17th Mar 2016 17:48
17 March 2016
Annual Report 2015 and Notice of Annual General Meeting
Rexam PLC, a leading global beverage can maker, announces that it has published its Annual Report 2015. The following documents (as applicable) are being mailed to shareholders or otherwise made available today:
· Annual Report 2015
· Notice of Annual General Meeting 2016 (AGM 2016)
The documents are also available to view and download on the Rexam website at http://www.rexam.com/ar15
In accordance with Listing Rule 9.6.1 copies of the documents have been submitted to the UK Listing Authority and will shortly be available for inspection from the National Storage Mechanism at www.morningstar.co.uk/uk/NSM
The Annual General Meeting 2016 of Rexam PLC will be held at 11.30am on Wednesday
22 June 2016 at The Auditorium, Freshfields Bruckhaus Deringer LLP, Northcliffe House,
26-28 Tudor Street, London EC4Y 0BQ. It is possible the Ball offer will complete before 22 June 2016 in which case it will not be necessary for shareholders to attend the AGM 2016.
The information included in the Appendix to this announcement has been extracted from the Annual Report 2015 and is reproduced here solely for the purpose of complying with Disclosure and Transparency Rule 6.3.5 (DTR 6.3.5) and the requirements it imposes on how to make annual financial reports constituting regulated information available to the public.
The content of this announcement, including the Appendix, should be read in conjunction with Rexam PLC's audited annual financial results announcement issued on 18 February 2016 http://www.rexam.com/index.asp?pageid=98 (the Results Announcement). Together these announcements constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the full Annual Report 2015. All page references in the Appendix are to the Annual Report 2015.
The information extracted from the Annual Report 2015 and contained in the Appendix to this announcement does not constitute Rexam's statutory accounts for the years ended 31 December 2015 or 2014 as defined in section 434 of the Companies Act 2006, but is derived from those accounts. The reports of the auditors on the statutory accounts for the years ended 31 December 2015 and 2014 were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain any statement under section 498(2) or (3) of the Companies Act 2006. The statutory accounts for the year ended 31 December 2014 were approved on behalf of the Board of Directors on 12 March 2015 and have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2015 were approved on behalf of the Board of Directors on 18 February 2016 and will be delivered to the Registrar of Companies in due course.
Enquiries
Marion Le Bot, Head of Investor Relations 020 7227 4100
David Gibson, Company Secretary 020 7227 4100
Editors' notes:
Rexam is a leading global beverage can maker. We are business partners to some of the world's most famous and successful consumer brands. Our vision is to be the best beverage can maker in the world. We have 55 can making plants in more than 20 countries and employ around 8,600 people. In 2015, our sales were £3.9 billion. Rexam's ordinary shares are listed with the UK Listing Authority and trade on the London Stock Exchange under the symbol REX. The FCA has been notified that Rexam's home member state is the United Kingdom. Visit www.rexam.com for further information.
Appendix
Part A - Important Events from the financial year ended 31 December 2015
The Annual Report 2015 contains the following statements regarding important events that have occurred during the financial year ended 31 December 2015 on pages 7 to 9:
CHIEF EXECUTIVE'S REVIEW
Rexam delivered a good operational performance in 2015. Our results are testament to the efforts of a great team working hard in the unique context of challenging market environments, the impact of foreign currency translation and the uncertainty that has come with the Ball offer.
FINANCIAL SUMMARY OF THE YEAR
In 2015, our beverage can volumes grew 4%, 2% excluding the acquisition of United Arab Can Manufacturing Limited (UAC). Reported sales were up 2% at £3,925m due to good volume growth, partially offset by the impact of foreign currency translation and lower pricing. Sales adjusted for foreign exchange were up 3% driven by volume growth, partially offset by pricing.
The increase in volumes stemmed from organic1 growth across all regions (except North America) at rates in line with - or ahead of - their respective markets. This good growth was offset by the commoditisation of a certain specialty size can in North America and higher energy costs in Brazil - as well as the non repeat of the tax benefit in Brazil in 2014. As a result, reported underlying operating profit was down at £404m (2014: £418m) while operating profit, excluding foreign exchange, was flat.
Free cash flow for the year was lower than our target range at £115m. This was due to higher capital expenditure and adverse working capital.
A full review of the underlying and statutory results can be found on pages 30 to 36.
1 Organic change is year on year change at constant foreign exchange rates excluding acquisition.
PREPARING FOR THE FUTURE
In February 2015 the boards of Ball Corporation (Ball) and Rexam announced that they had reached agreement on the terms of a recommended offer for the entire issued and to be issued ordinary share capital of Rexam by Ball.
In recent years, Rexam has transformed its business, returning approximately £1.6bn of cash to shareholders since 2010, creating a focused beverage can maker with a promising future. Notwithstanding that, my fellow board members and I believe that the offer from Ball represents a strong opportunity to create a 'best in class' global service in the metal packaging industry with an enhanced ability to serve the demands of our increasingly global customers.
We have explained that for the Ball offer to proceed certain regulatory clearances are required. Throughout 2015, we worked to support Ball's preparation of merger control filings for submission in all relevant jurisdictions. Final regulatory clearances are still awaited. In July, Ball shareholders approved the future issuance of new Ball shares to Rexam shareholders in connection with the Ball offer. These new Ball shares will form part of the consideration paid under the Ball offer. Rexam shareholders will be asked to vote on the scheme of arrangement once the regulatory clearances are substantially finalised and we anticipate completion of the transaction towards the end of the first half of 2016.
Despite the Ball offer, we continued in 2015 to pursue our own plans as an independent company. In our annual report 2014, we set out our strategic priorities and an overview of our progress against these is provided below.
INVESTING WITH FOCUS
Our aim is to capture opportunities and protect our core business, while at the same time maintaining our strict capital discipline and a focus on returns. In January 2015, we completed the acquisition of a 51% stake in the Saudi Arabian beverage can maker UAC and have integrated it into Rexam. In May 2015, we completed and commissioned the third manufacturing line at the Rexam UAC plant in Dammam. We have spoken for some time about the opportunities in emerging markets and it was therefore pleasing to see this strategy bear fruit with this acquisition. Rexam UAC is a modern business with well established customer relationships and a strong competitive position in an attractive market with good returns.
The start of 2015 also saw us announce that we had - jointly with Envases Universales de Mexico - completed an investment in Envases del Istmo SA (Endelis), a single line beverage can plant in Colón, Panama. This investment is fully in line with our emerging markets strategy and complements our existing Central America footprint. The transaction positions us well to serve both our local and global customers in an exciting growth region.
Our new plant in Widnau, Switzerland was completed on time in Q4 2015. The plant, which represents an investment of £115m over three years, has a capacity to produce 2.2bn cans per year and commenced production with one operational line with a further two scheduled to come on stream. The plant enables us to meet customer demand for energy drinks in Europe and will free up capacity in our other plants to support continued European growth.
Also completed on time was the expansion of our Fusion® aluminium bottle capability in Ejpovice in the Czech Republic. This investment will help meet growing demand for the aluminium bottle by enabling us to increase capacity at the plant by 0.2bn bottles per year.
We have announced an investment in a second can plant in southern India to meet the continued growth of the beverage can market there. We secured land in Sri City and have begun building the plant, which is expected to be operational in the second half of 2016. As part of our broader India strategy, we have also secured land in Jaipur in the north of the country where a third plant will be located in due course. Having plants in different locations across India will enable us to meet the needs of our customers in this region over the long term.
In all, net capital expenditure was £242m (2014: £195m), 1.8 times depreciation and in line with our expectations.
STRENGTHENING CUSTOMER RELATIONSHIPS
Strengthening customer relationships is central to our strategy. Our customers face multiple challenges, including changing consumer preferences, increasing regulation and muted economic growth in some of their markets. Our approach is not simply about providing the best quality and customer service at the right cost, although these are important, but also focusing on working strategically and proactively. Customers want a global partner that offers a framework for collaboration; a packaging expert who speaks their language. This will help them stay ahead in their markets, and enable us to maintain our competitive edge.
As previously reported, consolidation continues in the beverage industry, with customers taking a more co-ordinated, global approach to procurement to help them lower costs and innovate. They are also demanding a more complex product offering as they seek differentiation and shelf appeal. Responding to these industry trends, we continued to strengthen our structures, processes and systems.
Our key account leads, which manage our main global customers and act as their single contact point, are now well established. A key aspect of their role is the development of global key account plans with specific objectives and KPIs and maintaining regular communications with the customer around the delivery of those objectives. This change is helping us build relationships for the long term as a globally recognised can supplier. We have also continued to improve our processes and systems, especially around pricing, enabling the delivery of high quality information, robust decision making and effective negotiations.
PURSUING CONTINUOUS IMPROVEMENT IN OPERATIONAL EXCELLENCE
Our business is built on a strong culture of operational excellence. It lies at the heart of what we do and is therefore a strategic priority as we seek cost leadership and sustainable value creation. Reducing our cost base and increasing our productivity are central to attaining cost leadership. In February 2015, we initiated consultations with the Berlin works council on the closure of our plant. With three low speed lines and one of the highest fixed cost bases in our European network, Berlin had become uncompetitive in serving its core German, Benelux and Polish markets. Negotiations were constructive; an agreement was signed in July 2015 and the plant closed in December 2015.
In 2015, we saw good results from the many value stream activities implemented across our business. We delivered £22m in savings, maintaining our excellent record in this area. In April, the world class standard of our manufacturing operations was again recognised by The Shingo Institute, a global reviewer of operational excellence. Our joint venture with Envases Universales in Guatemala was awarded The Shingo Prize. The Prize is the Institute's top honour, with only one or two manufacturing plants globally recognised with this award each year. Since adopting the Shingo Model, we have achieved unprecedented honours in the awards: three Bronze and six Silver Medallions - and two Shingo Prizes. A number of Rexam sites are currently preparing for Shingo assessment as we continue our pursuit of manufacturing excellence.
SHAPING OUR FUTURE THROUGH INNOVATION…
Innovation adds value and is a key driver of growth and improved returns. Our performance on innovation positions us as the can maker of choice for our customers and serves as a further means of reducing our cost base. In 2015, we continued to make progress with our three innovation programmes of work - pack of the future, core process and plant of the future. On core process, for example, we used our approach to new technology introduction together with global technology teams, to deploy two new process innovations across the business.
On products, our leading edge Editions™ technology (patent pending) continued to exhibit strong global growth in 2015. Allowing up to 24 different designs to be printed simultaneously on one pallet, we saw a number of customer collaborations come to fruition, including our biggest - in terms of different cans printed - with Baltika. This campaign saw 990 different Russian city names printed on an identical urban skyline graphic using our 50cl cans. Aiming to stay at the forefront of our industry, we are currently developing further variants in the Editions™ portfolio.
Consumers continue to want more from the products they buy. Differentiation and prominence in retail outlets is vital, and we continued in 2015 to pursue such innovation. For example, we worked with Heineken to launch a range of Strongbow Apple Ciders in the first ever 400ml Super Sleek® can. Rexam is the only manufacturer to produce this can size, which provides an additional variation for customers and has helped consolidate our position as a market leader, offering the widest range of beverage cans.
…AND THROUGH SUSTAINABILITY
As a global business producing billions of cans per year, we have a clear responsibility to ensure that sustainability sits at the heart of our business. Many of our customers have advanced programmes that commit them to stretching targets with regard to the sustainability of their packaging. Rexam supports them in this journey to drive sustainable transformation within their supply chains and maintain the sustainability credentials of the can.
Our sustainability framework was established in 2010 around the key areas of products, operations and people. It continues to provide the roadmap that defines how we contribute and create value across a wide range of stakeholder issues. In 2014, we undertook a materiality study to validate our framework, setting ourselves updated measures and targets through to 2020. Notable additions are ambitious targets to reduce the carbon footprint of a can by 25% and to reduce water intensity by 10%.
I can also report that in 2015 we retained our position in the Dow Jones Sustainability Index (DJSI) Europe. This external recognition is vital to show us, and our stakeholders, that we are on the right track and recognises how far we have embedded sustainability across the business. Areas of strength identified by the DJSI continue to be in governance, risk and crisis management, product stewardship, human capital development, labour practice indicators and human rights. Our 2015 scores show improvement in ten categories and confirmed our industry leadership in risk and crisis management, human capital development and labour practices and human rights. More details can be found in our 2015 sustainability report, available on our website.
We work collaboratively with business partners to identify successful sustainability strategies and collectively create value. Three initiatives demonstrate this approach. On the innovation side we are working with Magna Parva to investigate disruptive technologies in metal forming that will drive can lightweighting and reduce energy consumption. We are working with 13 major companies across the value chain in the Aluminium Stewardship Initiative to address issues relevant to the production and stewardship of aluminium from bauxite extraction to the production of consumer goods and recycling. We are also collaborating with Carlsberg on the Carlsberg Circular Community initiative, rethinking the design and production of packaging material to develop the next generation of packaging products.
BUILDING A WINNING ORGANISATION
An organisation that is engaged and performs is critical to our success. In a year when we announced Ball's proposed acquisition of Rexam, I have been hugely impressed by our people's unwavering focus on our strategic priorities and their commitment to deliver. Communicating with all our employees has been a key priority throughout 2015, ensuring they have the information they need to perform their roles but also supporting them as the business moves through change. We have continued to focus on performance management, talent management and providing learning and development opportunities for colleagues across Rexam so they can develop their careers.
It was therefore pleasing to see this effort reflected in our 2015 employee survey results. Our employee survey has been running since 2010; helping us listen to our people and deliver changes that improve our business. With the backdrop of the Ball offer and the unique circumstances it has brought, we saw participation in the survey increase four percentage points from 2013 to 97% and our engagement index remain stable at 75% in our participating locations, with improvements seen in satisfaction, commitment and pride. This was an excellent result in a period of change and shows that we continue to make progress with this key indicator. (See more on page 19).
Central to a winning organisation is a strong and improving safety culture. Safety has always been at the heart of what we do at Rexam, yet we needed our safety performance to be more consistent and sustainable. To reinvigorate our focus right across the business during 2015, and as part of our world class safety action plan, we introduced safety as one of our core values. For everyone who comes into contact with Rexam, we introduced a new safety vision: that we all get home safely to our family and friends every day. These actions, together with those to be implemented in our safety plan, are expected to enhance performance as we strive towards our objective of zero accidents.
Our main safety measures remained consistent with 2014, with 83% of our manufacturing locations being Lost Time Accident (LTA) free and the number of life changing incidents reducing by 50% over the year.
MARKETS AND DIVISIONAL PERFORMANCE
The market background is explained more fully on pages 4 and 5. In 2015, volume growth in our markets was in line with expectations and the respective markets in which we operate.
The following section reviews the Group's financial performance based on the Europe & Rest of World and the Americas segments, which comprise our four main geographic regions.
Europe & Rest of World: overview
In the Europe & Rest of World segment, organic sales grew 7%, with growth in most regions and organic operating profit up 13%. Return on sales was flat, and recent investments made in growing the business (including the new plant in Switzerland) led to reduced return on net assets for the segment.
Europe
After a solid start to the year in both standard and specialty cans, trading in Europe slowed down and volume growth for the year was 3%, driven by Germany, Austria and Spain. Standard cans were flat, while specialty cans were up 8% as good growth continued within energy drinks.
Our business in Russia is self contained in terms of supply of aluminium and other raw materials, the manufacturing process and customers. Against a backdrop of a weak macroeconomic environment and a declining beer market, we saw positive development in Russia, with volumes growing by 3% as the can continued to gain share in the pack mix reaching 25% for beer, helped by the development of modern retailers in the market.
Africa, Middle East & Asia (AMEA)
Our AMEA business saw continued growth, with overall volumes growing 55%, 12% excluding UAC, to close to 5bn cans driven by good growth in specialty cans. Our volumes in India continued to grow strongly at 22%. In Turkey and domestic Egypt, the market performed well and volumes ended up ahead of last year. Given the political instability in the Middle East, certain borders remain closed and this has led to some softness in our export business.
Americas: overview
In the Americas segment, organic sales were down 4% as continued volume decline in North America was offset by some growth in South America. Organic operating profit was down 13% as lower sales combined with commoditisation of a certain specialty size in North America and higher energy costs in Brazil. As a result, return on sales and return on net assets for the segment were lower than last year.
North and Central America
In North America, can consumption remains the highest in the world at 315 cans per capita per year. Rexam has more than 20% of the North American market. During the year we continued to focus on diversifying the portfolio and establishing strong positions with customers in growth categories such as craft beer, tea and energy drinks. In craft beer, for example, we are a leader in the segment, working closely with brands such as 612Brew, Sudwerk Brewing Co., Tin Man Brewing Co., Silver City Brewery, and Burnside Brewing Co., all of whom have recently chosen Rexam cans.
In 2015, our volumes were down 2% due to our exposure to the carbonated soft drinks (CSD) market. This was partially offset by specialty can volumes, which continued to grow strongly at 10%. This was driven by growth in Sleek® and 16oz cans coming from customers in a variety of categories including beer, CSDs and energy drinks as well as flavoured alcoholic beverages. The process of commoditisation of a specialty can size in North America has affected margins during 2015 as previously disclosed.
Outside the US, there continued to be further growth in Mexico and Central America with the region's increasing population and improving GDP per capita. We are participating in this growth through our plant in Querétaro, Mexico. We also have a joint venture in Guatemala and Panama to help us broaden and strengthen our customer relationships in this region.
South America
Despite difficult comparative volumes versus 2014 because of the FIFA World Cup, volumes in South America continued to grow at 2% in 2015. After a quiet start to the year, volume strengthened in the second half despite a weakening macroeconomic environment. Specialty cans continued to grow much faster than the total market, and with recent conversion of lines to specialty cans we have fully participated in that growth.
OUTLOOK FOR 2016
Looking ahead, the environment remains challenging but we continue to expect low single digit growth in global can volumes. Customer pressure and competitor actions are reducing market prices in Europe. We have taken resolute steps to address these challenges, reducing our cost base to mostly offset these pricing pressures in 2016. At current aluminium premium rates, we would expect a tailwind, although the cost of premium remains uncertain. Partially offsetting this benefit will be the ramp up costs for new capacity in Switzerland and India, as well as foreign exchange losses in Brazil. As ever, our focus will remain on tight cost management and the elements of our business that we can control.
In closing, I return to the subject of global change in our industry which includes customer and supplier consolidation with resulting pressure on costs and prices. Rexam's proposed combination with Ball will create a global packaging leader driven by a common desire to serve all customers in the best possible way around innovation, manufacturing excellence, supply chain efficiency and sustainability. The proposed combination will also be able to respond to changes in the industry environment in a faster and more effective manner.
I have been proud to lead the Rexam business for the past six years and am confident that
the future will continue to deliver value and opportunity for our stakeholders.
Graham Chipchase
Chief Executive
18 February 2016.
Part B - Principal Risks and Uncertainties
The Annual Report 2015 contains the following statements regarding the principal risks and uncertainties facing the business on pages 24 to 29:
SUMMARY OF PRINCIPAL RISKS AND UNCERTAINTIES
The table below sets out what we believe to be the principal risks and uncertainties facing the business. Each is linked to one or more of our strategic priorities:
1. Strengthen our customer relationships
2. Invest with focus
3. Operational excellence
4. Shape our future
5. Build a winning organisation
The table does not cover all the risks that the Group may face. Additional risks and uncertainties not presently known to management or deemed to be less material at the date of this report may also have an adverse effect on the Group.
Risk and description | Potential impact and key mitigations | 2015 Assessment | 2015 Movement |
Competitive environment trends Failing to develop Rexam's strength with our customers and unable to improve our commercial capabilities to deliver our value propositions to customers and react accordingly to their changing needs. Strategic priorities: 1, 2, 3, 4 | Potential impact Adverse business performance, price and volume pressure, adverse terms and margin erosion. Key mitigationsWe continue to focus on strengthening relationships and building partnerships with our customers, with focus on value adding service and innovation, as well as investing in our production capacity and our capabilities. See also page 14. Other mitigations are customer and competitor strategy review and analysis, improved pricing process and continued emphasis on cost reduction and efficiency. | HIGH | Stable |
Continued economic slowdown Unable to respond swiftly and manage the impact of an economic slowdown and sluggish recovery in Rexam's key markets. Strategic priorities: 1, 2, 3 | Potential impact Adverse business performance, price and volume pressure, and eroded customer and consumer confidence. Key mitigationsRexam continues to manage capital investment closely and is focused on maximising utilisation of assets to ensure we align volume demand from our customers and our capacity. We use scenario planning and modelling based on potential upside and downside risk analysis within our budgeting and forecasting processes to identify mitigating actions which would be implemented should this risk increase further. We continue to focus on cost improvement measures through lean initiatives, efficiency savings, supply chain management and innovation (see pages 16 and 18). | HIGH | Stable |
Financial impact fromcountry based instability Failure to manage the risk and exposure of our business operations in some emerging markets with political, socioeconomic and legal uncertainties. Strategic priorities: 2, 4 | Potential impact Currency fluctuations and lack of access to currency, trade sanctions affecting our business, political instability, social unrest, war and terrorism, and security threat to our people and assets. Key mitigationsEmerging market risks are assessed in detail by management when considering investment opportunities, in due diligence reviews prior to investment and in continuing business reviews and risk assessments. We leverage on the ground market and country intelligence from local management, with the support from external advisors. Additionally, business continuity plans are in place at individual plant, sector and Group level, and these plans are reviewed, benchmarked and tested during the year. Preparedness plans have been built for operations in countries facing rapidly changing environments. | HIGH | Increased |
Cyber attack and data security Disruption of Rexam's IT systems or compromise of sensitive data driven by malicious cyber attack or technology failure. Strategic priorities: 4 | Potential impact Business interruption, financial losses, loss of confidential data, negative reputational impact and breach of regulations. Key mitigations Rexam's IT security procedures and processes (including mobile devices and cloud services) are in place, covering areas around antivirus software, backups, access and password control. Disaster recovery plans are in place and tested twice a year along with system penetration and vulnerability tests. In the case of a disaster or technology failure, clear responsibilities have been set between IT and business units to ensure operations can continue during the down time. During the year, the transformation of the global data centre was completed according to plan which enables Rexam to manage IT risks and resources more effectively. | HIGH | Increased |
Aluminium and otherinput cost increases Failure to manage our most significant raw material aluminium cost, followed by metal premiums, other raw materials, energy and fuel costs. These costs are driven by market volatility, regulatory changes and requirements, and non controllable costs. Strategic priorities: 1, 3 | Potential impact Margin erosion, loss of volumes, loss of competitive advantage against competitors or other beverage packaging products. Key mitigationsMajority of our aluminium ingot costs are charged to our customers on a pass through or back to back hedged pass through basis. For the remaining aluminium, hedging strategy and mechanisms are in place to manage the aluminium cost and associated currency exposures. The conversion cost from ingot to aluminium coil is covered by long term supply contracts. During the year, there has been significant decline in aluminium premiums due to weakness in global aluminium price, along with changes in London Metal Exchange (LME) rules to reduce metal queues from warehouses and reduce scope for manipulation and extreme volatility. | MEDIUM | Reduced |
Business interruption Every business faces the potential risk of a major disruption to internal facilities or external supply chain which could be caused by natural disaster, loss or scarcity of supply, industrial disputes, supplier failure, technology failure, unplanned outages and physical damage as a result of fire or other such event. Strategic priorities: 1, 3, 5 | Potential impact Operational disruption adversely affecting our ability to meet customer requirements, potential additional contractual liabilities and a consequential impact on financial performance. Key mitigationsThere are established business continuity management protocols and procedures across the Group, and clarity on responsibilities between Group functions and business units, in the event of severe business interruption. Ongoing maintenance programmes are also in place at manufacturing plants and facilities. Strong relationships with suppliers enable flexible sourcing arrangements for key supplies and we ensure appropriate levels of inventory are maintained. Additionally, mechanisms are in place to monitor financial and operational viability of our key suppliers. During the year, we have also extended our business continuity reviews to certain key suppliers to ensure effective management of potential supply disruptions. Insurance programmes to protect losses associated with business interruption are also in place. | HIGH | Stable |
Tax risks In an increasingly complex international tax environment, some uncertainties are inevitable in estimating our tax liabilities. Strategic priorities: 4 | Potential impact Additional tax liabilities, fines and penalties, and reputational impact. Key mitigationsWe seek to plan and manage our tax affairs efficiently, in the jurisdictions in which we operate. Tax planning is based around the needs of our operating businesses. With dedicated internal tax experts and the use of external tax advisors where required, we exercise our judgement in assessing the required level of provision for tax risk and allocate resources appropriately to protect our position. | MEDIUM | Stable |
Changes in consumer tastes, nutritional preferences, health and environment related concerns The risk of changing consumer trends resulting in a shift in demand away from beverage cans or from our customers' products for which Rexam manufactures packaging. Drivers of this risk can include lifestyle and taste changes, nutrition and health considerations or environmental concerns. Strategic priorities: 1, 4 | Potential impact Adverse business performance, loss of market share or business and being substituted by other forms of beverage packaging products. Key mitigationsWe continue to monitor and focus on market and consumer trends as well as political developments through internal and external business intelligence services and through our involvement in national and international packaging and environmental associations in the jurisdictions in which we operate. We also focus on business opportunities in new beverage categories (see page 6). | MEDIUM | Stable |
Environmental, fire, health and safety The risk of a significant environmental contamination, fire or health and safety issue at one of our locations. Strategic priorities: 5 | Potential impact Health and safety incident, financial exposure, business disruption and reputational damage. Key mitigationsWe continue to carry out regular environment, health and safety (EHS) audits in cooperation with internal and external specialists to drive best practice. The audit approach provides the basis for delivering a more sustainable and robust improvement of EHS management systems and performance at all sites and strive for continuous improvement in our key health and safety KPI measures. During the year, we continued with our fire safety and property protection audits supported and performed by an independent provider, and have invested in fire safety and property protection. We continue to deliver the actions included in our three year world class safety roadmap. | MEDIUM | Stable |
Changes in packaging legislation and regulatory environment The Group is subject to applicable laws and regulations in the global jurisdictions in which Rexam operates. Packaging will continue to be a focus for government legislators working within the sustainability agenda. Strategic priorities: 4 | Potential impact Changes in packaging legislation and regulation affecting producer responsibility for recycling, recycled content, carbon footprint and landfill taxation represent an increasing trend risk. Key mitigations Rexam continually monitors developments in laws and regulations in the jurisdictions that may affect our business. This is performed through established and effective membership of relevant trade associations, by direct collaboration with governmental and non governmental organisations and through internal and external resources. Legislative risk registers are maintained by the responsible persons using appropriate risk monitoring tools. Rexam also focuses on investment in new innovation and technology programmes to ensure continuous enhancements in our packaging products and manufacturing processes. | MEDIUM | Stable |
Pension deficit Risk relates to cash contributions, charges to the income statement and balance sheet volatility. Strategic priorities: 5 | Potential impact Adverse financial impact to the Group as a result of a pension deficit. Key mitigationsRexam's retirement benefit risk management is overseen by the Retirement Benefits Committee (RBC) which is chaired by the finance director. The RBC reviews all proposed new undertakings and improvements to retirement benefits. Managing pension deficit volatility on the balance sheet and general derisking of funded plans, which includes equity, interest rate and inflation risks, is the responsibility of pension plan fiduciaries in consultation with the RBC. Cash contributions are paid to the respective plans to ensure that there are adequate assets to meet the plans' obligations. | MEDIUM | Stable |
Fraud, bribery and internal control failure The risk of an internal control failure such as a Rexam employee committing fraud or bribery due to lack of integrity or awareness. Strategic priorities: 5 | Potential impact Financial loss, reputational damage and breach of laws. Key mitigationsThe Rexam Code of Conduct provides a framework for all of our policies at Group, sector and individual businesses. A Group control framework, setting out key financial controls to be applied across the Group, is in place to ensure consistency and further enhance the control environment. Rexam's 'Raise Your Concern' (whistle blowing) hotline also allows employees to raise any concerns regarding behaviour that does not conform to Rexam policies. During 2015, online compliance refresher training was rolled out to all relevant personnel. | MEDIUM | Stable |
Funding and other financial risks Risks related to the cost and availability of funds to meet our business needs, movements in interest rates, foreign currency exchange rates as well as commodity prices. Strategic priorities: 2, 3 | Potential impact Financial exposure due to interest rates, foreign currencies and commodities price volatility, and lack of funding to meet our requirements. Key mitigationsRexam's financial risk management is based upon sound economic objectives and good corporate practice. Rexam negotiates funding requirements in a timely manner ensuring appropriate headroom is secured to mitigate the risk of lack of availability. Derivative and other financial instruments are used to manage exposures under conditions agreed by the board. Further details of our financial risks and the way in which we mitigate them are set out in note 24 to the consolidated financial statements. | MEDIUM | Stable |
Counterparty default Risk of counterparty failure including, for example, bank, insurer, customer or supplier. The continued challenging macroeconomic environment in certain regions or countries in which Rexam operates requires focus in this area. Strategic priorities: 5 | Potential impact Financial losses, service and supply disruptions. Key mitigations A range of financial counterparties are used and strict limits, determined by qualitative and quantitative measures, on our exposure are applied to each of them. The risk of insurer failure is monitored by our insurance broker and reported to Rexam immediately if an issue arises. Customer credit limits are imposed and their credit risk, as well as suppliers', is reviewed and monitored. In addition, there are procedures across the Group to manage working capital tightly, including customers' overdue debts reporting. | MEDIUM | Stable |
Insufficient talent andknowledge capital Failing to identify, attract, develop and retain talents to satisfy current and future needs of the business. Strategic priorities: 5 | Potential impact Performance declines or lack of growth due to lack of talent 'bench strength'. Key mitigationsAs part of our continued strategic focus on building a winning organisation, we continue to invest in active talent management, succession planning and the development needs of our employees. | LOW | Stable |
An additional risk has been added in light of the Ball offer for Rexam. | |||
Rexam PLC takeover The risks associated with Rexam PLC being taken over by another organisation.These risks may have a significant impact on key relationships with customers, suppliers, employees and other stakeholders due to the lack of certainty regarding completion of the transaction and how it will be implemented. | Potential impact Negotiations with customers and suppliers may prove more difficult. Employee turnover may lead to loss of valuable experience, expertise and business networks. It could also lead to increased workload and pressure for existing workforce. The Ball offer is still subject to regulatory and Rexam shareholder approval. As such there is still a risk that the transaction proposed by the Ball offer may not proceed. In the event that the Ball offer does not complete, Rexam would continue with business as usual. Key mitigations All major customers and suppliers have existing contracts in place with regular senior management interactions to ensure business as usual. Appropriate retention packages for employees have been put in place and senior management communicate regular updates regarding the Ball offer to maintain employee engagement and retention. Coordinated and consistent communications are shared with all stakeholders. |
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Part C - Related Party Transactions
The Annual Report 2015 contains the following statements regarding details of key management compensation (including the directors of Rexam PLC) at Note 4(ii) to the consolidated financial statements on page 98:
(ii) Key management compensation (including directors of Rexam PLC)
| 2015 £m | 2014 £m |
Salaries and short term employee benefits | (10) | (9) |
Post employment benefits | (1) | (1) |
Share based payment | (2) | (4) |
| (13) | (14) |
Key management comprises all directors of Rexam PLC, the Executive Leadership Team and band 1 executives. For details of directors' remuneration see the remuneration report.
Part D - Director's Responsibility Statement
The following statement is included in the Annual Report 2015 at page 73 in compliance with Disclosure and Transparency Rule 4.1.12 and extracted and reproduced here for the purposes of compliance with DTR 6.3.5. This statement relates solely to the Annual Report 2015 and is not connected to the extracted information set out in this announcement or the Results Announcement.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The current directors of the Company are responsible for preparing the annual report, the remuneration report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the consolidated financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and the parent company financial statements in accordance with FRS 101. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that year. In preparing these financial statements, the directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
• state whether IFRSs as adopted by the European Union and applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the consolidated and parent company financial statements respectively; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's and the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements and the remuneration report comply with the Companies Act 2006 and, as regards the consolidated financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities, and responsible for the maintenance and integrity of the Group's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's and the Group's position and performance, business model and strategy. Each of the current directors, whose names are listed on pages 38 and 39 of the annual report, confirms that, to the best of his or her knowledge:
• the consolidated financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
• the strategic report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.
The names of the current directors of Rexam PLC and their functions as extracted from pages 38 and 39 of the Annual Report 2015 are listed below:
Name of Director | Function |
Stuart Chambers | Chairman |
Graham Chipchase | Chief Executive |
David Robbie | Finance Director |
Carl-Peter Forster | Non executive Director |
John Langston | Non executive Director |
Leo Oosterveer | Non executive Director |
Ros Rivaz | Non executive Director |
Johanna Waterous CBE | Senior Independent Director |
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