing operations reported 6 months to 30.6.06 1,811 1,224 379 208
Disposals 2006 34
Sales reported 6 months to 30.6.06 1,845
Organic sales growth, which excludes the impact of acquisitions, disposals and
the effects of currency translation, was £142m, an increase of 9%. The principal
improvement, £127m, came from volume and mix gains, predominantly in Beverage
Cans. The recovery of raw material cost increases, mainly aluminium, added a
further £35m, both by pass through to customers and price surcharges in Europe.
This was partly offset by pricing on the recently secured major long term
customer contract.
Analysis of underlying operating profit movement
Total Beverage Plastics Glass
Cans
£m £m £m £m
Underlying operating profit reported 6 months to 30.6.05 191
Disposals 2005 and 2006 1
Ongoing operations 6 months to 30.6.05 reported in 2006 192 143 32 17
Acquisitions 2005 7 - 7 -
Currency fluctuations 5 4 1 -
Ongoing operations 6 months to 30.6.05 pro forma basis 204 147 40 17
Acquisitions 2006 5 4 1 -
Organic change in operating profit (15) (14) 2 (3)
Ongoing operations reported 6 months to 30.6.06 194 137 43 14
Disposals 2006 -
Underlying operating profit reported 6 months to 30.6.06 194
Analysis of the organic change in operating profit:
Total Beverage Plastics Glass
Cans
£m £m £m £m
Price changes 15 10 1 4
Cost changes (71) (50) (8) (13)
Price and cost changes (56) (40) (7) (9)
Volume/mix changes 23 18 1 4
Efficiency and other savings 18 8 8 2
Organic change in operating profit (15) (14) 2 (3)
The reduction in underlying operating profit, after adjusting for the impact of
acquisitions, disposals and currency, was £15m, which reflects the challenging
environment for recovery of increases in input costs.
Within Beverage Cans, the effect of rising aluminium prices in the European
operations was mitigated by price surcharges and a profit of £14m realised on
renegotiation of a metal supply contract in the US. The impact of rising costs
was offset by additional volumes secured in the US and as a result of growth in
energy drinks and non standard can sizes in buoyant markets, and by good
efficiency savings.
The Plastics operation reported a 5% improvement in underlying operating profit
founded on a strong performance from the pharmaceutical and high barrier food
plastics businesses and the successful integration to date of the 2005
acquisitions. The beauty packaging businesses continue to be faced with product
launch delays although the pipeline is healthier for the second half of 2006.
The cost challenges, resin and energy, were met by cost and synergy related
savings and an overall improvement in volumes.
The Glass operation, whilst reporting a fall in underlying operating profit, has
been able to achieve price increases, volume improvements and some efficiency
savings. These benefits were not sufficient to cover the substantial rise in
energy costs, some £11m in the first half of the year.
Exchange rates
The principal exchange rates used in the preparation of the interim consolidated
financial statements are as follows:
6 months to 6 months to Year to
30.6.06 30.6.05 31.12.05
Average:
US dollar 1.79 1.88 1.82
Euro 1.46 1.46 1.46
Closing:
US dollar 1.82 1.82 1.74
Euro 1.45 1.50 1.46
Consolidated income statement
The US dollar and the euro are the principal currencies that impact Rexam's
results. The movement in exchange rates had the following impact on the
translation into sterling for sales and underlying operating profit in the first
half of 2006:
Sales Underlying
operating
£m profit
£m
US dollar 44 5
Euro - -
Other currencies 2 -
46 5
Consolidated balance sheet
Most of the Group's net borrowings are denominated in US dollars and euros.
Currency movements, mainly related to the US dollar, did not have a significant
effect, reducing net borrowings by £23m and reducing equity by £18m.
Underlying total net finance cost
The underlying total net finance cost comprises:
6 months to 6 months to Year to
30.6.06 30.6.05 31.12.05
£m £m £m
Net interest (44) (37) (76)
Retirement benefit obligations net finance cost (13) (14) (29)
Underlying total net finance cost (57) (51) (105)
The underlying total net finance cost increased by £6m compared with the prior
year, primarily as a result of higher average borrowings arising on acquisitions
made in late 2005 and in the first half of 2006. In addition, interest rates
were higher due in part to the cancellation of fixed to floating interest rate
swaps in March 2005 and the fact that average market interest rates for US
dollar and euro borrowings were up by 190 and 60 basis points respectively
compared with the prior period. The issue of a seven year €700m Medium Term Note
(MTN) in March 2006 enabled the Group to refinance, in an exchange offer, a
substantial portion of the €550m MTN, due to mature in 2007, and raised
additional finance at interest rates that were lower than the existing MTN.
However, the overall average interest rate during the period rose from 5.7% to
6%.
Interest cover was 4.7 times underlying operating profit, down somewhat on last
year reflecting the impact of acquisitions. This is still better than the
Group's long term parameter to be above 4 times. Interest cover is based on
underlying operating profit divided by underlying net interest excluding charges
in respect of retirement benefit obligations and preference dividends.
Tax
The tax charge on profit before exceptional items for the six months to 30 June
2006 was £35m (26%) (June 2005: £43m (30%)). The charge for the six month period
is based on the forecast rate for the year to 31 December 2006. This takes into
account the release of provisions held for specific tax exposures following
satisfactory progress of tax audits in Europe. The rate for the full year
excluding these adjustments would be approximately 31%, which reflects the mix
of territories in which Rexam operates, offset in part by the availability of
tax incentives in some jurisdictions.
Tax payments in the first half of the year were £29m compared with £27m for the
equivalent period last year.
Exceptional items
The exceptional items arising in the first half of 2006 are as follows:
£m
Retiree medical gain 40
Restructuring and integration of businesses (15)
Amortisation of acquired intangible assets (4)
Recognition of deferred tax assets on prior year acquisitions (3)
Total included in operating profit 18
Sale of property by an associate 8
Financing derivative market value changes 7
Total exceptional items before tax 33
Tax on exceptional items (10)
Total exceptional items 23
On 30 June 2006, a change to the US retiree medical plan was made to coordinate
prescription drug benefits payable to certain retirees with cover available from
the US government through the Medicare Part D programme. This change resulted in
an exceptional gain of £40m net of associated legal fees of £1m.
The principal restructuring cost arises in the Plastics operation. The decision
to exit from the non-barrier thin wall plastics business has resulted in the
rationalisation of one plant and the availability for sale of three further
plants. The integration programme initiated following the acquisition of Precise
Technology, in December 2005, will give rise to the closure of four facilities
in the US. In addition, a major restructuring of the administration support
function within the European beverage can operation has been implemented.
Intangible assets, such as patents and customer contracts, are required to be
recognised on the acquisition of businesses and amortised over their useful
life. The directors consider that separate disclosure of the amortisation of
such acquired intangibles allows for a better comparison of organic growth in
underlying profit and therefore this cost, which may become more significant as
the impact of recent and future acquisitions is reflected, should be separately
disclosed within exceptional items.
Consistent with the disclosure adopted in the 2005 financial statements, the
recognition of deferred tax assets on prior year acquisitions relating to the
utilisation of tax losses not recorded at the date of acquisition and the
resultant reduction in goodwill and charge to the income statement has been
included in exceptional items. This is due to their size and largely transitory
nature.
The disposal of property, pursuant to a relocation of a manufacturing facility,
by the associate in Korea has been included in exceptional items in view of its
size and one off nature.
The fair value of the derivatives arising on financing activities directly
relates to changes in interest rates and foreign exchange rates. Their fair
value will change as the transactions to which they relate mature, as new
derivatives are transacted and due to the passage of time. The fair value change
on financing derivatives for the period was a net gain of £7m (June 2005: £2m,
December 2005: £9m). The impact of embedded derivatives and derivatives arising
on trading items such as commodities and forward foreign exchange contracts is
included within underlying operating profit.
Earnings per share
6 months to 6 months to Year to
30.6.06 30.6.05 31.12.05
restated
Pence Pence Pence
Underlying earnings per share (p) 18.4 17.8 39.5
Basic earnings per share (p) 22.5 13.3 40.4
Average number of shares (millions) 555.1 550.9 551.8
Underlying earnings per share improved from 17.8p to 18.4p, an increase of 3%.
This increase was achieved, despite a higher average number of shares in issue,
principally due to the reduction in tax rate discussed above.
The basic earnings per share, which includes exceptional items, was 22.5p (June
2005:13.3p). The exceptional items are detailed above with the main reason for
the improvement being the retiree medical gain realised in the first half of
2006.
Retirement benefits
As discussed in the Interim statement, retirement benefit obligations (net of
tax) on the balance sheet at 30 June 2006 were £379m, a significant reduction
from £548m at 31 December 2005.
The analysis of the retirement benefit obligations net finance cost is as
follows:
6 months to 6 months to Year to
30.6.06 30.6.05 31.12.05
£m £m £m
Defined benefit pension plans:
Expected return on plan assets 63 62 125
Interest on plan liabilities (69) (68) (138)
(6) (6) (13)
Retiree medical - interest on liabilities (7) (8) (16)
Net finance cost (13) (14) (29)
Changes to the actuarial value of retirement benefits at the balance sheet date
are shown in the consolidated statement of recognised income and expense. These
changes reduced the retirement benefit obligations by £132m in the six months to
30 June 2006, as follows:
£m
Defined benefit pension plans:
Plan assets - returns lower than expected (54)
Plan liabilities - higher discount rates 228
174
Retiree medical:
Plan liabilities - higher discount rate 20
Actuarial gains before tax 194
Tax (62)
Actuarial gains after tax 132
The total cash payments in respect of retirement benefits are as follows:
6 months to 6 months to Year to
30.6.06 30.6.05 31.12.05
£m £m £m
Defined benefit pension plans 16 11 26
Other pension plans 2 1 4
Retiree medical 7 9 18
Total cash payments 25 21 48
It is expected that the cash payments for the full year will be approximately
£65m as a result of higher rates of contribution to the UK plan, aimed primarily
at reducing the deficit, and to the US plan.
Cash flow
Free cash flow for the period was good at £30m compared with £37m for the six
months to June 2005. This performance reflects an improvement in working capital
which largely covered additional retirement benefit cash contributions, higher
capital expenditure and interest payments. The increase in interest payments is
principally attributable to the cancellation in March 2005 of the fixed to
floating interest rate swaps, due to the timing of payments, and the interest
cost related to acquisitions.
6 months to 6 months to Year to
30.6.06 30.6.05 31.12.05
restated
£m £m £m
Underlying operating profit 194 191 409
Depreciation and amortisation* 87 87 171
Retirement benefit obligations (12) (7) (20)
Change in working capital (58) (90) (36)
Capital expenditure (net) (88) (78) (161)
Net interest and tax paid (84) (59) (104)
All other movements (9) (7) (11)
Free cash flow 30 37 248
Equity dividends (59) (56) (97)
Business cash flow (29) (19) 151
Acquisitions** (195) (1) (235)
Disposals*** 1 49 58
Cash flow including borrowings acquired and disposed (223) 29 (26)
Non cash movements 43 10 (35)
Share capital changes 6 1 6
Net borrowings at the beginning of the year (1,220) (1,165) (1,165)
Net borrowings at the end of the period (1,394) (1,125) (1,220)
* Excludes amortisation of certain acquired intangibles amounting to £4m (June 2005: £nil, December 2005:
£1m).
** Includes net borrowings acquired of £9m (June 2005: £nil, December 2005: £129m).
*** Includes net borrowings disposed of £nil (June 2005 and December 2005: £43m).
Capital expenditure
6 months to 6 months to Year to
30.6.06 30.6.05 31.12.05
Capital expenditure (gross) (£m) 89 82 176
Depreciation and amortisation (£m) 87 87 171
Ratio (times) 1.02 0.94 1.03
Capital expenditure includes computer software that has been capitalised.
Amortisation excludes £4m (June 2005: £nil, December 2005: £1m) amortised on
patents, customer contracts and intangibles other than computer software.
Gross capital expenditure in the first six months was £89m, in line with
depreciation and amortisation. The expenditure is, broadly, evenly split between
that required to maintain the business and that which supports strategic and
growth projects. The principal growth projects were the steel to aluminium
conversions in Germany and Turkey, the new can plant in Cuiaba, Brazil and a
number of projects to develop new can sizes and markets. In the second half of
2006, it is anticipated that the proportion of total expenditure on such
projects will increase. This is due to expenditure on: a new can plant in
Austria to supply Red Bull; new can end capacity in Brazil; further capacity
expansion for non standard can sizes and ends; and a range of projects within
the Plastics operation to support growth in a number of pharmaceutical, cosmetic
and food markets.
Acquisitions
Expenditure on acquisitions, including borrowings assumed, totalled £195m as set
out below.
£m
Plastics: Airspray 103
Plastics: FangXin 28
Beverage Cans: Ecanco 59
Payments in respect of prior year acquisitions 5
195
As previously announced the acquisitions completed in 2006 strengthened the
presence in higher growth and emerging markets. It is anticipated that further
payments of £15m will be made on finalisation of these transactions.
Dividend and dividend policy
The Board has declared an interim dividend of 7.9p per ordinary share, an
improvement of 5% over the 7.52p per ordinary share for the equivalent period
last year. This is in line with Rexam's ongoing policy to increase the dividend
payout by about 5% per annum, on the assumption that the financial resources are
available and that earnings growth continues as expected.
Balance sheet and borrowings
As at As at As at
30.6.06 30.6.05 31.12.05
£m £m £m
Goodwill and other intangible assets 1,604 1,285 1,514
Property, plant and equipment 1,196 1,081 1,174
Retirement benefits net of tax (379) (611) (548)
Other net assets 173 144 89
2,594 1,899 2,229
Equity 1,200 774 1,009
Net borrowings* 1,394 1,125 1,220
2,594 1,899 2,229
Return on invested capital (%) ** 12.9 14.2 14.8
Interest cover (times) *** 4.7 5.6 5.8
Gearing (%) **** 116 145 121
* Net borrowings comprise borrowings, the liability element of convertible preference shares, cash and cash
equivalents and certain derivative financial instruments.
** Underlying operating profit plus share of associates profit after tax divided by the average of opening and
closing balances of each of net borrowings, equity after adding back retirement benefit obligations (net of
tax) and goodwill previously written off against equity under UK GAAP. Underlying operating profit and
share of associates profit after tax are annualised by doubling the results for the six month periods.
*** Based on underlying operating profit divided by underlying interest expense excluding preference dividends,
and interest income.
**** Based on net borrowings divided by equity.
Net borrowings include the liability element of convertible preference shares,
interest accruals and certain financial derivatives, as set out in note 9 to the
interim consolidated financial statements. The element related to derivative
financial instruments is set out below:
As at As at As at
30.6.06 30.6.05 31.12.05
£m £m £m
Net borrowings excluding derivative financial instruments 1,468 1,202 1,294
Derivative financial instruments (74) (77) (74)
Net borrowings 1,394 1,125 1,220
Derivative financial instruments comprise instruments relating to net borrowings
(eg cross currency and interest rate swaps) and those related to other business
transactions (eg forward commodity and forward foreign exchange deals). Total
derivative financial instruments are set out below.
As at As at As at
30.6.06 30.6.05 31.12.05
£m £m £m
Cross currency swaps 73 87 74
Interest rate swaps 1 (10) -
Derivative financial instruments included in net borrowings 74 77 74
Other derivative financial instruments 43 2 41
Total derivative financial instruments 117 79 115
Financial risk management
Rexam's financial risk management is based upon sound economic objectives and
good corporate practice.
Derivative and other financial instruments are used to manage trading exposures,
liabilities and assets under parameters laid down by the Board, which are
monitored by its Finance Committee. The Group's major hedging activities are to
mitigate the following risks:
(i) Commodity price and currency transaction risks for aluminium purchases
made by its European beverage can operation.
(ii) Fair value and cash flow interest rate risks associated with the MTNs.
(iii) Currency translation risks of net assets in overseas subsidiaries.
The Group has not used derivative financial instruments for purposes other than
for hedging its exposures.
To avoid income statement volatility, and where such benefits outweigh the costs
of compliance, the Group has designated many of its economic hedges as hedging
instruments under IAS39. However, for certain effective economic hedging
relationships such hedge accounting treatment is not permitted under IFRS. Where
hedge accounting is not achieved, fair value movements on derivatives are
recorded in the consolidated income statement which could give rise to earnings
volatility.
It is the Group's policy to maintain a range of maturity dates for its
borrowings, and to refinance them at the appropriate time so as to reduce
refinancing risk. The issue of longer term borrowings through the MTN programme
is a key element of the Group's debt and financial risk management process.
Fixed rate MTNs, in sterling and euros, were issued in 2002 and, simultaneous to
issue, were swapped into floating rate euros and US dollars. A €700m MTN, to
mature in March 2013, was issued in March 2006; largely in an exchange offer for
€425m of the €550m MTN due to mature in March 2007.
CONSOLIDATED INCOME STATEMENT
Unaudited Unaudited Audited
6 months to 6 months to year to
30.6.06 30.6.05 31.12.05
£m restated restated
£m £m
Note
Sales 2 1,845 1,564 3,237
Operating expenses (1,633) (1,397) (2,817)
Underlying operating profit 2 194 191 409
Retiree medical gain 3 40 - 45
Restructuring and integration of businesses 3 (15) - (7)
Other exceptional items 3 (7) (24) (27)
Operating profit 2 212 167 420
Share of underlying post tax profits of - 1 3
associates and joint ventures
Share of exceptional post tax profits of 3 8 - 4
associates and joint ventures
Share of post tax profits of associates and joint ventures 8 1 7
Retirement benefit obligations net finance cost 4 (13) (14) (29)
Underlying interest expense (48) (45) (88)
Financing derivative market value changes 3 7 2 9
Interest expense (41) (43) (79)
Interest income 4 8 12
Underlying profit before tax 137 141 307
Retiree medical gain 40 - 45
Restructuring and integration of businesses (15) - (7)
Financing derivative market value changes 7 2 9
Other exceptional items 1 (24) (23)
Profit before tax 170 119 331
Tax 5 (45) (46) (108)
Profit for the financial period 125 73 223
Earnings per share (pence) 6
Basic 22.5 13.3 40.4
Diluted 22.0 13.1 39.4
An interim dividend for 2006 of 7.9p per share has been declared and is payable
on 2 November 2006. The interim dividend for 2005 of 7.52p per share was paid on
1 November 2005. The final dividend for 2005 of 10.6p per share was paid on 5
June 2006. For further details of equity dividends declared and paid see note 7.
CONSOLIDATED BALANCE SHEET
Unaudited Unaudited Audited
as at 30.6.06 as at 30.6.05 as at 31.12.05
£m restated £m
£m
ASSETS
Non current assets
Goodwill 1,466 1,246 1,405
Other intangible assets 138 39 109
Property, plant and equipment 1,196 1,081 1,174
Investments in associates and joint ventures 37 33 29
Deferred tax assets 239 371 332
Trade and other receivables 36 31 35
Available for sale financial assets 24 25 26
Derivative financial instruments 77 84 92
3,213 2,910 3,202
Current assets
Inventories 390 340 365
Trade and other receivables 546 455 448
Available for sale financial assets 4 5 4
Derivative financial instruments 62 27 43
Cash and cash equivalents 108 112 87
Assets classified as held for sale 41 - -
1,151 939 947
Total assets 4,364 3,849 4,149
LIABILITIES
Current liabilities
Borrowings (258) (158) (164)
Derivative financial instruments (22) (29) (20)
Current tax (2) (4) (22)
Trade and other payables (675) (559) (604)
Provisions (18) (8) (18)
Liabilities classified as held for sale (17) - -
(992) (758) (828)
Non current liabilities
Borrowings (1,318) (1,156) (1,217)
Derivative financial instruments - (3) -
Retirement benefit obligations (Note 4) (532) (886) (783)
Deferred tax liabilities (160) (103) (152)
Non current tax (98) (98) (90)
Other payables (36) (38) (36)
Provisions (28) (33) (34)
(2,172) (2,317) (2,312)
Total liabilities (3,164) (3,075) (3,140)
Net assets 1,200 774 1,009
EQUITY
Ordinary share capital 358 355 356
Convertible preference share capital 1 1 1
Share premium account 756 744 748
Capital redemption reserve 279 279 279
Retained earnings (234) (595) (431)
Fair value and other reserves 40 (10) 56
Total equity (Note 8) 1,200 774 1,009
Approved by the Board on 24 August 2006
Rolf Borjesson, Chairman
David Robbie, Finance Director
CONSOLIDATED CASH FLOW STATEMENT
Unaudited Unaudited Audited
6 months to 6 months to year to
30.6.06 30.6.05 31.12.05
£m restated £m
£m
Cash flows from operating activities
Profit before tax 170 119 331
Adjustments for:
Net interest expense 37 35 67
Share of post tax profits of associates and joint ventures (8) (1) (7)
Depreciation of property, plant and equipment 81 83 162
Amortisation of intangible assets 10 4 10
Impairment 10 - 5
Disposal of subsidiaries - 24 25
Movement in provisions 3 (6) 1
Movement in grants (8) - (9)
Equity settled share options 2 3 6
Changes in working capital (58) (90) (36)
Recognition of deferred tax assets on prior year acquisitions 3 3 7
Profit on disposal of property, plant and equipment - (3) (7)
Movement in retirement benefit obligations (40) 7 (37)
Other adjustments - (4) (6)
Cash generated from operations 202 174 512
Interest paid (61) (40) (70)
Tax paid (29) (27) (47)
Net cash flows from operating activities 112 107 395
Cash flows from investing activities
Capital expenditure (89) (82) (176)
Proceeds from sale of property, plant and equipment 1 4 14
Acquisition of subsidiaries net of cash and cash equivalents (186) (1) (106)
acquired
Proceeds from sale of subsidiaries net of cash and cash equivalents - 6 5
disposed
Proceeds from sale of associates 1 - 10
Sale of properties surplus to requirements - - 1
Dividends received from associates - - 1
Interest received 6 8 13
Net cash flows from investing activities (267) (65) (238)
Cash flows from financing activities
Movement in borrowings and financing derivatives 203 16 (77)
Proceeds from issue of share capital 10 4 9
Purchase of Rexam shares by ESOP Trust (4) (3) (3)
Dividends paid to equity shareholders (59) (56) (97)
Net cash flows from financing activities 150 (39) (168)
Net (decrease)/increase in cash and cash equivalents (5) 3 (11)
Cash and cash equivalents at the beginning of the year (4) (2) (2)
Non cash movements - 8 9
Net (decrease)/increase in cash and cash equivalents (5) 3 (11)
Cash and cash equivalents at the end of the period (9) 9 (4)
Cash and cash equivalents comprise:
Cash at bank and in hand 59 45 37
Short term bank deposits 49 67 50
Bank overdrafts (117) (103) (91)
(9) 9 (4)
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
Unaudited Unaudited Audited
6 months to 6 months to year to
30.6.06 30.6.05 31.12.05
£m restated £m
£m
Exchange differences (18) (32) 26
Actuarial gains/(losses) on retirement benefit obligations 194 (88) (12)
Tax on actuarial (gains)/losses on retirement benefit obligations (62) 28 4
Net investment hedges 1 24 7
Cash flow hedges recognised 29 (9) 60
Tax on cash flow hedges (1) 3 (9)
Cash flow hedges transferred to inventory (26) - (31)
Fair value (losses)/gains on available for sale financial assets (1) 1 -
Net profit/(loss) recognised directly in equity 116 (73) 45
Profit for the financial period 125 73 223
Total recognised income and expense for the period 241 - 268
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1 Basis of preparation and accounting policies
The unaudited interim consolidated financial statements of Rexam PLC for the six
months to 30 June 2006 are set out on pages 17 to 26. They have been prepared in
accordance with the Listing Rules of the Financial Services Authority. Rexam has
chosen not to adopt IAS34 'Interim Financial Statements' in preparing the
interim consolidated financial statements and therefore they are not in full
compliance with IFRS.
In preparing the interim consolidated financial statements, management has used
the principal accounting policies as set out in the Rexam Annual Report 2005,
except for the accounting policy 'Disposals and other exceptional items' which
has been replaced with accounting policy 'Exceptional items', as set out below.
Exceptional items
Items which are exceptional, being material in terms of size and/or nature are
presented separately from underlying business performance in the consolidated
income statement. The separate reporting of exceptional items helps provide an
indication of the Group's underlying business performance. The principal events
which may give rise to exceptional items include gains or losses on the disposal
of businesses, the restructuring and integration of businesses, major asset
impairments, the subsequent recognition of acquired deferred tax assets, the
amortisation of certain acquired intangible assets and non hedge accounted fair
value movements and hedge ineffectiveness on financing derivative financial
instruments.
This change in accounting policy has resulted from a change to the presentation
of the consolidated income statement from a columnar format to a single column
format using boxes, and from a reassessment of which transactions comprise
exceptional items. The directors consider the changes more closely reflect
current accounting practice.
In preparing the interim consolidated financial statements, the following
restatements have been made to the comparative amounts:
(i) The consolidated income statement presentation and exceptional items have
been restated to comply with the revised accounting policy as described
above.
(ii) The segment analysis has been restated for the proposed disposal of the
non-barrier thin wall plastics business which has been moved from
'Plastics' to 'Disposals and businesses for sale'.
(iii) In December 2005, the IASB published an amendment to IAS21 clarifying
that a loan between group subsidiaries may form part of the group's net
investment in the subsidiary receiving the loan. As a result, a foreign
exchange loss of £5m for the six months to 30 June 2005 is now recognised
in equity and not in the consolidated income statement.
In accordance with IFRS5 'Non-Current Assets Held For Sale and Discontinued
Operations', the related assets and liabilities of the non-barrier thin wall
plastics business are separately classified in the consolidated balance sheet as
held for sale.
The interim consolidated financial statements do not comprise statutory accounts
within the meaning of Section 240 of the Companies Act 1985. The consolidated
income statement, consolidated cash flow statement and consolidated statement of
recognised income and expense for the year to 31 December 2005 and the
consolidated balance sheet as at 31 December 2005 are an abridged statement of
the full consolidated financial statements for that year which have been
delivered to the Registrar of Companies. The independent auditors' report on the
consolidated financial statements for the year to 31 December 2005 was
unqualified and did not contain a statement under either section 237(2) or
section 237(3) of the Companies Act 1985.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the directors to make judgements and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingencies at the date of the financial statements and the reported income
and expense during the reporting periods. Although these judgements and
assumptions are based on the directors' best knowledge of the amount, events or
actions, actual results may differ from those estimates.
2 Segment analysis
Disposals
and
Beverage businesses
Cans Plastics Glass for sale Group
£m £m £m £m £m
(i) 6 months to 30.6.06
Sales 1,224 379 208 34 1,845
Underlying operating profit 137 43 14 - 194
Underlying return on sales 11.2% 11.3% 6.7% 0.0% 10.5%
Operating profit 170 28 14 - 212
Share of post tax profits of associates and 8 - - - 8
joint ventures
Retirement benefit obligations net finance cost (13)
Net interest expense (37)
Profit before tax 170
Tax (45)
Profit after tax 125
(ii) 6 months to 30.6.05 - restated
Sales 1,059 250 195 60 1,564
Underlying operating profit/(loss) 143 32 17 (1) 191
Underlying return on sales 13.5% 12.8% 8.7% (1.7)% 12.2%
Operating profit/(loss) 143 32 17 (25) 167
Share of post tax profits of associates and 1 - - - 1
joint ventures
Retirement benefit obligations net finance cost (14)
Net interest expense (35)
Profit before tax 119
Tax (46)
Profit after tax 73
(iii) Year to 31.12.05 - restated
Sales 2,235 504 405 93 3,237
Underlying operating profit 313 60 36 - 409
Underlying return on sales 14.0% 11.9% 8.9% 0.0% 12.6%
Operating profit/(loss) 345 59 36 (20) 420
Share of post tax profits of associates and 3 - - 4 7
joint ventures
Retirement benefit obligations net finance cost (29)
Net interest expense (67)
Profit before tax 331
Tax (108)
Profit after tax 223
If the proposed disposal of the non-barrier thin wall plastics business had been
included as part of the Plastics segment rather than in Disposals and businesses
for sale, sales, underlying operating profit and operating profit of that
segment would have been £413m, £43m and £28m respectively (6 months to
30 June 2005: £284m, £34m and £34m, year to 31 December 2005: £571m, £63m and
£62m).
If the disposal of the UK Glass business in 2005 had been included as part of
the Glass segment rather than in Disposals and businesses for sale, sales,
underlying operating profit and operating loss of that segment for
6 months to 30 June 2005 would have been £221m, £14m and £10m respectively and
sales, underlying operating profit and operating profit for the year to 31
December 2005 would have been £431m, £33m and £8m respectively.
3 Exceptional items
6 months to 6 months to Year to
30.6.06 30.6.05 31.12.05
£m restated £m
£m
Exceptional items included in operating profit:
Retiree medical gain:
Curtailment (net of associated legal fees of £1m) 40 - -
Past service credit (net of associated legal fees of £1m) - - 45
40 - 45
Restructuring and integration of businesses:
Restructuring of existing businesses (10) - (7)
Integration of new businesses (5) - -
(15) - (7)
Other exceptional items:
Amortisation of acquired intangible assets* (4) - -
Recognition of deferred tax assets on prior year (3) (3) (7)
acquisitions
Disposal of subsidiaries - (24) (25)
Profit on disposal of land - 3 5
(7) (24) (27)
Exceptional items included in share of post tax profits of
associates:
Sale of property by an associate (net of tax) 8 - -
Disposal of associate (net of tax) - - 4
8 - 4
Exceptional items included in interest expense:
Financing derivative market value changes 7 2 9
Total exceptional items included in profit before tax 33 (22) 24
Tax on exceptional items (10) (3) (19)
Total exceptional items 23 (25) 5
* Acquired intangible assets comprise patents and customer relationships arising on acquisitions.
Total other exceptional items are £1m (6 months to 30 June 2005: loss £24m, year
to 31 December 2005: loss £23m) and comprise 'Other exceptional items' and
'Exceptional items included in share of post tax profits of associates'.
4 Retirement benefit obligations
Gross Net
Defined retirement retirement
benefit Other Total Retiree benefit Deferred benefit
pensions pensions pensions medical obligations tax obligations
£m £m £m £m £m £m £m
At 1 January 2006 (514) (23) (537) (244) (781) 233 (548)
Exchange differences 6 1 7 9 16 (6) 10
Current service cost (10) (2) (12) (1) (13) 3 (10)
Curtailment - exceptional item - - - 41 41 (14) 27
Total included in operating profit (10) (2) (12) 40 28 (11) 17
Net finance cost (6) - (6) (7) (13) 4 (9)
Actuarial changes 174 - 174 20 194 (62) 132
Cash contributions and benefits 16 2 18 7 25 (7) 18
paid
Transfers 1 - 1 - 1 - 1
At 30 June 2006 (333) (22) (355) (175) (530) 151 (379)
The balance for net retirement benefit obligations at 30 June 2006 of £379m is
included in the consolidated balance sheet as retirement benefit obligations of
£532m, other receivables of £2m and deferred tax assets of £151m.
The principal assumptions at 30 June 2006 compared with those at 31 December
2005 are set out below.
UK USA Other UK USA Other
30.6.06 30.6.06 30.6.06 31.12.05 31.12.05 31.12.05
% % % % % %
Future salary increases 4.40 4.50 2.89 4.25 4.50 2.89
Future pension increases 2.90 - 1.72 2.75 - 1.72
Discount rate 5.25 6.20 4.62 4.75 5.40 3.92
Inflation rate 2.90 2.50 1.91 2.75 2.50 1.91
Expected return on plan assets (net of
administration expenses):
Equities 6.95 7.23 6.83 6.95 7.23 6.83
Bonds 4.10 4.26 3.57 4.10 4.26 3.57
Cash 4.35 2.82 2.02 4.35 2.82 2.02
Annual increase in healthcare costs 13 to 5 13 to 5
The post retirement mortality assumptions used in valuing the liabilities of the
UK plan are based on the standard tables PA92 as published by the Institute and
Faculty of Actuaries. These tables are adjusted to reflect the circumstances of
the plan membership. On this basis, the life expectancy assumed for a male
pensioner aged 65 is 19.6 years and for a female pensioner aged 65 is 22.4
years. The post retirement mortality assumptions in the US are based on the 1994
Uninsured Pensioners Mortality table. The life expectancy assumed for a male
pensioner aged 65 is 17.3 years and for a female pensioner aged 65 is 20.7
years.
5 Tax
6 months to 6 months to Year to
30.6.06 30.6.05 31.12.05
£m £m £m
UK (5) (8) (13)
Overseas (40) (38) (95)
Total tax charge (45) (46) (108)
Tax on underlying profit (35) (43) (89)
Tax on exceptional items (10) (3) (19)
Total tax charge (45) (46) (108)
The tax charge on underlying profit is calculated by reference to the estimated
effective tax rate for the full year. Tax on exceptional items is based on the
expected tax impact of each item.
6 Earnings per share
6 months to 6 months to Year to
30.6.06 30.6.05 31.12.05
Pence restated Pence
Pence
Basic earnings per share 22.5 13.3 40.4
Diluted earnings per share 22.0 13.1 39.4
Underlying earnings per share 18.4 17.8 39.5
£m £m £m
Underlying profit for the financial period 102 98 218
Exceptional items 23 (25) 5
Profit for the financial period 125 73 223
Dilution on conversion of preference shares 3 3 5
Profit for the financial period on a diluted basis 128 76 228
Number Number Number
millions millions millions
Weighted average number of shares in issue for the period 555.1 550.9 551.8
Dilution on conversion of preference shares 24.3 24.4 24.4
Dilution on exercise of outstanding share options 1.4 3.4 3.1
On a diluted basis 580.8 578.7 579.3
7 Equity dividends
6 months to 6 months to Year to
30.6.06 30.6.05 31.12.05
£m £m £m
Final dividend for 2005 of 10.6p paid on 5 June 2006 59 - -
Interim dividend for 2005 of 7.52p paid on 1 November 2005 - - 41
Final dividend for 2004 of 10.09p paid on 1 June 2005 - 56 56
59 56 97
An interim dividend per equity share of 7.9p has been declared for 2006 and is
payable on 2 November 2006. This dividend has not been accrued in these interim
consolidated financial statements. The dividend will absorb £44m of retained
earnings reserves.
8 Movements in equity
Convertible
Ordinary preference Share Capital Fair value
share share premium redemption Retained and other Total
capital capital account reserve earnings reserves equity
£m £m £m £m £m £m £m
At 1 January 2006 356 1 748 279 (431) 56 1,009
Exchange differences - - - - - (18) (18)
Actuarial gains on retirement - - - - 194 - 194
benefit obligations
Tax on actuarial gains on - - - - (62) - (62)
retirement benefit obligations
Net investment hedges - - - - - 1 1
Cash flow hedges recognised - - - - - 29 29
Tax on cash flow hedges - - - - - (1) (1)
Cash flow hedges transferred to - - - - - (26) (26)
inventory
Fair value losses on available - - - - - (1) (1)
for sale financial assets
Net profit/(loss) recognised - - - - 132 (16) 116
directly in equity
Profit for the financial period - - - - 125 - 125
Total recognised profit/(loss) - - - - 257 (16) 241
for the period
Share option schemes value of - - - - 3 - 3
services provided
Share option schemes proceeds 2 - 8 - - - 10
from shares issued
Purchase of Rexam shares by - - - - (4) - (4)
ESOP Trust
Payment of final dividend for - - - - (59) - (59)
2005
At 30 June 2006 358 1 756 279 (234) 40 1,200
9 Movements in net borrowings
Cash
and cash Convertible Financing
equivalents Medium preference derivative
and bank Bank term Finance share financial Total net
overdrafts loans notes leases capital instruments borrowings
£m £m £m £m £m £m £m
At 1 January 2006 (4) (369) (815) (36) (70) 74 (1,220)
Acquisitions of businesses - (9) - - - - (9)
Cash flow movements (5) (21) (123) 9 3 (19) (156)
Non cash movements - (2) (22) (1) (3) 19 (9)
At 30 June 2006 (9) (401) (960) (28) (70) 74 (1,394)
Financing derivative financial instruments are those that relate to underlying
items of a financial nature. At 30 June 2006 these comprised interest rate swaps
and cross currency swaps.
10 A copy of the information to be provided to financial analysts is
available on request from the Company Secretary, Rexam PLC, 4 Millbank, London
SW1P 3XR. It is also on Rexam's website, www.rexam.com.
INDEPENDENT AUDITORS' REVIEW REPORT TO REXAM PLC
Introduction
We have been instructed by the company to review the financial information for
the six months to 30 June 2006 which comprises the consolidated balance sheet,
the consolidated income statement, the consolidated cash flow statement, the
consolidated statement of recognised income and expense and the related notes.
We have read the other information contained in the interim report and
considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The Listing Rules
of the Financial Services Authority require that the accounting policies and
presentation applied to the interim figures should be consistent with those
applied in preparing the preceding annual accounts except where any changes, and
the reasons for them, are disclosed.
This interim report has been prepared in accordance with the basis set out in
Note 1.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the disclosed accounting policies have
been applied. A review excludes audit procedures such as tests of controls and
verification of assets, liabilities and transactions. It is substantially less
in scope than an audit and therefore provides a lower level of assurance.
Accordingly we do not express an audit opinion on the financial information.
This report, including the conclusion, has been prepared for and only for the
company for the purpose of the Listing Rules of the Financial Services Authority
and for no other purpose. We do not, in producing this report, accept or assume
responsibility for any other purpose or to any other person to whom this report
is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months to
30 June 2006.
PricewaterhouseCoopers LLP
Chartered Accountants
London
24 August 2006
Notes:
a) The maintenance and integrity of the Rexam PLC website is the responsibility of the directors; the work
carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors
accept no responsibility for any changes that may have occurred to the interim report since it was initially
presented on the website.
b) Legislation in the United Kingdom governing the preparation and dissemination of financial information may
differ from legislation in other jurisdictions.
This information is provided by RNS
The company news service from the London Stock Exchange
